Opinion
03 Civ. 4501 (SAS)
December 1, 2003
AMENDED OPINION AND ORDER
On October 9, 2003, this Court issued an Opinion and Order disqualifying Todtman, Nachamie, Spizz Johns, P.C. ("TNSJ") from representing Eerie World Entertainment, L.L.C. in its bankruptcy proceedings. Although not styled as a formal motion for reconsideration, TNSJ requested that certain factual errors found in the Opinion and Order be corrected. See 10/17/03 Letter from Scott S. Markowitz. The appellant opposed the requests made by TNSJ. See 10/24/03 Letter from Ronald A. Bergrin. In response to these letters, and the exhibits attached thereto, the following Amended Opinion and Order shall replace the Opinion and Order dated October 9, 2003, which is hereby vacated.
I. INTRODUCTION
On August 11, 2000, Eerie World Entertainment, L.L.C. ("Eerie" or "debtor") filed a voluntary petition with the United i States Bankruptcy Court for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). By Order dated October 5, 2000, Judge Cornelius Blackshear of the United States Bankruptcy Court, Southern District of New York, approved TNSJ as attorneys for the debtor.
Ronald A. Bergrin, a defendant in an adversary proceeding brought by Eerie, appearing pro se, moved in the Bankruptcy Court to disqualify debtor's counsel, claiming that counsel had actual conflicts of interest with the estate. Judge Blackshear denied Bergrin's motion in an Order dated April 15, 2003. Bergrin now appeals that denial to this Court. For the following reasons, Judge Blackshear's Order is reversed and TSNJ is disqualified from representing Eerie. TSNJ will not, however, be required to disgorge fees it has already received as debtor's counsel.
In his original motion papers, Bergrin moved to disqualify both Scott Markowitz and TNSJ. Scott Markowitz is a member of TNSJ. Therefore, disqualification of TNSJ would necessarily result in his disqualification. Accordingly, debtor's counsel will hereafter be referred to collectively as TSN J.
"The trustee, with the court's approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee's duties under this title." 11 U.S.C. § 327(a) (emphasis added).
In that Order, Judge Blackshear summarily denied Bergrin's motion because: "(i) the defendant has failed to establish that the third-party payment made to Todtman Nachamie by James J. Burke, Jr. created an attorney-client relationship between Mr. Burke and Todtman Nachamie; and (ii) the defendant has otherwise not established how Todtman Nachamie failed to represent the estate in a manner consistent with Todtman Nacamie's [sic] obligations under the Bankruptcy Code and the laws of the State of New York." Although Judge Blackshear reserved the right to file a written opinion if any party appealed his Order, he has not done so.
"[T]he court may deny allowance of compensation for services and reimbursement of expenses of a professional person employed under section 327 . . . if, at any time during such professional person's employment under section 327 . . ., such professional person is not a disinterested person, or represents or holds an interest adverse to the interest of the estate with respect to the matter on which such professional person is employed." 11 U.S.C. § 328(c).
II. BACKGROUND
On November 7, 1997, Bergrin became the holder of $1,750,000 worth of Eerie stock. See Complaint ("Compl.") ¶ 8. Bergrin later sold his shares to Eerie for $1,750,000, `pursuant to a Retirement and Release Agreement entered into on October 13, 1999. See id. ¶ 9. On August 11, 2000, approximately ten months after the transfer, Eerie filed for chapter 11 bankruptcy. See id. ¶ 7; see also 9/13/02 Letter from Bergrin to the Court at 3.
According to Bergrin, he received these shares as payment for investment banking services he provided to Eerie from 1995-1997. See 8/28/02 Letter from Bergrin to the Court ("8/28/02 Ltr.") at 4.
Bergrin claims that Eerie was only a conduit in this transaction and that the shares were actually purchased by James J. Burke, Eerie's Chairperson and controlling shareholder.; See 8/28/02 Ltr. at 2-3.
On September 22, 2000, Eerie brought an adversary proceeding against Bergrin to avoid this transfer as a preferential transfer and a fraudulent conveyance. See Compl. ¶¶ 5, 14-24.
"[T]he trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim. . . ." 11 U.S.C. § 544(b).
The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily —
(A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or
(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(ii) (I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;
(II) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital; or
(III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured.11 U.S.C. § 548(a).
According to Eerie, Bergrin redeemed his shares for $1,750,000 at a time when Eerie was insolvent or on the verge of becoming insolvent. As a result, the transaction arguably violated the Bankruptcy Code and the Delaware Limited Liability Company Act. See Compl. ¶¶ 14-19. According to Bergrin, these statutes were not violated because James J. Burke, one of the debtor's principals, personally purchased Bergrin's shares. See 8/28/02 Ltr. at 2-3.
III. LEGAL STANDARD
Pursuant to section 327(a), counsel hired to represent a debtor's estate must satisfy two requirements: (1) the attorney must not "hold or represent an interest adverse to the estate," and (2) the attorney must be a "disinterested person." 11 U.S.C. § 327(a). See also In re Arochem Corp., 176 F.3d 610, 621 (2d Cir. 1999); TWI Int'l, Inc. v. Vanguard Oil and Serv. Co., 162 B.R. 672, 675 (S.D.N.Y. 1994); In re Angelika Films 57th Inc., 227 B.R. 29, 37 (Bankr. S.D.N.Y. 1998), aff'd, 246 B.R. 176 (S.D.N.Y. 2000). The findings of a bankruptcy judge on conflict of interest questions are generally "entitled to deference because a bankruptcy judge `is on the front line, in the best position to gauge the ongoing interplay of factors and to make the delicate judgment calls which such a decision entails.'" In re Arochem Corp., 176 F.3d at 628 (quoting In re Martin, 817 F.2d 175, 182 (1st Cir. 1987)).
Counsel for a chapter 11 debtor owes a fiduciary duty of loyalty and care to his client, the debtor-in-possession, and not to the debtor's principals. Angelika Films, 227 B.R. at 39 (citing In re Rancourt, 207 B.R. 338, 360 (Bank. D.N.H. 1997) ("When representing the debtor-in-possession, its attorney has a duty to look to the interests of the estate and not to the interests of its principals."). If debtor's counsel does not satisfy both requirements of section 327(a), "[d]isqualification is appropriate `if it is plausible that the representation of another interest may cause the debtor's attorneys to act any differently than they would without that other representation." In re Granite Partners, L.P., 219 B.R. 22, 33 (Bankr. S.D.N.Y. 1998) (quoting In re Leslie Fay Cos., 175 B.R. 525, 533 (Bankr. S.D.N.Y. 1994)). Courts have found that a conflict of interest arises under section 327(a) when debtor's counsel has questionable ties with a principal. See, e.g., Angelika Films, 227 B.R. at 40 ("[Counsel's] representation of the Debtor and [its principal] constituted an actual conflict of interest from the inception of the case.").
With regard to the first prong of section 327, the Second Circuit defines "adverse interest" as follows:
(1) to possess or assert any economic interest that would tend to lessen the value of the bankruptcy estate or that would create either an actual or potential dispute in which the estate is a rival claimant; or (2) to possess — a predisposition under circumstances that render such a bias against the estate.Arochem Corp., 176 F.3d at 623. "Generally, the interests of a debtor's estate and a debtor's principal must diverge before a counsel's divided loyalty is evidenced." Angelika Films, 227 B.R. at 39 ("Counsel for a chapter 11 debtor owes a fiduciary duty of loyalty and care to his client, which is the debtor-in-possession, not the debtor's principals."). Moreover, "[t]aking compensation from an individual officer poses a substantially greater temptation for the debtor's attorney to deviate from his duty of undivided loyalty to his client, the corporate debtor." In re WPMK, Inc., 42 B.R. 157, 162 (Bankr. D. Haw. 1984).
The second prong requires that the estate's counsel be a disinterested person. The Code defines a "disinterested person" as one who is not a creditor, equity shareholder, or insider, and who "does not have an interest materially adverse to the interest of the estate or any class of creditors . . . by reason of any indirect or direct relationship to, connection with, or interest in, the debtor. . . ." 11 U.S.C. § 101(14) (A) (E). "Ultimately, the determination of counsel's disinterestedness is a fact-specific inquiry . . . [and it] is the court's duty to review the attorney's conduct for circumstantial evidence of bias in such cases and determine if a conflict of interests exists." Angelika Films, 227 B.R. at 39.
IV. THE ALLEGED CONFLICTS OF INTEREST
A. Payments TNSJ Received from Burke
Bergrin argues that TNSJ breached its duty of undivided loyalty by accepting payments from Burke. On October 26, 2001, TNSJ received $35,000 in attorney's fees from Burke.
On November 2, 2001, TNSJ received an additional $95,000 from Burke. See Second Supplemental 2016(b) Statement, Ex. 1 to the Motion for Disqualification of Scott Markowtiz, Esq. and Todtman, Nachamie, Spizz Johns, P.C. for the Debtors-in-Possession Pursuant to Section 327 and 328 of the Bankruptcy Code ("Disqualification Motion"). Burke made these payments in response to a request made by TNSJ. See Transcript of September 17, 2003 Oral Argument ("Tr.") at 23-24 (Markowitz stating: "Afer 9/11, because of what happened, we said we are a small firm and we really have been affected, and we asked [Burke] to get paid, and he said I will pay you that amount."). These payments, Bergrin contends, created an attorney-client relationship between Burke and TNSJ which, in turn, resulted in an actual conflict of interest. See Disqualification Motion at 5-7.
Bergrin points to several statements made by Markowitz and Burke referring to each other as client and counsel, respectively, in support of his argument that TNSJ represented Burke as well as the debtor. For example, during a pre-trial conference held on March 14, 2002, in the Bankruptcy Court, the following colloquy ensued:
Mr. Markowitz: After Mr. Berke [sic]? Well, what I was going to say was I think I should at least get the opportunity to discuss with my client. I don't think I want to consent to something without discussing —
The Court: Mr. Berke [sic] is not your client [.]
Mr. Markowitz: You know what I'm saying, Judge. I want to talk to somebody, the Debtor.
Transcript of 3/14/02 Conference, Ex. C to Bergrin's Evidence in Support of the Post Trial Arguments ("Evidence in Support"), at 8-9. Bergrin also cites Burke's deposition testimony where he stated: "I defer to my counsel." See 11/27/01 Deposition of James J. Burke, Jr., Ex. D to Evidence in Support, at 127.
Bergrin further argues that Markowitz's control over Burke is evident from the fact that Markowitz represented Burke at his deposition. Bergrin cites a February 14, 2002 letter from Markowitz to Bergrin which states: "Until I receive these documents, I will not produce Jim Burke for his second deposition." 2/14/02 Letter from Markowitz to Bergrin, Ex. G to Evidence in Support. Bergrin also cites a letter sent to Markowitz from the Office of the United States Trustee which states as follows:
Mr. Bergrin alleges that you represented Mr. Burke, the debtor's principal, at a recent deposition in this case. Because the representation of the debtor's principals by your firm would appear to exceed the scope of the final order dated October 5, 2000 retaining your firm and it appears that Mr. Burke has paid certain of your firms's professional fees, this Office requests that you clarify the foregoing allegations.
1/31/02 Letter from United States Trustee to Markowitz, Ex. F to Evidence in Support. That letter also asked Markowitz if the estate intends to pursue claims against its principals, Messrs. Burke and Finley, under the Bankruptcy Code. See id.
At oral argument, Markowitz denied ever having represented Burke in his individual capacity. Markowitz further provided the following response when asked whether he represented Burke at depositions:
Mr. Markowitz: I was the only lawyer in the room. He was the president of the debtor. He was the managing member in charge of all of the debtor's operations. When Mr. Bergrin deposes the debtor, he deposes the corporation. I was just representing the debtor, and he [Burke] was there as the debtor's managing member.
Tr. at 2-3. In addition, in his response to the Trustee's requests, Markowitz again denied ever having represented Burke. See 2/14/02 Letter from Markowitz to Tracy Davis at 3 ("[Neither] I nor my firm have ever represented Mr. Burke. I did sit in at Mr. Burke's deposition. However, Mr. Bergrin requested to depose the debtor. Mr. Burke is the debtor's managing member. The debtor is out of business and has no other employees or responsible parties other than Mr. Burke.").
While Burke's payments to TNSJ do not require TNSJ's disqualification, standing alone, the payments from Burke do raise serious concerns. However, in combination with other conduct discussed below, disqualification is warranted.
Although payments from a debtor's principal are not prohibited per se, the following requirements must generally be met before they will be permitted:
(1) the arrangement must be fully disclosed to the debtor/client and the third party payor/insider;
(2) the debtor must expressly consent to the arrangement;
(3) the third party payor/insider must retain independent legal counsel and must understand that the attorney's duty of undivided loyalty is owed exclusively to the debtor/client;
(4) the factual and legal relationship between the third party payor/insider, the debtor, the respective attorneys, and their contractual arrangement concerning the fees, must be fully disclosed to the Court at the outset of the debtor's bankruptcy representation; [and]
(5) the debtor's attorney/applicant must demonstrate and represent to the Court's satisfaction the absence of facts which would otherwise create non-disinterestedness, actual conflict, or impermissible potential for a conflict of interest.In re Lotus Props. LP, 200 B.R. 388, 393 (Bankr. C.D. CaT. 1996) (quoting In re Kelton, 109 B.R. 641, 658 (Bankr. D. Vt. 1989)). Here, several of the Kelton requirements were not satisfied. For instance, the payments from Burke were disclosed after the bankruptcy proceedings had already commenced and were made when Burke was not represented by independent counsel. See 4/26/02 Letter from James J. Burke, Jr. to Bergrin, Ex. E to Evidence in Support. Furthermore, the fourth and fifth requirements were not met as Markowitz did not make the necessary disclosures to the Bankruptcy Court at the outset of the proceedings.
On January 9, 2001, TNSJ received $25,000 from JH New York, a non-debtor subsidiary of Eerie. Brown Wood, counsel to The Official Committee of Eerie's Unsecured Creditors, objected to TNSJ's first interim fee application which reflected this payment. See Objection of Official Committee of Unsecured Creditors to First Interim Fee Application of Todtman, Nachamie, Spizz Johns, P.C., Attorneys for the Debtors-In-Possession For Services Rendered and Reimbursements of Expenses Pursuant to Section 330 and 331 of the Bankruptcy Code ("Objection"), Ex. K to Evidence in Support. Brown Wood's Objection states, in pertinent part, as follows:
On January 9, 2001, JH New York, a non-debtor, wholly-owned subsidiary of Eerie, paid TNSJ $25,000.00 with respect to certain legal fees incurred in connection with TNSJ's representation of the Debtors. The law in the Second Circuit and other courts makes clear that such conduct appears to saddle TNSJ with a conflict of interest. This fact alone warrants denial of legal fees or disqualification as counsel to the Debtors. Having received payment of its legal fees from a non-debtor third party, TNSJ has breached its duty of undivided loyalty to the Debtors in violation of Section 327(a) of the Bankruptcy Code. Moreover, TNSJ's acceptance of payment of its legal fees from JH New York is blatant self-dealing. TNSJ has secured payment of its own fees from an outside source under the exclusive control of the Debtors and, at the same time, has advised the other professionals in these cases that sufficient funds may not be available to pay their respective fees. Such conduct is reprehensible and should not be condoned by this Court.Id. at 2 (footnote omitted, first emphasis added).
In response, Markowitz states that Brown Wood's objection was in the context of a fee dispute which has since been resolved. See Debtor's Reply to Ronald Bergrin's Evidence in Support of Post-Trial Arguments ("Reply to Evidence in Support") at 5-6. Markowitz also notes that Brown Wood appeared at a recent evidentiary hearing and supported TNSJ's continuation as debtor's counsel in the adversary proceeding. See id. at 6. According to Markowitz, non-debtor subsidiaries often make payments for debtor's counsel upon full disclosure "because a lot of times a debtor may not have the funds but the debtor owns the non-debtor subsidiary so it's just an upstream." Tr. at 32. Here, however, TNSJ received payments not only from a wholly-owned subsidiary but also from one of the debtor's principals. One could reasonably conclude that the payments from Burke were made to curry favor with TNSJ who would, in exchange, turn a blind eye to certain transactions. See In re Hathaway Ranch P'ship, 116 B.R. 208, 219 (Bankr. C.D. Cal. 1990) ("Third parties do not transfer property or funds to an attorney to represent a debtor in possession unless that representation is in the best interest of the third party. It is often the case that the interests of the third party are not identical to the interests of the debtor in possession in its role as fiduciary of the bankruptcy estate. Thus by accepting payment from a third party, the proposed counsel for the debtor in possession necessarily has a conflict of interest in that counsel is serving two masters — the one who paid counsel and the one counsel is paid to represent."). See also Lotus Props., 200 B.R. at 392 (citing cases in accord with Hathaway).
Whether such "upstream" transfers are an everyday occurrence is questionable. In In re W.T. Mayfield Sons Trucking Co., Inc., 225 B.R. 818 (Bankr. N.D. Ga. 1998), the court held that payments from a wholly-owned, solvent subsidiary to a debtor's counsel for services rendered to the debtor constituted property of the debtor's estate at the time of the transfer. See id. at 827. The court concluded that the attorney receiving such payments "held an adverse interest by secretly taking funds from a solvent subsidiary, thereby reducing the value of the Debtor's estate. . . ." Id. at 824. Although TNSJ timely disclosed the payment it received from JH New York, see Supplemental 2016(b) Statement, Ex. J to Evidence in Support, that payment could have been transferred to Eerie as a dividend thereby making it available to Eerie's creditors.
B. TNSJ'S Failure to Pursue Other Potentially Avoidable Transfers
Bergrin claims that TNSJ breached its fiduciary responsibilities to the debtor's estate by failing to pursue certain allegedly avoidable transfers. The following questionable transactions must therefore be analyzed to determine whether TNSJ pursued all possible recoveries on behalf of the debtor.
1. Fite's Severance Payments
The first potentially avoidable transfer consists of over $100,000 in severance pay to Warner Fite, Eerie's former Chief Financial Officer. Bergrin alleges that Fite resigned immediately prior to Erie's bankruptcy filing and that upon his resignation he received a $100,000 severance payment. See Disqualification Motion at 14. Bergrin claims that this transfer is avoidable because under Fite's employment agreement, Fite was not entitled to any severance pay upon his termination. See Warner A. Fite's Employment Agreement, Ex. 6 to the Disqualification Motion at 6 ("The Executive hereby agrees that except as expressly provided herein, no severance compensation of any kind, nature or amount shall be payable to the Executive and except as expressly provided herein, the Executive hereby irrevocably waives any claim for severance compensation except as provided by law.").
At oral argument, Markowitz expressed surprise at the existence of the contractual clause waiving severance pay, and claimed that he was unaware of that clause prior to the conference. See Tr. at 3-5. Such ignorance, even if genuine, is unacceptable. Markowitz also stated that TNSJ compared the total severance package of approximately $100,000 to Fite's salary as a corporate office, and to the salaries of other officers, and did not consider the severance payment to be avoidable. See Opposition to Ronald Bergrin's Motion to Disqualify Todtman, Nachamie, Spizz Johns, P.C. as Counsel to the Debtor-in-Possession ("Opposition") at 9; see also Tr. at 4. Markowitz also stated that the total amount at stake in-the Fite transfer was $100,000 as opposed to $1,750,000 in the Bergrin adversary proceeding, but provided no explanation as to why this was relevant in determining whether the severance payment was avoidable. See Opposition at 9. None of Markowitz's explanations provide a sufficient excuse for TNSJ's failure to pursue a potentially avoidable transaction, especially in light of an Employment Agreement that expressly prohibits any claims for severance compensation.
2. Sale of The Slaughtered Lamb Pub
The second potentially avoidable transfer that TNSJ purportedly failed to pursue involves the sale of a restaurant known as the "The Slaughtered Lamb Pub" to D.R. Finley, Eerie's Vice Chairman and Founder. Through an Asset Purchase Agreement dated August 16, 1999, The Slaughtered Lamb Pub, an asset of the debtor, was transferred to S.L.P. Management, Inc., a company owned and controlled by Finley. See Asset Purchase Agreement Dated as of August 16, 1999 Between The Slaughtered Lamb Pub New York L.L.C. and S.L.P. Management, Inc., Ex. T to Evidence in Support, at 16. The purchase price was $5,000, see id. at 6, and the sale apparently was consummated on October 8, 1999. See Asset Sale of The Slaughtered Lamb Pub New York L.L.C., Ex. T to Evidence in Support. The sale of The Slaughtered Lamb Pub occurred within one year of August 11, 2000, the date Eerie filed its Chapter 11 petition. Accordingly, the sale was potentially avoidable if Eerie received less than reasonably equivalent value for the asset transferred. See 11 U.S.C. § 548(a)(1)(B)(i).
In 1997, Finley contributed The Slaughtered Lamb Pub and another restaurant to the debtor in exchange for $4,200,000 and a 70% ownership interest in the debtor. See Complaint in Adversary Proceeding Against D.R. Finley, Ex. Z to Evidence in Support, ¶¶ 11-14.
As of June 10, 1999, the lowest purchase price acceptable to Eerie's Board of Directors was estimated to be $450,000. See 6/10/99 Letter from Warner A. Fite to Noah Klarish (with the notation "For Settlement Purposes Only") at 5 ("I have proposed, subject to Board approval, to reduce the purchase price for the Slaughtered Lamb to $450,000. This is as far as I believe that the Board will go, and as low as I will personally support."). Therefore, this transaction arguably resulted in a loss of $445,000 to the debtor's estate.
Markowitz sets forth three responses. First, Markowitz points out that an adversary proceeding was in fact brought against Finley seeking to set aside the sale as a fraudulent transfer. See Complaint, Ex. Z to Evidence in Support. Bergrin claims, however, that shortly after this proceeding was brought, the parties executed a mutual release that did not require any monetary payment, and the action was dropped. See Disqualification Motion at 15. Second, Markowitz argues that the value of The Slaughtered Lamb was "very minimal," thereby implying that it was not worth the effort to recover it Admittedly, the estimate of $450,000 by Fite was pre-bankruptcy, but the fact that an adversary proceeding was brought in the first place shows that at one time counsel thought the potential recovery was worth pursuing.
Markowitz notes, however, that the overall settlement approved by Judge Blackshear, whereby Finley purchased Eerie's assets, required the parties to exchange mutual releases. See Tr. at 8.
Finally, Markowitz argues that there was consideration for the transfer of The Slaughtered Lamb because Eerie owed Finley hundreds of thousands of dollars of consulting fees which he agreed to waive in return for the right to purchase the property for $5,000. Markowitz points to a consulting agreement dated November 7, 1997, wherein Eerie agreed to pay Finley $6,000 per year for the first five years and $585,000 per year for years six and seven in return for certain consulting services. See 11/7/97 Consulting and Noncompetition Agreement ("Agreement") ¶ 2(a). Markowitz then points to an October 8, 1998 amendment to the Agreement made in connection with the transfer of The Slaughtered Lamb Pub to Finley. That amendment reduced the compensation to be paid to Finley in the sixth and seventh years to $293,000 per annum. See 10/8/99 Letter from S.L.P. Management, Inc. to Eerie. According to Markowitz, Finley's waiver of $584,000 [($585,000 — $293,000) X 2] in consulting fees was part of the consideration he paid for The Slaughtered Lamb Pub.
Bergrin rejects this argument stating that Finley did not waive any fees because he had not yet earned any fees and, in any event, the trustee could have rejected the Agreement under section 365 of the Bankruptcy Code. See 11 U.S.C. § 365(a) ("[T]he trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor."). This Court need not decide whether an agreement to reduce the amount of compensation for services to be provided in the future can constitute adequate consideration for the sale of a debtor's asset. Given the existence of other sufficient grounds for disqualification, this motion need not be decided based upon the questionable circumstances surrounding the sale of The Slaughtered Lamb Pub.
V. CONCLUSION
If each of the events discussed above were evaluated independently of each other, disqualification would probably not be required. However, when viewing these transactions collectively, I conclude that TNSJ has engaged in conduct warranting disqualification. The fact that TNSJ accepted a $130,000 payment from Burke to the exclusion of Eerie's other creditors is troubling. When considered with TNSJ's acceptance of a fee from a subsidiary and its failure to bring an adversary proceeding to seek recovery of a contractually prohibited severance payment, the impression of impropriety is unavoidable. Accordingly, TNSJ is disqualified from representing Eerie forthwith but may retain the fees it has been paid to date.
There is a pending motion in the Bankruptcy Court to convert Eerie's Chapter 11 case to a Chapter 7 case. The pending summary judgment motion will therefore be stayed for a period of thirty days following the disposition of that motion. Eerie's new counsel is directed to notify this Court once the motion is decided and, within thirty days therefrom, advise this-Court whether counsel intends to pursue the adversary proceeding against Bergrin.
The Clerk of the Court is directed to close this appeal and place this case on the Court's suspense docket until further notice.
SO ORDERED.