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Monday, October 24, 2005

Bankruptcy lawyers: CYA!

After making a snide comment earlier, it looks like there will be actual lawyer malpractice in at least one field! Part of the new bankruptcy law requires that "attorneys sign off on the veracity of their clients' claims after a 'reasonable investigation,'" according to columnist John Ketzenberger. He cites bankruptcy lawyer Mark Zuckerberg, who saw opportunity in the new law, and created a firm to handle these investigations.

If insurance companies have to deal with Sarbanes-Oxley, then it's only fair lawyers get their own controls.

So as the area's bankruptcy attorneys recalculate the legal landscape,
Zuckerberg recognized a business opportunity. It's called Bankruptcycya.com, and
it's a service for lawyers who need to, ahem, cover their butts under the new

Among the changes Congress made to the bankruptcy law is the requirement that attorneys sign off on the veracity of their clients' claims after a "reasonable investigation." If the client is lying and the lawyer didn't check it out, that lawyer could face fines or criminal charges.

The heartburn really kicks in when lawyers contemplate how to show whether the debtor's car is really worth $15,000, whether he really is listed on the title to his house or if he has other judgments against him.

The prospect of combing countless databases for the relevant information was daunting to Zuckerman. As he prepared himself and the attorneys who work for him for the changes, he had an epiphany. He could contract with the various providers of the information, then offer it to lawyers in a one-stop-shopping format over the Internet.

For a fee, Bankruptcycya.com will conduct information searches on clients in 10 categories such as credit reports, asset valuation or Social Security number verification. Voila! Documentation to prove a lawyer made a "reasonable investigation" into his clients' claims.


At 12:18 AM, Blogger honestpartisan said...

By the way, lawyers have at least three controls on them already:

1. Malpractice liability - if a client is injured by an attorney's negligence/dereliction of duty, the client can sue for damages. All practicing lawyers either do or should have malpractice liability insurance.

2. Licensing - Lawyers have an ethical code that, if violated, can be grounds for a suspension or disbarment. A complaint about a lawyer can be brought by anybody: a judge, a client, or another lawyer.

3. Sanctions - if a lawyer brings a lawsuit that is frivolous, or litigates a frivolous defense, the Court can sanction the lawyer with a fine to the Court or costs to the other side (in the Federal Rules of Civil Procedure, it's Rule 11).

I don't know much about this particular provision of the bankruptcy law, but I wonder about it -- given that lawyers have an ethical duty not to litigate frivolous positions anyway on pain of sanction or discipline, what's the law covering that isn't already prohibited?

At 1:31 AM, Blogger Greg said...

Glad to hear some details about lawyers' malpractice from someone in the know. Since it's not an issue discussed in the media, is it safe to assume claims made against lawyers are infrequent?

The specific law being discussed says that lawyers have a duty to verify that a client filing bankruptcy is accurately classifying the extent of their assets. I don't think you work in bankruptcy law, but perhaps you know more details on that specialty.

I believe doctors have similar ethics codes, and it doesn't stop lawyers from suing them.

A question for you: Companies have been put into bankruptcy or driven out of business due to lawsuits that later are proven unjustified. (For example, silicone breast implants are not as dangerous as lawyers argued.) Is there any relief available for these companies at a future time?

At 12:40 PM, Blogger honestpartisan said...

I don't know the answer to your last question. To the extent that there may be no remedy for a company in that situation, I don't have a problem with fashioning such a remedy -- a rule saying that the loser has to pay the other side's legal fees, for example. (I hasten to add that the contingency fee system, where a plaintiff's lawyer does not get paid if he or she loses, already has somewhat of a built-in incentive against bringing frivolous lawsuits. I realize that it's possible that may not be sufficient, but there are some controls now).

I would also note parenthetically that limiting punitive damages would not help a company bankrupted by a frivolous lawsuit; punitive damages are only awarded by a Court if the plaintiff is successful.


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