RI-184

January 19, 1994

SYLLABUS

A bankruptcy adversary proceeding is within the scope of a lawyer's representation of a bankruptcy debtor client unless the lawyer's representation agreement with the client unambiguously excludes the adversary proceeding.

If a lawyer knows that information provided by a bankruptcy client was false, and the client refuses to correct the false information, the lawyer must rectify the false information with the bankruptcy court.

References: MRPC 1.2(b) and (c), 1.4(b), 1.5(b) and (c), 1.16, 3.3(a)(2), (a)(4) and (b); RI-151.

TEXT

A lawyer has inquired about the ethical considerations concerning the scope of representation of a debtor client in a Chapter 7 bankruptcy proceeding. The lawyer is concerned about the question of the extent of the representation required after the filing of the bankruptcy petition and the meeting of creditors in the event of a later adversary proceeding, and the obligations of the lawyer who learns that information provided by the client and listed on the bankruptcy petition is fraudulent or illegal.

MRPC 1.2(b) states:

"A lawyer may limit the objectives of the representation if the client consents after consultation."

Further, the Comment to MRPC 1.5 states in relevant part:

"An agreement may not be made whose terms might induce the lawyer improperly to curtail services for the client or perform them in a way contrary to the client's interest. For example, a lawyer should not enter into an agreement whereby services are to be provided only up to a stated amount when it is foreseeable that more extensive services probably will be required, unless the situation is adequately explained to the client. Otherwise, the client might have to bargain for further assistance in the midst of a proceeding or transaction . . . ."

The Committee has argued in previous opinions that when a contingent fee agreement, which is required to be in writing by MRPC 1.5(c) and MCR 8.121, is silent or ambiguous, the terms should be interpreted to the advantage of the client. See R-11, whether contingent fee case includes appeals; RI-162, how contingent fee in installment recovery is to be calculated. The basis of those decisions is not merely whether the agreement is in writing, but the fact that MRPC 1.5(b) places the duty upon the lawyer to affirmatively communicate the basis of the fee; a silent or ambiguous agreement, whether written or verbal, means that the lawyer has not communicated the basis of the fee.

It seems clear that a bankruptcy adversary proceeding, in this day and age, is not beyond the pale of real possibility. The policies underlying MRPC 1.2(b) [scope of representation], 1.4(b) [explaining matters to an extent reasonably necessary to permit the client to make informed decisions] and 1.5(b) [basis of the fee to be communicated "preferably" in writing], particularly when read together, lead to the conclusion that if the lawyer intended to exclude representation of the debtor in bankruptcy adversary proceedings, the lawyer should have so specified and given the client the opportunity to seek counsel who may offer representation on other terms. It is not the client's responsibility to know, without it being explained, that adversary proceedings may occur and the consequences arising from them. Therefore, if the retainer agreement is silent or ambiguous on the subject of representing a debtor client in bankruptcy adversary proceedings, the lawyer would be required to provide that representation.

It should be noted, however, that subject to other requirements of MRPC 1.16, a lawyer may withdraw from representation with the consent of the tribunal. MRPC 1.16(c).

As to information received from the client and included on the bankruptcy petition which the lawyer later discovers to be false or fraudulent, whether in the context of an adversary proceeding or otherwise, the lawyer must first counsel the client and urge correction of the false information. MRPC 1.2(c).

Under MRPC 3.3(a)(4):

"(a) A lawyer shall not knowingly:

". . .

"(4) offer evidence that the lawyer knows to be false. If a lawyer has offered material evidence and comes to know of its falsity, the lawyer shall take reasonable remedial measures."

If the client refuses to correct the information, the lawyer must correct it pursuant to MRPC 3.3(a)(2), "A lawyer shall not knowingly . . . fail to disclose a material fact to a tribunal when disclosure is necessary to avoid assisting a criminal or fraudulent act by the client." RI-151.

MRPC 3.3(b) states:

"The duties stated in paragraph (a) continue to the conclusion of the proceeding, and apply even if compliance requires disclosure of information otherwise protected by Rule 1.6."