May a finance company's lawyer arrange and pay for its debtor's bankruptcy so the debt survives, and may the debtor's own lawyer take that payment?

Plain-English summary

The committee was told of a practice in which a lawyer in private practice who represents a finance company, on learning that one of the company's debtors wants to file bankruptcy, is directed by the company to contact the debtor and arrange to finance the bankruptcy, either through the company's own lawyer or by paying the bankrupt's lawyer directly. The company then procures a new note after the filing so that neither its original debt nor its expenses are discharged. The committee was asked whether the conduct of the finance company's attorney, and of the bankrupt's own attorney if different, was improper.

The committee said that although no direct precedent could be located, the arrangement would certainly indicate a violation of Canon 6, which prohibits representing adverse interests. This was obviously true if the finance company's attorney attempted to represent the debtor. By accepting direct payment from the finance company, the bankrupt's attorney would place himself in a position where he would be unlikely to give his client proper advice. The finance company's own attorney, being a party to the procedure, was likewise guilty of unethical conduct because he not only condoned but actually instigated it. The committee expressed no opinion on whether the principals or their attorneys violated the Bankruptcy Act.

Currency note

This opinion was issued in 1961, decades before Oklahoma replaced its original Rules of Professional Conduct (patterned on the ABA Canons of Professional Ethics) with the Oklahoma Rules of Professional Conduct (adopted 1988) and the later Ethics 2000 revisions. Subsequent rule amendments or later opinions may have changed the analysis, including how conflicts and third-party payment of fees are treated. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Could the finance company's lawyer also represent the debtor in the bankruptcy?

A: No. The committee said that would obviously violate Canon 6's bar on representing adverse interests.

Q: Could the bankrupt's own lawyer accept payment directly from the finance company?

A: No. The committee said accepting direct payment from the company would place the lawyer where he would be unlikely to give his client proper advice.

Q: Was the finance company's lawyer in the clear if he did not represent the debtor?

A: No. The committee said he was guilty of unethical conduct because he not only condoned but actually instigated the procedure.

Background and rules framework

The opinion applied Canon 6 of the Canons of Professional Ethics, adopted in Oklahoma, which prohibits representing adverse interests, to a finance company's arrangement to fund its debtor's bankruptcy while reviving the debt. The committee found no direct precedent and expressly declined to opine on any Bankruptcy Act question. The opinion predates the Model Rules and made no Model Rule citation.

Citations and references

Rules of Professional Conduct:

• Canon 6 (ABA Canons of Professional Ethics, adopted by the Oklahoma Bar): prohibits the representation of adverse interests.

See also

• Okla. Bar Ethics Op. 200: City attorney's firm appearing before the city council
• Okla. Bar Ethics Op. 199: Assistant county attorney representing a beer-license applicant
• Okla. Bar Ethics Op. 207: Insurance company ad announcing a lawyer as a special representative

Source

• Landing page: https://www.okbar.org/ethics/ethics-opinion-no-210/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Adopted September 15, 1961

It has been called to the attention of the Central Committee that the following practice is occurring in a city of this state.

A member of the Bar in private practice represents a finance company. The company, upon ascertaining that one of its debtors desires to avail himself of the Bankruptcy Act, directs its attorney to contact the debtor and arrange to finance the bankruptcy proceeding either through the use of its own attorney or paying the bankrupt’s lawyer directly. The finance company procures a new note subsequent to the filing of the bankruptcy proceeding so that neither its original debt nor the expenses it incurs are discharged by the bankruptcy proceedings.

INQUIRY

(1) Is the action of the attorney for the finance company improper?

(2) Is the action of the bankrupt’s own attorney (if other than the finance company attorney) improper?

OPINION

While no direct precedent could be located, the foregoing is such that a violation of Canon 6 which prohibits the representation of adverse interests would certainly be indicated. This is obviously true if the attorney for the finance company attempts to represent the debtor. By accepting direct payment from the finance company, the bankrupt’s attorney is likewise placing himself in a position where he would be unlikely to give his client proper advice. In the latter instance the finance company’s own attorney’s being a party to this procedure is likewise, in our opinion, guilty of unethical conduct as he not only condones but actually instigates such conduct. We express no opinion as to whether or not the principals or their attorneys are in violation of the Bankruptcy Act.