Solicitation of Clients Are There Any Guidelines

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Nov 2002

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The Model Rules of Professional Conduct, which have been adopted in 44 states,<a href="#2" name="2a">2</a> provide as follows:

<blockquote>
(a) A lawyer shall not by in-person, live telephone or real-time electronic
contact solicit professional employment from a prospective client when a significant
motive for the lawyer's doing so is the lawyer's pecuniary gain, unless the
person contacted:

<blockquote>
(1) is a lawyer, or 
(2) has a family, close personal or prior professional relationship with the lawyer.<a href="#3" name="3a">3</a>
</blockquote>
</blockquote>

This non-solicitation rule follows the long-standing policy against lawyers directly
soliciting clients. This is designed to prevent what is euphemistically called
"ambulance-chasing," which gives visions of lawyers descending on accident victims
by following the sounds of sirens.

The rule is further explained by the Comments to Model Rule 7.3 as follows:<a href="#4" name="4a">4</a>

[1] There is a potential for abuse inherent in direct in-person or live
telephone contact by a lawyer with a perspective client known to need legal
services. These forms of contact between a lawyer and a specifically targeted
recipient subject the layperson to the private importuning of the trained advocate
in a direct interpersonal encounter. The prospective client, who may already feel
overwhelmed by the circumstances giving rise to the need for legal services, may
find it difficult fully to evaluate all available alternatives with reasoned
judgment and appropriate self-interest in the face of the lawyer's presence and
insistence upon being retained immediately. The situation is fraught with the
possibility of undue influence, intimidation and overreaching.

[2] This potential for abuse inherent in direct in-person, live telephone or
real-time electronic solicitation of prospective clients justifies its prohibition,
particularly since lawyer advertising and written and recorded communication permitted
under this rule offer alternative means of conveying necessary information to those
who may be in need of legal services. Written and recorded communications that
may be mailed or electronically transmitted make it possible for a prospective
client to be informed about the need for legal services, and about the
qualifications of available lawyers and law firms, without subjecting the prospective
client to direct in-person, live telephone or real-time electronic persuasion that
may overwhelm the client's judgment.
</blockquote>

<blockquote><blockquote>
<hr>
<big><center>
Lawyers, including "bankruptcy lawyers," have a duty to obtain clients by the highest ethical
standards.
</center></big>
<hr>
</blockquote></blockquote>

The non-solicitation Rule was sustained by the U.S. Supreme Court in the case
of Ohralik v. Ohio State Bar Association.<a href="#5" name="5a">5</a> In ruling that the states' compelling
interest in preventing abuses of solicitation justifies a general prohibition of the
practice, the Supreme Court stated the following:

<blockquote>
The solicitation of business by a lawyer through direct, in-person communication
with the prospective client has long been viewed as inconsistent with the
profession's ideal of the attorney-client relationship and as posing a significant
potential for harm to the prospective client. It has been proscribed by the
Organized Bar for many years.<a href="#6" name="6a">6</a>
</blockquote>

Under Model Rule 8.3(a), a lawyer that becomes aware of an ethical violation
by another lawyer is also obligated to report such violation to the respective state
governing body.<a href="#7" name="7a">7</a>

It is universally viewed that it is an unethical solicitation of a non-client for
a lawyer to contact by phone or in person an accident victim in hopes of representing
the person in subsequent litigation for his injuries.

Direct-mail solicitation of potential clients who are in need of legal services has
been long held to be protected freedom of speech under the First and Fourteenth
Amendments.<a href="#8" name="8a">8</a> Model Rule 7(c) sets forth the limited regulation of direct mail
solicitation, which has been approved by the Supreme Court. This rule requires the
communication to be sent to the state's disciplinary board and governs the format of
the disclosures contained in the communication.

In the bankruptcy arena, variations of the following scenarios are commonplace:

<ol>

<li>Consumer debtors counsel make direct phone contact with, or send mail to,
non-clients who are subjects of garnishments or foreclosure proceedings in order to
solicit their representation in a chapter 7 or 13 proceeding.

</li><li>Counsel, upon learning of the filing of a chapter 11, directly contact by
phone or in person one or more of the creditors' committee soliciting representation
of either the creditor or the committee itself.

</li><li>Counsel, after reviewing bankruptcy schedules, contact one or more persons or
entities listed as creditors or equity-holders by phone or mail soliciting their
representation in the pending case.

</li><li>Counsel review the dockets for adversary proceedings such as preferential
transfer avoidance actions and then contact defendants by phone or mail soliciting
their representation.
</li></ol>

Of the foregoing examples, those that involve direct solicitation by phone or in
person appear to violate the non-solicitation rule governing professional conduct and
cause other lawyers to be ethically bound to report such incidents as possible ethical
violations. The solicitations by mail are permissible as long as they otherwise comply
with the limitation contained in Model Rule 7.3(c).

Is a phone or an in-person contact by bankruptcy counsel soliciting a non-client
to become his, her or its client in a yet-to-be-filed or in a pending bankruptcy
proceeding any less unethical than a lawyer appearing at the door of the hospital
room?

Lawyers, including "bankruptcy lawyers," have a duty to obtain clients by the
highest ethical standards. It takes a professional to maintain professional standards.
"Cold calls," requests to participate in "beauty contests" and other direct solicitation
of potential clients appear to be violations of the non-solicitation rules. It is
time that these issues be discussed and that appropriate guidelines be established.

A second issue arises under various holdings that counsel employed by a committee
or the estate can have his or her fees denied even if counsel was properly appointed
by the court, provide valuable services and later are deemed to not be
"disinterested."<a href="#9" name="9a">9</a> The term "disinterested person" is defined in §101(14) of the
Bankruptcy Code in pertinent part as follows:

<blockquote>
§101(14) "Disinterested person" means person that—

<blockquote>
(E) does not have an interest materially adverse to the interest of the
estate or any class of creditors or equity security holders...for
any...reason.

</blockquote>
</blockquote>

An attorney who acquires representation of a client, whether it be a debtor,
trustee, the creditor or a committee from an unethical solicitation would arguably hold
an interest that is "materially adverse" to the estate or a class of creditors or equity
holders. This would result in a denial of fees as well as possible sanctions.

It is time that the bankruptcy bar takes a hard look at its collective and
individual ethical responsibilities to not only comply with the non-solicitation rules
but also to report those who choose to ignore them.

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> Certified in business and consumer bankruptcy by the American Board of Certification and the state of Tennessee. <a href="#1a">Return to article</a>

<a name="2">2</a> Petition of Tennessee Bar of the Adoption of Proposed Rules of Professional Conduct (<a href="http://www.tba.org/committees/conduct/tbrpcpet.html" target="window2">www.tba.org/committees/conduct/tbrpcpet.html</a>). <a href="#2a">Return to article</a>

<a name="3">3</a> ABA Model Rules of Professional Conduct R. 7.3(a). <a href="#3a">Return to article</a>

<a name="4">4</a> Model Rules of Professional Conduct R. 7.3(a) cmt. (emphasis added). <a href="#4a">Return to article</a>

<a name="5">5</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S. 447</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… S. Ct. 1912</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… L.Ed 2d 444 (1978)</a>. <a href="#5a">Return to article</a>

<a name="6">6</a> See <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… S. Ct. at 1917</a>. <a href="#6a">Return to article</a>

<a name="7">7</a> Comment [1] to Model Rule 8.3 states that "self-regulation of the legal profession requires that members of the profession initiate
disciplinary investigation when they know of the violation of the Rules of Professional Conduct." Model Rules of Professional Conduct R. 8.3
cmt. (emphasis added). <a href="#7a">Return to article</a>

<a name="8">8</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… v. Kentucky Bar Assoc., 486 U.S. 466</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… S. Ct. 1916</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… L.Ed 2nd 475 (1988)</a>. <a href="#8a">Return to article</a>

<a name="9">9</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… v. Fed. Dept. Stores Inc., 44 F. 3d 1310, 1319 (6th Cir. 1995)</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Helena Corp., 63 F.
3d 877 (9th Cir 1995)</a>; and In re Big Rivers Electric Corp., 2002 U.S. Dist. LEXIS 16174 (W.D. Ky. 2002). <a href="#9a">Return to sender</a>

Journal Authors

Thomas E. Ray

Journal Date

Friday, November 1, 2002 - 12:00

Bankruptcy Rule

2002