In Re National Century Financial Enterprises, Inc.

Citations: 298 B.R. 112; 2003 Bankr. LEXIS 970; 2003 WL 22053112Docket: 02-65235

Court: United States Bankruptcy Court, S.D. Ohio; July 11, 2003; Us Bankruptcy; United States Bankruptcy Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

The United States Bankruptcy Court for the Southern District of Ohio held a hearing regarding the application of the Official NPF VI Noteholders' Subcommittee to retain Kaye Scholer LLP and Clifford Chance LLP as co-counsel. The hearing involved objections from the United States Trustee and other parties, including Metropolitan Life Insurance Company and Lloyds TSB Bank PLC, concerning the proposed retention of these firms. Following the hearing, multiple post-hearing briefs and memoranda were submitted by the United States Trustee, Kaye Scholer LLP, Clifford Chance LLP, and the Debtors, addressing the objections raised.

The Court asserted its jurisdiction over the matter under 28 U.S.C. § 1334(b) and confirmed that the proceeding is a core proceeding under 28 U.S.C. § 157(b). The background of the case notes that the United States Trustee appointed an Official Committee of Unsecured Creditors, which included representatives from NPF VI and NPF XII Noteholders and trade creditors. Subsequently, various law firms filed a motion to establish separate subcommittees for the NPF VI and NPF XII Noteholders within the Official Creditors' Committee or to appoint separate committees.

On January 8, 2003, the Court approved the formation of separate NPF VI and NPF XII Subcommittees, with the U.S. Trustee appointing the Official Subcommittees the following day. The NPF VI Subcommittee includes members ING, Ofivalmo, and Ambac, who on January 13, 2003, selected Kaye Scholer and Clifford Chance as co-counsel, pending Court approval. The Retention Application submitted by the NPF VI Subcommittee requests retention of these firms under 11 U.S.C. §§ 1103(a) and 105(a), emphasizing that they will assign distinct tasks to avoid overlap and ensure efficiency. This arrangement continues the prior coordination by the NPF VI Noteholders through Kaye Scholer and Clifford Chance during the Debtors' Chapter 11 cases.

The Retention Application includes affidavits from both firms and states that their fees will be paid from the NPF VI Noteholders' collateral. However, the Office of the United States Trustee objects to Kaye Scholer's retention, citing concerns over its independence due to previous representation of National Century Financial Enterprises, Inc. (NCFE) from March 1999 to May 2000. The Trustee argues that this past relationship poses a risk of disqualification, as Kaye Scholer may possess privileged information and confidential secrets from NCFE. The Trustee also questions the necessity of employing two law firms for the Subcommittee's representation and notes potential overlap with the Committee of Unsecured Creditors' counsel services.

The Trustee contends that Kaye Scholer's previous representation of NCFE conflicts with its duty to represent the NPF VI Subcommittee. The Trustee asserts that having two law firms is redundant, as it complicates coordination and increases costs. Additionally, the Trustee objects to the potential overlap of services provided to the Creditors' Committee, urging denial of the Retention Application. Metropolitan Life Insurance Company and Lloyds TSB Bank initially objected to the Retention Application, raising concerns that it did not comply with 11 U.S.C. § 328(a), that Kaye Scholer had an adverse interest due to its representation of ING, and that Clifford Chance's representation of Ambac posed a conflict. However, their objection was withdrawn post-hearing. 

Clifford Chance defends its role, arguing that its division of tasks with Kaye Scholer minimizes duplication and leverages both firms' expertise. The Debtors support retaining both firms, claiming their collaboration has been beneficial and asserting that Kaye Scholer's past representation does not create a conflict. Kaye Scholer maintains that the NPF VI Subcommittee has the right to choose its counsel and argues that it does not have an adverse interest under 11 U.S.C. § 1103(b). The court will consider the arguments and evidence presented by all parties to make a decision regarding the employment of Kaye Scholer and Clifford Chance, in accordance with the requirements of 11 U.S.C. § 1103 and Bankruptcy Rule 2014(a).

Bankruptcy Rule 2014(a) mandates that Kaye Scholer and Clifford Chance disclose all relevant connections. Upon reviewing their disclosures concerning a Retention Application, the Court determined that the firms provided adequate transparency. Under 11 U.S.C. 1103(a), committees have the authority to hire professionals, with restrictions on dual representation being relaxed post-1984 amendments to 11 U.S.C. 1103(b). Notably, the term "adverse interest" is not explicitly defined in the Bankruptcy Code. 

The Court emphasized the necessity for an independent assessment of whether Kaye Scholer or Clifford Chance holds an adverse interest, rather than simply approving their employment based on debtor support. Kaye Scholer's prior representation of NCFE concluded before the debtors filed for Chapter 11, involving a limited engagement concerning an unconsummated IPO approximately two and a half years prior to the petition date. The precedent set by the Enron case indicates that counsel may be retained even with previous representations of related parties, provided these do not present an adverse interest concerning the bankruptcy case.

The New York District Court ruled that representation of an unrelated adverse interest does not violate section 1103(b) if it predates the committee representation. Following this rationale, the Court found that Kaye Scholer’s earlier engagement with NCFE does not conflict with its current role for the NPF VI Subcommittee. Furthermore, both Kaye Scholer and Clifford Chance represent individual members of the NPF XII Subcommittee, with Kaye Scholer continuing to represent ING and Ofivalmo, while Clifford Chance represents Ambac.

Members of the NPF XII Subcommittee and their counsel must recuse themselves from discussions and voting in cases of conflict. The NPF VI Subcommittee is implementing measures to prevent conflicts, and the Court has determined that Kaye Scholer did not represent both the Debtor, NCFE, and the Subcommittee simultaneously. The Court also established that Kaye Scholer will not represent the NPF VI Subcommittee in matters where ING or Ofivalmo's interests conflict, with Clifford Chance designated to represent the NPF VI Subcommittee in those scenarios. Conversely, Kaye Scholer will handle matters where Clifford Chance's representation of Ambac could present an adverse interest. The Court finds no violation of 11 U.S.C. 1103(b) and confirms that both Kaye Scholer and Clifford Chance comply with its requirements. The Court emphasizes its ongoing scrutiny of professional services to avoid duplication and requires both firms to continue updating their disclosures. The Court approves the application for Kaye Scholer LLP and Clifford Chance LLP to serve as co-counsel for the Official NPF VI Noteholders' Subcommittee and denies the United States Trustee's objection. The firms have assured the Court that their concurrent representations have not and will not cause issues. The Court expresses no doubts regarding their qualifications in handling complex bankruptcy cases.