ETG Corporation

MEMORANDUM OF DECISION - 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
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In Re:
Bankruptcy Case
ETG CORPORATION dba 	No. 05-05344
SKYSTAR AIRCRAFT
CORPORATION dba
WEST WIND CORPORATION,
Debtor.
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MEMORANDUM OF DECISION
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Appearances:
Randall Peterman, MOFFATT THOMAS BARRETT ROCK &
FIELDS, Boise, Idaho, Attorney for Reed and Plumb.
Kimbell Gourley, JONES, HESS, FUHRMAN & EIDEN, Boise,
Idaho, Attorney for Trustee
Richard Crawforth, Boise, Idaho, Chapter 7 Trustee.
Jeffrey G. Howe, Office of the U.S. Trustee, Boise, Idaho.
Chapter 7 Trustee Richard Crawforth has filed an application asking
the Court to approve his employment of Phil Reed as a special marketing
consultant. Docket Nos. 27, 28. Mr. Reed is also one of the corporate Debtor’s
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MEMORANDUM OF DECISION - 2
largest creditors. Trustee contends that Mr. Reed is the only person available at
this time with the expertise needed to assist Trustee in selling Debtor as a going
concern, which he argues is necessary to maximize the value of Debtor’s assets.
While not filing a formal objection, the United States Trustee contends Mr. Reed
is not eligible for employment as a professional for the bankruptcy estate because
he is not disinterested as required by the Bankruptcy Code.
At the conclusion of a hearing on Trustee’s application held
February 8, 2006, the Court took under advisement the issue of whether the Court
has discretion under § 327 to approve employment of a person who is not
disinterested. The parties were permitted to file briefs by February 10, 2006, but
no briefs were filed.
The Court concludes it lacks discretion to disregard the requirements
of § 327(a) of the Bankruptcy Code requiring disinterestedness by estate
professionals. The following constitutes the Court’s findings and conclusions.
Fed. R. Bankr. P. 9014.
Factual Background
Mr. Reed founded and operated a business known as Skystar, which
he sold to Debtor in 2000. As part of the sale, Debtor gave Mr. Reed a promissory
note for $307,788. Verified Statement of Special Marketing Consultant at 6, Ex.
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MEMORANDUM OF DECISION - 3
28. The promissory note was later amended, and Debtor currently owes Mr. Reed
$360,575.88. Mr. Reed is also one of the two owners of Saber River
Development, LLC, the company from which Debtor was leasing its principal
place of business. Verified Statement of Special Marketing Consultant at 7, Ex.
28. Additionally, Saber River guaranteed an unsecured loan made to Debtor in the
amount of $275,000. Verified Statement of Special Marketing Consultant at 7,
Ex. 28. 	At this time Trustee is also negotiating with Mr. Reed regarding a
potential preference arising from the relationship between Mr. Reed and Debtor
regarding the above transactions. There is no doubt that Mr. Reed holds
prepetition claims against Debtor.
Disposition
The Bankruptcy Code allows, subject to court approval, the
employment of professional persons by the trustee “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.” 11 U.S.C. §
327(a). 	A disinterested person is defined in part as, “not a creditor, an equity
security holder, or an insider.” 11 U.S.C. § 101(14)(A) (emphasis added). A
creditor is an “entity that has a claim against the debtor that arose at the time of or
before the order for relief concerning the debtor[.]” 11 U.S.C. § 101(10)(A).
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MEMORANDUM OF DECISION - 4
“Code Sections 327(a) and 101(14) explicitly provide that a
professional with a prepetition claim against the debtor cannot qualify as
disinterested.” In re CIC Inv. Corp., 175 B.R. 52, 56 (9th Cir. BAP 1994). “The
code is unambiguous and equity is not available to vary this result.” In re Dugger,
99.1 I.B.C.R. 30, 32 (Bankr. D. Idaho 1999) (citing In re CIC Inv. Corp., 175 B.R.
52); See also In re Triple Star Welding, Inc., 324 B.R. 778, 790 (9th Cir. BAP
2005) (stating, “Section 327(a) ‘clearly states that the court cannot approve the
employment of a person who is not disinterested’ and ‘[b]ankruptcy courts cannot
use equitable principles to disregard unambiguous statutory language.’”).
As the Court and the BAP have observed:
This court is not inclined to measure a degree of
disinterestedness or interestedness to see whether it is
sufficient to qualify or disqualify. A lack of
disinterestedness on the part of a professional . . . is,
without any exception known to this court, a
disqualifying fact.
In re Dugger, 99.1 I.B.C.R. at 32 (Bankr. D. Idaho 1999) (quoting In re CIC Inv.
Corp., 175 B.R. at 56). The same is true in this case. 	Mr. Reed is a creditor of
the Debtor; his limited liability company, Saber River, is likely another creditor.
Mr. Reed is not disinterested under § 101(14)(A), and his employment by the
trustee is precluded by § 327(a). 	The law in this Circuit is clear that the Court
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1 Because he is disqualified from employment in his status as a creditor,
the Court need not, and does not, decide whether the trustee’s potential preference
claim against Mr. Reed renders him further disqualified from employment under
§ 327(a) as holding “an interest adverse to the estate . . . .”
MEMORANDUM OF DECISION - 5
lacks discretion to ignore the plain meaning of the Code’s disinterestedness
requirement simply because the creditors may benefit in this particular case.1
Conclusion
The Application to Employ Phil Reed as Special Marketing
Consultant will be denied by separate order.
Dated: February 27, 2006
Honorable Jim D. Pappas
United States Bankruptcy Judge
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