16.2 Ethics Violations
Library | Bankruptcy Practice in Virginia (Virginia CLE) (2017 Ed.) |
16.2 ETHICS VIOLATIONS
16.201 In General. "The practice of law is a fundamental and essential component of self-government." 5 The critical function lawyers serve in society comes with grave responsibility. Lawyers are expected to adhere to recognized standards of professional conduct and be competent in the practice of law. Lawyers must be prompt, diligent, zealous, and attentive in the representation of clients who have entrusted to them their legal affairs. These proud tenets govern the noble profession. But when the conduct of counsel fails to meet expected minimal standards, and when the profession proves incapable of policing itself, it then becomes incumbent upon the courts to exercise their broad discretion to apply appropriate sanctions in order to deter transgressions and protect the public good. 6
The ethical standards relating to the practice of law in bankruptcy courts in Virginia are the Virginia Rules of Professional Conduct. "Those rules outline the mandatory minimum level of acceptable conduct for attorneys." 7 In addition to the Rules of Professional Conduct, the Bankruptcy Code and Federal Rules of Bankruptcy Procedure impose specific ethical obligations
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on attorneys, such as those obligations set forth in section 707(b)(4)(C) of the Bankruptcy Code. Federal courts are required to hold attorneys who violate those standards accountable for their conduct. 8 Violations of the Rules of Professional Conduct or other ethical standards may lead to severe sanctions, from the imposition of monetary penalties to the suspension of an offending lawyer's right to practice law before the court. The objects of sanctions often consist of both restitution and deterrence because the court is usually an equally harmed victim of impropriety. 9
Many of the Virginia Rules of Professional Conduct are applicable in bankruptcy cases. Rule 1.4(b) requires an attorney to explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation. Rule 2.1 requires an attorney to "exercise independent judgment and render candid advice" to clients. When an attorney becomes aware that a client proposes a course of action that is "likely to result in substantial adverse legal, moral, or ethical consequences to the client or to others, [the] duty to the client under Rule 1.4 may require that the lawyer act if the client's course of action is related to the representation." 10 Rule 1.6 also allows a lawyer to reveal information which clearly establishes that the client has, in the course of the representation, perpetrated a fraud upon a third party if the fraud is related to the subject matter of the representation. 11
Rule 1.3(c) prohibits an attorney from intentionally prejudicing or damaging a client during the course of the professional relationship and requires an attorney to act with commitment and dedication to the interests of the client and with zeal in advocacy on the client's behalf. 12 Rule 1.7(a) of the Virginia Rules of Professional Conduct prohibits an attorney from representing a client if "there is significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer."
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Attorneys practicing bankruptcy owe both a duty of competence and a duty of care to the client. 13 Attorneys must also effectively communicate with their clients, rendering candid advice and explaining matters sufficiently to enable the client to make an informed decision. 14 As a result of these rules and the duties they create, a bankruptcy lawyer has an affirmative duty to meet with the client, counsel the client, answer questions the client may have, and explain the legal significance of the client's actions in the unfamiliar and complicated process known as bankruptcy, so that the client can make informed appropriate decisions. 15 The obligations of the attorney to the client cannot be delegated to a subordinate. The Rules of Professional Conduct require "a lawyer having supervisory authority over [a] nonlawyer to make reasonable efforts to ensure that the person's conduct is compatible with the professional obligations of the lawyer." 16
16202 Attorney-Client Privilege and the Duty to Disclose. "The attorney-client privilege has long been recognized as 'the oldest of the privileges for confidential communications known to the common law . . . [and] its purpose is to encourage full and frank communication between attorneys and their clients [] thereby promot[ing] broader public interests in the observance of law and administration of justice.'" 17 "Because the attorney-client privilege exists for the benefit of the client, the client holds the privilege." 18
When a client provides factual information to an attorney for the preparation of documents intended for third-party dissemination, that information is not protected by the attorney-client privilege. More specifically, when information is disclosed for the purpose of inclusion in a bankruptcy petition and supporting schedules, there is no intent for the information to be held in confidence because the information is to be disclosed on documents publicly filed with the bankruptcy court. 19
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The attorney-client privilege can be lost by actions of the client. When a client gives information or documents to an attorney for the purpose of committing or furthering a crime or fraud, the attorney-client privilege is lost, even if the attorney was unaware of the illegal or fraudulent conduct at the time. 20 A client can also waive the privilege by voluntarily disclosing confidential information to a party not covered by the privilege or by placing the attorney-client relationship at issue, such as affirmatively invoking a defense of good faith reliance on advice of counsel. 21
Bankruptcy attorneys representing debtors often find themselves in the ethical dilemma of whether to disclose information relevant to a client's case that has not previously been disclosed to the court. In Virginia Legal Ethics Opinion ("LEO") 1777, 22 the Virginia State Bar Standing Committee on Legal Ethics (the "Standing Committee") considered the hypothetical question of whether an attorney is required or permitted to disclose information regarding his client's failure to disclose property inherited within 180 days after the petition date. After the closing of the client's case, the attorney was informed by a third party of the real estate inheritance the prior year. The attorney called his former client and asked if he wanted to disclose the real estate ownership to the court; he did not. The attorney explained the risk of being charged with and convicted of bankruptcy fraud. This did not persuade the client to make the disclosure.
The Standing Committee considered the pertinent provisions in the Virginia Rules of Professional Conduct applicable to this situation to be Rules 1.6 and 3.3(a)(4). Rule 1.6 establishes the basic parameters of an attorney's duty to maintain the confidentiality of client information. Rule 3.3(a)(4) directs that an attorney may not "offer evidence that the lawyer knows to be false. If a lawyer has offered material evidence and comes to know of its falsity, the lawyer shall take reasonable remedial measures." The Standing Committee distinguished the hypothetical situation from a straightforward instance of client fraud, governed by Rule 3.3(a)(2), which prohibits an attorney from knowingly failing "to disclose a fact to a tribunal when disclosure is necessary to avoid assisting a criminal or fraudulent act by the client," subject
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to Rule 1.6. Former Rule 1.6(c)(2) 23 directed an attorney to disclose information "which clearly establishes that the client has, in the course of the representation, perpetrated fraud related to the subject matter of the representation upon a tribunal" and defines the term "clearly establishes fraud" as when "the client acknowledges to the attorney that the client has perpetrated a fraud." 24
An attorney faced with the facts in this hypothetical situation is faced with competing duties: that of protecting client confidentiality and that of assuring candor to the court. The tension between those duties, established by Rules 1.6 and 3.3 respectively, is addressed in Rule 3.3, in what is now comment 6:
When false evidence is offered by the client, however, a conflict may arise between the lawyer's duty to keep the client's revelations confidential and the duty of candor to the court. Upon ascertaining that material evidence is false the lawyer should seek to persuade the client that the evidence should not be offered or, if it has been offered, that its false character should immediately be disclosed. If the persuasion is ineffective, the lawyer must take reasonable remedial measures. If the failure to disclose had occurred during the course of the attorney/client relationship, then this attorney would need to pursue that duty analysis. 25
However, in the hypothetical example, the attorney had closed his file upon the discharge of the client's bankruptcy and terminated the attorney-client relationship, transforming the current client into a former client. Accordingly, Rule 3.3's duty to disclose false evidence was not triggered. This attorney had no duty to disclose this new information regarding his former client to the court, and, moreover, he was prohibited from doing so because an attorney's duty of confidentiality survives the termination of that relationship. Neither Rule 1.6 nor Rule 3.3 provide an exception for that duty for mistakes made by former clients after termination of the attorney-client relationship, even when the mistake relates to the subject matter of the prior representation. The Standing Committee found that the attorney was neither
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required nor permitted to reveal the information...
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