ETHICS OPINION 328-1934

NUMBER 328 1934

Question. A is an attorney in the State of New York and for a time represented as general counsel a liquidator of a corporation which had been in the business of issuing guaranteed mortgages. This retainer has been terminated, although A continues in a few isolated cases to represent the liquidator. Holders of various mortgages issued by said corporation have requested A to represent them in the reorganization of their rights inter sese and as to their rights against the mortgagors, the owners of the property. A is not to represent them under any circumstances in so far as claims against the corporation in liquidation are concerned.

1. May A represent such mortgage holders in adjusting the rights among: themselves?

2. May A represent owners of properties who are desirous of making readjustment of the mortgage obligations, either (a) with the liquidator or (b) with the mortgage holders?

3. May A represent prospective purchasers of properties (a) under the control of the liquidator, or (b) under the control of the mortgage holders?

4. Will it make any difference if A had represented such prospective clients prior to his retainer by the liquidator?

Answer. This Committee has heretofore expressed itself as opposed to professional service which might involve advising adverse interests, except under specific circumstances with the express consent of all concerned (see Opinions 123, 129, 143, 151, 157, 202, 207, and 243); and as opposed also to an attorney’s acting for one party against a former client, where the confidences arising from the past relationship would or might present the attorney from rendering unhampered service to the plaintiff, or be apt to appear to the defendant as in danger of violation (see Opinion 327 and Canon 6 of the Canons of Professional Ethics of the American Bar Association).

In the opinion of the Committee, the inquiries now propounded in the question should be answered as follows:

1. Yes, provided no adverse interests arise among the mortgage holders represented by A.

2. The term “readjustment” is broad and comprehensive. As applied to the instant situation it would ordinarily connote a reduction of interest, or an extension of the mortgage, or a reduction of the principal debt, or all three of them combined. These situations suggest possibly conflicting interests, and in the opinion of this Committee it would be improper professional conduct for A to undertake a duty unless it can be performed with full loyalty to the liquidator and to the parties mentioned in subdivision 1. Therefore, our answer is in the negative to both sections (a) and (b),

3. This Committee is of the opinion that the retainer of A to represent prospective purchasers of properties under the control of the liquidator, might lead to improper implications, in view of his prior employment as general counsel to the liquidator, and that the answer to subdivision (a) should therefore be in the negative. It is also of the opinion that if A represents the mortgage holders in any manner, the interests of the prospective purchasers and such mortgage holders would appear in ordinary experience to be adverse, and that even if A does not represent such mortgage holders, the danger of inconsistent positions on A’s part is such that the answer to subdivision (b) should also be in the negative.

 

4. The possibility stated in subdivision 4 would not cause the Committee to alter its opinion.