Ethics

In In re McKenzie, the United States Court of Appeals for the Sixth Circuit held that a chapter 7 trustee was entitled to quasi-judicial immunity because his actions, even if wrongful or improper, “[did] not equate to a transgression of his authority.”[1] Kenneth Still (“Still”) was appointed as the chapter 7 trustee for Steve A. McKenzie’s bankruptcy case.[2] Still initiated an adversary proceeding against Grant, Konvalinka & Harrison (“GKH”), seeking the turnover of documents and records alleged to be a part of the debtor’s estate.[3] GKH successfully moved to dismiss Still’s avoidance action.[4] GKH then filed two adversary proceedings against Still and his attorneys, alleging malicious prosecution and abuse of process for initiating the suit against GKH.[5] GKH also moved for leave to file an action in state court based on the same grounds as the adversary proceedings.[6] The bankruptcy court dismissed the action against the trustee and denied the motion to file a state law complaint,[7] finding that Still was protected by quasi-judicial immunity.[8] The district court affirmed each of the bankruptcy court’s decisions in all respects.[9] GKH again appealed to the Sixth Circuit, arguing that Still was not protected by quasi-judicial immunity because (1) his actions were ultra vires and (2) that he acted without prior bankruptcy court approval.[10] The Sixth Circuit disagreed and held that Still acted within the scope of his authority and acted with prior bankruptcy approval by initiating an adversary proceeding against GKH.[11] The Sixth Circuit also disagreed with GKH’s assertion that Still’s actions were ultra vires since Still’s lawsuits were filed in an attempt to seize property that was not an asset of the estate[12] because the court found that Still was not attempting to seize the property without first obtaining a court order.[13]

Read more about The Expansion of a Chapter 7 Trustees Protection Under Quasi-Judicial Immunity
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Professional May Not Be a Professional Person for Purposes of Section 327(a)

By: Alexandra Hastings

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Finding that a public relations firm did not qualify as a bankruptcy “professional” within the meaning of section 327(a) of the Bankruptcy Code, the United States Bankruptcy Court for the Western District of Kentucky, in In re Seven Counties Services, Inc.,[i] authorized a debtor to retain the firm under section 1108 to assist with the general operation of its post-petition business. In Seven Counties Services, the debtor sought to retain a public relations firm, which had been working with the debtor prior to the bankruptcy case, to participate in “lobbying, third party advocacy and support of [the d]ebtor’s efforts in restructuring its retirement plans and media relations.”[ii] The court found that although the firm’s representatives were “professional persons” within the context of section 327(a), the firm was “not performing any tasks of the [d]ebtor enumerated in 11 U.S.C. § 1107,” nor was it “involved in formulating the [d]ebtor’s plan of reorganization or the administration of the estate.”[iii] Moreover, the firm’s work for the debtor did not “involve any part in negotiating the plan, adjusting debtor/creditor relationships, disposing or acquiring assets or performing any duty required of the [d]ebtor under the Code.”[iv] Thus, the firm did not qualify as a bankruptcy “professional” for purposes of section 327.[v]