In re MANDELL. PALMER v. KENNEDY

United States Court of Appeals for the Second Circuit1934-03-12No. No. 336

69 F.2d 830

Summary · law.co

Holding. The district court's orders are reversed. A trustee may be deprived of the privilege to select his own counsel only in rare circumstances supported by reasons appearing in the record, and the trustee should generally be permitted to nominate alternative counsel when initial nominations are rejected.

A bankruptcy trustee petitioned the court to employ a law firm of his choosing to represent the estate, citing the firm's familiarity with the bankrupt's affairs and business dealings. Although the firm represented a judgment creditor, the trustee maintained they had no conflicting interests. The district court, invoking a local bankruptcy rule, instead designated its own attorney for the trustee over his objection. The trustee moved to vacate that order and request permission to propose different counsel, but the motion was denied.

The Circuit Court addressed whether the local rule empowering courts to designate counsel against a trustee's wishes was valid. While acknowledging that courts possess authority to select counsel in extraordinary circumstances, the court concluded that the attorney-client relationship requires personal confidence and cooperation. The court found that although rejecting the initially proposed firm may have been justified due to the creditor representation conflict, the trustee should have been given an opportunity to nominate alternative counsel acceptable to both himself and the court. Denying this opportunity constituted an abuse of discretion.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Authority of courts to designate bankruptcy counsel against trustee's wishes
Validity of local bankruptcy rules supplementing general bankruptcy orders
Requirements for denying a trustee's selection of legal counsel
Importance of attorney-client confidence in bankruptcy administration

Procedural posture

The trustee appealed from the district court's order designating counsel for the estate and denying his motion to vacate that order and submit alternative counsel selections.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

SWAN, Circuit Judge.

The trustee filed his petition for leave to employ counsel, setting forth the necessity therefor, naming the firm of attorneys whom he wished to employ, and stating that his reason for their selection was their familiarity with the bankrupt’s affairs and, their knowledge of transactions which could be assailed for the benefit of the bankrupt’s estate. It disclosed also that they were attorneys for a judgment creditor of the bankrupt but in the opinion of the trustee had no interest adverse to the trustee or to other creditors. Accompanying the petition was an affidavit by one of the recommended firm of attorneys as required by General Order No. 44 as amended April 17, 1933 (11 USCA § 53) and local Bankruptcy Rule No. 5. The local rule provides, among other things, “The Court shall not be bound by the wishes of the receiver or trustee as to the attorney, accountant, or investigator to be employed, but where in its judgment it is for the best interest of the estate the Court may deny the request or authorize the employment of some one designated by it.”

Pursuant to this provision the District Court entered an order authorizing the trustee to retain an attorney designated by the court and named in such order. Thereupon the trustee moved to vacate the order, stating in the moving papers that he was not acquainted with the attorney designated by the court and was unwilling to employ him, and asking leave to submit another application for the employment of counsel of his own selection. This motion was denied. From both orders the trustee obtained leave to appeal.

It is argued by the trustee that the above-quoted portion of local Rule 5 is invalid because inconsistent with the implications of General Order No. 44 as amended in April, 1933 (11 USCA § 53). General Order No. 44 does not cover the field exclusively; it may ho supplemented bv local rules (see Weil v. Neary, 278 U. S. 160, 169, 49 S. Ct. 144, 73 L. Ed. 243), but not contradicted by them. We construe the General Order not as a limitafion upon the power of the court, but as a limitation upon the right of the trustee to appoint an attorney, which without such a limitation would he unconditional, although subject to the control of the court if the employment were subsequently brought to its attention. We should hesitate to hold that under no conceivable circumstances would the court designate an attorney for the trustee regardless of his wishes. See In re Arnett, 112 F. 770 (D. C. W. D. Tenn.); In re Columbia Iron Works, 142 F. 234, 238 (D. C. E. D. Mich.). On the other hand, in general we regard it as inimical to good administration to fasten .an attorney on the trustee against his will. The relationship between attorney and client is highly confidential, demanding personal faith and confidence in order that they may work together harmoniously. Only in the rarest cases should the trustee he deprived of the privilege of selecting his own counsel, and reasons which make it for the best interest of the estate to have the court select the attorney over the trustee’s objection should appear in the record. In the case at bar the fact that the firm of attorneys nominated by the trustee represented a large creditor of the bankrupt estate may have justified the court in declining to approve their employment, but no reason appears why the trustee should not have been allowed to nominate another attorney satisfactory both to himself and to the court. In depriving him of this privilege we think there was an abuse of judicial discretion.

Orders reversed.