Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller

Exercise 5

Ethical Conduct. Unable to pay more than $1.2 billion in debt, Big Mountain Metals, Inc., filed a petition to declare bankruptcy in a federal bankruptcy court in July 2009. Big Mountain's creditors included Bank of New London and Suzuki Bank, among others. The court appointed Morgan Crawford to work as a "disinterested" (neutral) party with Big Mountain and the creditors to resolve their disputes; the court set an hourly fee as Crawford's compensation. Crawford told the banks that he wanted them to pay him an additional percentage fee based on the "success" he attained in finding "new value" to pay Big Mountain's debts. He said that without such a deal, he would not perform his mediation duties. Suzuki Bank agreed; the other banks disputed the deal, but no one told the court. In October 2010, Crawford asked the court for nearly $2.5 million in compensation, including the hourly fees, which totaled about $531,000, and the percentage fees. Big Mountain and others asked the court to deny Crawford any fees on the basis that he had improperly negotiated "secret side agreements." How did Crawford violate his duties as a "disinterested" party? Should he be denied compensation? Why or why not?