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ETHICS OPINION 302
NUMBER 302 1932
Question. I would appreciate the consideration by your committee of the following:
Assume: That the X corporation last year sold its own debentures to the public. As a part of each sale it made an agreement with each purchaser that it would repurchase such debentures at any time upon demand at par. These debentures are now selling at twenty points below par and each debenture holder has, therefore, a clear and separate cause of action, upon contract against the X corporation. A, B, and C each purchased one of such debentures. They approach L, an attorney, and advise him that they propose forming a committee for the purpose of circularizing all other purchasers of such debentures for the purpose of suggesting that they all take common action against the X corporation. They further advise L that they propose to endeavor to secure assignments and/or powers of attorney from all purchasers of such debentures, authorizing the proposed committee to negotiate with or, if necessary, bring suit against the X corporation and also authorizing such committee to retain, as compensation for its services, 10 percent of any proceeds realized by the committee as a result of its activities. A, B, and C wish to retain L.
The specific questions arising from this state of facts upon which we would appreciate the answer of your committee, are:
1. May L accept a retainer from A, B, and C, advise them in respect of the formation of such committee, and draw the powers of attorneys and/ or assignments to be forwarded to the several purchasers of debentures by the committee as aforesaid?
2. May L accept a general retainer from the committee and give it general legal advice during the times when it is circularizing and attempting to bring in the various purchasers of debentures?
3. May L presently agree with the committee in consideration of a contingent fee of 5 percent, to prosecute in the future, any claim or claims, based upon assignments and/or powers of attorney, which may thereafter be secured by it from debenture purchasers?
Answer. The Committee does not construe the inquiry as suggesting the formation of a committee of creditors for the protection of a common interest. It appears to indicate a purpose to solicit claims in order to prosecute them and thus to stir up litigation in contravention of Canon 28 of the Canons of the American Bar Association.
For this reason the Committee cannot approve of the lawyer’s participation in the plan.