DUANE MORRIS' Aron Oliner finally gets what BankruptcyMisconduct has long been saying about the law and conflict of interest.

O'Melveny & Myers is known to viewers of The Sopranos from having been mentioned as one of the high paying law firms drooled over by DOJ "Preetender" government lawyers scheming for big bucks in private practice after they emerge from Justice's Revolving Door Neo-Enforcement farm team.

BankruptcyMisconduct readers know O'Melveny & Myers best for their intimate involvement in the SONICblue bankruptcy fraud conspiracy with starring role played by Suzzanne Uhland. (And speaking of stars, keep watching for a new music video featuring Ms. Uhland coming soon! )

Polite folk avoid kicking a man when he is down. But if "Ron" Oliner (who else think it's creepy when a lawyer operates under an alias? ) thinks it's OK to pile on the rabbit, belatedly, to protect the "honor" of his "profession"... Who are we do deny another page to Suzzie's early turns, round and round the outermost rings of that deep dark cosmic abyss, whose incessant gravitational pull tuggs mercilessly at her toes.

But what is this ... a hedge fund?

A dirty hedge fund paying money to O'Melveny & Myers? And they "failed to disclose" this conflict? Worse: Congress wrote laws which make such a "failure to disclose" an overt willful crime. Now we are coming Full Circle on the SONICblue involvement of Suzzanne Uhland.

First we thought that Suzzanne was solely just covering for the scheming of Bruce Bennett as he "bargained" with his knowledge of disclosure failures (a/k/a bankruptcy fraud) by official counsel, but now we learn that her own firm also was getting paid secretly by a hedge fund, and they intentionally withheld this fact.

And Martha Stewart went to prison for a supposed lie, corrected of her own volition prior to any adjudication, related to a $40K stock trade. Just the total legal fees that have been disgorged and forfeited on this ne'er fading SONICblue saga are several hundreds of times larger than Martha Stewart's insider stock trade windfall. OK, now readers can understand why any prudent lawyer, perhaps like Ms. Uhland if she is first to the window, would proactively seek a deal:

This SONICblue Scandal is going to be teed up, and it is better to be an informant with an eventual book deal and speaking tours than to be the goat thrown under the bus by your former partners in frauds.

Highbridge Capital, Highbridge International, et al.

Ron Oliner must be taking steroids or something, because he seems to have grown a functioning pair. Surely, Mr. Oliner must have let his pool boy type up this bitch slapping. Hey Ron, why you gotta be so mean spirited to Suzzanne's firm when the conspiracy by Dewey & LeBoeuf schemer Bruce Bennett, and the crimes of Pillsbury Winthrop and that other law firm (we've got to research their name) are much worse. Why is Suzzanne being discriminated against, when secretly working for billion dollar hedge funds is fundamental to mega case bankruptcy counsel's Quid Pro Quo business model.

BankruptcyMisconduct is flattered that Aron Oliner has apparently gotten religion about our big pet peeve regarding conflict of interest. No glass houses inhabited by the partners at Duane Morris, it seems. Though we just find it sad that the CA State Bar, the California Supreme Court, and a few corrupt DOJ lawyers still don't get it.

Did Ron Oliner read the copies of the original complaint and the corresponding revised complaint against Bruce Bennett's Bankruptcy Bamboozlers that had been downloaded anonymously by someone at Duane Morris? (available for free download here) His on point work, appearing below, seemingly quotes from the case law referenced in the complaint against the Hennigan Bennett / Dewey & LeBoeuf lawyers with hidden conflicts among Oaktree Capital, Argo Partners, and PriceWaterhouseCoopers. As we applaud the SONICblue bankruptcy proceedings scandal denouement, we eagerly anticipate the impending criminal enforcement actions. (And never forget: no statute of limitations protect a fraud upon the court.)

"Better late than never" is an uplifting spin on Mr. Oliner's late stage action on the SONICblue fraud, but we do find this Duane Morris dignity ironic in light of the "ethics" of a Duane Morris partner that we talk about on this page. All irony and hypocrisy aside, download for free Aron Oliner's diatribe against Suzzanne in its full glory with all its attachments, or just read the guts:

Aron M. Oliner (SBN 152373)
Geoffrey A. Heaton (SBN 206990)
DUANE MORRIS LLP
One Market Plaza
Spear Street Tower, Suite 2000
San Francisco, CA 94105-1104
Telephone: (415) 957-3000
Facsimile: (415) 957-3001
Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Attorneys for the POST-CONFIRMATION
CREDITORS’ COMMITTEE

In re Case Nos. 03-51775 MM through 03-51778 MM

SONICBLUE INCORPORATED,
DIAMOND MULTIMEDIA SYSTEMS, Jointly Administered)
INC., REPLAYTV, INC. and SENSORY
SCIENCE CORPORATION, Chapter 11

Debtors. Date: May 5, 2009

POST-CONFIRMATION CREDITORS’ COMMITTEE’S RESPONSE
TO SECOND SUPPLEMENTAL DECLARATION AND DISCLOSURES
OF SUZZANNE S. UHLAND ON BEHALF OF O’MELVENY & MYERS LLP

The Post-Confirmation Creditors’ Committee (“PCC”) submits this brief in response to
the Second Supplemental Declaration and Disclosures of Suzzanne S. Uhland on behalf of O’Melveny & Myers LLP (“Supplemental Disclosures”), as follows:

On April 14, 2009, pursuant to the Court’s briefing schedule, O’Melveny filed a supplement to its fee application, among other things putting on record its conditional voluntary reduction in compensation by $500,000.00, and expressing its willingness to do so in order to “put a regrettable history behind all concerned.” [Docket Entry 3616].

O’Melveny’s “voluntary” reduction was not so voluntary. Following the PCC’s investigation into the propriety of awarding additional fees to O’Melveny, it drafted, but did not file, an objection to O’Melveny’s fees. It opted instead to engage in a discourse with O’Melveny’s counsel. Ultimately, based on then known facts and circumstances, the PCC determined that it would not object to O’Melveny’s final fee request provided O’Melveny voluntarily reduced its request by $500,000.

However, to the complete surprise of the PCC and the United States Trustee, that same day O’Melveny also filed the Supplemental Disclosures as an attachment to its Notice of Hearing on Fifth and Final Application for Compensation and Reimbursement.1 The Supplemental Disclosures tell us the following:

1. O’Melveny was employed on July 25, 2003.

2. In November of 2008, O’Melveny became aware of a connection to JP Morgan
Asset Management and Highbridge Capital Management, LLC.

3. Highbridge and its trading partners, including Smithfield Fiduciary LLC, are
among the 2002 Noteholders.

4. O’Melveny has concluded that these relationships do not present an actual conflict.

Among the questions before the Court at the May 5, 2009 hearing is the meaning, significance and impact of the Supplemental Disclosures when weighed against the larger circumstances of these cases.

These cases have a long and tortured history, and it was this precise issue – the failure of professionals to make full, candid and timely disclosures to the Court – that resulted in the appointment of a trustee and reconstitution of the creditors’ committee. It is against this backdrop that the PCC now finds itself literally slack-jawed at O’Melveny’s last minute Supplemental Disclosures.

One of the most (if not the most) fundamental duties of a Court-appointed professional is to disclose the professional’s “connections with the debtor, creditors, or any other party in interest, their respective attorneys and accountants, United States Trustee, or any person employed in the Office of the United States Trustee.” Federal Rule of Bankruptcy Procedure 2014(a). Although not expressly stated, Rule 2014 absolutely implies an on-going duty to make supplemental and continuing disclosures while representing an estate fiduciary. See, In re Granite Partners, LP, 219 B.R. 22 (Bankr. S.D.N.Y. 1998).

The duty to disclose requires complete disclosure of all known connections after a reasonable and diligent inquiry – not merely those which give rise to a conflict of interest. In re Keller Financial Services of Florida Inc., 248 B.R. 859 (Bankr. N.D. Fla. 2000). An intentional failure to disclose a previously unknown “connection” may result in denial of a pending fee application, as well as disgorgement of earlier awarded fees, beginning with the period when such disclosure should have been made. In re Olsen Industries, Inc., 222 B.R. 49 (Bankr. D. Del. 1997).

Indeed, it is commonplace for an estate professional to become aware of additional “connections” as a case progresses. That is why it is common practice for professionals to run periodic conflicts checks throughout the course of a case as new entities and interested parties enter the scene and become known to the professional, and to then promptly disclose any new connections when they become known.

Under any other circumstances, in any other case, on any other record, it may be conceivable that a court could overlook belated disclosures such as those contained in the Supplemental Disclosures. This is not any other case. This is a case where the Pillsbury firm, the Debtors’ other court-approved counsel, has paid $10 million for its failures to make disclosures.

Throughout their involvement in these cases, counsel for the Trustee (now Plan Administrator) and RCC (now PCC) have been prompt and assiduous in filing and serving supplemental declarations to augment their previous disclosures under Rule 2014. Counsel to the PCC, for example, has filed no less than nine supplemental declarations after its employment was approved in January of 2008, and in each of the nine supplemental declarations disclosed new connections as soon as they became known, and otherwise fully advised the Court and creditors of these connections. That is what estate professionals are supposed to do.

In mid-November of 2008, Mr. McGrane brought to the attention of the estate fiduciaries and their counsel, including O’Melveny, the existence of additional potential connections involving the 2002s.2 In response, estate professionals other than O’Melveny immediately conducted additional conflicts checks and made additional disclosures.

Although it admits that it became aware of the added connections last November, inexplicably, O’Melveny waited five months before disclosing it in connection with noticing its final fee request. O’Melveny evidently concluded that these relationships did not need to be disclosed promptly because, in O’Melveny’s estimation, they did not present an actual conflict that would have compelled the withdrawal of O’Melveny as Debtors’ special litigation counsel. O’Melveny, however, misinterprets Rule 2014’s disclosure obligations, as its position is completely at odds with the plethora of case law interpreting this provision.

Whether these newly disclosed connections create an actual conflict is unknown to the PCC.3 Regardless of whether an actual disqualifying conflict existed or exists, it is unquestionable that O’Melveny’s Supplemental Disclosures were not promptly filed.

Several courts have recognized that a Bankruptcy Court has broad discretion and inherent authority to deny any and all compensation when an attorney fails to meet the requirements of Section 327 of the Bankruptcy Code and Bankruptcy Rule 2014. See, e.g., In re Downs, 103 F.3d 472 (6th Cir. 1996), Matter of Prudhomme, 43 F.3d 1000, (5th Cir. 1995), In re Chapel Gate Apartments, Ltd., 64 B.R. 569 (Bankr. N.D. Tex. 1986), In re Lewis, 113 F.3d 1040 (9th Cir. 1997).

Specifically, “the issues of whether the disclosure requirement was violated and whether the professional was disinterested are distinct questions and separately sanctionable.” In re Condor Systems, Inc., 302 B.R. 55, 70 (Bankr. N.D. Cal. 2003) (citing Neben & Starrett, Inc. v. Chartwell Financial Corporation) In re Park Helena Corp., 63 F.3d 877, 880 (9th Cir. 1995)).

Rule 2014(a) is a means by which the court can comply with its responsibilities. The disclosure rules impose upon [professionals] an independent responsibility. Thus, failure to comply with the disclosure rule is a sanctionable violation, even if proper disclosure would have shown that the [professional] had not actually violated any Bankruptcy Code provision or any Bankruptcy Rule. In re Park Helena Corp., 63 F.3d at 880 (citing In re Film Ventures International, Inc., 75
B.R. 250 (9th Cir. BAP 1987)).

The requirement of disclosure is applied literally, even if the results are sometimes harsh. Id., at 881. The disclosure requirements of Rule 2014 do not give the professional the right to withhold information because it is not apparent to the professional that a conflict exists. Id. In addition, the disclosure requirement is a continuing one, even after an application for employment is approved. In re Granite Partners, LP, 219 B.R. 22, 35 (Bankr. S.D.N.Y. 1998).

To put a point on it, in November of 2008, O’Melveny became aware of additional “connections” to creditors and/or interested parties in these cases. Notwithstanding a well recognized duty to promptly supplement the record, O’Melveny elected to wait. O’Melveny has now acknowledged awareness of these connections for five months. Only now, in connection with noticing a final fee application, has it decided to advise the Court, the United States Trustee and creditors of the same.

Instead of making prompt, thorough disclosures, O’Melveny entered into discussions with the PCC about how to obviate an objection and thereby avoid a public fight without any mention that Supplemental Disclosures had not been made. Regrettably, these newly discovered facts are significant and warrant a substantial fee reduction or disgorgement. The PCC, which was otherwise prepared to come into Court on May 5 supportive of a $500,000 fee reduction cannot in good conscience do so now.

The PCC investigated, after the fact, O’Melveny’s role in the VIA motion that engendered so much litigation, and negotiated in good faith with O’Melveny to reach an agreed fee reduction which would avoid an objection by the PCC to O’Melveny’s fees. O’Melveny at the same time knew of its undisclosed connections to the 2002s – one of the great malefactors in these cases. Only after reaching an agreement with the PCC did O’Melveny make the required disclosures, putting the Supplemental Disclosures into the record as an attachment to its notice of hearing.

The record (including the PCC’s objection) is now before the Court. [Docket Entries 3606, 3615, 3616, 3617, 3619, 3620, and 3621]. With these docket entries and attendant exhibits, as well as O’Melveny’s five sealed fee applications and the Court’s long history with these Debtors and estate fiduciaries, the PCC believes the Court is in a position to rule on O’Melveny’s fee request.

Finally, as mentioned above, after the Supplemental Disclosures were filed, the PCC requested a fulsome explanation as to the timing of the Supplemental Disclosures and the nature of each of the so-called Highbridge and Smithfield engagements. O’Melveny provided a written response to the PCC on April 23, 2009. It is attached to the Declaration of Aron M. Oliner submitted herewith. The PCC suggests O’Melveny file a further supplemental statement. Given the history of these cases, answers to these important questions should be put in the record in sworn form before the May 5, 2009 hearing.

Dated: April 24, 2009

DUANE MORRIS LLP
By: /s/ Aron M. Oliner (152373)
ARON M. OLINER
Attorneys for the POST-CONFIRMATION
CREDITORS’ COMMITTEE

Case: 03-51775, Doc# 3631, Filed: 04/24/09, Entered: 04/24/09 12:48:52 Page 7 of 7