Ethics Opinion

Opinion No. 80-8

August 1980

Summary: Whether it is fraudulent for a buyer to purchase land for the sole purpose of immediately reselling to a person with whom he knows the seller would refuse to deal, is a debatable question of substantive law. The committee does not answer questions concerning the applicability of the disciplinary rule prohibiting lawyers from assisting the clients in fraudulent acts, DR 7-102(A)(7). It is clear, however, that the buyer's lawyer has no obligation to disclose his client's confidences to the landowner, DR 7-102(B)(1).

Facts: A landowner has a large tract of land. Mr. X wishes to buy this land but the landowner would refuse to deal with him. A lawyer has a client who realizes this. The client has proposed to Mr. X that (in return for a very substantial "finder's fee") the client will buy the land from the landowner and immediately reconvey it to Mr. X. The money to pay a down payment to the landowner will be provided to the client by Mr. X. At the same time that the client is negotiating a purchase and sale agreement with the landowner, he will be negotiating a similar agreement with Mr. X.

The lawyer has written to the committee and asked our advice about the following questions:
(1) May the lawyer advise his client and otherwise participate in the structuring of this agreement?
(2) Does the attorney have an affirmative duty to disclose his client's plans to the landowner?
(3) Does the client have such a duty?

Discussion: We believe that the first of these questions is governed by DR 7-102(A)(7), which provides that "... a lawyer shall not ... counsel or assist his client in conduct that the lawyer knows to be illegal or fraudulent."

However, whether the client's conduct would amount to a fraud is unclear. There is no indication that false statements have been made about the identity of the real purchaser or whether there has simply been a non-disclosure of his identity. See, e.g., Thompson v. Barry, 184 Mass. 429 (1903) (although it is not certain today whether the case would be followed on its facts) (landowner was prejudiced against Catholics and asked the buyer's agent if his principal was a Catholic; the agent denied it; in fact, the undisclosed principal was a Catholic archbishop who intended to build a church on the land; conveyance set aside for fraud). See also Restatement (Second) of Agency S 304 (1958), Comment a: If the agent knows that the other party would not enter into transactions with the principal, his failure to disclose the existence of the principal may be such misleading conduct that a court of equity powers may grant rescission or other relief." See also id. S 304, Reporter's notes at 522-23: "Where to the knowledge of the agent the third person is unwilling to deal with the principal at all, it seems that the mistake ought to be regarded as one of basic error entitling the other party to rescission. There is some conflict in the decisions, but it is believed that the statement in Comment a is in accordance with the majority of the well-reasoned decisions and also in accordance with what will become, if it is not so already, the prevailing ethical view."

Furthermore, it is uncertain whether there might be matters of public policy that would cause Massachusetts courts today not to follow the Thompson case and whether this case would involve such a matter.

In the past, the committee has refused to offer opinions concerning DR 7-102(A)(7) where an issue of substantive law had to be determined in order to decide if the client's conduct was illegal or fraudulent. See, e.g., MBA Opinion No. 77-12 (whether client's failure to surrender to authorities when he knew warrants were outstanding for his arrest was a crime). This refusal is based on the fact that our rules do not permit us to decide any "question of law." Rules of the Committee on Professional Ethics, Rule 3. Aside from these general comments, we can give no further guidance regarding question (1).

We believe that the lawyer's second question (concerning his own duty to disclose the facts to the landowner) is governed by DR 7-102(B)(1): "A lawyer who receives information clearly establishing that his client has, in the course of the representation, perpetrated a fraud upon a person ... 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 ... except when the information is protected as a privileged communication." (As amended, effective July 1, 1979, italics added.) If, as a matter of substantive law, the client's action is fraudulent, we think it evident that the answer to this second question is found in the italicized language recently added to the rule.

We also observe that, if the client's action were a crime, the lawyer might disclose the client's confidences. However, he would not be required to do so. DR 4-101(C)(3). Whether the client's action would be a violation of a statute such as G.L. c. 266, S 31 (obtaining signature under false pretenses) is a question of substantive law which the committee may not undertake to answer.

As to the third question (client's duty to disclose), we observe that the very large size of the "finders fee" suggests that the client is uniquely able to influence the landowner. Their relationship might well create a legal obligation to disclose. See Restatement (Second) of Torts S551 (1977). However, we will not answer this third question. The attorney's actions are not involved and our rules prohibit any answer to pure questions of substantive law.

Permission to publish granted by the Board of Delegates, 1980. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.