2007 NORTON BANKRUPTCY LAW SEMINAR MATERIALS
THE ETHICS OF REPRESENTING DEBTORS &
CREDITORS IN BANKRUPTCY
By Susan M. Freeman
3. Counsel must file a disclosure of fee payments even if he does not
appear of record, or will be subject to complete disgorgement of all fees. Regardless of
limitations on representation, a lawyer must sign every document he prepares, or "ghostwrites," to avoid misleading the court, under Rule 9011 and professional ethics rules.
V. Representation of Creditors and Committees.
A. Conflicts of Interest With Bankruptcy Estates.
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The bankruptcy court has authority to disqualify counsel appearing before it for ethical violations. Counsel who previously represented a DIP may be asked to advise the people with whom she dealt, the company's insiders, after a trustee takes control. If the estate through the trustee sues the insiders, counsel may be disqualified from representing them if there is a substantial relationship between the litigation and the former estate representation. Because DIP counsel represented the bankruptcy estate, a successor chapter 7 trustee (or creditors committee bringing avoidance actions under a plan) may raise a conflict and disqualify the attorney from any substantially related representation in the case, such as representation of preference defendants.
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Several courts have held that a creditor filing a § 727 discharge objection assumes fiduciary duties to act in the best interest of the bankruptcy estate with respect to that litigation. Some courts have held the creditor cannot settle that litigation through payment of a § 523 claim to the litigating creditor alone without violating fiduciary duties.
B. Representation of Multiple Creditors.
This outline is adapted from Chapter 27, Ethical Responsibilities, Norton Bankruptcy Law & Practice 2d (Thomson-West 2005)
