Can a court-appointed receiver hire his own law firm to serve as counsel in the case?

Plain-English summary

A receiver in a mortgage foreclosure action, who under CPLR 6401(b) cannot retain counsel without court authorization, asked whether he could ethically retain the law firm of which he is a member. The committee answered yes.

The committee noted that a receiver is a fiduciary to those with an interest in the property and is obligated to minimize the cost of the receivership and to ensure that legal fees are both reasonable and necessary. It traced a history of conflicting authority: a 1930 New York County committee split, and in 1938 the ABA held (ABA 181) that a fiduciary's duty of undivided loyalty required retaining independent counsel, reasoning the receiver would naturally want to maximize his firm's income.

The committee then followed the ABA's 1946 reversal (ABA 272), which expressly overruled ABA 181. The ABA had changed course for three reasons: courts had not found impropriety in a fiduciary retaining his firm; using one's own firm often avoids duplication and is more economical; and the court in any event reviews the propriety of the fees. The committee observed that the former Canons 6 and 32 are generally analogous to present Canons 1, 2, 5 and 9 and are covered by EC 5-1, EC 5-2 and DR 5-101(A), and that under either framework the principle is the same: a lawyer should not let personal interests affect his professional judgment.

Persuaded that the ABA's rule is the better one, the committee held there is no reason to impute an improper motive to the receiver's firm or to assume it will overcharge; all lawyers are bound by DR 2-106 on fees, and any suspicion of impropriety is dispelled by the court's supervisory power to pass on the firm's fee. It added that an inflexible rule could impose unnecessary hardship and expense on the very persons the rule is meant to protect, given the cost and duplication of effort involved in using independent counsel. The question was answered in the affirmative.

Currency note

This opinion was issued in 1977, before New York replaced the Code of Professional Responsibility with the Rules of Professional Conduct in 2009 (personal-interest conflicts are now governed by Rule 1.7 and fees by Rule 1.5). The Model Rules also no longer carry the former Canon 9 appearance-of-impropriety standard. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a receiver hire his own law firm as counsel?

A: Under this opinion, yes. The committee held a receiver in a mortgage foreclosure action may retain the firm of which he is a member.

Q: What answers the conflict-of-interest concern?

A: Court supervision of fees. The committee relied on the court's power to pass on the firm's fee, plus DR 2-106's general fee limits, to dispel any suspicion of impropriety.

Q: Does the same principle reach other fiduciaries?

A: The committee adopted the ABA's reasoning (ABA 272), which applied the principle to trustees in bankruptcy, executors, administrators, guardians and similar fiduciaries, and the committee held it applies to receivers.

Background and rules framework

The opinion applies Canon 5 and EC 5-1, EC 5-2 and DR 5-101(A) (exercising independent professional judgment free of personal interest) and DR 2-106 (reasonable fees), against the backdrop of the receiver's fiduciary duties. The current Model Rule analogues are Rule 1.7 (conflicts, including a lawyer's personal interest) and Rule 1.5 (fees).

Citations and references

Rules of Professional Conduct:

• MR 1.7 (conflict of interest: current clients, including personal-interest conflicts)
• MR 1.5 (fees)
• NY Canons 1, 2, 5, 9; EC 5-1, EC 5-2; DR 2-106, DR 5-101(A)

Statutes:

• CPLR 6401(b) (court authorization for a receiver to retain counsel)

Other opinions cited:

• ABA 181 (1938): a fiduciary must retain independent counsel (overruled)
• ABA 272 (1946): overruling ABA 181; a fiduciary may retain his own firm

See also

• NY State Bar Op. 481: When a will's drafter may serve as executor
• NY State Bar Op. 474: Taking a confession of judgment as security for a fee

Source

• Landing page: https://nysba.org/opinion-471/