When an Illinois personal-injury lawyer is appointed under 11 U.S.C. § 327(e) as special counsel to a Chapter 13 trustee to prosecute the lawyer's former client's uninsured-motorist claim, and the former client then fires the lawyer, must the lawyer withdraw?

Plain-English summary

The inquiring lawyer represented a client in an uninsured-motorist claim arising from a car accident, then learned the client was a Chapter 13 debtor. With the client's consent, the lawyer notified the trustee and the client's bankruptcy lawyer, and the bankruptcy court approved the lawyer's employment as special counsel under 11 U.S.C. § 327(e) to prosecute the claim for the estate. The client refused to cooperate with prosecution and fired the lawyer. The lawyer asked three questions: must the lawyer withdraw; are the client's interests in the proceeds materially adverse to the estate under Rule 1.9; and what duty of confidentiality does the lawyer owe under Rule 1.6.

The Committee anchors its analysis to bankruptcy-specific law. The claim became property of the estate at filing under 11 U.S.C. § 541(a) (citing Miller v. Shallowford Community Hospital, In re Bell & Beckwith, and In re Cottrell). Once that occurs, the debtor no longer holds the legal interest in the claim regardless of whether the debtor fires special counsel; the debtor's role is to cooperate with the trustee, and 11 U.S.C. § 1307(c)(1) authorizes conversion or dismissal for unreasonable delay prejudicial to creditors.

On the duty to withdraw, the Committee reads 11 U.S.C. § 327(e) together with § 327(c) to require an "actual conflict of interest" for disqualification. The opinion concludes there is none, drawing on the bankruptcy-court line that where the special counsel's interest and the estate's interest are identical with respect to the matter (here, maximizing recovery on the claim), no conflict arises (Nisselson v. Wong, In re AGE Ref., Inc., Bank Brussels Lambert v. Coan, Daly v. Kopnover). The Committee notes that a contingent fee, customary in personal-injury work, does not by itself create a conflict, and that 11 U.S.C. § 330 requires the bankruptcy court to approve any fee.

On Rule 1.9(a), the opinion concludes that because the debtor's claim is not "adverse" to the estate's interest, the lawyer's continued representation of the estate would not violate the rule. The opinion quotes the In re BSA observation that "there is an overwhelming body of [bankruptcy] caselaw in which courts deny disqualification motions in the face of what appear to be obvious conflicts," and treats the bankruptcy-court discretion as governing.

On Rule 1.6(a), the Committee draws on In re Klein (Bankr. C.D. Cal. 2013) for the principle that a debtor's disclosure obligations to the trustee leave little or no protected information about the asset itself. The opinion concludes the lawyer may use confidential information received from the debtor that is pertinent to the uninsured-motorist claim, but information unrelated to the claim remains protected under Rule 1.9(c) and may not be disclosed.

In practice

Under this opinion, conduct in which an Illinois lawyer appointed under § 327(e) as special counsel to a Chapter 13 trustee continues to prosecute a former-client debtor's pre-petition tort claim after the debtor terminates the lawyer is permitted under Rule 1.9(a). Per the opinion, the lawyer may use confidential information from the prior representation insofar as it bears on the claim that is now estate property; information beyond that scope remains protected under Rule 1.9(c).

The Committee frames the analysis as fact-bound to the bankruptcy context. The opinion does not authorize the lawyer to disclose information about other matters the lawyer handled for the debtor, nor information that the debtor did not have to disclose to the trustee as part of the bankruptcy filing.

Common questions

Q: Why is there no Rule 1.9 conflict when the debtor opposes the recovery?

A: Per the opinion, because the claim became property of the estate at filing under 11 U.S.C. § 541(a), the debtor's interest in the proceeds is governed by the bankruptcy estate, not by the debtor's preferences. The lawyer's duty to maximize recovery for the estate is aligned with, not adverse to, the legal interest the debtor retained.

Q: Does the debtor's firing the lawyer change the analysis?

A: The opinion concludes no. The lawyer was employed by the trustee under § 327(e); only the bankruptcy court can disapprove the employment, and that requires an actual conflict. The debtor's unilateral termination does not create one.

Q: May the lawyer use what the client told the lawyer in the prior representation?

A: Per the opinion, yes if the information is pertinent to the claim that is now estate property. The Committee draws on In re Klein for the rule that the debtor's mandatory disclosures to the trustee leave little or nothing about the asset itself that remains protected. Information unrelated to the claim remains protected under Rule 1.9(c).

Q: Does a contingent-fee arrangement create a conflict?

A: The opinion concludes no. Per Fann Contracting, Inc. v. Garman Turner Gordon LLP, "[w]ithout more, contingency fee agreements do not create conflicts of interest." 11 U.S.C. § 330 requires bankruptcy-court approval of the fee in any event.

Q: What if the debtor's failure to cooperate stalls the claim?

A: The opinion notes 11 U.S.C. § 1307(c)(1) authorizes the bankruptcy court to convert the case to Chapter 7 or dismiss it where unreasonable delay by the debtor is prejudicial to creditors. The debtor's duty to cooperate with the trustee is part of being a Chapter 13 debtor.

Background and rules framework

The opinion interprets Illinois Rule 1.6(a) (confidentiality during representation) and Rule 1.9(a), (b), and (c) (duties to former clients, including the prohibition on materially-adverse representation in the same or a substantially related matter and the prohibition on using or revealing former-client information). The Bankruptcy Code provisions doing the analytical work are 11 U.S.C. § 541(a) (property of the estate), § 327(c) and (e) (employment of professionals, special counsel), § 330 (fee approval), § 1307(c)(1) (conversion or dismissal), and § 101(14) (disinterestedness). The opinion treats bankruptcy-specific case law as governing the conflicts question rather than the Rule 1.9 analysis alone.

Citations and references

Rules of Professional Conduct:

• Illinois Rule 1.6(a) (confidentiality)
• Illinois Rule 1.9(a), (b), (c) (duties to former clients)

Statutes:

• 11 U.S.C. § 101(14) (disinterested person)
• 11 U.S.C. § 327(c), (e) (employment of professionals; special counsel)
• 11 U.S.C. § 330 (compensation of professional persons)
• 11 U.S.C. § 541(a) (property of the estate)
• 11 U.S.C. § 1307(c)(1) (conversion or dismissal of Chapter 13)

Cases:

• Miller v. Shallowford Community Hospital, Inc., 767 F.2d 1556 (11th Cir. 1985)
• In re Bell & Beckwith, 64 B.R. 144 (Bankr. N.D. Ohio 1986)
• In re Cottrell, 876 F.2d 540 (6th Cir. 1988)
• In re Enron Corp., 2002 Bankr. LEXIS 1720
• In re MF Global Inc., 464 B.R. 594 (Bankr. S.D.N.Y. 2011)
• In re Barber, 223 B.R. 830 (Bankr. N.D. Ga. 1998)
• In re Leslie Fay Companies, 175 B.R. 525 (Bankr. S.D.N.Y. 1994)
• Nisselson v. Wong (In re Best Craft Gen. Contractor), 239 B.R. 462 (Bankr. E.D.N.Y. 1999)
• In re AGE Ref., Inc., 447 B.R. 786 (Bankr. W.D. Tex. 2011)
• In re Dev. Corp. of Plymouth, 283 B.R. 464 (E.D. Mich. 2002)
• Bank Brussels Lambert v. Coan (In re AroChem Corp.), 176 F.3d 610 (2d Cir. 1999)
• Daly v. Kopnover Constr. Corp. (In re Homesteads Cmty. At Newtown, LLC), 390 B.R. 32 (Bankr. D. Conn. 2008)
• Fann Contracting, Inc. v. Garman Turner Gordon LLP, 593 B.R. 625 (Bankr. D. Nev. 2018)
• Century Indem. Co. v. BSA (In re BSA), 630 B.R. 122 (Bankr. D. Del. 2021)
• In re Klein, 2013 Bankr. LEXIS 5096 (Bankr. C.D. Cal. Dec. 4, 2013)

See also

• CA COPRAC Op. 1998-152: Imputed Knowledge and Former-Client Consent
• CA COPRAC Op. 2009-177: Former Attorney Lien and Joint Settlement Check

Source

• Landing page: https://www.isba.org/ethics/opinions/2503