## Facts

- Project Orange Associates, LLC owned and operated a gas-turbine cogeneration facility in New York.
- General Electric Company and related entities supplied turbines and maintenance services and became involved in a prepetition dispute with the debtor.
- An arbitration resulted in an approximately $4.1 million award in GE’s favor; confirmation was stayed by the Chapter 11 filing, making GE the debtor’s largest unsecured creditor.
- After filing Chapter 11, the debtor (as debtor in possession) sought to employ DLA Piper LLP (US) as general bankruptcy counsel under 11 U.S.C. § 327(a) and Bankruptcy Rule 2014.
- DLA Piper disclosed ongoing and past representations of GE-related entities in matters unrelated to the debtor’s case.
- To address conflicts, the debtor retained Golenbock Eisenman Assor Bell & Peskoe LLP as special conflicts counsel to handle any matters involving GE where DLA Piper’s GE relationships created direct adversity.
- The United States Trustee objected, arguing DLA Piper was not “disinterested” and held or represented interests adverse to the estate due to its GE relationships.

## Issues

1. Whether DLA Piper’s representations of GE-related entities disqualified it from serving as the debtor’s general bankruptcy counsel under 11 U.S.C. § 327(a) as not “disinterested” or as holding/representing an interest adverse to the estate.
2. Whether segregating GE-adverse matters to independent conflicts counsel was sufficient to permit DLA Piper’s retention as general counsel, subject to conditions.

## Decision

- The court granted the debtor’s application to retain DLA Piper as general bankruptcy counsel.
- The court found DLA Piper could satisfy § 327(a) for general case representation because its GE-related work did not create a materially adverse interest across the case as a whole.
- The court required that all matters involving direct adversity between the debtor and GE (including the GE dispute and claim issues) be handled exclusively by conflicts counsel.
- The court conditioned retention on conflict screens and continued compliance with disclosure duties, with the understanding that approval could be revisited if circumstances changed.

## Legal Principles

- Under 11 U.S.C. § 327(a), debtor’s counsel must (1) be “disinterested” and (2) not hold or represent an interest adverse to the estate.
- “Adverse interest” analysis is fact-specific and focuses on whether relationships create a meaningful risk of divided loyalty that could harm the estate, not on categorical disqualification based solely on a creditor connection.
- Representation of affiliates of a major creditor in unrelated matters does not automatically render debtor’s proposed general counsel non-disinterested or adverse under § 327(a).
- A limited conflict tied to discrete matters can be managed by carving out those matters to independent conflicts counsel, preserving general counsel’s ability to serve on non-conflicted aspects of the case.
- Bankruptcy Rule 2014 requires full disclosure of relevant connections, and professionals have a continuing duty to supplement disclosures; retention may be conditioned on ongoing transparency and may be modified if conflicts expand.

## Conclusion

The court approved retention of the debtor’s chosen general bankruptcy counsel despite the firm’s relationships with creditor-related entities, holding that the conflict was limited and could be effectively managed by assigning all GE-adverse matters to independent conflicts counsel, maintaining screens, and enforcing ongoing disclosure obligations.


In re Project Orange Assocs., LLC, 431 B.R. 363 (Bankr. S.D.N.Y. 2010)