Assisting Debtor in No-Asset Chapter 7 Case Doesn't Conflict With Representing Creditors

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Dec. 19 — A lawyer may represent a debtor in a simple, no-asset Chapter 7 bankruptcy proceeding even if the lawyer concurrently represents one or more of the debtor's creditors in unrelated matters, according to a recent opinion from the California state bar's ethics committee.

The lawyer is not required to get informed written consent from the clients because the situation does not involve a conflict under the rule on representing clients with adverse interests, the committee advised.

Pro Bono Program

The opinion addresses a hypothetical attorney's participation in a pro bono program sponsored by a nonprofit agency that screens individual debtors to see if they are good candidates for Chapter 7 bankruptcy proceedings. If the attorney confirms that bankruptcy is an appropriate option for a debtor, the attorney prepares the paperwork for a Chapter 7 filing and sometimes represents the debtor through the meeting of creditors.

Except in unusual situations, the committee advised, the attorney may represent the debtor even if he knows that he currently represents one of the debtor's creditors in an unrelated matter.

The panel found that this situation does not implicate California Rule of Professional Conduct 3-310(C)(3), which forbids a lawyer, without each client's informed written consent, to “[r]epresent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter.”

In finding no conflict in this situation, the committee drew heavily on similar guidance in a Boston opinion and a New York City opinion that addressed lawyers' representation of debtors in pro bono programs.

Although the California opinion doesn't mention it, the New Jersey Supreme Court recently reached the same conclusion, holding that a lawyer may represent a debtor on a pro bono basis in a no-asset Chapter 7 bankruptcy proceeding even if the lawyer's firm represents the client's creditors in other matters.

Not Adversaries

The California opinion states that on the hypothetical facts, “there is no adversarial proceeding and the representation does not create a conflict that would disqualify Attorney from filing the proceeding and appearing at the section 341(a) meeting without the informed written consent of both clients.”

The committee grounded this conclusion on the premise that a simple Chapter 7 proceeding is an in rem proceeding in which the debtor and the creditors are not direct adversaries. Except in some atypical scenarios, it said, the attorney assisting the debtor would be providing a net benefit to the estate by ensuring accurate and complete documentation.

The committee also pointed out that under 11 U.S.C. Section 327(c), an attorney is permitted to represent a bankruptcy trustee even though the attorney simultaneously represents a creditor in an unrelated matter, unless there is an objection and the court finds an actual conflict of interest

The committee said that if the attorney's creditor-client objects to discharge or takes other actions directly adverse to the debtor-client, that could give rise to a conflict requiring consent or even withdrawal.

In a footnote, the panel pointed out that even though no conflict exists, the attorney must still give written notice to the debtor of his professional relationship with the creditor, as required by Rule 3-310(B)(1).

Guidance Applies in Other Contexts

The opinion indicates that the finding of no conflict is not tied to the pro bono nature of the services being provided.

“While the analysis and conclusions of this opinion are not limited to a pro bono representation context, other contexts would require discussion of fee sharing and of third-party prescreening. This opinion does not address these topics,” the committee stated.

Full text at http://ethics.calbar.ca.gov/Portals/9/documents/Opinions/CAL%202014-191%20%5B12-0004%5D.pdf.

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