Effect of third-party payment of bankruptcy retainer fee

In Waldron v. Adams & Reese, LLP, the largest creditor of a bankruptcy debtor paid the retainer fee for debtor’s counsel.  No. 11-30462 (March 29, 2012).  That payment was not disclosed for some time, after which the trustee sought to disgorge counsel’s fees on the grounds of a disqualifying conflict of interest.  The Court affirmed the lower court’s rulings, finding no disqualifying conflict on the “specific facts of [the] case.”  Op. at 8 (quoting and distinguishing In re West Delta Oil Co., 432 F.3d 347 (5th Cir. 2005)).  It reviewed counsel’s conduct during the bankruptcy case as well as prior representations of the debtors.  Then, reminding of the “clear error” standard of review, the Court affirmed a sanction of partial disgorgement (20% of the fee) for the late disclosure.  Op. at 15.  The Court concluded with a thorough review of the standards for allowing pleading amendments and affirmed the denial of leave for the trustee to add new claims.  Op. at 15-16.