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The Bankruptcy Hotline

By ALM Staff | Law Journal Newsletters |
August 14, 2003

Indemnifying Proposed Financial Adviser Held 'Reasonable'

The Third Circuit has held that a Chapter 11 debtor's retention agreement with a proposed financial adviser, which indemnified the adviser from liability for ordinary negligence, was a 'reasonable' condition for the employment of a professional pursuant to Section 328(a) of the Bankruptcy Code. United Artists Theatre Co. v. Walton, No. 01-1351 (Jan. 9, 2003).

The United States Trustee had objected to a provision in the debtor's engagement letter with its proposed financial adviser that sought to indemnify the adviser for claims of negligence related to its services, except for 'any losses that are finally judicially determined to have resulted from the gross negligence, bad faith, willful malfeasance, or reckless disregard of its obligations or duties.' The Trustee argued that this agreement was unreasonable, and in violation of Sections 327(a) and 328(a) of the Bankruptcy Code. The district court disagreed and approved the application.

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