Editor's Note:
State Bar Ethics Opinions cite the applicable California Rules of Professional Conduct in effect at the time of the writing of the opinion. Please refer to the California Rules of Professional Conduct Cross Reference Chart for a table indicating the corresponding current operative rule. There, you can also link to the text of the current rule.
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1. What are a lawyer's ethical obligations when she knows or should know her client is committing an ongoing or future fraud upon the public?
2. What are the lawyer's obligations where the client has used the lawyer's services in furthering the fraud?
A lawyer acts unethically where she assists in the commission of a fraud by implying facts and circumstances that are not true in a context likely to be misleading. When a client is engaging in an ongoing fraud, the lawyer must be careful to avoid assisting in the fraud in any way. The lawyer should advise the client that the client's actions constitute a fraud. The lawyer may affirmatively advise the client to refrain from engaging in misrepresentations and assist the client in rectifying previous misrepresentations. If the client does not refrain from the fraudulent conduct, the lawyer must either limit the scope of her representation to matters that do not involve participation in or furthering the client's fraud, or withdraw.
Rules 3-210, 3-500, and 3-700 of the California Rules of Professional Conduct.
Business and Professions Code sections 6068, subdivisions (d), (e), and (m), and 6128.
A general contractor asks his lawyer to draft a purchase and sales contract for homes in a new development. The developer asks the lawyer to include a provision in the contract warranting the quality of all building materials, including, inter alia, the piping used in the plumbing lines.
Building takes place in four "Phases." Near the end of Phase I, the developer informs the lawyer that his subcontractors have installed substandard plumbing lines in the homes due to cost considerations. The developer advises the lawyer that this piping violates the building code and that rapid corrosion and leakage almost always occur within a year or two after installation. The developer assures the lawyer that he will comply with the code in the remaining Phases.
In discussions with the lawyer after completion of Phase II, the developer admits that inferior piping was again used in the homes in Phase II, because he did not supervise the subcontractors carefully enough. He assures that he will carefully oversee the development of Phase III.
A few months later, a Phase I homeowner calls the developer and complains that he saw substandard piping at the Phase III construction site. He believes that his home may have the same substandard pipe. He seeks a rescission of the purchase and sales agreement.
To head off further complaints, the contractor approaches the lawyer and asks her to write a letter to all Phase I and II homeowners. The language they discuss is as follows: "The warranty in your contract means that [developer] has promised that all materials, including plumbing lines, meet plans and specifications, including all code requirements. The warranty speaks for itself."
Information about client misconduct imparted to a lawyer in the course of a lawyer-client relationship or which is involved in the representation of a client is subject to California Business and Professions Code section 6068 (e)1, which provides:
It is the duty of an attorney:
(e) To maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.
A lawyer's duty to protect client information under section 6068 (e) is much broader than the obligations imposed by the lawyer- client privilege. (Goldstein v. Lees (1975) 46 Cal.App.3d 614, 621, fn. 5 [120 Cal.Rptr. 253].) "This ethical precept, unlike the evidentiary privilege, exists without regard to the nature or source of information or the fact that others share the knowledge." (ABA Model Code Prof. Responsibility, EC 4-4; cf. Goldstein v. Lees, supra, 46 Cal.App.3d at p.621.) This Committee has repeatedly recognized that in its broadest sense, the preservation of the client's "confidence" means that a lawyer must maintain the trust reposed in the lawyer by the client. (Cal. State Bar Formal Opn. No. 1986-87.) As stated in California State Bar Formal Opinion Number 1987-93:
Section 6068 (e) is derived from the Code of Civil Procedure section 211(5), enacted March 11, 1872. The concept of confidence as trust is firmly embedded in the decisional law of California. It first appears in Kisling v. Shaw (1867) 33 Cal. 425, 441 which was decided by the California Supreme Court five years before the enactment of the original statute.
In addition to having trust in a lawyer, a client's confidence in that lawyer requires that the client have the fidelity and loyalty of the lawyer. (Anderson v. Eaton (1930) 211 Cal. 113, 116 [fidelity]; Jeffry v. Pounds (1977) 67 Cal.App.3d 6, 11 [136 Cal.Rptr. 373] (loyalty); and In re Soale (1916) 31 Cal.App. 144, 153.)
Thus, while the concept of "confidence" is not limited to the transmission of information, a significant cornerstone of the duty to maintain a client's confidence relates to the protection of information about the client to which the lawyer is privy during the lawyer-client relationship.
In this case, the disclosure by the lawyer of information received about the installation of defective piping would certainly undermine the confidence of the client with regard to the fidelity and loyalty of the lawyer, as well as the trust that can be reposed in the lawyer. The efforts the client is making to conceal the information demonstrate that the client does not want it disclosed. It is detrimental to the client because it may subject the client to civil or criminal liability, may adversely affect the value of the client's property or may subject the client to ridicule or scorn. In light of the client's effort to conceal the information, disclosure by the lawyer is likely to be embarrassing to the client to say the least.
Under section 6068 (e), the fact that the lawyer received the information from a non-client (a homeowner) makes no difference. While the client's communications with the lawyer receives additional protection under the lawyer-client privilege, the lawyer's ethical duty under section 6068 (e) does not depend on the source of the information. (L.A. Cty. Bar Assn. Formal Opn. Nos. 305, 386, 417 & 436.)
The next question is whether the client's conduct affects the lawyer's duty under section 6068 (e).
The scope of the protection of client confidential information under section 6068 (e) has been liberally applied. (See People v. Singh (1933) 123 Cal.App. 365 and L.A. Cty. Bar Assn. Formal Opn. Nos. 274 & 386.) The duty applies even where the facts are already part of the public record or where there are other sources of information. (L.A. Cty. Bar Assn. Formal Opn. Nos. 267 & 386.)
The prohibition against revealing a client confidence or secret extends to information about a client's fraudulent conduct. (Cal. State Bar Formal Opn. No. 1988-96, Bar Assn. of S.F. Formal Opn. No. 1977-2, L.A. Cty. Bar Assn. Formal Opn. Nos. 264, 274 & 386.) The protection includes information that a client has filed a fraudulent bankruptcy or is receiving money to which the client is not entitled. (L.A. Cty. Bar Assn. Formal Opn. Nos. 417 & 422.) It includes information that the client has committed perjury. (Cal. State Bar Formal Opn. No. 1983-74, L.A. Cty. Bar Assn. Formal Opn. No. 386.) It includes information that the client is operating as a suspended corporation. (L.A. Cty. Bar Assn. Formal Opn. No. 408.)
In all of these instances, the lawyer's duty to the client under section 6068 (e) required the lawyer to refrain from disclosing the client's deception without the client's consent. As in those instances, the fact that the client here has engaged in a misrepresentation, and may be continuing to do so, does not release the lawyer from the obligations to maintain the client's confidence and preserve the client's secrets under section 6068 (e).
While the lawyer may not disclose the client's fraudulent conduct, the lawyer also may not participate in or further such conduct. The ethical duty to tell the truth is reflected in section 6068 (d) which provides:
It is the duty of an attorney:
(d) To employ, for the purpose of maintaining the causes confided to him or her such means only as are consistent with truth, and never to seek to mislead the judge or any judicial officer by an artifice or false statement of fact or law.
These principles are also found in the California Rules of Professional Conduct2. Rule 3-210, in part, provides:
A member shall not advise the violation of any law, rule, or ruling of a tribunal unless the member believes in good faith that such law, rule, or ruling is invalid.
The Discussion to this rule makes it clear that it applies not only to advice given to the client, but also to actions taken on behalf of a client that further an illegal end. (See rule 3-210, Discussion;3
See also, In re Young (1989)49 Cal.3d 257 [261 Cal.Rptr. 59] (court held that the lawyer had a duty not to further his client's misconduct).)
These principles fall squarely into place with respect to the letter that the client has requested the lawyer to prepare. While some might argue that the words used in the letter are not fraudulent in and of themselves, contextually, the letter would further the client's nondisclosure and create the false impression that inferior materials were not used when in fact such materials were used. The lawyer's duty to use only those means as are consistent with the truth would preclude the lawyer from sending such a letter on the client's behalf.4
When a lawyer faces a situation in which the client is engaging in an ongoing fraud, the lawyer should advise the client that the client's actions constitute a fraud and, when circumstances warrant, explain the possible consequences to the client of engaging in such conduct. The Committee believes that such disclosure is required as part of the lawyer's duty to inform a client of significant developments relating to the lawyer's representation of a client found in rule 3-500 and section 6068 (m).5 The precise nature of the communication with the client will depend on the particular circumstances and the extent to which the client is aware of the fraud and the consequences of engaging in such conduct.
When a client is engaging in an ongoing fraud, the lawyer must be careful to avoid furthering the fraud in any way. The lawyer may affirmatively advise the client to refrain from engaging in misrepresentations to the home buyers and assist the client in rectifying previous misrepresentations. This should be consistent with the lawyer's obligation to advise the client about possible liability and the effects on such liability of any client admission. (L.A. Cty. Bar Assn. Formal Opn. No. 386.) Such actions may include drafting correspondence to the home buyer which complies with the client's disclosure obligations and transmitting such correspondence to the client.
If the client does not refrain from the fraudulent conduct, the lawyer must either limit the scope of the representation to matters that do not involve participation in or furthering the client's fraud, or withdraw. However, the lawyer must be fully confident that her circumscribed representation will in no way further the fraud. If the fraud has tainted the entire project, the lawyer may be required to withdraw.
If the client refuses to follow the lawyer's advice and insists that the lawyer engage in activities that further the client's fraud, the lawyer's obligation is to withdraw from the representation. Under rule 3-700(B)(2) withdrawal is mandatory when a member "knows or should know that continued employment will result in violation of . . . [the] rules or of the State Bar Act."6 The lawyer should seek to withdraw without disclosing the reasons to the homeowners, provided the lawyer takes reasonable steps to avoid any reasonably foreseeable prejudice to the rights of the client. (See S.D. Cty. Bar Assn. Ethics Opinions 1983-10 & 1990-2 [supporting this option with the same conditions].)
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of California. It is advisory only. It is not binding upon the courts, the State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.
A member shall not seek, accept, or continue employment if the member knows or should know that the objective of such employment is:
(A) To bring an action, conduct a defense, assert a position in litigation, or take an appeal, without probable cause and for the purpose of harassing or maliciously injuring any person; or
(B) To present a claim or defense in litigation that is not warranted under existing law . . . .
Rule 5-200 states, in part, that:
In presenting a matter to a tribunal, a member:
(A) Shall employ, for the purpose of maintaining the causes confided to the member such means only as are consistent with truth;
(B) Shall not seek to mislead the judge, judicial officer or jury by an artifice or false statement of fact or law;
(C) Shall not intentionally misquote to a tribunal the language of a book, statute, or decision;
(D) Shall not, knowing its invalidity, cite as authority a decision that has been overruled or a statute that has been repealed or declared unconstitutional . . . .
In addition to these rules, Business and Professions Code section 6128 (a) provides that every lawyer is guilty of a misdemeanor who "[i]s guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party." While these provisions are not directly applicable to the non- litigation setting here, they underscore the broader principle that a lawyer cannot engage in or further a misrepresentation on a client's behalf.
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