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                                  Volume 1, Number 2

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Limited Representation in the Bankruptcy Court: A Creditor’s Counsel Perspective
By Lance E. Olsen

Absent special circumstances, an attorney representing a chapter 7 debtor may not limit the scope of representation. Once an attorney signs on to represent a debtor, he or she must represent the debtor in all aspects of the bankruptcy case, including any contested matters or adversary proceedings that involve the debtor’s interests and this obligation continues until the court grants a request for withdrawal or the debtor consents to the withdrawal…..at least in Georgia. See, In the Matter of Egwim, 291 B.R. 559 (Bankr. N.D. Ga. 2003); See also, In re Johnson, (Bankr. D. Minn. 02-60812 2003) and In re Castorena, 270 B.R. 504 ( Bankr. D. Idaho 2001).

Across the country, more and more courts are being asked to consider how much representation is enough and when acceptable for an attorney to limit representation by contract. Recent bankruptcy court decisions from Minnesota, Idaho and Georgia suggest that an attorney proceeds at his peril in providing anything less than full service. At the same time, state bar associations, such as the one in Washington, are amending local rules of practice to clarify the right of a lawyer to limit representation. In 2002, the American Bar Association amended the Model Rules of Professional Conduct to allow limitation of the scope of representation as opposed to simply the objectives of representation. Arguably, this change allows attorneys to be more specific in retention agreements and limit representation to exclude such matters as contested hearings without a further agreement for additional fees.

In In re Harry R. and Kally A. Johnson (Bankr. D. Minn.), Judge Dennis D. O’Brien ruled that attorneys are not allowed to discount fees by limiting the services provided. The case involved an attorney providing debtors the option of paying a lesser fee in exchange for self-representation at the meeting of creditors. Although this choice followed consultation and consent, Judge O’Brien rejected the practice holding that attendance and representation at the meeting of creditors is mandatory in most circumstances and may not be avoided by discounting compensation.

At virtually the same time, Judge O’Brien was handing down his decision in Johnson, Judge Paul W. Bonapfel in the Northern District of Georgia was coming to an even more broad conclusion in the case of Matter of Egwim. In his court, debtor’s attorneys represent the debtor for all aspects of the case until withdrawal is approved. Further, withdrawal for reasons associated with compensation will only be considered upon a showing that continued representation imposes an unreasonable burden on counsel that justifies the withdrawal.

Judge O’Brien recognized the ability of the debtor’s attorney to limit the scope of the representation but also recognized that this agreement cannot result in representation so limited as to violate the rules regarding competent representation. Under the holding of Egwim, providing any representation less than full representation throughout the bankruptcy is apparently not competent under the rules.

Aside from restrictions on limited representation created by the courts, practical limitations also exist. Consumer creditor’s lawyers often take calls from debtors in distress whose attorneys have either explicitly, or by default, limited representation. The calls are in part a result of Federal Bankruptcy Rule of Procedure 4001 (b)(3).

Under 4001(b)(3), a party bringing a motion for relief must serve any party that has requested notice and any other party as the court may direct. Most local jurisdictions have directed that the debtor be served directly with any motion for relief from stay. When the Debtor receives the motion for relief from the creditor’s counsel, the first call may be to his attorney, but to the extent representation has been limited, a call to the creditor’s lawyer is not far behind.

In the typical scenario, the PACER report reflects an attorney of record for the debtor but the debtor advises that the listed attorney is no longer his representative or at least not his representative for the pending motion. At this point the creditor’s attorney is left with the option of advising the debtor that ethical considerations prohibit further discussion and that he should call the court for assistance, or, doing the best tap dance possible to explain the basics of the motion process while not providing legal advice or violating rules controlling communication with represented parties. Adding to the drama is the state of emotion often associated with the receipt of the pleading. A motion for relief concerning the debtor’s home is certainly capable of invoking a strong emotional reaction in the debtor and the human side of any lawyer requires some effort to calm the fears and concerns of the upset caller.

The easiest solution to this problem would be to remove the creditor’s burden of service directly upon the debtor. In few other areas of the law is a moving party allowed, much less required, to serve directly a party represented by counsel. If only attorneys exchanged pleadings, then attorneys could discuss the case in a professional and efficient manner and attorneys could explain the process to their respective clients.

The most frequent response to a proposal to change the rule is that doing so would leave debtors vulnerable to the follow-up of their counsel. Whereas the concern is valid, it is no different than in any other area of the law. Is not the person seeking damages for or defending against a claim of personal injury not equally harmed by a lawyer’s failure to follow up as required by contract or by ethical rules regarding diligence and competence? Should this potential be addressed by compelling the opposing attorney to communicate directly with each party? If an attorney does not fulfill his obligation to communicate with his client, he or she should be disciplined, but opposing counsel should not be the insurer of effective communication.

If bankruptcy courts are seriously interested in compelling full service representation of debtors, then the appropriate place to begin is with the removal of the requirement that creditors directly serve parties represented by counsel. As in other areas of the law, counsel for a debtor should be entrusted to effectively communicate with his client and protect the interests of his client without the need for direct service.

Even in circumstances where limited representation is allowed, service upon counsel for the debtor is still appropriate, absent a filed withdrawal. Service upon counsel of record will provide the debtor’s attorney the opportunity to remind his client that his representation is limited and/or offer his continued service. Requiring withdrawal will also assist parties reviewing the case docket to know who is represented by counsel and who is not.

In sum, the apparent conflict between the rules of professional conduct and accepted practice in bankruptcy court will apparently be decided on a district by district basis. Whereas it is clear that many courts disfavor limited representation, freedom of contract and the desire for widely available legal services favor continued expansion of an attorney’s ability to limit representation. Counsel who seek to limit representation excluding complex or even routine matters do so at the risk of later judicial opinion that the limitation was unreasonable. Practical problems raised by limited representation, balanced against the freedom of contract, mandate review of Federal and Local Bankruptcy Rules to provide practitioners clear direction and guidance.

Lance Olsen is the Managing Attorney of Routh Crabtree Fennell, a full-service law firm servicing Washington, Oregon, Idaho and Alaska dedicated to the representation of secured creditors and the mortgage lending industry. He can be reached at 425/586-1905 or lolsen@rcflegal.com.

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