Ethics Opinions

Opinion No. 76-21

Summary: An attorney who had filed an involuntary petition in bankruptcy on behalf of several crediors against a corporation and who later served as counsel to the trustee should not represent the former principal officer of the corporation in the latter's personal bankruptcy if the two bankruptcy proceedings are substantially related.

Facts: Attorney X has been asked to file a voluntary petition in bankruptcy on behalf of an individual who had been the principal officer of a corporation against whom certain creditiors, represented by Attorney X, had filed an involuntary bankruptcy petition nine months earlier. In the corporate bankruptcy, Attorney X acted as counsel to the trustee. Attorney X asks whether he may properly represent the officer in the latter's contemplated personal bankruptcy which has been necessitated by the failure of the company.
Discussion: A trustee in bankruptcy is charged with the responsibility of protecting the interests of the general creditors of the bankruptcy estate. Among his many responsibilities are the following: ascertaining the bankrupt's assets and liabilities; determining whether the bankrupt is entitled to a discharge; determining the validity of pre-bankruptcy liens, attachments and transfers and collecting and liquidating the bankrupt's non-exempt assets and distributing them to the creditors after satisfying priority claims and valid liens. In most cases, the trustee's counsel plays an important role in all of the above. On behalf of the trustee, he may prepare agreements, negotiate the settlement of disputes and commence and defend litigation. In the typical corporate bankruptcy, much of the effort of the trustee and his counsel are directed at the principals of the company involved, particularly its officers.
To resolve the question before us, we must first decide who is the "client" in the context of a bankruptcy trustee and his counsel. On this issue, we are of the opinion that, in a bankruptcy proceeding, counsel to the trustee represents the general creditors as a class for purposes of applying the conflict of interest rules only. The fact that the trustee is ostensibly the client does not blur the reality that the attorney, by acting for a representative of creditors, owes his allegiance to those creditors. For their part, the creditors look to the trustee in a bankruptcy proceeding to protect their interests.
In a typical corporate bankruptcy, the trustee's attorney would have vigorously pursued the officers of the bankrupt company on behalf of the creditors to establish possible independent liability on their part or to uncover hidden assets or discover preferential or fraudulent transfers. The question before us is whether that same attorney may now represent an officer of the bankrupt corporation, not in an unrelated matter, but in a personal bankruptcy proceeding which arose, in large part, as a result of the corporate bankruptcy.
Disciplinary Rule 4-101(B) provides that a lawyer shall not knowingly reveal a secret or confidence of his client, use a secret or confidence of his client to the disadvantage of his client, or use a secret or confidence of his client to the advantage of himself or a third person. In our Opinion No. 75-7, we decided that the word "client" as used in DR 4-101(B) must include a former client as well as a present or continuing client. Also, see Ethical Consideration EC 4-6 which states "[t]he obligation of a lawyer to preserve the confidences and secrets of his client continues after termination of his employment." Finally, Canon 9 sets out the general principle that a lawyer should avoid "even the appearance of professional impropriety."
As we understand the facts presented to us, there exists a substanial relationship between the personal and corporate bankruptcy proceedings. Among other things, many creditors of the company may also be creditors of the principal officer. More importantly, provisions in 11 U.S.C. SS14 and 17 might render the officer ineligible for a personal discharge because of actions or statements of his made while he was in the employ of the company and on the company's behalf.
To the extent that the factors just mentioned or others similar to them exist in this case, we are of the opinion that the attorney should not represent the former officer in his personal bankruptcy proceeding. MBA Opinion No. 76-14 and cases cited therein. Where the cases are substantially related, it is quite possible that information communicated to the attorney by the trustee or a creditor in the corporate bankruptcy might be used to the advantage of the former officer in his personal bankruptcy or to the disadvantage of the creditor in the event that the same creditor is involved in the personal bankruptcy proceedings. Also, were the attorney to discover while representing the former officer that he committed an act or made a statement which would have rendered him or the company ineligible for a discharge, he would be placed in a serious predicament. Finally, aside from actual use of confidential or secret information, we are troubled by the appearance of impropriety which the situation creates. We do emphasize, however, that many questions involving possible conflicts of interest are not easily answered and depend, to a large degree, on the particular facts of each case. In some cases similar to the one presently before us, for example, it may well be that there is little, if any, connection or overlap between the two bankruptcy proceedings.


Permission to publish granted by the Board of Delegates, 1976. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.
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