Unethical Protection? Model Rule 1.8(h) and Plan Releases of Professional Liability

The American Bar Association’s Model Rules of Professional Conduct address the propriety of attorneys obtaining releases from their clients of either past claims or future claims against themselves. Under the applicable Model Rule, both types of releases require the involvement, or the opportunity for involvement, of independent counsel to review and advise the client on the issue. Releases in chapter 11 plans typically cover insiders, members of the creditors’ committee, and the debtor’s and committee’s counsel. Few courts or disciplinary bodies of the various state bars have addressed the ethical issues that arise when counsel insert into a plan of reorganization a lengthy provision that releases counsel from all past claims and all future claims arising out of the chapter 11 case or the plan of reorganization. This article examines the interaction of Model Rule 1.8(h) and plan release practice, concludes there is a conflict between practice and the Model Rule, and suggests a solution: making inclusion of a third-party release covering estate-compensated counsel an issue to be negotiated, reviewed, and approved as part of the process of retention of professionals early in the case, before parties rely on the availability of a release when rendering services. If the proper scope of a permissible release of professional liability is confronted early in the chapter 11 process, the Model Rule (or, more accurately, its locally-enacted analogue) can be complied with, and the effect of the release’s availability or non-availability on fee structures and other elements of compensation can be made explicit.