Formal Opinion 90
(1961)
Creditor’s Attorney as Attorney for Receiver

You ask whether, in a state receivership, the attorney for the petitioning creditor may act as attorney for the subsequently appointed receiver. With the exceptions to be noted, our answer must be "No."

No party or attorney or other person interested in the action may be appointed receiver (RCW 7.60.020(6)). A receivership may involve many legal questions in addition to business problems incident to the conservation and perhaps liquidation of the property. The answers to the legal questions may determine the receiver’s policy and strategy in respect to the business problems. Hence the attorney for the receiver may be in a position to guide if not control the receivership. See: In re Little, 40 Wn. 2d 421, 429, 244 P.2d 255.

Even though the attorney should withdraw as counsel for the petitioning creditor it might be difficult for him to maintain the appearance as well as the actuality of a neutral and unbiased representation of all classes of creditors. Suppose for instance, his former client asserts that he is a secured creditor. The attorney sincerely believes this to be so. But the question is not beyond doubt and counsel for general creditors hotly argue otherwise. May not the court be subject to the criticism that it has appointed an advocate of preferred creditors as attorney for the receiver?

It is, we suggest, well known that, as a practical matter, just as the attorney for an executor or administrator may actively handle most of the administration, an attorney for a receiver may be the power behind the throne. So the spirit, if not the letter, of RCW 7.60.020(6) might be violated by the appointment of an attorney interested in the action. In Weil v. Neary (1929) 278 U. S. 160, 73 L.Ed 243, a rule of court was involved. Nevertheless, the language of Chief Justice Taft has validity here in respect to conflicts of interest.

"Many abuses have occurred in the bankruptcy practice, and none is more frequent than that by which the attorney for petitioning creditors becomes counsel for the trustees subsequently appointed. This mingling of interests, frequently conflicting, is generally regarded by courts as working to the detriment of one of the parties and to the undue advantage of another. . . .

"The danger of giving entire freedom of selection of counsel to the trustees lies in the temptation of the attorney for some creditors, when he becomes counsel for the trustees, to use his functions as representative of all the creditors unjustly to favor or oppose particular creditors or to induce the trustees to do so. Rule 5 leaves it to the court to waive the restriction, if with knowledge of the particular circumstances it appears safe so to do, but, if the court does not know of a proposed departure, it has no means of protecting creditors from the danger the rule is intended to avoid." See also, In re G. W Giannini, Inc., 90 P. 2d 445.

Consistent with the statement by Judge Taft, we note a possible exception to our ruling. If (i) there are a limited number of creditors, (ii) all are of the same class, (iii) all join in requesting counsel for one of them to represent the receiver, and (iv) the court is fully informed—there would be nothing unethical in accepting the appointment.