The Boiling Pot of Lawyer Conflicts in Bankruptcy

I take up here only two modest pieces of the current puzzle of lawyer conflicts of interest in bankruptcy practice. One involves the decision of the American Law Institute (hereinafter ALI ) to sidestep the entire field in the course of drafting its Restatement of the Law Governing Lawyers (hereinafter Restatement ). The other involves the decision of the National Bankruptcy Review Commission (hereinafter NBRC ) to refuse to recommend that Congress do anything at all major to disturb existing law in the same realm. Either the law of lawyer conflicts in bankruptcy has been blessed in its present state by two prestigious and influential organizations, or something else is going on. I suggest here that something else is indeed afoot in the law and in legal institutions, and it doubtless will continue. First, with respect to the ALI, why would an enterprise with the global title of Restatement of the Law Governing Lawyers not take up a topic as important, confused, and worthy of addressing as that concerning the conflicts problems of lawyers who represent clients in bankruptcy? As is amply proved, if by nothing else, by several papers in this Symposium, there is widespread disagreement about starting points, not to mention finish lines, with respect to lawyer conflicts in bankruptcy. Judicial decisions on the subject sometimes reflect what may charitably be characterized as chaos. A significant number reflect, in my eyes, antediluvian concepts of conflicts analysis. At the very least, it seems to be common ground that “[r]ecent years have seen increasingly rigorous application of the conflicts rules by courts and state bar ethics committees ....” The number of bankruptcy filings in recent decades has skyrocketed, meaning that more lawyers (and a correspondingly larger number of judges) are forced to grapple with conflicts imponderables that may be encountered in bankruptcy. The stakes are also high, at least for the lawyers. As is now commonplace, a lawyer or law firm whose conflict antennae are not precisely calibrated with those of a judge, who might pass on the issue, may be forced to forfeit the entire fee that otherwise would be due for extensive work on the matter. It is also well known that the judicial decision will come down many months or years after the lawyer will have been forced to decide whether to represent the bankruptcy client. Although legal malpractice claims against bankruptcy lawyers apparently do not presently loom large, the potential exists for significant increase in such claims. In a field bearing such characteristics, it would seem that the role of the ALI in crafting its Restatement would necessarily include bankruptcy conflicts. Yet, after initially ignoring the field and then taking a faltering start, the Institute proposes now to withdraw entirely from the effort. The Restatement, in its most recent edition, states, in the most studied way possible, that the Institute intends to say nothing about this important field. Our inglorious retreat has hardly been universally praised by bankruptcy lawyers. To the contrary, an effort was still underway in early 1998 by bankruptcy practitioners within the ALI to have us face at least the major issues. The omission, as well as the false start, requires a bit of explanation. I propose to provide that here, although it will only be natural if my attempt to provide history proves more convincing to affected bankruptcy lawyers than my defense of the course we have taken. Second, just as the ALI was refusing to move on bankruptcy conflicts, the NBRC was being advised by several lawyers representing large organizations of bankruptcy lawyers that the present law of bankruptcy conflicts was unworkable and needed serious overhauling. With near unanimity, a working group suggested a number of relatively major revisions (although it did not recommend the most radical proposal for reform that was discussed by the group). As with the ALI, the NBRC at first seemed interested in reform, but then also stepped back and seems instead to have affirmed that all is well under the present law. In my opinion, the initial instincts of the NBRC were more sound. Those events and their implications I briefly canvass here. I conclude with the thought that the last word has hardly been uttered on lawyer conflicts in bankruptcy. Reform, of either the sudden or gradual variety, will probably characterize the field in years to come