You represent an individual in a contested Federal Court litigation to recover a valuable piece of equipment. Title is disputed. The dispute has been pending for a year, with discovery closing soon and getting close to trial. The case is in a state far removed from your client’s (the Plaintiff’s) state of residence. You agreed to be paid on a contingent fee based on the ultimate value of the equipment. You think it is a good case, worth a lot of money. Out of the blue you learn that your client filed a Chapter 7 (“no asset”) bankruptcy 5 months earlier (a month after the litigation started), failed to list the asset or the lawsuit and received a discharge. There is a very small amount of debt scheduled. You learn of this upon being contacted by the Trustee, who has been informed of the case by defense counsel. Trustee wants to know the status of the litigation.
You provide information to the Trustee, see that Trustee reopens the bankruptcy case and also see that the Trustee doesn’t ask to appoint you to conclude the case. Rather, the Trustee seeks to appoint a local (to her) lawyer, not admitted in your state, on an hourly basis, to advise her on all matters (including the litigation). While all this is happening, there are still depositions continuing and pretrial processes are moving along. The Trustee makes no appearance in the Federal Court litigation and does not instruct you at all in that regard. What do you do?
You could seek to withdraw from the case and/or stay the litigation, waiting for a move by the Trustee. If the case is as good as you think, your client (the debtor) may get paid surplus finds from the bankruptcy, so he has an interest in the case. It is not clear that the Trustee wants to take over the case. You think there is momentum on your side and you want to keep up the pressure on the defendant. Your client wants you to keep plowing ahead. You genuinely feel that a slowdown will be to the advantage of the defendant.
Ethics and professionalism question – What do you do? The Trustee will not retain you under the same fee arrangement, but has not offered an alternative. If your engagement is terminated, you may be the most significant creditor in your client’s case, by far. It is not clear if that claim would be based on the contingent percentage or the time spent.
This is a real situation, facing a real lawyer. It presents questions of number of questions related to zealous representation, withdrawal, transfer of client’s interest, responsibility to competing Courts, coupled with contingent fee rules and divergence of counsel’s interest from client’s. Each reader can think about his own reaction and approach. This would make a great discussion topic for a seminar. Feel free to comment below. Let’s have some discussion.
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Robert S. Bernstein, of Pennsylvania, is a Past President of the CLLA, Past Chair of the American Board of Certification and regularly tries to pay attention to issues of ethics and professionalism in the worlds of credit, collections and bankruptcy, while practicing law at Bernstein-Burkley, P.C. – www.bernsteinlaw.com.
*This article appears in the October/November/December issue of Commercial Law World magazine, a publication by the Commercial Law League of America.