In re Showcase Jewelry Design Ltd.

• Decision Date: 22 April 1994
• Docket Number: Bankruptcy No. 893-84280-022.
• Citation: 166 BR 205
• Parties: In re SHOWCASE JEWELRY DESIGN LTD., Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of New York

166 B.R. 205 (1994)

In re SHOWCASE JEWELRY DESIGN LTD., Debtor.

Bankruptcy No. 893-84280-022.

United States Bankruptcy Court, E.D. New York, at Westbury.

April 22, 1994.

MEMORANDUM AND DECISION ON APPLICATION FOR AN ORDER RETAINING ATTORNEYS

EDWARD J. RYAN, Bankruptcy Judge.

By application dated March 15, 1994 Andrew M. Thaler, Interim Trustee, seeks an order:

that the said Interim Trustee be ... authorized to retain Goldman, Horowitz & Cherno, Esqs. as his attorneys in all matters requiring the services of an attorney at law herein under a general retainer; and ...

that in the event of the appointment of Andrew M. Thaler as Permanent Trustee, this Order will continue the Trustee\'s authorization to employ said firm as his attorneys herein.

In support of the application for retention of his attorneys the movant shows:

1. That he is the Interim Trustee herein, duly qualified and acting as such.

2. That a Voluntary Petition under Chapter 11 of the United States Bankruptcy Code was filed by the above-named Debtor on July 23, 1993. Thereafter on February 23, 1994 the case was converted to Chapter 7.

3. That Applicant desires to retain GOLDMAN, HOROWITZ & CHERNO, ESQS. ... as his attorneys herein.

4. APPLICANT IS A REGULAR ASSOCIATE OF SAID FIRM OF ATTORNEYS. (Emphasis added.)

5. That Applicant has selected said attorneys for the reasons that such attorneys are familiar with bankruptcy practice and are well qualified to act in the capacity as attorneys for the Interim Trustee.

6. That it is necessary for Applicant to employ attorneys to render the following professional services:

a) that it will be necessary to conduct examinations of the debtor and various witnesses as to the acts, conduct and property of the debtor herein;

b) that it will be necessary to prepare numerous applications and reports, for which services attorneys will be necessary;

c) that it will be necessary to conduct an investigation to discover all possible assets and to reduce same to cash.

7. To the best of Applicant\'s knowledge, said attorneys have no connection with the debtor, or any other party in interest or their respective attorneys.

8. That said GOLDMAN, HOROWITZ & CHERNO, ESQS. represent no interest adverse to the Interim Trustee or to the estate in the matters upon which they are to be engaged herein, and their employment would be to the best interests of the estate.

The Office of the United States Trustee on March 24, 1994 showed it had "No Objection" to the granting of the motion.

The court set the matter down for hearing on Monday, April 11, 1994. At that time an associate of the firm appeared and was heard.

Absent special circumstances a trustee who is a partner of a law firm ought not seek to retain his law firm to represent him in the administration of a large bankruptcy matter. Knapp v. Seligson, 361 F.2d 164 (2d Cir.1966).

In addressing the issue of employment by a bankruptcy trustee of his own law firm, the Second Circuit stated, "Such appointments should be the exception and made only when sound special circumstances justify." Knapp v. Seligson, supra, quoting In re Street Railways Advertising Co., 54 F.Supp. 577, 578 (S.D.N.Y.1941). The court expressed concern that "the conduct of bankruptcy proceedings not only should be right but must seem right." Id.

In S.E.C. v. Kenneth Bove & Co., 451 F.Supp. 355 (S.D.N.Y.1978) the court expressed the view that the representation of the trustee by his own law firm is problematic because of the "commingling of interests which occurs when a trustee's lawyers also are his law partners, and they share one another's fee."

The Court stated that a court "should be able to rely on the trustee for assistance in assessing the necessary expenses of administration. Yet a trustee who is represented by his own firm disables himself from offering such assistance with respect to the application for counsel fees. Thus, although the trustee is not prohibited from utilizing his own firm, to do so causes serious problems when compensation is sought." See also Knapp v. Seligson, supra.

The Court noted the additional problem of distinguishing the hours devoted to legal work from those devoted to non-legal services and focused on the conflicting interests of the trustee who employees his own firm, namely the desire for his firm to make a profit and his duty to act in the best interest of the estate.

Other courts which have considered the issue have expressed the same or similar concerns. In In re Michigan Interstate Railway Co., 32 B.R. 325 (Bankr.E.D.Mich. 1983) the court noted that the practice of appointing the trustee's law firm as counse...