Can my bankruptcy lawyer represent my family member that is being sued by the chapter 7 trustee for a fraudulent transfer in my bankruptcy case?

1 December 2017

Answer: No, because the attorney cannot simultaneously perform his duty to you, the debtor, and his duty to the family member and it appears to be a conflict of interest under Rule 1.7 of the Massachusetts Rules of Professional Conduct.

Clients very often do not recognize or appreciate (or care) about their attorney having a conflict of interest.  Many times the lawyer is in a position of delivering the bad news to a potential client that they should not be representing them due to a conflict of interest.  In 2009 there was a case in the Massachusetts bankruptcy court that was instructive on the issue.

In In re Morey the bankruptcy court had to decide the question of whether the same attorney could represent the debtor while representing his ex-wife who the chapter 7 trustee was suing for a fraudulent transfer.  416 B.R. 364 (Bankr. Mass. 2009).  The court cited Rule 1.7 of the Massachusetts Rules of Professional Responsibility as the rule governing conflicts of interest and quoted it as providing:

(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third party, or by the lawyer’s own interest, unless:

(1) the lawyer reasonably believes the representation will not be adversely affected; and

(2) the client consents after consultation.

Upon first blush, the rule seems to be fairly liberal and dependent on just the lawyer’s belief and the client’s consent.  It would make it seem it was up to the lawyer and the clients.

However, the court noted that “Comment 5 to Rule 1.7 explains that ‘when a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client’s consent.’”  Id. at 367-68.  The court went on to observe that if the attorney was representing both the debtor and a defendant in an adversary proceeding brought by the trustee seeking assets for the bankruptcy estate that it could create a situation in which the debtor’s duty to cooperate with the trustee would be at odds with the attorney’s duty to represent the party seeking to avoid providing assets to the bankruptcy estate.  Id. at 369.  The court concluded that there was a clear and irreconcilable conflict and allowed a motion to disqualify the attorney from representing the debtor’s ex-wife who had been sued by the chapter 7 trustee.

The lesson here is that in the event that you are a debtor in a chapter 7, do not expect your attorney to be available to represent any other party in the case, as it is likely to be a prohibited conflict of interest.

If you are a debtor in a bankruptcy case and have a similar issue arise, feel free to contact us to discuss.