13.10 ETHICAL ISSUES FOR ATTORNEYS
13.1001 Attorney's Duties to Client.
A. In General. The attorney's over-arching duty is to fulfill the client's objectives in the bankruptcy proceeding. This must be done within the limitations imposed by the Virginia Rules of Professional Conduct.
It is important to reaffirm, on a general basis, the principle that lawyers, who serve as officers of the court, have the first line task of assuring the integrity of the process. Each lawyer undoubtedly has an important duty of confidentiality to his client and must surely advocate his client's position vigorously, but only if it is truth which the client seeks to advance. The system can provide no harbor for clever devices to divert the search, mislead opposing counsel or the court, or cover up that which is necessary for justice in the end. It is without note, therefore, that we recognize that the lawyer's duties to maintain the confidences of a client and advocate vigorously are trumped ultimately by a duty to guard against the corruption that justice will be dispensed on an act of deceit. 137
B. Competent Representation. "A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation." 138 "Competent representation of one's clients is a part of an attorney's ethical responsibility to his or her client; failure to act competently, willfully or habitually, such as by the failure to use reasonable diligence and his or her best judgment and skill in the application of one's learning, is a breach of the attorney's fiduciary duty to the client." 139 When an attorney
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undertakes representation in a bankruptcy matter without possessing the requisite skill, background, and knowledge to do so competently, he or she is not entitled to compensation. 140
C. Scope of Representation. Rule 1.2(a) of the Virginia Rules of Professional Conduct provides: "A lawyer shall abide by a client's decisions concerning the objectives of representation, subject to paragraphs (b), (c), and (d), and shall consult with the client as to the means by which they are to be pursued. A lawyer shall abide by a client's decision, after consultation with the lawyer, whether to accept an offer of settlement of a matter. . . ." Subsection (b) of the rule allows the lawyer to limit the objectives of the representation if the client consents after consultation; subsection (c) forbids the attorney from counseling or assisting a client to engage in criminal or fraudulent conduct; and subsection (e) requires the lawyer to consult with the client regarding the relevant limitations on the lawyer's conduct if and when the client's expectations include assistance that is unlawful or unethical.
1. Scope of Employment Distinguishable from Reason for Employment.
The scope of counsel's employment . . . is usually apparent from the reasons giving rise to counsel's employment. However, the reasons for the employment and the scope of the employment are distinct. The reasons for the appointment justify the appointment and are generally found in the employment application. The scope of the employment describes with some specificity what counsel is to do and is generally found in the employment order. While the scope of employment flows from the reasons necessitating the appointment, they are not identical. 141
2. Scope of Employment Must Be Well-Defined. "A well-defined scope of employment is essential. It identifies the tasks to be accomplished, permits the trustee to properly manage the professional, and enables the court to properly evaluate a later fee application." 142 Where the employment of an attorney in bankruptcy is not subject to court approval,
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which is normally the case with attorneys employed by parties in interest other than the trustee, debtor-in-possession, or committee, the scope of employment should be established in an engagement letter.
3. Termination of Employment. Once counsel makes an appearance in a bankruptcy case, counsel has made an appearance for all matters in that bankruptcy case and must appear with respect to them unless otherwise excused by the court. If there are difficulties with the attorney-client relationship, including nonpayment of fees, counsel may seek leave to withdraw. 143
D. Diligence. Rule 1.3 of the Virginia Rules of Professional Conduct states: "A lawyer shall act with reasonable diligence and promptness in representing a client." Comment [2] to the rule states that
a more collaborative, problem-solving approach is often preferable to an adversarial strategy in pursuing the client's needs and interests. Consequently, diligence includes not only an adversarial strategy but also the vigorous pursuit of the client's interest in reaching a solution that satisfies the interests of all parties. The client can be represented zealously in either setting.
This is particularly appropriate in the reorganization setting, where many parties' interests intersect. A collaborative approach is often the difference between a successful reorganization, where all parties do well, and a liquidation, where parties recover pennies on the dollar. The attorney who understands the concerns and expectations of the other parties will find that he or she is in a better position to protect and advance the client's interests.
E. Communication. Rule 1.4(a) of the Virginia Rules of Professional Conduct provides: "A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information." Subsection (b) of the rule requires the lawyer to explain a matter to the extent necessary for the client to make informed decisions. A bankruptcy case will include terms, procedures, and parties to which a client may never have been exposed. Lawyers are not obligated to make their clients experts on the Bankruptcy Code, but they should take the time to explain critical aspects, significant deadlines, and end results.
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F. Reasonable Fee. "A lawyer's fees shall be reasonable." 144
1. Analogous Bankruptcy Code Requirement. The professional requesting an award of fees for legal services rendered bears the burden of establishing that his or her services were actual, necessary, and reasonable as required by section 330 of the Bankruptcy Code. 145 The standards applicable in evaluating the reasonableness of fees are discussed in paragraph 13.202.
2. Contract Attorneys. A law firm that fails to seek a client's consent before delegating work to a contract attorney in bankruptcy proceedings is barred from collecting fees for the independent contractor's time. 146 As stated above, the approval of a fee only applies to in-house personnel.
3. Sharing of Fees. Bankruptcy Rule 2016(a) requires that the attorney who wishes to be paid from the estate provide a detailed description of the services rendered, time expended, and expenses incurred, as well as information on the terms of any sharing of the compensation with those who are not members or regular associates of the attorney's firm. Rule 2016(a) states:
An application for compensation shall include a statement . . . whether an agreement or understanding exists between the applicant and any other entity for the sharing of compensation received or to be received for services rendered in or in connection with the case, and the particulars of any sharing of compensation or agreement or understanding therefor, except that details of any agreement by the applicant for the sharing of compensation as a member or regular associate of a firm of lawyers or accountants shall not be required.
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G. Confidentiality.
1. Information Protected. Rule 1.6(a) of the Virginia Rules of Professional Conduct provides:
A lawyer shall not reveal information protected by the attorney-client privilege under applicable law or other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraphs (b) and (c).
2. Exception to Comply with Law or Court Order. The lawyer may reveal information necessary to comply with law or a court order. 147
3. Exception for Required Disclosures. Much of what is learned by a bankruptcy attorney in working with a client is confidential. However, the Bankruptcy Code requires that certain disclosures be made of information that one would consider otherwise confidential outside the bankruptcy context when filing required forms and documents. Such disclosures are mandatory to obtain the benefits and protections conferred by the Code. The lawyer should communicate these requirements to the client early in the representation.
4. Exception for Fraud upon Court or Third Party. The lawyer is required to reveal information establishing that the client has perpetrated a fraud upon the court. 148 Bankruptcy courts impose a high standard:
[O]n the very first hint or suspicion that the debtor or debtor's principal is not being honest, or is neglecting his/ her/its fiduciary duty to the estate, it is the attorney's duty to first ask probing questions and demand full and reason-ably corroborated responses, and then if counsel is still unsatisfied
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or ethically uncomfortable, immediately bring the unresolved concerns to the Court's attention by way of a motion to be relieved as counsel of record or in some other way. The wholly unacceptable response is to do nothing and continue in the engagement "looking the other way." Counsel does so at his or her personal and professional peril. 149
The lawyer also may reveal information that clearly establishes the client has, in the course of...
