Minding the Gap: A peek at the ethical obligations that arise during the “in-between times” in client relations, 0921 SCBJ, SC Lawyer, September 2021, #24
| Author | By Tara E. Nauful |
| Position | Vol. 33 Issue 2 Pg. 24 |
By Tara E. Nauful
Before a lawyer can represent a debtor in its bankruptcy case, the Bankruptcy Court must approve counsel’s retention.2 Because the retention application cannot be fled until after the bankruptcy case is opened and notice provided to parties in interest, there is always a tear or gap in the fabric of the attorney-client relationship, during which time counsel has an affirmative duty to act diligently3 on behalf of the debtor-client, while facing the risk that the Bankruptcy Court may ultimately decline to approve the engagement and deny compensation for any work performed during the gap period.
Periods of ambiguity and uncertainty in client relationships are not unique to the insolvency practice. This article identifies some common, but often overlooked gaps, and offers suggestions for avoiding them.
The “Courting Gap”
The period between the first contact from a prospective client4 and the acceptance or rejection of the engagement is the Courting Gap. An attorney-client relationship is created when: (1) a person seeks advice or aid from an attorney; and (2)(a) the attorney (i) agrees to provide; (ii) appears to agree to provide, or (iii) actually provides advice or assistance;5 or (b) knowing that the prospective client is reasonably relying on the attorney to provide legal services, the attorney, “fails to manifest lack of consent to do so.” [6]
While one would think this relationship could only arise through adherence to certain strict formalities, unfortunately, this is not the case. “[A] fiduciary relationship cannot be established by the unilateral action of one party,”7 but a fiduciary relationship can arise from the conduct of both parties, and “is not dependent upon the payment of fees nor . . . the execution of a formal contract.”8 Indeed, the mere act of giving someone free legal advice can be sufficient to establish a professional relationship.9 Thus, during the Courting Gap, it is vitally important not only to refrain from actually providing legal advice, but also to refrain saying or doing something that implies that you will provide legal advice.10
If the courting leads to an engagement, an engagement letter
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should be executed by both parties as promptly as possible.11 This letter should contain not just the financial terms of the engagement, but also describe with as much particularity as possible the scope of the representation and other material terms of the engagement.12
If counsel is not retained or declines the engagement, a “non-engagement letter” should immediately be sent confirming that the lawyer: (a) was not retained; (b) will not be acting on behalf of prospective client; and (c) has no professional or other obligations to prospective client.13 The letter should also instruct the prospective client to seek legal advice from another source, and return any documents or property of the prospective client left with the attorney during the courting.14
Remember that even if the courting does not lead to an engagement, counsel is prohibited from using or revealing confidential information15 obtained from the prospective client during the Courting Gap.16 “A potential client’s initial consultation with an attorney creates an expectation of confidentiality, which must be protected by the attorney even where [sic] no attorney-client relationship arises in other respects.”17 Finally, to ensure that discussions held during the Courting Gap do not later disqualify you from representing another client, it is important to condition conversations held during the Courting Gap on the prospective client’s written agreement that “no information disclosed during the consultation will prohibit [counsel] from [later] representing a different client in the matter.”18
The “Death Gap”
Sometimes the attorney-client relationship is disrupted by the “death” of a client through a bankruptcy fling. Upon learning of an insolvency proceeding fled by or against19 a client, immediately contact bankruptcy counsel to discuss the impact of the insolvency proceeding.
The fling of a bankruptcy petition impacts every aspect of the client’s legal landscape. For example, as discussed earlier, it is not enough that attorney and client have a signed engagement letter. The bankruptcy court still must approve the attorney’s (continued) engagement and the attorney’s compensation.20 If counsel was hired to collect money, a bankruptcy may alter the beneficiary of the monetary recovery.21 In a Chapter 7 case, or after the appointment of a Chapter 11 trustee, counsel may be obligated to cooperate with the trustee, even at the risk of not being paid for services provided.22 Bankruptcy can even impact the attorney-client privilege: if appointed, the Chapter 11 or 7 trustee, not the client, may assume control of the attorney-client privilege.23
The “Termination Gap”
The Termination Gap arises when (a) the client fires the attorney; (b) the lawyer must end engagement (mandatory withdrawal); or (c) the lawyer fires the client (permissive withdrawal).24
A client possesses the absolute right to end the attorney-client relationship at any time and for any reason.25 This right cannot be waived or contracted away.26 If counsel is fired after retention, she must withdraw27 and cannot continue the representation over the client’s objections.28 Once fired, counsel is generally prohibited from continuing to act on behalf of the client.29
If continued representation of a client “will result in [a] violation of the rules of professional conduct or other law,” or if counsel’s “physical or mental condition materially impairs the lawyer’s ability to represent the client,” then the lawyer must withdraw.30 Similarly, if circumstances arise that make continued representation of the client no longer feasible or desirable, such as when a client persistently refuses to follow counsel’s legal advice or fails to “substantially fulfill” an obligation to the attorney, then a lawyer may withdraw from representation if the “withdrawal can be accomplished without material adverse effect on the interests of the client.”31
No matter the reason for the Termination Gap, counsel has continuing ethical obligations. Immediately after the break, counsel must “take steps to the extent reasonably practicable to protect a client’s interests. . . .”32 These may include: (1) in the case of withdrawal, giving the client sufficient notice; (2) cooperating with replacement counsel;33 (3) surrendering to the client her papers and any client property in the attorney’s possession;34 and (4) refunding any unearned fees.35 The duty to protect the client’s interests during the Termination Gap may also require counsel to “[advise] the client of the implications of termination, assist in finding a new lawyer, and devote reasonable efforts to transferring responsibility for the matter . . . . If a client is threatened with an imminent deadline that will expire before new counsel can act, the current counsel must take reasonable steps to either extend the deadline or comply with it.”[36]
Whatever the reason for the termination, when the matter involves a tribunal, counsel must obtain permission from the tribunal to withdraw.37 Unless and until the tribunal permits counsel to withdraw, or substitute counsel has appeared in the case, counsel of record is ethically obligated to continue to act to prevent prejudice to the client. If the tribunal orders the attorney to continue to represent the client, counsel must continue to do so.38
The “Final Gap”
The completion of the engagement and closure of the file marks the beginning of the Final Gap. At the end of an engagement...
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