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The Final Report of the ABI National Ethics Task Force Creating Second Class Legal Professionals

The formulation of local bankruptcy rules is rarely, if ever, a democratic process where the consumer bankruptcy attorney has a voice in its composition. Indeed, it is solely within the province of the local bankruptcy bench with the approval of the District Court that the rules become effective. Much credit must be given to the judges of the Bankruptcy Court of the Eastern District of Michigan who have opened up the process of changing the local bankruptcy rules to local practitioners. Under the guidance of the court they have formed subcommittees to recommend changes. Among these subcommittees has been the formulation of an Ethics Subcommittee. The local Ethics Subcommittee's preliminary recommendations have been highly influenced by the FINAL REPORT OF THE AMERICAN BANKRUPTCY INSTITUTE NATIONAL ETHICS TASK FORCE as it appears to be written whole cloth from the report. The report sets forth a particular bias against consumer bankruptcy attorney fueling the view inspired by BAPCPA that most consumer bankruptcy attorneys are more ethically challenged than other bankruptcy attorneys. It, therefore, fuels the view that consumer bankruptcy attorneys are second class legal professionals in need of particular attention, scrutiny and monitoring. The bias appears to stem from the limitation of the rule as it applies to only those attorneys who file Chapter 7 cases on behalf of individual debtors, whose debts are primarily consumer debts and thereby engage in limited representation. The Final Report of the ABI National Ethics Task Force creates the same limitation under the heading: Best Practices for Limited Services Representation in Consumer Bankruptcy Cases on page 49. The heading is misleading as it goes much further than a recommendation for best practices. It provides for a local rule to be drafted that would compel the local consumer bankruptcy attorney to provide a client a single contract for limited representation services (the Agreement and Consent to Limited Representation in Consumer Bankruptcy), and file the same with the court. The local Ethics Subcommittee emphasizes that the failure to follow any local rule will result in 9011 sanctions.

The ABI National Ethics Task Force apparently concludes without any empirical evidence that these particular attorneys are so ethically challenged that a mere recommendation as a best practice is not enough. They need a rule and indeed an enforcement method to curtail the abuses of consumer bankruptcy attorneys. In this regard, the bias is similar to the bias perpetrated by the enactment of BAPCPA which was passed without the gathering of any empirical evidence but nevertheless backed by the various moneyed lobbies. The Task Force's token note of the difference of treatment between individual consumer representation and individual business representation lies in a footnote which conveniently states, "This proposed rule is restricted to consumer practice. LSR in the business context has a very different justification and implicates very different issues." Having handled a significant number of non-consumer individual business bankruptcy cases, this writer has no idea what is meant by the footnote. Does it mean that the Task Force would like to further uphold the dichotomy created by BAPCPA and discriminate against consumer bankruptcy attorneys like BAPCPA discriminates against consumer bankruptcy debtors in its application? Does there have to be a symmetry in discrimination? Or is it a wink and a nod toward business bankruptcy attorneys who might have more of a say in the creation of local bankruptcy rules as they would not want to be treated in the same manner as consumer bankruptcy attorneys. This writer would challenge the members of the National Ethics Task Force to explain the disparity in treatment. Does it demonstrate a further attitude that consumer bankruptcy attorneys are second class professionals as they handle those kind of cases which are not significant and, therefore, not money making by first class and hence better and more honest bankruptcy professionals? Is it because more commercially oriented practitioners are better paid and hence not ethically challenged? Although Congress can write discriminatory laws against consumer debtors in the bankruptcy code, do we have to go down the same path against consumer bankruptcy attorneys without justification in our local bankruptcy rules?

If we consider the Task Force's list of basic services as limited services, do we consider the inclusion of the other services that are listed as providing full services? If that is the case, do not all bankruptcy practitioners limit their services even if you have a business case? Every bankruptcy case involves limited representation. Would an initial contract of employment ever include representation of a debtor in an adversary complaint before it was filed? Would it be ethical to receive payment for an event that may never occur? Why should we not see the employment contract of attorneys representing the business individual?

Why should the fee agreement be filed with the court? One of the biggest components in the increase in the cost of filing bankruptcy is the cost of electronic filing. Electronic filing was a big savings in the cost of operating the bankruptcy court as it put the cost on the bankruptcy attorney's office. Electronic filing together with BAPCPA have both contributed to the doubling of staff. Why have one more scan and upload consuming legal resources to be performed with the court? Is it to drive up, yet again, the overhead of these attorneys to make it more of a challenge to come up with affordable prices for these otherwise pro se debtors? If it is such a minor change, why not have all business debtor employment contracts scanned, uploaded and scrutinized? Let the business bankruptcy attorney enjoy the same increased overhead.

Basic consumer services do not normally include motions for redemption, fighting a motion for surrender of collateral or moving for the retention of consumer goods securing obligations to creditors. The basic services allude to these but do not define the extent of representation. Advice on these matters may be called for but not court appearances nor pleadings otherwise not paid for. Why the distinction between secured and unsecured debt representation? Do we withhold our advice on reaffirmations post-petition because the client has decided on his own initiative pre-petition not to tell us about the car loan because he rationalizes that he wants to keep the car loan and not include it in his bankruptcy despite our advice?

And what of 341 Meetings that are either continued or adjourned for either the debtor's non-appearance because he did not get his or her wakeup call or failed to bring a driver's license for identification? Should these attorneys endure the cost of the client's negligence without cost to the client?

The Model Agreement is a poorly drafted document. It lacks the typical terms required in by most lawyer's engagement agreements. Among other terms, it has no retention or destruction of file agreement.

The National Ethics Task Force ignores the overwhelming authority of Rittenhouse v. Eisen, 404 F.3d 395 (6th Cir. Mich. 2005), Bethea v. Robert J. Adams & Assocs., 352 F.3d 1125 (7th Cir. Ill. 2003), Fickling v. Flower, Medalie & Markowitz, Esqs. (In re Fickling), 361 F.3d 172 (2d Cir. N.Y. 2004) and Hessinger & Assocs. v. United States Trustee (In re Biggar), 110 F.3d 685 (9th Cir. Cal. 1997). Rittenhouse and its local progeny, In re Gourlay, 483 B.R. 496 (Bankr. E.D. Mich. 2012) and In re Slabbinck, 482 B.R. 576 (Bankr. E.D. Mich. 2012) stand for the proposition that the initial retainer agreement of the attorney forms a pre-petition dischargeable debt. The Slabbinck case carves out the work around Rittenhouse and its consequences identified in Gourlay by approving the unbundling of services with a two contract solution. The proposed limited services rule created by the National Ethics Task Force would define the extent to which services may be unbundled. These services include both pre-petition and post-petition services. There could be no fee paid post-petition that could include any of these services ethically deemed to be included in the limited scope compulsory Model Agreement. The National Ethics Task Force, therefore, requires debtors to pay all fees up-front thereby denying access to bankruptcy of the pro se debtor so recognized to be the problem by the Slabbinck case and supposedly the concern of National Ethics Task Force. National Ethics Task Force has no empirical evidence that pro se filings will go down if the rule is implemented. Thirty-seven years of experience informs this writer that they will continue to increase if the rule is implemented. In the Model Agreement, there is not even honest advice to the debtor that the debtor cannot be further charged for the limited representation post-petition services as they are not an enforceable debt.

With respect to Rittenhouse, how can National Ethics Task Force propose a Model Agreement that would alternatively charge an hourly rate for post-petition services included in the limited scope of representation when they cannot be lawfully charged under the bankruptcy code? Hourly charges are capped not by the Model Agreement but by the filing of the bankruptcy case. These post-petition charges would necessarily require a second unlawful agreement. It would be both unlawful and unethical to require payment of post-petition services for services already agreed to be provided in the pre-petition Model Agreement. This problem deserves more attention than stated in footnote 31 page 55, which states, "There are always risks with asking the client to pay, post-petition, for fees incurred pre-petition as part of the engagement. If the Proposed Rule suggested in this Best Practices Statement is not enacted, then perhaps a better approach would be that taken by a case in the Middle District of Florida. In that case, the court approved a payment system in which "the client execute[d] separate fee agreements for prepetition and post-petition services." See Walton v. Clark & Washington, 469 B.R. 383, 384 (Bankr. M.D. Fla. 2012)." Why does the National Task Force not recommend the better approach?

It appears that the National Ethics Task Force will be pushing its report nationwide as part of local bankruptcy rules revision. The consumer bankruptcy bar should oppose the implementation of the proposed rules recommended for consumer bankruptcy attorneys in the report. Currently, if the National Ethics Task Force wants to gain access to bankruptcy for all debtors and have less pro se debtors, the best solution is to allow consumer debtor's counsel to determine the ethical limitations of his representation and support the two contract solution. If the ABI was truly concerned about pro se debtors it should have invested in the real solution which is to support a legislative initiative to render the debt created by representation to be non-dischargeable and thereby permit credit.

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