## Facts

- Blue Stone Real Estate, Construction & Development Corporation filed a Chapter 11 petition and continued operating as a debtor in possession, with its principal, James DeMaria, managing daily operations.
- The United States Trustee moved under 11 U.S.C. § 1104(a) to appoint a Chapter 11 trustee, alleging cause based on DeMaria’s fraud, dishonesty, incompetence, or gross mismanagement, including postpetition failures in cooperation and financial reporting.
- After the trustee motion was filed, the debtor filed an emergency motion seeking approval to retain Steven Oscher as chief restructuring officer (CRO).
- The proposed CRO was described as independent and highly experienced, and was to receive broad authority over restructuring, financial reporting, and operational decisions, substantially limiting DeMaria’s control.
- The United States Trustee opposed the CRO request, arguing that installing a CRO would improperly circumvent the trustee-appointment framework and interfere with the United States Trustee’s statutory role.

## Issues

1. Whether a Chapter 11 debtor in possession may obtain court approval to retain a CRO with substantial operational authority after the United States Trustee has moved for appointment of a trustee under 11 U.S.C. § 1104(a).
2. Whether approving a CRO under these circumstances is consistent with the Chapter 11 statutory scheme, or instead functions as an impermissible end-run around § 1104(a) and related oversight.

## Decision

- The court granted the emergency motion and authorized retention of the CRO, subject to court-imposed conditions and limitations.
- The court held that the Bankruptcy Code does not prohibit a debtor in possession from employing an independent restructuring officer and delegating significant management responsibilities under court supervision.
- The court rejected the argument that a pending § 1104(a) trustee motion categorically bars management changes through retention of a CRO.
- The court did not treat the CRO as a trustee and did not resolve the trustee motion on the merits; the United States Trustee remained free to pursue trustee appointment if cause persisted or the CRO arrangement proved ineffective.

## Legal Principles

- Under 11 U.S.C. § 1107, a debtor in possession generally exercises trustee powers and owes fiduciary duties to the estate, subject to bankruptcy court supervision.
- Under 11 U.S.C. § 1104(a), the court must appoint a trustee for cause (including fraud, dishonesty, incompetence, or gross mismanagement) or when appointment is in the interests of creditors and the estate.
- The Bankruptcy Code’s silence on CROs does not, by itself, bar employment of a CRO as an officer/professional of the debtor, provided the debtor remains in possession and statutory oversight mechanisms remain effective.
- Approval of a CRO is not equivalent to appointing a trustee; it does not remove debtor-in-possession status or substitute a trustee as the estate’s representative.
- Independence, qualifications, and estate-focused duties of the proposed CRO are key considerations in determining whether the arrangement is compatible with Chapter 11 governance and oversight expectations.

## Conclusion

The bankruptcy court approved retention of an independent CRO with broad restructuring authority even though a § 1104(a) trustee motion was pending, reasoning that such an arrangement can address management failures under court supervision without displacing the statutory trustee process, which remained available if warranted.


In re Blue Stone Real Estate, Construction & Development Corp., 392 B.R. 897 (Bankr. M.D. Fla. 2008)