THE ETHICS OF REPRESENTING DEBTORS &
CREDITORS IN BANKRUPTCY

under that section, but not simple malpractice.

1. If a professional deliberately conceals evidence of ethical violations, the professional may nonetheless be charged with a claim of fraud on the court, despite an apparent release in a court order. A judgment may be set aside under Rule 60(b) at any time for fraud on the court. One court held it could set aside an order approving counsel's employment and order disgorgement of fees awarded. It also held that the Chapter 7 trustee stated a claim for fraud on the court when the DIP's counsel avowed no prior connections with the debtor and no adverse interest, when in fact it had represented the debtor's general partners prepetition in setting up limited partnerships into which the debtor's assets were transferred. Similarly, an exculpation of professionals provision in a confirmed plan was held not to protect counsel from sanctions for an actual conflict of interest which they knowingly failed to disclose.
2. Some DIP professionals have sought to include indemnity provisions in their engagement agreements, and to limit any damage claims to disgorgement of fees received. Courts are divided in approving such indemnity language in accountant engagement agreements, with some agreeing if there is an exception for bad faith, selfdealing, willful or reckless misconduct or gross negligence. Efforts to divert the forum for malpractice claims to arbitrations or bankruptcy or federal court without a jury have likewise received mixed results to date. Professional conduct rules for attorneys prohibit agreements prospectively limiting liability to a client for malpractice unless the agreement is

This outline is adapted from Chapter 27, Ethical Responsibilities, Norton Bankruptcy Law & Practice 2d (Thomson-West 2005)