by Nicole D. Mignone*
U.S. Bankruptcy Court (E.D.N.Y.); Central Islip, N.Y.
In a per curiam decision, the Second Circuit recently joined other circuits in holding that “claims of professional malpractice based on services rendered pursuant to a bankruptcy petition are subject to the bankruptcy court’s original but not exclusive jurisdiction under Section 1334(b) of title 28.”[1] In 2001, Aston Baker (the debtor) filed a chapter 7 petition, then it was converted to a chapter 11 case.[2] The bankruptcy court appointed Charles Simpson and his law firm, Windels Marx Lane & Mittendorf LLP, as counsel to the debtor and two other jointly administered entities in which the debtor was either sole or controlling shareholder (the “affiliates”).[3] Based on several incidents that occurred during the course of the counsel’s legal representation of the debtor and the affiliates, on Oct. 23, 2007, the debtor filed claims against counsel in state court under several theories of legal malpractice, conversion, negligence, fraud and intentional misrepresentation (the “action”).[4]
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by Whitney R. Travis
Christian & Barton, LLP; Richmond, Va.
American Bar Association (ABA) Model Rule 7.3 prohibits a lawyer from soliciting professional employment in person, by live telephone or real-time electronic contact where pecuniary gain is a significant motive and the prospective client is not a lawyer and does not have a family, close personal or prior professional relationship with the lawyer.[1] Under the rule, where pecuniary gain is the motive and no relationship exists, Rule 7.3’s prohibition is an absolute, categorical ban based on method of contact, but what are these forbidden methods of “real-time electronic contact”?
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by John S. Mairo
Porzio, Bromberg & Newman PC; Morristown, N.J.
Matthew B. Heimann
Porzio, Bromberg & Newman PC; Morristown, N.J.
In today’s economic climate, it is not uncommon for law firms to encounter trouble collecting outstanding legal fees. Although not preferred, law firms may ultimately have no choice but to commence collection actions against former clients. It is uncommon, however, for law firms to commence involuntary bankruptcies against former clients to recover unpaid fees.
Involuntary bankruptcy petitions remain quite rare, mainly because there are potentially serious risks and penalties associated with the filing of such. The recent case of In re Skyworks Ventures Inc.[1] provides a cutting example for when those risks are ignored. The Skyworks court dismissed an involuntary petition filed by the debtor’s former law firm and ruled that the debtor company was entitled to its reasonable attorneys’ fees and costs, as well as punitive damages. The Skyworks decision provides a sobering lesson that a creditor, including a law firm, should thoroughly examine the risks associated with filing an involuntary bankruptcy petition before using it to collect an outstanding debt.
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by Rob Charles
Lewis and Roca LLP;
Tucson, Ariz.
In July 2010, the U.S. Bankruptcy Court for the District of New Mexico declined to dismiss a cause of action by a chapter 7 trustee against a lawyer who had submitted an offer from a third party to purchase estate property, leaving for trial whether the lawyer may be held personally liable on the contract. The opinion in Gonzales v. Miller (In re Texas Reds, Inc.)[1] relies on traditional common-law principles of agency as expressed in the Restatement (Third) of Agency as to the liability of an agent for an undisclosed principal. The opinion expands the list of concerns for lawyers representing clients in bankruptcy outside the traditional constraints of the Rules of Professional Conduct (“ERs”) and the court’s ability to sanction under Bankruptcy Rule 9011 or otherwise.
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by Trent Collier
Dickinson Wright PLLC; Ann Arbor, Mich.
It is hard to open a law periodical these days without hearing about the shift from hourly billing to alternative fee arrangements such as flat fees. It may be premature to mourn the demise of the billable hour, but it is nevertheless imperative for lawyers to become familiar with the ethical pitfalls inherent in alternative billing arrangements.
The D.C. Bar Legal Ethics Committee (the “committee”) recently provided additional guidance on the use of flat fees in Opinion No. 355, published in June 2010.[1] Opinion 355 was a response to In re Mance,[2]in whichthe District of Columbia Court of Appeals addressed “the question whether a ‘flat fee’ paid in advance for legal services is to be deemed an ‘advance…of unearned fees’ that is required to be treated as property of the client.”[3] Opinion 355 and Mance provide some useful insights into flat fee arrangements and how to avoid running afoul of Rule of Professional Conduct 1.15.
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ABI and the University of Missouri-Kansas City School of Law will team up once again to present the 30th Annual Midwestern Bankruptcy Institute on October 1. The day-long program features eight regional bankruptcy judges as well as top national and regional speakers. The program offers a mix of panels and debates on current developments and the format allows one to customize the experience by attending the business or consumer-oriented track. The downtown Kansas City Marriott provides great value and all the amenities expected. One of the sessions will be of great interest to the committee.
Panelists in the session "Business Ethics: Maginot Lines? Examining and Enforcing the Duties Owed by Officers, Financial Advisors and Counsel" will discuss situations in which lenders or trustees will bring on corporate restructuring officers or other professionals during a reorganization. Kelly Beaudin Stapleton of MorrisAnderson & Associates, Ltd. in New York will moderate. Panelists will include John D. Penn of Haynes and Boone LLP in Fort Worth, Texas and Andrew R. Vara of the Office of the U.S. Trustee in Cleveland. Please click the link below to view the materials.
Business Ethics: Maginot Lines? Examining and Enforcing the Duties Owed by Officers, Financial Advisors and Counsel
The Co-Chairs' Corner: News of the Ethics & Professional Compensation Committee
by Judith Greenstone Miller
Jaffe, Raitt, Heuer & Weiss, P.C.; Southfield, Mich.
Gold Lange & Majoros PC; Southfield, Mich.
Office of the U.S. Trustee, Region 4; Columbia, S.C.
Things are jumping in Ethics and Professional Compensation Committee. Last month we announced the committee’s new leadership team. This month we are proud to announce that they have hit the ground running. Richard Carmody (Adams & Reese LLP; Birmingham, Ala), our newsletter editor, and Peter Bergan (Miller Canfield; Troy, MI), who is assisting him, have been a dynamo of activity both in finding interesting topics and recruiting talented and enthusiastic authors. Some of these articles cover the limits of conflicts counsel in curing the conflict of the attorney for the DIP, the allowance of post-petition attorney fees for unsecured creditors, and the limits of § 506(b) on fees, costs and charges. The article by Whitney R. Travis (Christian & Barton, LLP; Richmond, VA) on “The Forbidden Methods of ‘Real Time Electronic Contact,’” raises some interesting questions concerning the use of the internet by lawyers. These articles are only the beginning and, as Richard and Peter describe it, “the hits just keep coming.” It is a rare day that one of them does not come up with a new case with an interesting ethical twist.
The List Serve under Val Venable (Sabic Innovative Plastics) has offered some interesting and intriguing topics, including the weight the U.S. Trustee should give to a creditor’s privileged or confidential information when appointing a creditor’s committee, the ability of a creditor to sell a malpractice claim, and the propriety of a lawyer seeking a release of a grievance as part of a malpractice claim. We encourage you to participate in the discussion of these list serve topics and to suggest other topics for discussion. In this way we can leverage the vast knowledge and experience of the Committee and the ABI membership and enhance professionalism.
Special Projects under the leadership of Teresa Brown-Edwards (Potter Anderson Coroon LLP; Wilmington, Del.) is continuing to work on the proposed book entitled, Professional Ethics in Chapter 11. Chip Bowles (Greenebaum Doll & McDonald PLLC; Louisville, Ky.), the prior co-chair of the Professional Compensation Committee; Ted Gavin (NHB Advisors; Wilmington, Del.), the prior co-chair of the Ethics Committee; Prof. Nancy Rapoport, (William S. Boyd School of Law at the University of Las Vegas), a law professor who specializes in ethics; and Committee Co-Chair Judy Miller, are working together on this book.
Kelly Stapleton (MorrisAnderson & Associates; New York) and Steve Schwaber (Law Office of Steven A. Schwaber; San Marino, CA) have planned a terrific program for the Winter Leadership Conference (WLC) on Rule 2019 and attendant conflict of interest issues, including fiduciary duties to the estate. Hon. Kevin Carey of the U.S. Bankruptcy Court of the District of Delaware will be moderating the program. The speakers are Richard Pachulski (Pachulski, Stang, Ziehl & Jones LLP; Los Angeles, CA), Richard Kremen of DLA Piper LLP (Baltimore, MY), and Tracy Hope Davis (Office of the United States Trustee; New York). We look forward to seeing you at the WLC. They are also now working on the program at the Annual Meeting which may focus on actions by chapter 11 trustees and liquidating trustees to recover fees from retained professionals, along with a discussion of the validity of such actions and suggesting ways in which professionals may be able to protect themselves from such challenges.
With such a hard working leadership team and an active membership, it is both educational and fun to serve as co-chairs of this Committee. We encourage all members of the Committee to actively participate in Committee activities. John Weiss (Alston & Bird, New York), our Member Relations Director, will be glad to help you get more involved. We look forward to seeing each of you in Scottsdale at the Winter Leadership Conference.
