Ethics Opinions

Opinion No. 93-3

Summary: A trustee's lawyer who discovers apparent misappropriation of trust property by the trustee must decide whether it is "reasonably likely" that the client intends the commission of a future crime. A lawyer who so concludes has discretion to reveal the client's intention to the beneficiaries or the court or both. Usually, but not always, the lawyer should have a personal discussion with the client before exercising the discretion to disclose.
If the fraud occurred during the course of the lawyer's representation and if there is no constitutional inhibition, the lawyer may also have a mandatory obligation to reveal the fraud if the client refuses to rectify the situation. Finally, there is a substantive law question, which the committee may not address, whether the lawyer has enough of a fiduciary relationship to the beneficiaries of the trust to trigger an independent obligation to disclose any conclusion of misappropriation of trust assets to them.

Facts: A decedent left property to a child as trustee for another child who has disappeared. The missing child's issue are the remaindermen. The lawyer settled the estate and is currently the attorney for the trustee child in the child's fiduciary capacity. The trust account is managed at a brokerage house and copies of the statements are sent to the lawyer. The lawyer has recently discovered that the trustee has written a substantial number of checks on the trust to a personal account, some even to cash. The trustee has not responded to several requests from the lawyer for an explanation. Nor has the trustee responded to the accountant who needs an explanation to prepare the fiduciary tax return, which is on extension and due to be filed shortly. The lawyer inquires about the attorney-client privilege and the ethical permissibility or obligation to notify the remaindermen of the situation.
Discussion: The inquiry raises a difficult issue with respect to a problem that the Committee on Professional Ethics has addressed in five published opinions within the last four years. See Opinions 89-1, 90-1, 90-2, 91-4 and 91-6. The issue is the permission to, or obligation of, a lawyer to disclose an ongoing fraud or crime that will cause harm to a third party when disclosure will reveal a confidence or secret of the client.
Based on the cited opinions, we advise as follows. It is not the attorney-client privilege that is involved at the present time, because the lawyer's testimony is not being sought, but rather the broader obligation of the lawyer under DR 4-101 to preserve the confidences and secrets of his client, subject to the exceptions contained in DR 4-101(C) and the requirement of DR 7-102(B)(1). The information that has triggered this inquiry did not come from the trustee but rather from a third party, the bank that sent the trust's bank statements to the lawyer. Nevertheless, that information falls within the definition of "secret" contained in DR 4-101(A) since it was "gained in the professional relationship" and its disclosure "would be embarrassing or would likely ... be detrimental to the client." Moreover, the silence of the client in the face of several requests for an explanation has played a large role in the lawyer's suspicions and that too seems to fit within the definition of a "secret."
The question then arises whether any of the exceptions to DR 4-101(C) permits the lawyer to reveal that secret. DR 4-101(C)(3) permits a lawyer to reveal the client's "intention ... to commit a crime and the information necessary to prevent the crime." Our Opinion 90-2 discusses the state of mind which a lawyer must have before revealing a client's confidence or secret. It states our opinion that a lawyer "must conclude that the client is 'reasonably likely' to intend commission of a crime before he or she obtains the discretion granted by DR 4-101(C)(3)." The possible crimes are the successful completion of embezzlement by a fiduciary, larceny, the filing of false tax returns, and there may be others as well, but the committee is not permitted to give advice on matters of substantive law.
In addition, we do not know all the facts that have triggered the lawyer's suspicions or even whether the lawyer has tried to make personal contact with the client. For all these reasons, we cannot advise whether on these facts DR 4-101(C)(3) is applicable. The lawyer must decide whether the facts and the substantive law trigger a permission to reveal and if so, whether the lawyer desires to exercise the discretion to reveal enough information to prevent the client's commission of a crime. The fact that any misapplications occurred in the past does not mean that DR 4-101(C)(3) is inapplicable. For one thing, the lawyer may conclude that there is an ongoing pattern of misapplications or that future false reporting to the court is part of the crime of embezzlement or larceny or that it constitutes a separate crime. Furthermore, since any misapplications are recent, there may well be future criminal activity to conceal them, including false tax returns.
One further point should be made with respect to the exercise of discretion to reveal future crime under DR 4-101(C)(3). In our view, in the usual situation, a lawyer ought to attempt to discuss the situation personally with the client before revealing a confidence or secret of the client. There may, however, be considerations of exigency or indeed of danger to the lawyer that would lead to a contrary conclusion in a particular case. See Opinion 90-1.
The facts may trigger the applicability of another disciplinary rule, DR 7-102(B)(1). That rule states that if a lawyer receives information "clearly establishing" that a client has committed fraud during the course of representation, the lawyer should call upon the client to rectify the fraud. If the client refuses to do so, the lawyer is required to notify the affected person or tribunal unless the information is protected as a privileged communication. The committee, in Opinions 89-1, 91-4 and 91-6, has taken the position that if the lawyer has discretion to reveal the information under DR 4-101(C)(3), the information cannot be privileged under the exception to DR 7-102(B)(1) and that therefore the lawyer's obligation, when the facts trigger DR 7-102(B)(1) is mandatory. The reasoning is set forth in those opinions. The lawyer in the present inquiry must decide whether factually the preconditions of DR 7-102(B)(1) have been met before deciding what action to take.
Several cautions should be noted with respect to taking action pursuant to DR 7-102(B)(1). In the first place, some have argued that the privilege against self-incrimination, under both state and federal law, may modify the lawyer's duty under both DR 7-102(B)(1) and even DR 4-101(C)(3). Since those are questions of substantive law, we are not permitted to address them and can only repeat what the committee has said previously, namely that the lawyer should reach a personal conclusion on that question.
Secondly, we should mention that both present and former Bar Counsel interpret DR 7-102(B)(1) differently from the committee and would find no mandatory obligation in this case. Our Opinion 91-4 responds to former Bar Counsel's view. The similar view of present Bar Counsel has been printed in 20 Mass. Lawyers Weekly 2107 (June 22, 1992). Given the division of views, we find it hard to believe that discipline would be
imposed for following either view. But even if the lawyer decides to follow Bar Counsel, the lawyer must still decide whether to exercise discretion to reveal if DR 4-101(C)(3) is applicable.
We should add one further consideration. The facts of the inquiry are different from the facts contained in our earlier cited opinions in one important respect. The third-party whom the lawyer would warn is not a stranger to the situation. The trust was created for the benefit of the persons whom the lawyer would like to warn and the lawyer represents the trustee as fiduciary for them. While there are certainly instances where fiduciaries may take a position opposed to beneficiaries and where the fiduciaries' lawyers are entitled to assert that their obligation is to the fiduciaries only, it may be that this is not one of them. A court might well take the position that lawyers have enough of a fiduciary obligation to beneficiaries that they are permitted or required to notify them of their trustee's theft of the trust property.
The issue to which we have adverted also raises a question whose resolution is at the intersection of fiduciary law and professional responsibility law. While it might be framed in terms of the nature of the client, in essence it involves the substantive law question of the duty owed by the lawyer for a fiduciary to a beneficiary when the Disciplinary Rules do not speak to the subject. We do not believe that we need answer this very difficult issue on the facts of this inquiry because the response we have already given may resolve the problem.
In the event that guidance is sought we suggest that the following decisions seem relevant. Compare Tarasoff v. Regents of University of California, 17 Cal.3d 425, 551 P.2d 334 (1976)(allegation that failure of psychotherapist, who learned of danger to victim from patient through patient's confidential communication, to warn victim states a cause of action for damages as a result of subsequent murder of victim by patient; police, who learned of danger and failed to warn victim, would not be liable because of lack of special relation to victim). Accord, McIntosh v. Milano, 168 N.J. Super 466, 403 A.2d 500 (L. Div. 1979). But see PR-78-8 in which the Board of Bar Overseers issued a private reprimand to the lawyer for an executor who, when discharged, wrote a letter to the executor with copies to beneficiaries making reference to certain joint accounts in the name of the deceased and the executor or the executor's brother that the executor had concluded should not be part of the estate. The Hearing Committee concluded that the respondent appeared to have "misconceived his relationship with his client vis-a-vis his responsibility to other parties interested in the estate." The report of the private reprimand contains no discussion of the substantive law concerning the responsibility of the lawyer for a fiduciary who takes action against the interest of the beneficiaries without disclosure. 1 Mass. Atty Disc. Rep. 391 (1978). Compare Hazard, Triangular Lawyer Relationships, 1 Geo. J. Leg. Ethics 15 (1987).


Permission to publish granted by the Board of Delegates on March 23, 1993. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.
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