Official Committee Members: Fiduciary Duty Liability

Members of official creditors' committees in Chapter 11 cases owe a fiduciary duty to the entire body of unsecured creditors. See Woods v. City National Bank, 312 U.S. 262, 268-69 (1941). As fiduciaries, committee members should have undivided loyalty to those they serve, free of any conflict of interest. Id. The imposition of such a broad duty to unsecured creditors generally might be otherwise unremarkable, except that committee members themselves obviously have significant selfish interests in the outcome of the bankruptcy case. See 11 U.S.C. ' 1102(b)(1) (committee shall ordinarily consist of the persons, willing to serve, that hold the seven largest claims against the debtor). In brief, bankruptcy law puts committee members in a contradictory position: They owe their membership on the committee to the magnitude of their self-interest in the case, yet they seem to be legally required to put the interests of others ahead of their own interests.