Solos and Small Firms: Wrestling With Potential Ethical Conundra Under the Revised Hawai'i Rules of Professional Conduct and the Bankruptcy Code

• Publication year: 2014

Solos and Small Firms: Wrestling With Potential Ethical Conundra Under The Revised Hawai'i Rules Of Professional Conduct And The Bankruptcy Code

by David G. Farmer

Hawaii lawyers are governed by a variety of rules when it comes to legal ethics. Primarily, most Hawaii lawyers, unless they have licenses in other jurisdictions or practice in specialty areas such as consumer bankruptcy, measure their ethical conduct under the recently revised Hawai'i Rules of Professional Conduct, adopted by the Supreme Court of Hawaii June 25, 2013, effective January 1, 2014.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA') not only overhauled the Bankruptcy Code, having a dramatic impact on consumer and business bankruptcy cases, but created an uncharted maze of ethical challenges for attorneys practicing as "Debt Relief Agencies" to "Assisted Persons," the majority of whom are solo and small firms. In addition to the multiplicity of new rules that practitioners need to apply in providing consumer bankruptcy legal services, attorneys also need to understand and beware of the landscape under which their conduct is measured for ethical violations and sanctions.

The ethical perils lie largely in the definitions and roles set out under the Bankruptcy Code and the possible conflict that arises between the principles underlying BAPCPA, on the one hand, and the statutory obligations governing attorneys practicing law in Hawaii, on the other.

Catherine Vance and Corinne Cooper outlined a number of the immediate pitfalls that attorneys faced with the amended Bankruptcy Code,¹ including:

1. The broad definitions of "debt relief agency."

2. The regulations governing advertising and representations by "debt relief agencies."

3. The risks of liability based on "information" rather than "contracts."

4. The rigorous controls over how a debt relief agency needs to document compensation structures and methods.

5. The contradiction between a debt relief agency providing an assisted person with "reasonably sufficient information" on, for example, replacement valuation and the more rigorous written disclosure requirements for complete and accurate disclosure in documents filed to commence a debtor proceeding

6. The risks to creditor's counsel for "abuse of the abuse provisions" of Section 707(b).

7. The risks to pro bono practice under certain of the rules.

8. The risks for representing "serial filers."

9. The risk that attorneys provide services on behalf of a trustee on a volunteer basis given the shift in priorities for debt obligations.

As a general matter, each of these nine traps focuses on the overbroad drafting, vague language, and the often-contradictory provisions found in BAPGPA.

From an ethics risk perspective, the traps fall into four categories directly affecting a Hawaii solo or small firm consumer bankruptcy practitioner: (1) solicitation and advertising, (2) confidentiality (3) competency, and (4) loyalty.

To this list, conflicts must be added as raising a unique set of bankruptcy issues involving both state law and the Bankruptcy Code:

1. Multiple creditors: Fed. R. Bankr. P. Rule 2019.

2. Estate entities: 11 USC §§ 101 (14), 327; Fed. R. Bankr. P. Rule 2014.

Bankruptcy has a side-switching problem akin to family law. During the course of a bankruptcy case, each party may potentially oppose...