Judgments of the Supreme Court

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2017 (Kyo) 6

Date of the judgment (decision)

2017.10.05

Case Number

2017 (Kyo) 6

Reporter

Minshu Vol. 71, No. 8

Title

Decision on whether or not one party to litigation has a right to file a petition to seek a judicial decision to cease and desist from procedural acts of the other party’s counsel which violate Article 25, item (i) of the Attorney Act and procedural acts of such other party’s subcounsel who was mandated to serve as such by an attorney who had been appointed as a counsel for such other party in violation of the said item

Case name

Case of appeal with permission against the court of second instance’s decision to revoke an order to cease and desist from procedural acts of counsel

Result

Decision of the First Petty bench, quashed and decided by the Supreme Court

Court of the Prior Instance

Fukuoka High Court, Decision of January 27, 2017

Summary of the judgment (decision)

1. One party to litigation has a right to file a petition with court to seek a judicial decision to cease and desist from procedural acts of the other party’s counsel which violate Article 25, item (i) of the Attorney Act and procedural acts of the other party’s subcounsel who was mandated to serve as such by an attorney who had been appointed as a counsel for such other party in violation of the said item, on the grounds that these procedural acts violate the said item.

2. The party whose counsel’s or subcounsel’s procedural acts were ordered to be ceased and desisted from on the grounds that these acts violate Article 25, item (i) of the Attorney Act may, by analogical application of Article 25, paragraph (5) of the Code of Civil Procedure, file an immediate appeal against the ruling.

3. Neither the counsel nor the subcounsel whose procedural acts were ordered to be ceased and desisted from on the grounds that these acts violate Article 25, item (i) of the Attorney Act may file an immediate appeal against the ruling as an appellant.

4. In litigation filed by bankrupt A’s bankruptcy trustee X, if attorney B, who in the past accepted A as his client, conducts procedural acts in his capacity as defendant Y’s counsel, B’s procedural acts violate Article 25, item (i) of the Attorney Act under the factual circumstances described in (1) and (2) below:

(1) Prior to its receipt of a decision for commencement of bankruptcy proceedings, A had entered into a mandate contract with B for, inter alia, the filing of a petition to commence rehabilitation proceedings and the preparation and submission of a proposed rehabilitation plan.

(2) In the aforementioned litigation, X primarily seeks: (i) payment of money by exercising A’s claim against Y which allegedly accrued during the period for which B was under A’s aforementioned mandate; and (ii) payment of money by exercising X’s right of avoidance against, inter alia, A’s transfer of money to Y made during the said period.

References

(For 1 through 4) Article 25, item (i) of the Attorney Act

(For 2) Article 25, paragraph (5) of the Code of Civil Procedure

(For 4) Article 78, paragraph (1) of the Bankruptcy Act



Attorney Act

Article 25 An attorney shall not undertake the cases specified below; provided, however, that the foregoing shall not apply for the cases specified in items (iii) and (ix), if the client of a case that has already been undertaken by the attorney consents:

(i) Cases in which he/she provided support to the other party after consultations, or accepted the other party as his/her client;



Code of Civil Procedure

Article 25
(5) An immediate appeal may be filed against an order finding that the disqualification or challenge is groundless.



Bankruptcy Act

Article 78
(1) Where an order of commencement of bankruptcy proceedings is made, the right to administer and dispose of property that belongs to the bankruptcy estate shall be vested exclusively in a bankruptcy trustee appointed by the court.

Main text of the judgment (decision)

1. The decision of prior instance is quashed.

2. Of the order of first instance, the following portion is revoked: the portion which ruled that appellee Y1 is not allowed to represent appellee Kabushiki Kaisha Rakuyu Shoji as his service in his capacity as an attorney in the litigation filed with the Nagasaki District Court under Case No. 2016 (Wa) 50, Case Seeking Payment of Accounts Receivable.

3. The petition filed by bankruptcy trustee X1 for appellant Takematsu Express Kabushiki Kaisha with respect to the portion revoked in the preceding paragraph is dismissed without prejudice.

4. The remaining portions of the appeal filed by appellee Kabushiki Kaisha Rakuyu Shoji against the order of first instance are dismissed with prejudice on the merits.

5. The appeal filed by appellees Y2, Y3 and Y1 against the order of first instance is dismissed without prejudice.

6. The total cost of the appeal proceedings shall be borne by the appellees.

Reasons

I. Outline of the Case

1. In this case, appellant X2, who is the bankruptcy trustee of bankrupt Takematsu Haiso Service Kabushiki Kaisha, appellant X1, who is the bankruptcy trustee of bankrupt Takematsu Express Kabushiki Kaisha, and appellant X3, the bankruptcy trustee of Yugen Kaisha Takematsu Unyu, filed litigation against appellee Kabushiki Kaisha Rakuyu Shoji. In this litigation, the appellants allege that the procedural acts conducted by appellees Y2 and Y3 as counsels for appellee Rakuyu Shoji violate Article 25, item (i) of the Attorney Act, since Y2 and Y3 are attorneys who in the past entered into a mandate contract with the bankrupts listed above, and the appellants seek that the respective procedural acts conducted by appellees Y2 and Y3 be ceased and desisted from and that the procedural acts conducted by appellee Y1 be ceased and desisted from, since Y1 is an attorney who has been appointed as a subcounsel for appellee Rakuyu Shoji by, inter alia, being mandated by appellee Y2 to serve as such.

2. According to records, the circumstances of this case are as described below:

(1) On April 3, 2014, Yugen Kaisha Takematsu Unyu, Takematsu Haiso Service Kabushiki Kaisha and Takematsu Express Kabushiki Kaisha (hereinafter collectively, the “Three Takematsu Companies”) each entered into a mandate contract with appellees Y2 and Y3 for, inter alia, the filing of a petition to commence rehabilitation proceedings and the preparation and submission of a proposed rehabilitation plan (hereinafter, the “Mandate Contracts”).

(2) On April 24, 2014, Takematsu Unyu filed with the Nagasaki District Court a petition for commencement of rehabilitation proceedings, by appointing appellees Y2 and Y3 as counsels for the petition. The petition stated that Takematsu Unyu planned to proceed with the rehabilitation proceedings with support from appellee Rakuyu Shoji as sponsor.

On May 16, 2014, Takematsu Unyu received a decision for commencement of rehabilitation proceedings. However, in late June 2014, appellee Rakuyu Shoji discontinued its support to Takematsu Unyu. On July 11, 2014, Takematsu Unyu received a decision for discontinuance of rehabilitation proceedings, which decision became final and binding upon the lapse of August 6, 2014.

(3) On August 7, 2014, Takematsu Unyu received a decision for commencement of bankruptcy proceedings, for which appellant X3 was appointed as the bankruptcy trustee.

On August 21, 2014, Takematsu Haiso Service and Takematsu Express each received a decision for commencement of bankruptcy proceedings. Appellant X2 was appointed as the bankruptcy trustee for Takematsu Haiso Service and Appellant X1 as that for Takematsu Express.

(4) During the period from August 2015 to February 2016, the appellants each filed with the Nagasaki District Court four lawsuits against appellee Rakuyu Shoji. The primary demands made by the appellants in these lawsuits are as follows: (i) appellant X2 demanded payment of money from appellee Rakuyu Shoji by exercising X2’s right of avoidance against, inter alia, Takematsu Haiso Service’s transfer of money to appellee Rakuyu Shoji, as well as payment of money based on Takematsu Haiso Service’s claim for shipping charges against appellee Rakuyu Shoji (hereinafter the case in which this demand was made is referred to as “Case A”); (ii) appellant X1 demanded payment of money from appellee Rakuyu Shoji by exercising X1’s right of avoidance against Takematsu Express’s transfer of money to appellee Rakuyu Shoji (hereinafter the case in which this demand was made is referred to as “Case B”); (iii) appellant X3 demanded payment of money from appellee Rakuyu Shoji based on Takematsu Unyu’s right to demand return of unjust enrichment from appellee Rakuyu Shoji (hereinafter the case in which this demand was made is referred to as “Case C”); and (iv) appellant X1 demanded payment from appellee Rakuyu Shoji based on Takematsu Express’s claim for shipping charges against, and right to demand return of unjust enrichment from, appellee Rakuyu Shoji (the case in which this demand was made is the Case Seeking Payment of Accounts Receivable filed with the Nagasaki District Court under Case No. 2016 (Wa) 50; hereinafter, “Case D”). The proceedings for Cases A, B, C and D were conducted jointly (hereinafter the litigation after the joinder is referred to as the “Litigation”).

The aforementioned Takematsu Haiso Service’s and Takematsu Express’s respective claims for shipping charges against appellee Rakuyu Shoji and the aforementioned Takematsu Unyu’s and Takematsu Express’s respective rights to demand return of unjust enrichment from appellee Rakuyu Shoji are all alleged to have accrued during the period for which appellees Y2 and Y3 were mandated by the Three Takematsu Companies under the Mandate Contracts. The aforementioned Takematsu Haiso Service’s and Takematsu Express’s respective transfers of money to appellee Rakuyu Shoji, against which the aforementioned exercise of the rights of avoidance was demanded, were also made during the same period.

(5) Appellees Y2 and Y3 were each mandated by appellee Rakuyu Shoji to serve as counsels for Cases A, B, C and D. Appellee Y1 was mandated by appellee Y2 to serve as a subcounsel for Cases A, B and C and was also mandated by appellee Rakuyu Shoji to serve as a counsel for Case D.

(6) On August 1, 2016, the appellants filed with the Nagasaki District Court a petition requesting that the aforementioned three appellees’ procedural acts be ceased and desisted from, on the grounds that the procedural acts conducted by appellees Y2, Y3 and Y1 in the Litigation violate Article 25, item (i) of the Attorney Act (hereinafter, the “Petition”).

The court of first instance found the Petition well-grounded, and issued an order to cease and desist from the aforementioned three appellees’ procedural acts conducted after the Petition (the order of first instance).

The appellees filed an immediate appeal against the order of first instance.

3. The court of prior instance revoked the order of first instance, on the grounds that even if an attorney who serves as a counsel for the other party to an action filed by a bankruptcy trustee had been mandated by the bankrupt to provide legal services related to the demands made in such action, such attorney’s procedural acts do not constitute “cases in which he/she … accepted the other party as his/her client” as stipulated in Article 25, item (i) of the Attorney Act, in light of the fact that a bankruptcy trustee exercises his/her right to manage and dispose of the bankrupt’s estate based on the bankruptcy trustee’s independent authority. The court of prior instance did not dismiss the Petition, based on the understanding that the Petition called upon the court to exercise its authority.



II. Ex-officio Discussion

1. The purpose of Article 25, item (i) of the Attorney Act is: to protect the interests of one party which trusts, and discusses with or engages, a particular attorney earlier than the other party; and to ensure the fair performance of the duties of, and to maintain the integrity of, attorneys. It is understood that if an attorney conducts procedural acts on behalf of one party in violation of the said item, the other party may raise an objection to, and request the court to issue an order to cease and desist from, such acts (see Supreme Court, 1960 (O) 924, Judgment of the Grand bench of October 30, 1963, Minshu Vol. 17, No. 9, p. 1266). It is also understood that if a subcounsel for one party was mandated to serve as such by an attorney who had been appointed as a counsel for such party in violation of the said item, the other party may similarly raise an objection to, and request the court to issue an order to cease and desist from, such subcounsel’s procedural acts on the grounds that the appointment of the subcounsel was in violation of the said item. In light of the fact that, as described above, the purpose of the said item includes the protection of the interests of such other party, it should be understood that the said party has a right to file a petition to seek a judicial decision to cease and desist from such procedural acts, on the grounds that these acts violate the said item.

Next, since it is obvious that a party has an interest in whether or not its counsel’s and subcounsel’s procedural acts are ceased and desisted from, such party should be given an opportunity to appeal against an order to cease and desist from its counsel’s or subcounsel’s procedural acts on the grounds that such acts are in violation of the said item. On the other hand, it is considered necessary to promptly make such an order in order to ensure the speedy progress of the litigation. This is also the case with an order that finds the disqualification of or challenge to a judge (which is similar to the present case in that someone is excluded from the proceedings) is groundless. The type of appeal that may be filed against such a decision is immediate appeal (Article 25, paragraph (5) of the Code of Civil Procedure). In light of the points described above, it is reasonable to understand that the party whose counsel’s or subcounsel’s procedural acts were ordered to be ceased and desisted from on the grounds that these acts violate Article 25, item (i) of the Attorney Act may, by analogical application of Article 25, paragraph (5) of the Code of Civil Procedure, file an immediate appeal against the order.

In contrast, the counsel or subcounsel whose procedural acts are ordered to be ceased and desisted from by the aforementioned order only conducted such procedural acts on behalf of the party which is represented by such counsel or subcounsel. It is thus understood that such counsel or subcounsel has no interest of his/her own in whether or not his/her procedural acts are ceased and desisted from. Therefore, it is reasonable to understand that neither the counsel nor subcounsel may file an immediate appeal as the appellant against the aforementioned order.

2. Let us apply the above discussion to this case. It is justifiable that the court of prior instance treated appellee Rakuyu Shoji’s immediate appeal against the order of first instance as lawful. However, although the court of prior instance ruled that the procedural acts conducted by appellee Rakuyu Shoji’s counsels and subcounsel should not be ceased and desisted from on the grounds that these acts violated Article 25, item (i) of the Attorney Act, based on the court of prior instance’s understanding that the Petition called upon the court to exercise its authority to cease and desist from the procedural acts on the grounds that these acts violated the said item, the court of prior instance only revoked the order of first instance without dismissing the Petition. In addition, the court of prior instance treated the immediate appeal filed by appellees Y2, Y3 and Y1 against the order of first instance as lawful. These rulings by the court of prior instance contain a violation of law that obviously affects its decision.

III. Reasons for Appeal Filed by Appellants

According to the facts described in I. 2 above, the Three Takematsu Companies had entered into the Mandate Contracts with appellees Y2 and Y3 before receiving the respective decisions for commencement of bankruptcy proceedings. Therefore, appellees Y2 and Y3 were in the position to, at the request of the Three Takematsu Companies, lead the proceedings towards the maintenance and rehabilitation of the Three Takematsu Companies’ businesses by monitoring the conditions of their operations and assets, and give guidance to these companies about such matters as the management of claims and the prevention of unjustified outflow of assets. In the meantime, the primary demands made in the Litigation are: (i) payment of money to the appellants by exercising the Three Takematsu Companies’ respective claims against appellee Rakuyu Shoji which allegedly accrued during the period for which appellees Y2 and Y3 were under the Three Takematsu Companies’ mandate; and (ii) payment of money to the appellants by exercising their rights of avoidance against, inter alia, Takematsu Haiso Service’s and Takematsu Express’s respective transfers of money to appellee Rakuyu Shoji made during the said period. Therefore, it is obvious that the Litigation relates to the management of Three Takematsu Companies’ claims and the prevention of unjustified outflow of their assets.

Another point is that, while the parties to the Litigation opposing appellee Rakuyu Shoji are the appellants who serve as the Three Takematsu Companies’ respective bankruptcy trustees, the client under the Mandate Contracts is the Three Takematsu Companies. However, in light of the fact that a decision for commencement of bankruptcy proceedings vests the right to manage and dispose of the bankrupt’s assets in the bankruptcy trustee, the Three Takematsu Companies as the bankrupts and their respective bankruptcy trustees should be equated with each other.

From this follows that the Litigation should be considered to constitute “cases in which he/she … accepted the other party as his/her client,” which appellees Y2 and Y3 are prohibited by Article 25, item (i) of the Attorney Act from undertaking.

For the above reasons, the Court should conclude that the procedural acts conducted by appellees Y2 and Y3 in their capacity as counsels for appellee Rakuyu Shoji violate the said item.

Therefore, the respective procedural acts conducted by appellees Y2 and Y3 in the Litigation should be ceased and desisted from. The procedural acts conducted by appellee Y1, who was mandated by appellee Y2 to serve as a subcounsel in Cases A, B and C, should also be ceased and desisted from. Nevertheless, the court of prior instance did not grant an order to cease and desist from the respective procedural acts conducted by appellees Y2 and Y3 in the Litigation nor did it grant an order to cease and desist from the procedural acts conducted by appellee Y1 in Cases A, B and C. This conclusion by the court of prior instance contains a violation of law that obviously affects its decision. The appellants’ reason for appeal on this point is well-grounded.

In contrast, in Case D, appellee Y1 serves as a counsel under mandate by appellee Rakuyu Shoji, and there are no circumstances that would suggest that the procedural acts conducted by appellee Y1 violate Article 25, item (i) of the Attorney Act. These procedural acts of appellee Y1 cannot thus be ceased and desisted from. The appellants’ reason for appeal on this point is thus groundless.

IV. Conclusion

For the reasons described above, the decision of prior instance should inevitably be quashed. In addition, based on the grounds explained above, such portion of the order of first instance as ordered to cease and desist from appellee Y1’s procedural acts in Case D is groundless, and the Court revokes such portion. The petition filed by the appellant X1 with respect to the aforementioned revocation is groundless, and the Court dismisses without prejudice such portion. The remaining portions of the order of first instance are justified, and the Court dismisses with prejudice the remaining portions of appellee Rakuyu Shoji’s appeal against the order of first instance. The appeal against the order of first instance filed by appellees Y2, Y3 and Y1 is illegal, and the Court dismisses without prejudice such appeal.

Therefore, the Court unanimously decides as set forth in the main text.

Presiding Judge

Justice YAMAGUCHI Atsushi

Justice IKEGAMI Masayuki

Justice OTANI Naoto

Justice KOIKE Hiroshi

Justice KIZAWA Katsuyuki

(This translation is provisional and subject to revision.)