If you are asked to service as special counsel in a bankruptcy case, the bankruptcy court must approve the employment and approve the fee arrangement. 11 U.S.C. §§327, 328. Special counsel may be hired “on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, on a fixed or percentage fee basis, or on a contingent fee basis.” 11 U.S.C. §§ 328, 330. Special counsel is approved by filing an application with the bankruptcy court and obtaining an order authorizing the employment. Under Rule 2014 of the Federal Rules of Bankruptcy Procedure, the application must be accompanied by a verified statement from proposed special counsel setting forth the person’s “connections with the debtor, creditors, any other party in interest, their respective attorneys and accountants, the United States Trustee, or any person employed in the office of the United States Trustee.”
[Proposed special counsel should look at the creditor matrix on PACER in the bankruptcy case in which he/she is seeking to be hired to determine whether he/she has connections with the debtor, creditors or interested parties.]
[If proposed special counsel represented the debtor in a tort case before the bankruptcy was filed, the relationship with the debtor must be disclosed in the verified statement.]
Here are forms which may be useful. No representation is made that the forms are suitable for any particular case.
If multiple firms are involved, or there is a fee sharing arrangement among two or more firms, the arrangement must be disclosed and the court may require each firm to be separately employed. The bankruptcy court must approve any settlement and award of attorney’s fees. As a general rule, the Mississippi bankruptcy courts and the Office of the U.S. Trustee limit the total compensation (combined fees and expenses) awarded to special counsel to 50% of the gross judgment or settlement amount. However, in a case in which special counsel has actually incurred extraordinary expenses, an exception may be made.
When you represent the trustee, you must provide quarterly updates about the status of the case. A one-paragraph e-mail message should be sufficient in most cases. Failure to keep the trustee advised of the case status may result in a conference with the bankruptcy judge. Repeated failures could result in termination of employment and denial of compensation.
Finally, please remember that when you agree to represent the trustee as special counsel, you have a new client with the attendant duty of loyalty. Although you may feel sympathy for the debtor, it is inappropriate to advocate that the debtor be included in a settlement or to otherwise receive a benefit from a settlement.