In Re Jaimalito's Cantina Assoc. Ltd. Partnership, 114 B.R. 1 (D.D.C. 1990)

Richard Gins, Washington, D.C., for debtor.

DECISION DENYING APPLICATION TO RETAIN REBECCA J. HABBERT, ATTORNEY AT LAW

S. MARTIN TEEL, Jr., Bankruptcy Judge.

The debtor, Jaimalito's Cantina Associates Limited Partnership, applies to employ and appoint Rebecca J. Habbert for purpose of general representation of the debtor. Ms. Habbert is a pre-petition creditor of the debtor, holding a claim of unspecified amount for representing the debtor on matters unrelated to assisting in filing the bankruptcy petition. She was representing the debtor on certain ongoing matters when the petition was filed, but the debtor does not seek appointment under 11 U.S.C. § 327(e) limited to those matters. The application for employment for general representation of the debtor must be denied because, as a creditor, Ms. Habbert is not a "disinterested person" as defined in 11 U.S.C. § 101(13) and as required by 11 U.S.C. § 327(a)^[1] in order to be eligible for employment. See In re Pierce, 809 F.2d 1356, 1362-63 (8th Cir. 1987); In re Gire, 107 B.R. 739, 745-46, 748 (Bankr.E.D. Cal.1989); In re Estes, 57 B.R. 158, 162-63 (Bankr.N.D.Ala.1986). This result is not altered by 11 U.S.C. § 1107(b).^[2]In re Roberts, 75 B.R. 402, 407-09 (D.Utah 1987) (en banc); In re Watervliet Paper Co., Inc., 96 B.R. 768, 771-74 (Bankr.W.D.Mich.1989); Matter of Patterson, 53 B.R. 366 (Bankr.D. Neb.1985); In re Anver Corp., 44 B.R. 615 (Bankr.D.Mass.1984). Contra, In re Heatron, 5 B.R. 703, 705 (Bankr.W.D.Mo.1980); accord, In re Viking Ranches, Inc., 89 B.R. 113, 115-16 (Bankr.C.D.Cal.1988); In re Best Western Heritage Inn Partnership, 79 B.R. 736, 740 (Bankr.E.D.Tenn. 1987). Congress could have specified that a claim as a creditor for prior legal representation *2 of the debtor does not disqualify an attorney from representing the debtor-in-possession. It did not. Prior employment or representation as counsel raises disqualification issues distinct from the issue of holding a claim. See, e.g., 11 U.S.C. § 101(13) (D) dealing with lack of disinterestedness based on prior employment notwithstanding absence of any claim. If § 1107(b) eliminates creditor status as a basis of disqualification under § 327(a) for lack of disinterestedness, it logically follows that § 1107(b) also eliminates creditor status as a basis of disqualification under § 327(a) for holding an adverse interest. Heatron and its progeny recognize that § 1107(b) ought not prevent disqualification when the claim results in an adverse interest, but does otherwise prevent disqualification. With all due respect, the logical reading of the statute does not permit that inconsistency. Plainly both requirements of disinterestedness and lack of adverse interest still apply when the attorney occupies the status of a creditor, a status that is unaltered by the relative size of the claim.

An Order in accordance with this decision shall be entered.

[1] § 327(a) provides:

Except as otherwise provided in this section, the trustee, with the court's approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee's duties under this title.

[2] § 1107 provides:

Notwithstanding section 327(a) of this title, a person is not disqualified for employment under Section 327 of this title by a debtor in possession solely because of such person's employment by or representation of the debtor before the commencement of the case.