2006 NORTON BANKRUPTCY LAW SEMINAR MATERIALS
THE ETHICS OF REPRESENTING DEBTORS AND CREDITORS IN BANKRUPTCY
By Susan M. Freeman
*This outline is adapted from Chapter 27, Ethical Responsibilities,
Norton Bankruptcy Law & Practice 2d (Thomson-West 2005)
7. Disclosure is an ongoing responsibility. If potential conflicts arise after the
initial application and disclosure, they should be brought to the court's attention promptly.231 Disclosure should be made when the adversity arises, which may be at the negotiation stage before final terms are agreed upon.232
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Attorneys representing DIPs prepare pleadings for their client's signature, including applications for their own employment. They are obliged to inquire into and analyze the factual and legal elements of every document signed and filed.233 A halfhearted inquiry into
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conflicts among firm members is inadequate. It is counsel's responsibility to ensure complete disclosure.234 Special counsel cannot simply rely on the DIP's primary bankruptcy counsel to handle necessary filings.235
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Bankruptcy Rule 2014 requires disclosure of all of the applicant's connections to the U.S. Trustee and any person employed in the office of the U.S. Trustee.236
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Full disclosure of all aspects of fee arrangements is also required.237 Even if an attorney limits her representation to prepetition advice or even petition preparation alone, a Rule 2016 statement must be filed.238 The absence of full disclosure of fee payment arrangements in a chapter 13 case means the client's plan disclosures are likewise erroneous, impairing the client and creating a conflict.239 Complete disclosure of prepetition payments "in connection with" and "in contemplation of" bankruptcy must be disclosed, in addition to disclosure of retainer arrangements.240
I. Sanctions for Conflicts and Failure to Disclose Potential Bases for
Disqualification.
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The most common consequence of non-disinterestedness is termination of the representation, with fee denial or disgorgement of interim payments, but suspension from practice, disbarment, and even criminal convictions have been imposed for blatant nondisclosure violations.241 The court may disqualify counsel from representing the DIP based upon an objective standard, evaluating the facts of each case, regardless of the integrity or intent of the attorney.242
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The Bankruptcy Code specifically authorizes‹but does not require‹courts to deny fees and reimbursement of expenses if at any time during the employment, the attorney is not disinterested or holds or represents an interest adverse to the estate with respect to the matter for which the attorney is employed.243 If the attorney was never appointed as counsel, and is not disinterested or otherwise not enbtitled to nunc pro tunc employment, the court cannot award
