MEMORANDUM OPINION
GLEN E. CLARK, Bankruptcy Judge.
PRELIMINARY FACTS AND PROCEDURAL BACKGROUND
On September 2, 1982, an involuntary Chapter 7 petition was filed against the debtor, Phillip G. Snyder, by 18 petitioning creditors. On December 22, the debtor stipulated to entry of an order for relief, and on January 26, 1983 exercised his right to convert the case to a case under Chapter 11 of the Bankruptcy Code. At the time the bankruptcy case was commenced, the debtor was engaged in the business of real estate development and sales.
On July 20, 1983, on motion of the creditors’ committee and after a hearing, the Court appointed the accounting firm of Main Hurdman as trustee.
On March 19, 1984, the trustee, through its counsel, filed with this Court a verified application for an order to show cause why the debtor and his attorney should not be adjudged in civil contempt of court for engaging in activities which the trustee characterized as an unauthorized solicitation of votes for a plan of reorganization in violation of the provisions of Section 1125(b) of the Bankruptcy Code, and for communicating directly with parties represented by attorneys in violation of the Code of Professional Responsibility.
An order to show cause was issued by the Court and a hearing thereon was set for May 9, 1984. At the hearing, the Court ruled from the bench as follows:
With respect to the 1125(b) issue, ... there appear to be two competing policies which clash here: One is the clear intention of the Code to encourage negotiations. The other is the clear intention of the Code to protect people from misrepresentation and to have approval of disclosure statements by the Court.
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[T]here may be a need for this Court to clearly define where the line is, ... I would ask counsel to attempt to research this matter more thoroughly and brief it for the benefit of the Court.
The Court has reviewed the post-hearing briefs of the parties and has considered the evidence presented and the statements and arguments of counsel and upon its own analysis of the applicable authorities, renders its decision as follows.
FINDINGS OF FACT
On or about February 22, 1984, without prior notice to creditors, the trustee, the creditors’ committee or their attorneys, the debtor and his counsel prepared and disseminated a communication to all creditors in the case.
This communication consisted of a cover letter from the debtor’s attorney addressed to each creditor proposing to “more effectively handle [the] bankruptcy by following one of five plans” and dismissing the case.
Creditors were invited to send their comments on the various plans to the debtor’s attorney.
The communication also included a letter, sent to all creditors on the mailing matrix, that was addressed to the creditors’ committee, entitled “Proposal to Settle and Compromise Claims” which stated: “We are making this proposal in an attempt to take a practical and economic approach to this case to pay all creditors the highest possible amount.” It further stated that a meeting “with the creditor’s [sic] committee and all creditors who would like to attend” would be held on “the 21st day of March, 1984, at 12:00 p.m. at our offices. In that meeting we will discuss in detail our proposal and hopefully come to some understanding of our differences.”
To these letters were attached exhibits con-
taming appraisals and values of the debt- or’s real property, the debtor’s estimates as to costs of development and potential profits, numerous newspaper articles concerning the “Heritage Mountain” project in Utah County (a proposed resort adjacent to the debtor’s property), and various payout provisions for secured and unsecured creditors as these provisions related to each of five “plans” proposed by the debtor.
Upon receipt of the communication, counsel for the creditors’ committee immediately notified all creditors that the committee considered the communication to be factually misleading in numerous particulars, and a violation of 11 U.S.C. § 1125, and further advised them to ignore the communication.
The trustee’s attorney and the attorney for the creditors’ committee advised the debtor’s attorney that in their view both the communication and the scheduled meeting violated the law. Thereafter, the debtor’s attorney again wrote to all creditors, suggesting that they ignore the creditors’ committee’s advice. This letter stated the prior communication was not a solicitation of votes but was merely a request for information and input from creditors to assist in the formulation of a plan.
d. Any other related complaint against Snyder whether filed or to be filed and full release of liability except as described in an agreement outlining one of the proposals above.
A meeting between the debtor, his counsel, and various creditors was held on
March 21, 1984, at 12:00 noon, pursuant to the notice in the communication. At that meeting, the trustee and counsel for the creditors’ committee advised the group that they considered the debtor’s written communication and the meeting itself to constitute a violation of the law. No formal acceptances or rejections of any plan were ever requested, either in the communication or at the meeting.
DISCUSSION
The controlling provision of the Bankruptcy Code is § 1125(b), which provides:
(b) An acceptance or rejection of a plan may not be solicited after the commencement of the case under this title from a holder of a claim or interest with respect to such claim or interest unless, at the time of or before such solicitation, there is transmitted to such holder the plan or a summary of the plan, and a written disclosure statement approved, after notice and a hearing, by the court as containing adequate information. The court may approve a disclosure statement without a valuation of the debtor or an appraisal of the debtor’s assets.
Section 1125 is a new provision. It extends the disclosure requirements previously confined to railroad reorganizations and Chapter X cases to all reorganization cases.
S.Rep. No. 95-989, 95th Cong., 2d Sess. 120 (1978), 1978 U.S. Code Cong. & Admin. News, p. 5906. Section 1125(b) is derived in part from Section 176 of the Bankruptcy Act, former 11 U.S.C. § 576 (repealed),
and former Bankruptcy Rule 10-304.
Those provisions prohibited solicitation of acceptances or rejections of a plan until after entry of an order by the court approving the plan.
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MEMORANDUM OPINION
GLEN E. CLARK, Bankruptcy Judge.
PRELIMINARY FACTS AND PROCEDURAL BACKGROUND
On September 2, 1982, an involuntary Chapter 7 petition was filed against the debtor, Phillip G. Snyder, by 18 petitioning creditors. On December 22, the debtor stipulated to entry of an order for relief, and on January 26, 1983 exercised his right to convert the case to a case under Chapter 11 of the Bankruptcy Code. At the time the bankruptcy case was commenced, the debtor was engaged in the business of real estate development and sales.
On July 20, 1983, on motion of the creditors’ committee and after a hearing, the Court appointed the accounting firm of Main Hurdman as trustee.
On March 19, 1984, the trustee, through its counsel, filed with this Court a verified application for an order to show cause why the debtor and his attorney should not be adjudged in civil contempt of court for engaging in activities which the trustee characterized as an unauthorized solicitation of votes for a plan of reorganization in violation of the provisions of Section 1125(b) of the Bankruptcy Code, and for communicating directly with parties represented by attorneys in violation of the Code of Professional Responsibility.
An order to show cause was issued by the Court and a hearing thereon was set for May 9, 1984. At the hearing, the Court ruled from the bench as follows:
With respect to the 1125(b) issue, ... there appear to be two competing policies which clash here: One is the clear intention of the Code to encourage negotiations. The other is the clear intention of the Code to protect people from misrepresentation and to have approval of disclosure statements by the Court.
* * *
*
* *
[T]here may be a need for this Court to clearly define where the line is, ... I would ask counsel to attempt to research this matter more thoroughly and brief it for the benefit of the Court.
The Court has reviewed the post-hearing briefs of the parties and has considered the evidence presented and the statements and arguments of counsel and upon its own analysis of the applicable authorities, renders its decision as follows.
FINDINGS OF FACT
On or about February 22, 1984, without prior notice to creditors, the trustee, the creditors’ committee or their attorneys, the debtor and his counsel prepared and disseminated a communication to all creditors in the case.
This communication consisted of a cover letter from the debtor’s attorney addressed to each creditor proposing to “more effectively handle [the] bankruptcy by following one of five plans” and dismissing the case.
Creditors were invited to send their comments on the various plans to the debtor’s attorney.
The communication also included a letter, sent to all creditors on the mailing matrix, that was addressed to the creditors’ committee, entitled “Proposal to Settle and Compromise Claims” which stated: “We are making this proposal in an attempt to take a practical and economic approach to this case to pay all creditors the highest possible amount.” It further stated that a meeting “with the creditor’s [sic] committee and all creditors who would like to attend” would be held on “the 21st day of March, 1984, at 12:00 p.m. at our offices. In that meeting we will discuss in detail our proposal and hopefully come to some understanding of our differences.”
To these letters were attached exhibits con-
taming appraisals and values of the debt- or’s real property, the debtor’s estimates as to costs of development and potential profits, numerous newspaper articles concerning the “Heritage Mountain” project in Utah County (a proposed resort adjacent to the debtor’s property), and various payout provisions for secured and unsecured creditors as these provisions related to each of five “plans” proposed by the debtor.
Upon receipt of the communication, counsel for the creditors’ committee immediately notified all creditors that the committee considered the communication to be factually misleading in numerous particulars, and a violation of 11 U.S.C. § 1125, and further advised them to ignore the communication.
The trustee’s attorney and the attorney for the creditors’ committee advised the debtor’s attorney that in their view both the communication and the scheduled meeting violated the law. Thereafter, the debtor’s attorney again wrote to all creditors, suggesting that they ignore the creditors’ committee’s advice. This letter stated the prior communication was not a solicitation of votes but was merely a request for information and input from creditors to assist in the formulation of a plan.
d. Any other related complaint against Snyder whether filed or to be filed and full release of liability except as described in an agreement outlining one of the proposals above.
A meeting between the debtor, his counsel, and various creditors was held on
March 21, 1984, at 12:00 noon, pursuant to the notice in the communication. At that meeting, the trustee and counsel for the creditors’ committee advised the group that they considered the debtor’s written communication and the meeting itself to constitute a violation of the law. No formal acceptances or rejections of any plan were ever requested, either in the communication or at the meeting.
DISCUSSION
The controlling provision of the Bankruptcy Code is § 1125(b), which provides:
(b) An acceptance or rejection of a plan may not be solicited after the commencement of the case under this title from a holder of a claim or interest with respect to such claim or interest unless, at the time of or before such solicitation, there is transmitted to such holder the plan or a summary of the plan, and a written disclosure statement approved, after notice and a hearing, by the court as containing adequate information. The court may approve a disclosure statement without a valuation of the debtor or an appraisal of the debtor’s assets.
Section 1125 is a new provision. It extends the disclosure requirements previously confined to railroad reorganizations and Chapter X cases to all reorganization cases.
S.Rep. No. 95-989, 95th Cong., 2d Sess. 120 (1978), 1978 U.S. Code Cong. & Admin. News, p. 5906. Section 1125(b) is derived in part from Section 176 of the Bankruptcy Act, former 11 U.S.C. § 576 (repealed),
and former Bankruptcy Rule 10-304.
Those provisions prohibited solicitation of acceptances or rejections of a plan until after entry of an order by the court approving the plan. Generally, the sanction for unauthorized solicitation was invalidation of the wrongfully procured acceptance.
See
6 pt. 2 COLLIER ON BANKRUPTCY ¶ 7.39, at 1323-1328 (14th ed. 1978).
The terms “solicit” and “solicitation,” as used in § 1125(b) of the Code, are not defined in the Code or in its legislative history. However, the Senate Report implies that the term “solicitation” should be given a narrow interpretation when it states that “[sjolicitations with respect to a plan do not involve just mere requests for opinions.” S.Rep. No. 95-989, 95th Cong., 2d Sess., 121 (1978), 1978 U.S. Code Cong. & Admin. News, p. 5907. The terms also appear in Bankruptcy Rule 2006, which applies to Chapter 7 cases and is incorporated by reference in Rule 2007, which applies to cases under Chapters 9 and 11. As used in Rule 2006, the term “solicitation,” as it applies to the solicitation of proxies, means “any communication ... by which a credi
tor is asked, directly or indirectly, to give a proxy. ...”
The terms “solicit” and “solicitation,” as used in § 1125(b) of the Code, must be interpreted very narrowly to refer only to a specific request for an official vote either accepting or rejecting a plan of reorganization. The terms do not encompass discussions, exchanges of information, negotiations, or tentative arrangements that may be made by the various parties in interest in a bankruptcy case which may lead to the development of a disclosure statement or plan of reorganization, or information to be included therein. If these activities were prohibited by Section 1125(b), meaningful creditor participation in Chapter 11 cases would cease to exist. It follows that an unauthorized “solicitation” would include a specific request for an official vote for or against a plan of reorganization (a) that is made before dissemination to parties in interest of an approved disclosure statement, or (b) that is made after the dissemination of a disclosure statement, and which contains misrepresentations or deliberate falsehoods and misleading statements calculated to deceive parties entitled to vote, or (c) that refers to a plan of reorganization predicated upon arrangements that were arrived at by fraud or that were not adequately disclosed to the court and to parties in interest in the approved disclosure statement.
On the basis of the evidence before it, the Court holds that the activities of the debtor and his attorney which led to and included the mailing of the February 22, 1984 communication, and the March 21, 1984 meeting, did not constitute a specific request for official votes either accepting or rejecting a plan of reorganization and, therefore, did not constitute an unauthorized solicitation as defined herein and as prohibited by § 1125(b) of the Code.
Turning next to the question of whether dissemination of the materials by the debtor’s attorney constitutes an impermissible contact with an opposing party represented by counsel, it is clear that the debtor’s attorney did make direct contact with one or more creditors whom the debt- or’s attorney knew or should have known were represented by counsel. It was nevertheless argued by counsel for the debtor that such direct communication with parties in interest is contemplated by the Bankruptcy Code as a necessary aspect of the plan negotiation process. Counsel for the debtor has not cited a single case or other authority in support of his position.
Direct contact by an attorney with a party in interest without first obtaining the permission of their attorneys is a violation of the Code of Professional Responsibility governing attorneys practicing in Utah and before this Court. The specific provision dealing with impermissible contacts is Disciplinary Rule 7-104, which provides:
(A) During the course of his representation of a client a lawyer shall not:
(1) Communicate or cause another to communicate on the subject of the representation with a party he knows to be represented by a lawyer in that matter unless he has the prior consent of the lawyer representing such other party or is authorized by law to do so.
Under DR7-104(A)(1) a lawyer is prohibited from negotiating a settlement directly with the opposing party.
Turner v. State Bar,
36 Cal.2d 155, 222 P.2d 857 (1950);
In re Atwell,
232 Mo.App. 186, 115 S.W.2d 527 (1938). The prohibition against communication with a person known to be represented by another lawyer without that lawyer’s consent is intended to prevent overreaching by attorneys, and is necessary to the preservation of the attorney-client relationship. The rule shields the opposing party from a lawyer’s intentional and knowing contacts,
Crane v. State Bar,
30 Cal.3d 117, 635 P.2d 163, 177 Cal.Rptr. 670 (1981), and against misguided but well-intentioned communications,
Abeles v. State Bar,
9 Cal.3d 603, 510 P.2d 719, 108 Cal.Rptr. 359 (1973), as well as against negligently made communications.
In re McCaffrey,
275 Or. 23, 549 P.2d 666 (1976).
See generally Annot.,
“Communication with Party Represented by Counsel as Ground for Disciplining Attorney,” 26 A.L.R.4th 102 (1983);
Annot,
“Attorney’s Dealing Directly with Client of Another Attorney as Ground for Disciplinary Proceeding,” 1 A.L.R.3d 1113 (1965). This provision is to be construed literally and does not allow a communication with an opposing party, without the consent of counsel, even though the purpose is merely to investigate the facts.
See In re Schwabe,
242 Or. 169, 408 P.2d 922 (1965).
Counsel have not invited the Court’s attention to any case applying DR7-104(A)(1) to communications between a debtor’s attorney and creditors or members of a creditors’ committee in a bankruptcy case, and the Court has found none. However, it is clear beyond question that the Code of Professional Responsibility applies to bankruptcy cases and proceedings.
See In re Roberts,
46 B.R. 815, 830-33 (Bkrtcy.D.Utah 1985).
The creditors’ committee appointed under Section 1102(a)(1) is the unsecured creditors’ primary negotiating body for the formulation of a plan of reorganization. 11 U.S.C. § 1103(c); H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 401 (1977), 1978 U.S. Code Cong. & Admin. News, p. 6357.
Cf.
Report of the Commission on the Bankruptcy Laws of the United States, H.R. Doc. No. 93-137, 93d Cong., 1st Sess., Pt. II at 184-85 (1973). An active creditors’ committee usually employs an attorney, and the attorney becomes its representative and spokesman in negotiations concerning the plan. The committee also oversees and supervises, to some extent, the debtor’s conduct of the case.
Id. See Bohack Corp. v. Gulf & Western Industries, Inc.,
607 F.2d 258, 262 n. 4 (2d Cir.1979). The committee, and the creditors it represents, will often, as in this case, find itself in an adversarial relationship with the debtor.
Communication with creditors regarding a proposed plan of reorganization is analagous to communicating with an ad
verse party regarding settlement. In each case, the ethical canons require the prior consent from the communicant’s attorney. Where the creditors’ committee has employed an attorney pursuant to 11 U.S.C. § 1103(a), this Court holds that the debtor may not communicate with members of the committee without the prior consent of the committee’s attorney or an order of the Court. The debtor’s attorney is also precluded from communicating with individual creditors without obtaining the prior consent of their respective attorneys.
It appears to the Court that the conduct of the debtor’s attorney, albeit misguided, was the product of overzealousness in serving his client’s interests, rather than enmity towards the trustee and the creditors’ committee and their respective' counsel, or contempt for the rules of professional conduct. In view of the fact that the issue decided today is one of first impression, the Court will not require the debtor’s attorney to bear the costs and expenses of this proceeding. It would seem appropriate, however, to reprimand the debtor’s attorney for his misconduct and for this memorandum opinion to stand as that reprimand.
CONCLUSION
From the factual findings, as set forth above, this Court is of the opinion that the written communication with creditors was not an unlawful solicitation of acceptances of a plan of reorganization. Dissemination of the material without the prior approval of the attorney for the creditors’ committee or the attorneys for individual creditors violated DR7-104(A)(1) and the debtor’s attorney has been reprimanded.
An order shall be entered consistent with this opinion.