Summary: If a lawyer is told by his client of a past fraud on a tribunal, in a matter in which lawyer was not involved, the lawyer must not reveal the fraud against the client's wishes. If the person who reveals the fraud to the lawyer was not a client or in a confidential relationship, the lawyer may reveal the fraud, like any ordinary citizen, but the lawyer is not required to reveal the fraud.
Facts: A lawyer represents a loan company that was considering taking a second mortgage on two parcels of land owned by a husband and wife. The loan company forwarded the matter for a title search. Its appraiser, however, indicated the possibility of the existence of a trust, and the lawyer advised that in that event a mortgage might not be possible. The loan company, not wishing to pay for a title search if it wasn't going to make a loan, asked the lawyer to talk to the customers.
The lawyer talked to the wife on the telephone and in his office. He learned that in a bankruptcy of the husband, one parcel of the land had been sold to a second mortgagee holding a $4,000 mortgage for approximately $700. The second mortgagee was in fact the husband's brother-in-law. He had given no consideration for the mortgage and subsequently transferred the property back to husband and wife for "one dollar and other valuable consideration paid." The second parcel of land owned by the husband and wife was apparently not included in the bankrupt's estate, but information obtained from the wife suggests that it should have been. The lawyer has requested our opinion about a number of questions revolving around his obligation to report this information to the trustee or the court.
Discussion: A crucial question is whether the customers were his clients. The answer will turn on the understanding or expectation that developed out of his discussions with the customers. In addition, we should point out that there is authority for the proposition that an obligation to keep information confidential may arise if an individual has a reasonable belief that the information was disclosed in the context of a fiduciary relationship. See Westinghouse Elec. Corp. v. Kerr-McGee Corp., 580 F.2d 1311 (7th Cir. 1978), cert. denied, 99 S.Ct. 353 (1978).
There are three provisions of the Disciplinary Rules allowing or requiring a lawyer to reveal confidential information that should be examined.
DR 4-101(C)(3) provides that a lawyer may reveal the "intention of his client to commit a crime and the information necessary to prevent a crime."
DR 7-102(B)(1) and (2) provide:
A lawyer who receives information clearly establishing that:
1) His client has, in the course of representation, perpetrated a fraud upon a person or tribunal shall promptly call upon his client to rectify the same, and if his client refuses or is unable to do so, he shall reveal the fraud to the affected person or tribunal, except when the information is protected as a privileged communication. [The last 10 words of this provision were added by the Supreme Judicial Court by an amendment effective July 1, 1979.]
2) A person other than his client has perpetrated a fraud upon a tribunal shall promptly reveal the fraud to the tribunal.
If the customers were the lawyer's clients, there does not appear to be any provision of the Disciplinary Rules that requires, or permits, disclosure of this information. The customers were not his clients when any fraud was committed. Thus, the mandatory disclosure provision, DR 7-102(B)(1), does not apply, even apart from any question about the applicability of the recent amendment. Moreover, any fraud and its consequences appear "completed," in the sense that it is difficult to envisage any continuing consequences of the customers' acts that might be analogized to the commission of a future crime. Thus the discretion to reveal granted by DR 4-101(C)(3) does not seem applicable.
If the customers were not the lawyer's clients, the literal language of DR 7-102(B)(2) applies if the information received clearly established the fraud. Furthermore, if the information clearly suggests fraud, and it could be corroborated without great difficulty, we do not believe that the obligation may be avoided simply by failing to take the extra step.
We do not think, however, that the literal language of DR 7-102(B)(2) should be applied to this case. We think DR 7-102(B)(2) is meant to apply principally to discovery of fraud on a tribunal in a matter in which the lawyer had been involved in a representative capacity on somebody's behalf. Cf. MBA Opinion 76-6 in which the lawyer was, in fact, involved in a representative capacity. DR 7-102(A) and (B)(1) are clearly limited to such cases, and the heading of DR 7-102 is "Representing a Client Within the Bounds of the Law." If DR 7-102(B)(2) is not so limited, then lawyers are required to reveal fraud on any tribunal by anyone other than their client even in a matter with which the lawyer had no connection. Such a wide-ranging mandatory requirement seems inconsistent with the general pattern of the code not to impose such large-scale policing requirements on lawyers with respect to matters in which they are not involved. Indeed, the Supreme Judicial Court eliminated entirely the much more limited provision of DR 1-103(A) of the Model Code that would have required lawyers to report disciplinary violations (including fraud on a tribunal) by other lawyers. We, therefore, conclude that it is more sensible to read DR 7-102(B)(2) in the limited fashion we suggest, where there is no connection between the fraud and the lawyer's representation of a client. Since the lawyer was not involved in any way in the matter in which the fraud may have been committed, we believe that DR 7-102(B)(2) is not applicable.
The further question remains whether the lawyer is permitted to reveal the information, assuming that customers are not his clients and assuming further, as seems likely, that no confidential information of his client, the loan company, is involved. The lawyer is in the position of any citizen who learns that someone else has committed a fraud. He may reveal the fraud if he desires. In this particular situation, the lawyer must consider additionally the fact that it was his performance of his role as a lawyer for the loan company that induced revelation of the fraud. We do not believe that that precludes disclosure, assuming that no confidential relationship existed as a matter of law, but it is one of the many factors that lawyer will have to consider.
Permission to publish granted by the Board of Delegates on May 21, 1980.
As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.