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In re SONICblue

United States Bankruptcy Court for the Northern District of California
2007 WL 926871 (2007)


SONICblue, Inc. (Sonic) (debtor) made electronic products. Pillsbury Winthrop Shaw Pittman LLP (Pillsbury) was Sonic’s counsel. Sonic raised $75 million through the issuance of bonds, and the bonds were later purchased by three institutional bondholders. In its capacity as Sonic’s counsel, Pillsbury provided the bondholders with a written opinion letter attesting to the quality of the bonds. Sonic shortly thereafter filed for bankruptcy. Pillsbury applied to serve as Sonic’s bankruptcy counsel and was approved by the court. Pillsbury filed multiple disclosure statements describing any potential conflicts, but none of the statements mentioned the opinion letter Pillsbury had written for the bondholders. In the bankruptcy, Pillsbury assisted Sonic in challenging the bondholders’ claims. The bondholders demanded that Pillsbury defend and indemnify the bondholders for any losses resulting from the challenge, because Pillsbury issued a favorable opinion letter about the bonds. Pillsbury transferred the bondholder’s challenge to counsel for the unsecured creditors committee. Pillsbury did not, however, file a supplemental disclosure regarding the conflict.

Rule of Law


Holding and Reasoning (Morgan, J.)

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