Can Ombudsmen Retain Professionals? BY BRUCE BUECHLER, ESQ., MEMBER, LOWENSTEIN SANDLER Nov/Dec Nov/Dec 2012 2012 Journal of Journal of Corporate Corporate Renewal Renewal 8 8
RESTRUCTURING SOFT ASSET COMPANIES T he Bankruptcy Code authorizes The crucial fact for ombudsmen, like U.S. Bankruptcy Courts to direct examiners, is that they must seek authority the U.S. Trustee to appoint either a consumer privacy ombudsman from the Bankruptcy Court before (CPO) or a patient care ombudsman retaining attorneys or other professionals. (PCO) in certain circumstances, pursuant to Bankruptcy Code compensation for professionals The court then held, however, that §§ 332 and 333, respectively. they retain. See In re Renaissance when appropriate under the facts of Hospital-Grand Prairie, Inc ., 399 B.R. a particular case, Bankruptcy Courts, When a debtor seeks to sell personally 442, 445-46 (Bankr. N.D. Tex. 2008). pursuant to their equitable power identifjable information in a manner under §105 of the Bankruptcy Code, inconsistent with its prepetition An ombudsman’s ability to retain may authorize a PCO to retain counsel privacy policy, §363(b)(1)(B) of the code professionals recently came to the and did so in Synergy . Id . at 319-20. nevertheless permits the Bankruptcy forefront in the Chapter 11 cases of In re Court to authorize the sale after Borders Group, Inc., et al ., Case No. 11- While §330(a) does not authorize appointing a CPO and conducting a 10614 (Bankr. S.D.N.Y.), in which a CPO ombudsmen to seek compensation hearing. Under Bankruptcy Code §332(b), was appointed in connection with the for the work of attorneys and other the CPO is appointed “to appear and sale of certain of the debtors’ customer professionals they seek to retain, one to be heard at such hearing and [to] data. The CPO sought compensation can analogize the appointment of an provide the court information to assist totaling in excess of $350,000 for services ombudsman to that of an examiner the court in the consideration of the rendered by the CPO and various appointed under Bankruptcy Code facts, circumstances and conditions attorneys and paralegals in the law fjrm §1104. Courts have authorized of the proposed sale or lease of of which the CPO was a member. examiners in certain instances to personally identifjable information.…” employ professionals, such as attorneys, The offjcial committee of unsecured pursuant to code §105, notwithstanding When a Chapter 7, 9, or 11 debtor is creditors objected to the CPO’s fjnal the absence of any express authorization a health care business, Bankruptcy fee application, arguing that (i) code in the Bankruptcy Code for such Code §333(a) provides that a PCO shall §332 does not authorize a CPO to retain employment. See, e.g., In re Southmark be appointed within 30 days after the professionals, (ii) the CPO could not seek Corp ., 113 B.R. 280, 283 (Bankr. N.D. petition date “to monitor the quality to retain counsel nunc pro tunc, (iii) Tex. 1990); In re Tarkowski , 104 B.R. of patient care and to represent the code §330 does not authorize attorneys 828, 829 (Bankr. E.D. Mich. 1989); In interest of the patients of the health care employed by a CPO to be paid out of the re Tighe Mercantile, Inc ., 62 B.R. 995, business” unless the court fjnds that estate, and (iv) even if the court allowed 990-1000 (Bankr. S.D. Cal. 1986). a PCO is not needed. Left unresolved reimbursement of fees for the CPO’s by Bankruptcy Code §§ 332 and 333 is professionals, certain of those fees were The crucial fact for ombudsmen, like whether ombudsmen have authority to unreasonable and should be denied. examiners, is that they must seek retain attorneys or other professionals to authority from the Bankruptcy Court assist them in performing their duties. The committee and the CPO before retaining attorneys or other ultimately reached a settlement in professionals. Only once the attorney Sections 332 and 333, enacted in the dispute. Although the Bankruptcy or other professional is properly 2005, authorize the appointment Court did not render a decision, the retained, with Bankruptcy Court of ombudsmen, but contain no case highlighted a serious issue that approval, may an ombudsman seek provisions authorizing them to retain persons appointed as ombudsmen payment from the estate for services professionals, including attorneys. should address immediately upon rendered by that professional. Simultaneously with the enactment appointment: whether they need to of §§332 and 333, Congress amended retain professionals and, if so, how to By way of example, in In re Steve and §330(a)(1) of the Bankruptcy Code minimize the risk of disallowance of Barry’s Manhattan LLC, et al ., Case No. to permit Bankruptcy Courts to such professionals’ compensation. 08-12579 (ALG) (Bankr. S.D.N.Y. 2008), award an ombudsman “reasonable the individual who was appointed as compensation for actual, necessary As already noted, §330(a) only authorizes CPO promptly fjled an application for services rendered by the . . . ombudsman reasonable compensation for services authority to employ a law fjrm pursuant . . . and by any paraprofessional person rendered by an ombudsman and any to §§105 and 332 of the Bankruptcy employed by such person . . . .” paraprofessional he or she employs. Code, citing her need to rely upon In the Chapter 11 case In re Synergy the fjrm’s “considerable experience While §330 as amended permits in privacy issues, as well as matters Hematology-Oncology Medical ombudsmen to seek compensation Associates, Inc ., 433 B.R. 316 (Bankr. of bankruptcy law and procedures.” for paraprofessionals they employ, C.D. Cal. 2010), the Bankruptcy Court Id ., Docket No. 938 at ¶¶ 8-9. No the statute is silent with respect to Nov/Dec addressed the issue of whether a PCO objections to the retention application attorneys or other professionals they 2012 could retain counsel. The Synergy court were fjled, and the Bankruptcy retain. Under the plain language of found that Congress did not expressly Journal of these provisions, ombudsmen are Corporate authorize the retention of legal counsel not expressly authorized to seek Renewal continued on page 10 by either a PCO or a CPO. Id . at 318. 9
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