MEMORANDUM OPINION AND ORDER
ANNA DIGGS TAYLOR, District Judge.
I.
This appeal is sought to be taken by Appellants Todd Halbert, the special counsel, and Guy Vining, the Successor Trustee. The bankruptcy court’s decision to set aside the Order Authorizing Trustee’s Employment of Todd M. Halbert as Special Counsel is at issue.
Halbert was counsel for the Chapter 11 Debtor from August 7, 1995, through February 9, 1997, when the case was converted to Chapter 7.
According to Halbert, over the past six years, he: (a) actively pursued and obtained the removal of the Former Trustee and his counsel; (b) assisted the unsecured creditors in electing an independent trustee who would pursue claims on their behalf; and, (c) continues to pursue relief from fraud upon the court, disgorgement of professional fees, and other related relief.
Appellee Comeriea Bank was MTG’s primary secured creditor both before and during the bankruptcy case. Comeriea Bank also holds a super-priority claim arising under Bankruptcy Code § 507(b). Ap-pellee Taunt was the first trustee appointed in MTG’s bankruptcy case after its conversion to chapter 7, but later resigned. Appellee Kenneth M. Schneider was one of three special counsel who represented Douglas Ellman, the second trustee; Ell-man was later removed.
On August 24, 2001, a creditor election was held and Vining was appointed as the
Chapter 7 trustee. In February 2002, Vin-ing filed his Application to employ Halbert as special counsel to pursue the Fraud Claims against the Former Trustee, the Bank, and their counsel.
Pursuant to the Application, the Bankruptcy Court entered the Employment Order. Vining also employed Kenneth Nathan as general counsel pursuant to Section 327(a) of the Code to assist the him in the general administration of the Debtor’s estate.
Shortly after the Application was filed, Schneider filed his Motion to Vacate the Employment Order.
Comerica Bank, Taunt, and Taunt’s law firm all joined in the motion to the extent it sought to set aside the employment order. The issues were briefed and a hearing was held on April 19, 2002.
On June 14, 2002, the bankruptcy court issued a bench opinion (the “Opinion”). The bankruptcy court separately ad
dressed each cause of action for which Vining sought to retain Halbert. The bankruptcy court stated that with respect to the Taunt/Comerica Bank disputes:
“By definition Mr. Halbert could not have gained any knowledge or experience with respect to this potential litigation during his five-month representation of the Debtor in the Chapter 11 proceeding because the potential claims all derived from alleged misconduct which Mr. Taunt and Comerica engaged in post-conversion during the Chapter 7 proceeding.” (Opinion, at 26)
The bankruptcy court acknowledged that while Halbert had spent an enormous amount of time post-conversion asserting that Taunt and Comerica conducted themselves improperly during the Chapter 7 case “it is unclear as to how much of that time was actually spent investigating the alleged misconduct and how much has been spent merely accusing Mr. Taunt and Comerica of misconduct.” (Opinion, at 26). The bankruptcy court further found that it did not appear that the claims were so complex as to make Halbert indispensable or that it would be so cost prohibitive to retain other counsel as to warrant Hal-bert’s retention. (Opinion, at 25, 27, 29, 30, 31).
The court determined that even if this were true, it is not a sufficient reason to permit employment as Trustee’s special counsel. (Opinion, at 30). Finally, the bankruptcy court found that even if Hal-bert could otherwise meet all other standards for appointment under 11 U.S.C. § 327(e), his appointment would “not be in the best interest of the estate.” (Opinion, at 25). Consequently, on July 9, 2002, the bankruptcy court entered its Order Setting Aside Order Authorizing Trustee’s Employment of Todd M. Halbert as Special Counsel (the “Order Vacating Employment Order”).
Vining and Halbert then filed a Motion for Reconsideration. On August 13, 2002, the bankruptcy court entered its Memorandum and Order Denying the Motion for Reconsideration (the “August 14, 2002 Order”).
II.
Jurisdiction under 28 U.S.C. § 158(a)
The Appellees assert that this court lacks jurisdiction to hear an appeal from a bankruptcy court order disqualifying an attorney. While there is no controlling authority directly on point,
In re PHM Credit Corp.,
99 B.R. 762 (E.D.Mich. 1989), provides some guidance on the issue.
There, after careful consideration of an appeal from a bankruptcy court order, Judge Feikens: (1) found that neither § 158(a)(1) or (2) applied to appeals from motions for attorney disqualification; and (2) declined to exercise his discretion to grant leave to appeal the motion for attorney disqualification under § 158(a)(3).
Id.
Judge Feikens, after thoroughly reviewing the case law, determined that appeals from motions for attorney disqualifications are not final orders within the meaning of § 158(a)(1).
See
99 B.R. 762, 764 (“Sever
al cases have held that in bankruptcy, as in most civil actions, denial of attorney disqualification motions are interlocutory, not final, orders.”);
see also In re Delta Services Industries,
782 F.2d 1267, 1272 (5th Cir.1986);
In re Continental Investment Corp.,
637 F.2d 1, 3 (1st Cir.1980);
In re Casco Bay Lines,
14 B.R. 846, 847 (1st Cir. BAP 1981). There is no reason to give greater appealability to orders denying motions to disqualify counsel in bankruptcy cases than to those in ordinary civil cases.
In re Delta Services Industries,
782 F.2d at 1272.
Although this area of law does not appear to have been addressed by the Sixth Circuit, there is no case law subsequent to
In re PHM Credit Corp
that contradicts its reasoning. Therefore, after applying its thorough and helpful analysis of § 158(a)(1), this court holds that the instant appeal from the disqualification order is not subject to review under that subsection.
Of the remaining subsections, only 158(a)(3) provides a relevant question of law.
Here again,
In re PHM Credit Corp
is instructive.
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MEMORANDUM OPINION AND ORDER
ANNA DIGGS TAYLOR, District Judge.
I.
This appeal is sought to be taken by Appellants Todd Halbert, the special counsel, and Guy Vining, the Successor Trustee. The bankruptcy court’s decision to set aside the Order Authorizing Trustee’s Employment of Todd M. Halbert as Special Counsel is at issue.
Halbert was counsel for the Chapter 11 Debtor from August 7, 1995, through February 9, 1997, when the case was converted to Chapter 7.
According to Halbert, over the past six years, he: (a) actively pursued and obtained the removal of the Former Trustee and his counsel; (b) assisted the unsecured creditors in electing an independent trustee who would pursue claims on their behalf; and, (c) continues to pursue relief from fraud upon the court, disgorgement of professional fees, and other related relief.
Appellee Comeriea Bank was MTG’s primary secured creditor both before and during the bankruptcy case. Comeriea Bank also holds a super-priority claim arising under Bankruptcy Code § 507(b). Ap-pellee Taunt was the first trustee appointed in MTG’s bankruptcy case after its conversion to chapter 7, but later resigned. Appellee Kenneth M. Schneider was one of three special counsel who represented Douglas Ellman, the second trustee; Ell-man was later removed.
On August 24, 2001, a creditor election was held and Vining was appointed as the
Chapter 7 trustee. In February 2002, Vin-ing filed his Application to employ Halbert as special counsel to pursue the Fraud Claims against the Former Trustee, the Bank, and their counsel.
Pursuant to the Application, the Bankruptcy Court entered the Employment Order. Vining also employed Kenneth Nathan as general counsel pursuant to Section 327(a) of the Code to assist the him in the general administration of the Debtor’s estate.
Shortly after the Application was filed, Schneider filed his Motion to Vacate the Employment Order.
Comerica Bank, Taunt, and Taunt’s law firm all joined in the motion to the extent it sought to set aside the employment order. The issues were briefed and a hearing was held on April 19, 2002.
On June 14, 2002, the bankruptcy court issued a bench opinion (the “Opinion”). The bankruptcy court separately ad
dressed each cause of action for which Vining sought to retain Halbert. The bankruptcy court stated that with respect to the Taunt/Comerica Bank disputes:
“By definition Mr. Halbert could not have gained any knowledge or experience with respect to this potential litigation during his five-month representation of the Debtor in the Chapter 11 proceeding because the potential claims all derived from alleged misconduct which Mr. Taunt and Comerica engaged in post-conversion during the Chapter 7 proceeding.” (Opinion, at 26)
The bankruptcy court acknowledged that while Halbert had spent an enormous amount of time post-conversion asserting that Taunt and Comerica conducted themselves improperly during the Chapter 7 case “it is unclear as to how much of that time was actually spent investigating the alleged misconduct and how much has been spent merely accusing Mr. Taunt and Comerica of misconduct.” (Opinion, at 26). The bankruptcy court further found that it did not appear that the claims were so complex as to make Halbert indispensable or that it would be so cost prohibitive to retain other counsel as to warrant Hal-bert’s retention. (Opinion, at 25, 27, 29, 30, 31).
The court determined that even if this were true, it is not a sufficient reason to permit employment as Trustee’s special counsel. (Opinion, at 30). Finally, the bankruptcy court found that even if Hal-bert could otherwise meet all other standards for appointment under 11 U.S.C. § 327(e), his appointment would “not be in the best interest of the estate.” (Opinion, at 25). Consequently, on July 9, 2002, the bankruptcy court entered its Order Setting Aside Order Authorizing Trustee’s Employment of Todd M. Halbert as Special Counsel (the “Order Vacating Employment Order”).
Vining and Halbert then filed a Motion for Reconsideration. On August 13, 2002, the bankruptcy court entered its Memorandum and Order Denying the Motion for Reconsideration (the “August 14, 2002 Order”).
II.
Jurisdiction under 28 U.S.C. § 158(a)
The Appellees assert that this court lacks jurisdiction to hear an appeal from a bankruptcy court order disqualifying an attorney. While there is no controlling authority directly on point,
In re PHM Credit Corp.,
99 B.R. 762 (E.D.Mich. 1989), provides some guidance on the issue.
There, after careful consideration of an appeal from a bankruptcy court order, Judge Feikens: (1) found that neither § 158(a)(1) or (2) applied to appeals from motions for attorney disqualification; and (2) declined to exercise his discretion to grant leave to appeal the motion for attorney disqualification under § 158(a)(3).
Id.
Judge Feikens, after thoroughly reviewing the case law, determined that appeals from motions for attorney disqualifications are not final orders within the meaning of § 158(a)(1).
See
99 B.R. 762, 764 (“Sever
al cases have held that in bankruptcy, as in most civil actions, denial of attorney disqualification motions are interlocutory, not final, orders.”);
see also In re Delta Services Industries,
782 F.2d 1267, 1272 (5th Cir.1986);
In re Continental Investment Corp.,
637 F.2d 1, 3 (1st Cir.1980);
In re Casco Bay Lines,
14 B.R. 846, 847 (1st Cir. BAP 1981). There is no reason to give greater appealability to orders denying motions to disqualify counsel in bankruptcy cases than to those in ordinary civil cases.
In re Delta Services Industries,
782 F.2d at 1272.
Although this area of law does not appear to have been addressed by the Sixth Circuit, there is no case law subsequent to
In re PHM Credit Corp
that contradicts its reasoning. Therefore, after applying its thorough and helpful analysis of § 158(a)(1), this court holds that the instant appeal from the disqualification order is not subject to review under that subsection.
Of the remaining subsections, only 158(a)(3) provides a relevant question of law.
Here again,
In re PHM Credit Corp
is instructive. There, it was stated that “[bjecause § 158(a) contains no criteria to guide the exercise of this discretion, district courts have looked to circuit court standards governing interlocutory appeals in 28 U.S.C. § 1292(b).” 99 B.R. at 767 (citations omitted).
In applying § 1292(b), the United States Court of Appeals for the Sixth Circuit has required that four elements be met:
(1) The question involved must be one of “law”;
(2) It must be controlling;
(3) There must be substantial ground for “difference of opinion” about it; and
(4) An immediate appeal must materially advance the ultimate termination of the litigation.
Cardwell v. Chesapeake & Ohio Ry. Co.,
504 F.2d 444, 446 (6th Cir.1974).
After application of § 1292(b), Judge Feikens found that the appellee had failed to meet two of the four requirements and, therefore, declined to exercise jurisdiction over the appeal.
See
99 B.R. at 768 (“The Trustee has not met two of these requirements. The Trustee concedes that this appeal would not materially advance the suit’s ultimate termination.... Neither does this appeal present a controlling question of law.”).
In the present case, as in
In re PHM Credit Corp.,
there is no doubt that the Appellants satisfy the first and third elements. Whether an attorney disqualification can meet the second element, i.e., whether it can be “controlling,” is less clear.
At least one interpretation of “controlling” would permit this attorney disqualification to be heard.
To be con
trolling under this definition the appeal need only “save time for the district court, and time and expense for the litigants.” 16 C. Wright, A. Miller and E. Cooper,
Federal Practice and Procedure,
§ 8980 at 159-160 (1977).
It is reasonable to conclude that the present issue will be brought back to this same court at the point that it would otherwise become appealable. Therefore, there is nothing in the record to establish that addressing the issue now will not save time for the court, as well as the litigants. To that extent, the time element of “controlling” is satisfied.
In at least one important regard, the instant appeal is distinguishable from the one analyzed
In re PHM Credit Corp.
There,
the failure to disqualify
counsel was being appealed from and, therefore, it was found that allowing the disqualification “would not save time and expense.”
Id.
In fact, it was found that “substitution of attorneys would cost the estate from one-half to one million dollars in legal fees and require at least ninety days to educate the new attorneys.”
Id.
In the present situation, where a
successful disqualification
is being appealed, Judge Feikens’s reasoning would apply with equal force — only in the opposite direction. Without passing judgment on the efficacy of his efforts, it is evident that Halbert has accumulated experience during the course of this litigation and has familiarity with the facts underlying the post-conversion disputes. It is reasonable to conclude, based on the foregoing, that substituting counsel at this point would, at a minimum, lead to the expenditure of additional, redundant legal fees owing to the time needed to educate a new attorney. It follows that the present attorney disqualification could satisfy both the time and financial aspects of “controlling.”
The fourth element, that which requires hearing this appeal now would “materially advance the ultimate termination of the litigation,” must still be satisfied.
In re PHM Credit Corp.,
presented a scenario wherein “the Trustee concede[d] that this appeal would not materially advance the suit’s ultimate termination.” Here, Vining is silent on the issue.
This case is, as evidenced by a prior appeal concerning allegations of fraud upon the court, a breeding ground for complex litigation matters.
See Halbert v. Taunt (In re M.T.G., Inc.),
291 B.R. 694 (E.D.Mich.2003). The nature of the accusations — flying in both directions — can lead to conflicting conclusions about the impact of the disqualification order, or the reversing of that order. Removing Hal-bert may advance the suit’s ultimate termination of the Bankruptcy. But forcing Vining to substitute his present representation with that of another advocate does not necessarily mean that it would
materially
advance the suit’s ultimate termination. In the face of such uncertainty the most prudent course may be to leave the status quo undisturbed.
Further complicating this matter are allegations that no other local counsel would be willing to pursue certain claims (e.g., the fraud upon the court claim). Moreover, because of the nature of the previous appeal involving these parties — including very serious allegations of fraud upon the court — the Appellee’s current motion to disqualify merits some skepticism. For all of these reasons, this court does exercise its discretion to hear the appeal and will address the substance of the appeal.
III.
The Standard of Review
The bankruptcy court’s factual findings will not be set aside unless clearly erroneous, and its conclusions of law are reviewed de novo.
Rembert v. AT & T Universal Card Services Inc. (In re Rembert),
141 F.3d 277, 280 (6th Cir.),
cert. denied,
525 U.S. 978, 119 S.Ct. 438, 142 L.Ed.2d 357 (1998);
In re Laguna Assocs. Ltd. Partnership,
30 F.3d 734, 737 (6th Cir.1994). Review of the bankruptcy court’s retention order is limited to abuse of discretion.
See In re Federated Department Stores, Inc.,
44 F.3d 1310, 1315 (6th Cir.1995) (citations omitted). A court abuses its discretion when (1) the court bases its decision on an erroneous conclusion of law, (2) the court’s findings are clearly erroneous, or (3) the court’s decision is unreasonable, arbitrary or fanciful.
See Beil v. Lakewood Engineering,
15 F.3d 546, 551 (6th Cir.1994). If, however, the retention order involves interpretations of law, “this court applies a plenary review of the bankruptcy court’s conclusion of law, using a de novo standard.”
In re Eagle-Picher Industries, Inc.,
999 F.2d 969, 972 (6th Cir.1993);
In re Zick,
931 F.2d 1124, 1126 (6th Cir.1991).
Clearly Erroneous
The Appellees correctly point out that Halbert and Vining have not identified anything clearly erroneous about any of the factual determinations the bankruptcy court made in reaching his decision. However, Judge Hughes stated that:
“I also take notice that no litigation is ... pending with respect to ... the Taunt/Comerica post-conversion conduct disputes ... Therefore, I conclude that Halbert may not represent the estate under Section 327(e) with respect to the Comerica/Taunt post-conversion [issues] ...” (Opinion, at 35).
Based on the assumption that these sentences are in reference to the fraud upon the court claim, recently addressed by this court in a Memorandum Order an Opinion, this factual finding is clearly erroneous.
Therefore, Judge Hughes factual findings, at least to the extent that they address subsections 6(d)
and (i)
of the
Trustee’s Amended Application for Authority to Employ Todd M. Halbert as Special Counsel,
are clearly erroneous.
The Employment Order
Judge Hughes further stated that:
“I have also read ... Section 327(a) and 327(e), and frankly, based upon my own judgment, I was able to discern the answers to the issues presented in this case without having to defer to case law. There may be cases which have given Section 327(e) a different interpretation than that which I have just given to it.
Frankly, I don’t know. However ... I am not aware of any case law issued by either [the Sixth Circuit or United States Supreme Court] which is on point.” (Opinion, at 38-34).
This is a relatively accurate description of Sixth Circuit case law on § 327(e). There is, however, at least one published bankruptcy case,
In re Dev. Carp, of Plymouth, Inc.,
where the court denied a motion to disqualify trustee’s special counsel. 283 B.R. 464 (Bankr.E.D.Mich.2002).
There, the court’s analysis of 327(a), (c) and (e) resulted in a reading of the subsections that merely requires that “where the trustee seeks to appoint counsel only as ‘special counsel’ for a specific matter, there need only be no conflict between the trustee and counsel’s creditor client with respect to the specific matter itself.”
Id.
(quoting
Stoumbos v. Kilimnik,
988 F.2d 949, 964 (9th Cir.1993)). In fact, the situation described as necessitating continuous representation is now before this court.
Appellants argue that the bankruptcy court erred, as a legal matter, in
adding
to § 327(e) a requirement, not found in the statute, that the proposed attorney for the trustee previously represented the debtor with respect to those specified special purposes for which the trustee presently proposes to retain Halbert. This court agrees. Such a requirement may be reasonable, but it is not necessary.
The court should refrain from reading additional requirements into the statute.
See Cline v. General Dynamics Land Systems, Inc.,
296 F.3d 466, 469 (6th Cir.2002) (“[T]he primary rule of statutory construction is to ascertain and give effect to the legislative intent.”);
Hedgepeth v. Tenn.,
215 F.3d 608, 616 (6th Cir.2000).
Accordingly, this court holds that § 327(e) only requires that the attorney not be in conflict (i.e., not hold an interest adverse to the estate)
with the trustee for the specific purpose that the special counsel designation applies.
For the foregoing reasons,
IT IS ORDERED that the bankruptcy court’s Order Setting Aside Order Authorizing Trustee’s Employment of Todd M. Halbert as Special Counsel is REVERSED with respect to Halbert’s representation for the purpose of the Fraud on the Court claims, and the remaining portion of that Order is REMANDED to the bankruptcy court for procedures consistent with this OPINION.
IT IS SO ORDERED.