Ethics Opinions

Opinion No. 99-2

Summary: A lawyer who learns that her partners, without their clients' knowledge, have intentionally made material misrepresentations to state and federal agencies to prevent imposition of substantial penalties on firm clients for the law firm's failure to file timely reports must report her partners' misconduct to the clients, act to avoid the consequences of the fraud on the state agency, and report the misconduct to Bar Counsel. Rule 1.4 mandates informing the clients. The permission granted in Rule 1.6(b)(1) to disclose confidential information of firm clients to prevent fraudulent acts means that such information is not protected by Rule 1.6 from disclosure to the state agency and Bar Counsel in these circumstances. Affirmative obligations imposed by Rule 5.1(c)(2) (as to avoiding harm to the state agency) and Rule 8.3 (as to disclosure to Bar Counsel) require the lawyer to act. The Committee does not have sufficient facts to address whether the lawyer has an obligation to act to mitigate her partners' fraud on the federal agency.

Facts: A lawyer (L) has discovered that several of her partners intentionally misrepresented material facts to state and federal agencies (which are not tribunals) in explaining the lawyers' failure to file on time required reports of firm clients. The clients had no knowledge of the fraud. The state agency has not yet acted on a request to forego substantial penalties. The federal agency, relying on the false explanations, did not assess penalties on the clients. L asks whether she has ethical obligations to report her partners' misconduct to the affected clients, the state and federal agencies, and Bar Counsel. L was not representing her partners when she learned of their fraudulent conduct.
Discussion:
1. Disclosure To the Clients. Mass. R. Prof. C. 1.4(a) states:

A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information.

Comment [1] to Rule 1.4 commences with:

The client should have sufficient information to participate intelligently in decisions concerning the objectives of representation and the means by which they are to be pursued . . .

Clearly the lawyers who committed fraud on the agencies are obligated to tell the clients how their matters have been handled. Without this information the clients can hardly "participate intelligently in decisions concerning the objectives of the representation and the means by which they are to be pursued." If the partners who perpetrated the fraud are unwilling to disclose their wrongdoing to the clients, Rule 5.1(c)(2) imposes on L responsibility for their ethical violations:

(c) A lawyer shall be responsible for another lawyer's violations of the Rules of Professional Conduct if:

. . .

(2) the lawyer is a partner in the law firm in which the other lawyer practices . . . and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.

This rule places on the innocent partner the ethical obligation to act to avoid or mitigate the acts of the wrongdoing partners. In the present circumstances that clearly includes contacting the clients, if the wrongdoers will not, and disclosing the fraud to the clients. Because L was not acting as counsel to her partners when she learned of their fraud, her disclosing the fraud to the clients does not raise any issue of confidentiality under Rule 1.6.
2. Obligation to the Agencies. In reliance upon the fraudulent filings by L's partners, the agencies have suffered or will suffer substantial injury to their financial interests by not asserting penalties against the clients. Rule 4.1 states:

In the course of representing a client a lawyer shall not knowingly:

(a) make a false statement of material fact or law to a third person. . . .

L's partners have violated Rule 4.1(a). By reason of Rule 5.1(c)(2), quoted above, L as their partner is responsible for their violations if she "fails to take reasonable remedial action." Disclosure to the affected agencies, however, unlike disclosure to the clients, would involve revealing confidential information of the clients.
Rule 1.6(a) requires that a lawyer "not reveal confidential information relating to the representation of a client unless the client consents after consultation, . . . except as stated in paragraph (b)." Comment [5] to Rule 1.6 provides that "confidential information" includes both confidences protected by the attorney/client privilege and "secrets" as defined in an earlier rule. Included within the concept of secret is information disclosure of which would be embarrassing or likely be detrimental to the client. Thus, the information concerning the fraud on the agencies is within "confidential information" and protected by Rule 1.6(a), unless revelation of that information is permitted by Rule 1.6(b), which in relevant parts states:

A lawyer may reveal and to the extent required by Rule 3.3, Rule 4.1(b), or Rule 8.3 must reveal, such information:

(1) to prevent the commission of a criminal or fraudulent act that the lawyer reasonably believes is likely to result in death or substantial bodily harm, or in substantial injury to the financial interests or property of another, or to prevent the wrongful execution or incarceration of another.

Thus, Rule 1.6(b)(1) gives L discretion to reveal the unconsummated fraud to the state agency, which has not yet acted on the fraudulent information supplied by L's partners. As noted in Comment [13A] to Rule 1.6, Massachusetts in adopting the Model Rules of Professional Conduct explicitly changed the language of this rule "to permit disclosure of a client's confidential information when the harm will be the result of the activities of third persons as well as of the client." In addition, we believe that the conduct here meets the further requirement that the act to be prevented must be "likely to result . . . in substantial injury to the financial interests . . . of another." While Rule 1.6(b)(1) only gives L discretion to reveal the fraud to the state agency, we believe that Rule 5.1(c)(2) requires her to act to avoid or mitigate the consequences of her partners' fraud. For example, L might withdraw the papers filed by her partners with, but not yet acted upon by, the state agency, or L might under the circumstances have to disclose the fraud to the agency.
Whether Rule 1.6(b)(1) would permit reporting the completed fraud to the federal agency raises a more difficult question, which in the absence of knowing all the facts, we do not at this time address.
3. Disclosure to Bar Counsel. Last we address whether Rule 8.3 imposes upon L an obligation to report her partners' fraudulent conduct to Bar Counsel. Rule 8.3(a) states:

A lawyer having knowledge that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform Bar Counsel's office of The Board of Bar Overseers.

. . .

(c) This rule does not authorize disclosure of information otherwise protected by Rule 1.6. . . .

The Office of Bar Counsel has issued a statement of policy asserting that the kinds of violation that raise a "substantial question as to [a] lawyer's honesty, trustworthiness or fitness as a lawyer in other respects" include "at a minimum, any matter that would result in a suspension or disbarment." MBA Lawyers' Journal (March 1999). In our view, no matter what definition of reportable conduct is selected, L has set forth facts that fall within the core area of lawyer misconduct that must be reported under Rule 8.3. On the facts as given, L knows that her partners have engaged in fraud, deceit, and misrepresentation in violation of at least Rule 4.1(a), quoted above, Rule 8.4(c), and perhaps other rules as well.
Rule 8.3(c) excepts from disclosure information "protected by Rule 1.6." As Comment [2] explains, "A report about misconduct is not required or permitted where it would involve violation of Rule 1.6." In this inquiry, however, a report would not violate Rule 1.6 because, as discussed above, L has discretion to reveal the fraud. Since the information is not protected, L must inform Bar Counsel's office of the violation. That is the meaning of the language in Rule 1.6(b) that a "lawyer may reveal, and to the extent required by . . . Rule 8.3, must reveal, such information. . . ." (emphasis added). Indeed, Comment [21] to Rule 1.6 states, "The reference to Rule 3.3, 4.1(b), and 8.3 in the opening phrase of Rule 1.6(b) has been added to emphasize that Rule 1.6(b) is not the only provision of these rules that deals with the disclosure of confidential information and that in some circumstances disclosure of such information may be required and not merely permitted."
Ordinarily, assuming that she does not fear for the safety, compare Mass. R. Prof. C.1.6, Comment 19A, L should urge her partners to disclose to the firm's clients what they have done. If they refuse to do so, L should discuss the fraud with the clients herself. In any event, she should reveal to the clients her ethical obligations to act to avoid consequences of the fraud on the state agency and to report her partners' misconduct to Bar Counsel. L should not be dissuaded from meeting these obligations by the clients, but they have the right to know what she intends to do because they may well be injured by her actions through no fault of their own, and they may wish to seek counsel on how best to protect their interests.
This advice is that of a Committee without official governmental status.
Permission to publish granted by the Board of Delegates on April 16, 1997. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official government status.
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