Lawyers' Duty of Confidentiality and Clients' Crimes and Frauds

• Publication year: 2022

Lawyers' Duty of Confidentiality and Clients' Crimes and Frauds

Douglas R. Richmond
University of Florida, doug.richmond@aon.com

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LAWYERS' DUTY OF CONFIDENTIALITY AND CLIENTS' CRIMES AND FRAUDS

Douglas R. Richmond^*

Abstract

Lawyers' ethical duty of confidentiality is a fundamental aspect of the attorney-client relationship. It is also an extraordinarily broad duty; indeed, it is broader than the attorney-client privilege. So extensive a duty of confidentiality is necessary to encourage clients to trust their lawyers and to be candid with them. The public also benefits from lawyers' duty of confidentiality, as a comment to Rule 1.6 of the ABA's Model Rules of Professional Conduct explains: "Almost without exception, clients come to lawyers in order to determine their rights and what is, in the complex of laws and regulations, deemed to be legal and correct. Based upon experience, lawyers know that almost all clients follow the advice given, and the law is upheld."

As broad as lawyers' duty of confidentiality may be, however, it is not absolute. There are times when the usual public interest in lawyers' preservation of client confidentiality may yield to a greater interest in preventing, mitigating, or rectifying clients' unlawful conduct. Model Rule 1.6(b)(2) accordingly permits a lawyer to disclose a client's information "to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services." Model Rule 1.6(b)(3) permits a lawyer to reveal a client's information "to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services."

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Lawyers' ability to disclose information related to clients' representations where they reasonably believe or even know that the clients are planning, engaging in, or have committed financial crimes or frauds is an incredibly important issue. Absent the ability to make such disclosures, lawyers may face significant civil and criminal liability, as well as professional discipline, arising out of clients' dishonest schemes. At the same time, the circumstances in which lawyers may disclose clients' malfeasance are narrow, often difficult to appreciate, and require lawyers to make nuanced judgments. This Article examines in practical fashion lawyers' critical but limited ability to disclose clients' information to prevent, mitigate, or rectify clients' financial crimes and frauds.

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CONTENTS

Abstract................................................................................493

Introduction.........................................................................496

I. Client Communication in the Crime or Fraud Context ..........................................................................................501

II. Analyzing Model Rules 1.6(b)(2) and (b)(3)...............506

A. The Lawyer's Reasonable Belief that Disclosure Is Necessary....................................................................507
B. Disclosure to the Extent Necessary to Prevent, Mitigate, or Rectify Substantial Injury to the Financial Interests or Property of Another...............................................516
C. Clients' Crimes and Frauds.......................................520
D. The Client's Use of the Lawyer's Services in Furtherance of the Crime or Fraud ........................... 524

III. The Model Rule 4.1(b) Overlay..................................526

IV. The Crime-Fraud Exception to the Attorney-Client Privilege.........................................................................528

Conclusion............................................................................532

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Introduction

Lawyers' duty of confidentiality is essential to the attorney-client relationship.¹ Indeed, it is "axiomatic that among the highest duties an attorney owes a client is the duty to maintain the confidentiality of client information."² Under Rule 1.6(a) of the Model Rules of Professional conduct, a lawyer cannot "reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted" by one of the exceptions listed in Rule 1.6(b).³ As Model Rule 1.6(a) makes clear, lawyers' duty of confidentiality is very broad.⁴ It is broader than the attorney-client privilege.⁵ It is also broader than the confidentiality protections afforded by the work product doctrine.⁶ So extensive a duty of

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confidentiality is necessary to encourage clients to trust their lawyers and to be candid with them.⁷ The public also benefits from lawyers' duty of confidentiality, as a comment to Model Rule 1.6 explains: "Almost without exception, clients come to lawyers in order to determine their rights and what is, in the complex of laws and regulations, deemed to be legal and correct. Based upon experience, lawyers know that almost all clients follow the advice given, and the law is upheld."⁸

As broad as lawyers' duty of confidentiality may be, it is not absolute. For example, a client may expressly or impliedly consent to a lawyer's disclosure of information related to the client's representation.⁹ There are other times when the usual public interest in lawyers' preservation of client confidentiality may yield to a greater interest in preventing, mitigating, or rectifying clients' unlawful conduct.¹⁰ Model Rule 1.6(b)(2) accordingly permits a lawyer to disclose a client's information "to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services[.]"¹¹ On the back end, Model Rule 1.6(b)(3) permits a lawyer to reveal a client's information "to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services[.]"¹² in both circumstances, the disclosure of information related to the client's representation must be limited to "the extent the lawyer reasonably believes necessary" to accomplish the rule's purpose.¹³ This limitation on the information that a lawyer may reveal respects

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the general principle that exceptions to the duty of confidentiality should be narrowly construed.¹⁴

The American Bar Association (ABA) adopted Model Rules 1.6(b)(2) and (b)(3) at the August 2003 meeting of the House of Delegates.¹⁵ The ABA did so at the recommendation of its Presidential Task Force on Corporate Responsibility, which had been established the year before "to address 'systemic issues relating to corporate responsibility arising out of the unexpected and traumatic bankruptcy of Enron and other Enron-like situations[.]'"¹⁶ In sum:

The Task Force believed that where the client abuses the client-lawyer relationship by using the lawyer's services to commit a crime or fraud that results in substantial economic harm to another, the policy of protecting confidentiality is outweighed by the policy of protecting the interests of society and the professional integrity of the lawyer.¹⁷

The House of Delegates agreed in a close vote.¹⁸

Although Rules 1.6(b)(2) and (b)(3) were new additions to the Model Rules in 2003, some of their principles were already embodied or established in professional conduct rules.¹⁹ DR 4-101(C)(3) of the predecessor Model Code of Professional Responsibility more broadly provided that a lawyer could reveal a client's intent "to commit a crime and the information necessary to prevent the crime."²⁰ By 2003, most states had adopted rules that either permitted or required lawyers to

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disclose information related to a client's representation to prevent or rectify the client's criminal or fraudulent conduct.²¹ Most of those rules permitted or even required disclosure in more situations than Model Rules 1.6(b)(2) and (b)(3) contemplate.²² Other Model Rules imposed similar obligations on lawyers in connection with litigation as they do today.²³ In particular, Model Rule 3.3(b) provided then, as it does now, that "[a] lawyer who represents a client in an adjudicative proceeding and who knows that a person intends to engage, is engaging or has engaged in criminal or fraudulent conduct related to the proceeding shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal."²⁴

Regardless of the specific language, Model Rules 1.6(b)(2) and (b)(3) and their state counterparts particularly benefit lawyers with counseling or transactional practices, who may learn of clients' crimes or frauds before they are consummated or while their effects can be mitigated.²⁵ Although lawyers normally are unwitting enablers of clients' criminal or fraudulent schemes—dishonest clients tend to be as good at fooling their lawyers as they are at deceiving their intended victims—lawyers have no ability to alert authorities or the marks once they realize their clients' wrongdoing, absent an exception to their duty of confidentiality.²⁶ Making matters worse, a lawyer who represents a dishonest client potentially faces serious civil liability for allegedly

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aiding and abetting the client's misconduct if the lawyer does not make some disclosure before the client's nefarious scheme causes harm.²⁷ Of the publicly reported judgments against, or settlements by, U.S. law firms that exceed $20 million, more than two-thirds are due in whole or part to the firm's representation of...