Greenwood Trust Co. v. Michael E. Hurley

UNITED STATES BANKRUPTCY APPELLATE PANEL
FOR THE EIGHTH CIRCUIT
No. 97-6058 SI
In re: *
*
MICHAEL E. HURLEY, JAMIE D. HURLEY *
*
Debtors. *
*
GREENWOOD TRUST COMPANY and *
DISCOVER CARD SERVICES, INC., * APPEAL FROM THE UNITED
* STATES BANKRUPTCY COURT
Appellants, * SOUTHERN DISTRICT
* OF IOWA
*
v. *
*
MICHAEL EDWARD HURLEY, *
*
Appellee. *
Submitted: November 28, 1997
Filed: December 19, 1997
Before KRESSEL, SCHERMER and DREHER, Bankruptcy Judges
SCHERMER, Bankruptcy Judge:
This is the second appeal by Greenwood Trust Company and Discover
Card Services, Inc. (“Discover Card”) of a bankruptcy court’s
determination that Discover Card’s practice of sending an informational
copy of a reaffirmation proposal directly to a debtor who is represented
by counsel violated Iowa’s Consumer Credit Code.

The Honorable Russell J. Hill, Chief Judge, United States Bankruptcy Court1
for the Southern District of Iowa.
2
Consistent with this Court’s decision in Greenwood Trust Co. v. Smith,
212 B.R. 599 (B.A.P. 8 Cir. 1997) (Greenwood I), we affirm the	th
bankruptcy court decision holding that the practice violated Iowa’s	1
Consumer Credit Code. We reverse in part, however, that portion of the
bankruptcy court’s decision which held that Discover Card’s practice
also was unethical and violated the ABA Code of Professional
Responsibility and the ABA Rules of Professional Conduct.
The issues on appeal raise only questions of law which we review
de novo. Kunkel v. Sprague Nat’l Bank, 128 F.3d 636, 641 (8 Cir.	th
1997), First Nat’l Bank of Olathe Kansas v. Pontow, 111 F.3d 604, 609
(8 Cir. 1997). In Greenwood I, this Court held that Discover Card’s	th
reaffirmation practice constituted a prohibited communication as an
“attempt to collect a debt” within the context of Iowa Consumer Credit
Code § 537.7103(5)(e). We also held that no theory of federal
preemption permitted the practice which violated Iowa law.
In this appeal, Discover Card again asserts that the lower court
erred because (1) initiating the reaffirmation process through
communication with a debtor is not an attempt to collect a debt; and (2)
even if such contact is an attempt to collect a debt, any state law that
would impede or interfere with a creditor’s chosen method of pursuing
reaffirmation agreements is pre-empted by the Bankruptcy Code. In
Greenwood I, this Court considered and rejected both of these arguments.
We are bound by our decision in that proceeding. Luedtke v. NationsBanc
Mortgage Corp. (In

The bankruptcy court found Discover Card’s conduct violated the ABA Model2
Code of Professional Responsibility for Lawyers, as well as, the ABA Model Rules of
Professional Conduct and Disciplinary Rule 7-104 (A)(1). On October 4, 1971, Iowa
adopted the Code of Professional Conduct for Lawyers, including the Disciplinary
Rules, which are together codified at Iowa Code Ann. Ch. 602, App. (West 1996), and
referred to herein as “Iowa’s Code.”
DR 7-104(A)(1) states: Communicating With One of Adverse Interest.3
(A) During the course of representing a client a lawyer shall not:
(1) Communicate or cause another to communicate on the subject of
the representation with a party known to be represented by a
lawyer in that matter except with the prior consent of the lawyer
representing such other party or as authorized by law.
Iowa Code Ann. Ch. 602, App. DR 7-104, Code of Prof. Resp., (1996) (emphasis
3
re Luedtke), Case No. 97-6095MN, slip op. at 2, (B.A.P. 8 Cir. Dec. 12, 1997).	th
See also Ball v. Payco-General Am. Credits, Inc. (In re Ball), 185 B.R.
595, 597 (B.A.P. 9 Cir. 1995) (holding that the Ninth Circuit Bankruptcy Appellate Panel is	th
bound by prior rulings of the panel unless a decision of the Ninth Circuit Court of Appeals, the
Supreme Court or action by the state legislature has undermined those decisions). Based upon
the precedent of Greenwood I, we affirm the bankruptcy court’s determination
that the practice violated Iowa Consumer Credit Code § 537.7103(5)(e)
and that preemption does not apply.
Discover Card raises one new issue in this appeal. Discover Card
asserts that the court erred in concluding that Discover Card acted
unethically and violated DR 7-104(A)(1) of the ABA Code of Professional
Responsibility by communicating directly with the debtor. By order of	2
the Iowa Supreme Court, the ABA Code of Professional Responsibility and
its Disciplinary Rules, with some modifications not significant here, govern
the ethics of the practice of law in the state of Iowa. Disciplinary Rule 7-
104(A)(1) of Iowa’s Code restricts attorney communication with a party known to be represented
by counsel. By its express terms, DR 7-104(A)(1) applies only to	3

added).
Had Discover Card acted through or at the direction of an attorney, it would be4
the attorney who would be bound by any rules and code of professional conduct.
4
attorneys. See also E.E.O.C. v. McDonnell Douglas Corp., 948 F.Supp. 54
(E.D. Mo. 1996) (holding that Missouri Supreme Court Rules of
Professional Conduct do not apply to non-lawyers). In this case, the
record reflects that Discover Card’s bankruptcy unit sent the disputed
correspondence to debtor’s counsel with a copy to the debtor. There is
no evidence that in so doing, Discover Card acted through or at the
direction of an attorney. Thus, there is no evidence that Iowa’s Code of
Professional Responsibility and it Disciplinary Rules should apply to
Discover Card’s practice. One of the purposes of the ethical rules
restricting attorney contact with represented parties is to protect
persons from "the danger that ‘unprincipled attorneys’ might ‘exploit
the disparity in legal skills between attorneys and lay people’ . . . ."
Terra Int’l. Inc. v. Mississippi Chem. Corp., 913 F.Supp. 1306, 1314
(N.D. Iowa 1996) quoting Cram v. Lamson & Sessions Co., 148 F.R.D. 259,
260 (S.D. Iowa 1993). Such purpose is not served unless an attorney is
involved.4
Because there is no evidence that Discover Card acted through an
attorney when it communicated directly with the debtor, we hold that the
bankruptcy court erred in applying the Code of Professional Responsibility to Discover
Card’s conduct. Thus,

The bankruptcy court also held that such conduct violated the ABA Rules of5
Professional Conduct. Rule 4.2 of the ABA Rules of Professional Conduct governs
communications with persons represented by counsel. This rule, while not adopted in
Iowa, is similar to DR 7-104(A)(1) and likewise does not apply to non-lawyer conduct.
5
we reverse the bankruptcy court holding that Discover Card’s conduct
violated DR 7-104(A)(1) of the Code of Professional Responsibility.5
Accordingly, for the foregoing reasons, we affirm, in part, and
reverse, in part, the decision of the bankruptcy court.
A true copy.
Attest:
Clerk, U.S. Bankruptcy Appellate Panel for the Eighth Circuit