Bankruptcy Ethics: Candor v. Confidentiality

Bankruptcy ethicsCrack of dawn from Amelia Island:  a  crackerjack program on bankruptcy ethics with Judge Thomas Waldron; soon to be judge Cynthia Grimes; and Jill Michaux, Topeka Kansas bankruptcy practitioner.

Premise:  candor to the tribunal trumps the duty of confidentiality to the client.

The rules that apply found in Model Rules  Rule 3.3  The lawyer shall not knowingly make a false statement to the tribunal or fail to correct a false statement.

Judge Waldron points out that violations of the Model Rules are also criminal offenses.

Cynthia pointed out that the very same conduct can be OK in one case and fraudulent in another, naming two 8th Circuit cases where the same pre bankruptcy planning was OK in one case and resulted in denial of discharge in another.

Confidentiality Rule 1.6  Lawyer shall not reveal information confided by the client.

Issues about litigation contracts with the client

Perhaps it could/should fold in the  applicable rules that require the lawyer to disclose information.

What is privileged?

Some courts say that nothing between debtor and client is privileged because of the prospects of audits of the bankruptcy case.  Another reason there may be no privilege is that the info the client provides for preparing schedules is expected to become public when filed.

No privilege ever if the subject is crime or fraud.

Do you rat out the client? 

  • Lawyer may reveal confidence to prevent fraud.  Lawyer should reveal only as much as necessary to remedy the harm.
  • Concealing assets in bankruptcy is a federal crim
  • Lawyer has duty to inform client of requirement of honesty

Lawyer’s Duties

The Rule 9011 provides

Reasonable inquiry

  • explain the client’s obligatino
  • ask probing and pertinent questions
  • check answers against internal and external sources
  • demand full disclosure
  • seek relief from court if you don’t get it

See  Withrow  392 BR 217,  405 BR 505 affirmed

Developing law:  how much must attorney verify?  How you deal with the delay between interview and filing?  Waldron:  must check public records that are easily available.

Jill’s advice, seconded by Judge Waldron:   confront the client the very first time they start to fudge.

Decline representation of liars and cheats

Don’t let your silence in the face of proposed corner cutting be interpreted by the client as approving the fraud.

Remember that findings in bankruptcy court that you’ve committed fraud are entitled to preclusive effect in a state law proceeding to revoke a law license.

False testimony

If the client starts to testify falsely, lawyer can invoke the client’s 5th Amendment, or request a continuance or break to discuss with client.

Withdrawal

What can you say in the course of withdrawing.  Gotta know the state law on what you can say.  A noisy withdrawal includes words about break down in communication that may have interfered with full disclosure, phrases that should communicate that there’s a REAL PROBLEM HERE.

 

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