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Pillsbury Caught In Another Bankruptcy Conflict

Perhaps Pillsbury Winthrop Shaw Pittman needs to reevaluate its system for screening conflicts and disclosing material developments that may impact bankruptcy claims.  Back in March, we mentioned that Pillsbury was the subject of a motion filed by the U.S. Trustee to disqualify the firm from representing Sonic Boom and to force it to disgorge fees earned. Now, according to this article, Pillsbury has been accused of another confict.  Apparently, Pillsbury failed to disclose an agreement between the firm and directors of its clients, extending the statute of limitations on a potential malpractice claim.  Creditors argue that this situation should have been disclosed to the court.

The California Business Bankruptcy Blog explains the significance of the case to bankruptcy practitioners:

In the first instance, Pillsbury lost the business of representing SonicBlue in the case, and thus its presumable large revenue stream.  Now, if the accusation comes to anything, Pillsbury stands to lose money in the form of damages for losses to the corporation due to the directors' actions.  Yikes.

It is important for bankruptcy counsel to always bear in mind the competing constituencies involved in every bankruptcy proceeding.  What may be a good idea in garden variety civil litigation, may be a devastating decision in the bankruptcy arena.  Deals with clients in business litigation such as that between Pillsbury and the SonicBlue board may be perfectly reasonable in most situations, but in bankruptcy, where the interests of creditors are paramount in a debtor-in-possession situation, such a deal undermines the entire process because Pillsbury could not be expected to fully pursue claims against the board if Pillsbury was potentially on the hook for any damages by agreement.  Being able to recognize hidden conflicts as well as the obvious ones is essential to a successful bankruptcy practice, as the SonicBlue representation highlights.

If there's anything else that Pillsbury hasn't revealed about this matter, now would seem to be the appropriate time, indeed, the last chance, to disclose it.

Posted by Carolyn Elefant on November 14, 2007 at 05:23 PM | Permalink | Comments (1)


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