State Bar Association
Committee on Professional Ethics
Opinion 998 (2/5/14)
information; criminal conduct
Digest: Lawyers who become
aware of fraudulent conduct by buyer and seller in a real estate transaction,
including delivery of a fraudulent check in payment of the fee of buyer’s
lawyer, may not disclose attempted or completed fraud unless necessary to
withdraw a representation by the lawyer still being relied upon; to the extent
necessary to collect the fee; or where required by other law.
Rules: 1.6(b), 3.3
seller and the mortgage-holding lender agreed to a short-sale residential real
estate transaction. A short sale is a
transaction in which the holder of a mortgage on the property consents to
release its lien in a sale for less than the outstanding amount of its
loan. Such a sale is often an
alternative to initiating a foreclosure proceeding. In this case, buyer and seller secretly
agreed prior to the closing (and without informing their lawyers) that the
buyer would pay the seller an amount in addition to the amount being paid to
the mortgage holder. At the closing, the
buyer and seller signed affidavits swearing that there had been no side
agreements and that no money would be exchanged outside of the approved
arrangements. Buyer delivered checks to
pay the broker’s fee and to pay the buyer’s own lawyer. Unbeknownst to counsel for either party, the
buyer also delivered to the seller a check for the additional amount on which
they had agreed.
closing was completed, and a day or two later, the broker, seller and buyer’s
attorney all discovered that the checks they had received were fraudulent. (The buyer otherwise had used non-fraudulent
checks to consummate the closing.) The
account on which the fraudulent checks were drawn did not exist. The seller asked the seller’s attorney for
advice regarding the fraudulent check the seller had received, resulting in
that attorney also learning about the side agreement and ultimately about the
other fraudulent checks. We are told,
and it seems reasonable to conclude, that the side agreement was an attempt to
defraud, if not an actual fraud upon, the mortgage holder.
a short-sale residential real estate transaction in which buyer and seller may
have, without the knowledge of their lawyers, committed a fraud on the lender,
and buyer has also issued fraudulent checks to buyer’s attorney and
others involved in the transaction, may or must the lawyers reveal the
fraudulent conduct to the lender or law enforcement authorities?
critical facts here – that the buyer and seller had agreed on and attempted to
consummate a side payment and swore affidavits to the contrary, and the buyer’s
issuance of fraudulent checks – are clearly “confidential information” within
the meaning of Rule 1.6 of the Rules of Professional Conduct. Rule 1.6(a) defines “confidential
information” as follows:
“Confidential information” consists of information
gained during or relating to the representation of a client, whatever its
source, that is (a) protected by the attorney-client privilege, (b) likely to
be embarrassing or detrimental to the client if disclosed, or (c) information
that the client has requested be kept confidential.
The information here was gained during or
relating to the representation of each lawyer’s client. In N.Y. State 866 (2011), we opined that the
term “during” in Rule 1.6 should not be read to be purely temporal, but rather
“implies some connection between the lawyer’s activities on behalf of the
client and the lawyer’s acquisition of the information – for example, if the
lawyer learned the information because of the lawyer-client relationship.” Id. ¶ 17 (footnote omitted). The seller’s lawyer clearly learned the
information during the course of his representation of the seller in this sense
– indeed, the lawyer learned it in the course of a request for legal advice. The buyer’s lawyer might have learned the
information after the end of the representation, and thus not “during” the
representation, but the information clearly “relat[ed] to” the representation.
the disclosure of that information by either lawyer is likely to be detrimental
to that lawyer’s client: the fact that
the buyer and seller apparently defrauded the lender would be detrimental to
each client if disclosed; the disclosure of the buyer’s delivery of fraudulent
checks would clearly be detrimental to the buyer; the disclosure of that fact
likely would be detrimental to the seller as well, because it would likely lead
to disclosure of the apparently illegal side agreement. Under Rule 1.6(a), each side’s lawyer is
therefore barred from revealing this information unless his or her client gives
informed consent or the disclosure is permitted by Rule 1.6(b).
1.6(b) merely authorizes, but does not require, disclosure in the circumstances
enumerated therein (and discussed below), and no other rule requires disclosure
of confidential information in the present case. Another rule, Rule 3.3, does compel
disclosure of confidential information, but it is inapplicable here. Rule 3.3 provides, among other things, that a
lawyer who knows that a person has engaged in criminal or fraudulent conduct
related to a proceeding before a tribunal must take remedial measures,
including, if necessary, disclosure of confidential information. But Rule 3.3 only applies to lawyers who
represent clients before a tribunal and only to criminal or fraudulent conduct
related to a proceeding before the tribunal.
Here, the lawyers do not represent clients before a tribunal and there
is no applicable proceeding.
to the permissive-disclosure provisions of the Rules, Rule 1.6(b) contains
several exceptions to the obligation not to reveal confidential
information. There are five exceptions
that merit discussion here:
A lawyer may reveal or use confidential information to
the extent that the lawyer reasonably believes necessary: …
(2) to prevent the client from committing a crime;
withdraw a written or oral opinion or representation previously given by the
lawyer and reasonably believed by the lawyer still to be relied upon by a third
person, where the lawyer has discovered that the opinion or representation was
based on materially inaccurate information or is being used to further a crime
or fraud; . . . .
(5) (i) to defend the lawyer or the lawyer’s
employees and associates against an accusation of wrongful conduct; or
establish or collect a fee; or
(6) when permitted or required under these Rules or
to comply with other law or court order.
1.6(b)(2) permits disclosure to prevent the client from committing a crime, but
not to remedy a past crime. Here, it appears that each of the potential
crimes was complete before the lawyers learned of it. The Comments to this Rule recognize that some
crimes are continuing crimes, and state that a lawyer “whose services were
involved in the criminal acts that constitute a continuing crime may reveal the
client’s refusal to bring an end to a continuing crime, even though that
disclosure may also reveal the client’s past wrongful acts … .” Rule 1.6, Cmt. [6D]; see also N.Y.
State 866 ¶ 26 (2011) (discussing disclosure of continuing crimes). While we do not opine on questions of law, as
opposed to ethics, the frauds here do not appear to be continuing crimes, so
Rule 1.6(b)(2) does not appear to be applicable.
1.6(b)(3) permits disclosure to the extent reasonably believed necessary to
withdraw a written or oral opinion or representation that was based on
materially inaccurate information and that the lawyer reasonably believes is
still being relied upon by a third person.
We do not know whether either lawyer might have given a representation
upon which any third person – presumably, the lender – is still relying. If either lawyer gave a representation
implying the absence of fraud in the transaction, it may be possible to
conclude that the lender is continuing to rely on that representation in not
pursuing remedies against the buyer and seller for their attempted fraud.
1.6(b)(5)(i) permits a lawyer to disclose confidential information to defend
the lawyer against an accusation of wrongful conduct. On the facts known to us, there does not
appear to have been any accusation of wrongful conduct leveled against either
lawyer. Unless and until such an
accusation is made, this exception to the bar on disclosure of confidential
information is inapplicable.
1.6(b)(5)(ii) permits a lawyer to disclose confidential information to collect
a fee. The buyer’s lawyer thus would be
entitled to disclose confidential information to the extent necessary to
collect the fee that was purportedly paid with a fraudulent check. Any such disclosure would need to be limited,
however. See Rule 1.6 Cmt. 
(“a disclosure adverse to the client’s interest should be no greater than the
lawyer reasonably believes necessary to accomplish the purpose”); N.Y. State
980 ¶¶ 5-6 (2013) (discussing limitations on authorization to reveal
information to collect fee). For
example, the buyer’s lawyer might reasonably conclude that the Rule does not
authorize disclosure of the side agreement for the secret payment, but only the
use of the fraudulent check to pay the lawyer’s fee. The lawyer will also need to consider whether
reporting the fraud to law enforcement authorities is reasonably necessary to
collect the fee. Ordinarily, one need
not report a crime in order to initiate a civil action to collect damages
caused by the criminal conduct, but we do not exclude that in certain
circumstances a lawyer could reasonably conclude that such reporting is
necessary. Cf. N.Y. State 980
(2013) (addressing whether disclosure of fact that client had been “working off
the books” was necessary to collect fee in bankruptcy proceeding); N.Y. State
684 (1996) (concluding that lawyer could not disclose to credit bureau client’s
failure to pay fee because disclosure was not necessary to collect fee).
Rule 1.6(b)(6) permits disclosure to the extent reasonably believed necessary
“when permitted or required under these Rules or to comply with other law or
court order.” There are statutes that
require reporting information about some crimes, or that at least prohibit
concealment of such information, though the obligations they impose may be
limited by judicial consideration of ethical principles. As our jurisdiction is limited to questions
of legal ethics under the Rules, we express no view as to whether other law may
require disclosure here.
is nothing anomalous about our conclusion that the lawyers may not be able to
disclose the frauds to law enforcement authorities. There are various circumstances in which
confidentiality obligations prevent a lawyer from exercising the full set of
remedies for wrongful conduct available to others, even when the lawyer has
suffered the consequences of the wrongful conduct. See, e.g., Simon’s New York
Rules of Professional Conduct Annotated 215 (2013 ed.) (explaining rule
that lawyer may reveal confidential information relating to future but not past
crimes on ground that “preventing client crimes is more important than the duty
of confidentiality, but solving crimes is not”); N.Y. City 1994-1 (citing cases
for proposition that where an attorney “was pursuing a common law remedy,
several courts have not permitted in-house attorneys to sue former employers
for retaliatory termination, basing their conclusion on the confidential nature
of the attorney-client relationship and the ethical requirements relating to
clients’ confidences and secrets”).
we note that even though the lawyers might be barred from disclosing the
information at issue here voluntarily, that does not answer the question whether
they might be compelled to disclose it.
Some of the information may be protected from compulsory process by
attorney-client privilege, such as any facts about the side agreement that were
revealed by client to lawyer in confidence.
But some of the information at issue here may be confidential for
reasons other than the attorney-client privilege, and thus the lawyers may be
compelled to disclose it. For example,
the receipt of the fraudulent check might well not be privileged. See In re Subpoena to Testify Before the
Grand Jury, 39 F.3d 973, 976 (9th Cir. 1994) (identity of client
who paid lawyer with counterfeit bill was “entirely distinct from the matter in
which the client sought the lawyer’s services.
It was therefore unprotected by the privilege.”).
the buyer’s lawyer nor the seller’s lawyer may disclose the apparent fraud on
the lender or the delivery of fraudulent checks, except (i) to the extent
reasonably believed necessary to withdraw any opinion or representation made by
the lawyer asserting the absence of such conduct where the lender is reasonably
believed still to be relying on such opinion or representation, (ii) where
required by other law, or (iii) by the buyer’s lawyer, to the extent reasonably
believed necessary to collect the lawyer’s fee.
 Cf. Levitt v. Brooks, 669 F.3d 100, 104 (2d Cir.
2012) (disclosure of client’s “vulgar remark” relating to fee dispute did not
violate Rule 1.6 because “remark contained no material information
beyond the use of profanity directed at counsel”).
 We note that New York has not adopted the ABA
version of the exceptions, which include a provision that a lawyer may reveal
confidential information to the extent the lawyer reasonably believes necessary
“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.” ABA Model Rule of Prof. Conduct
1.6(b)(3). New York’s rule thus provides
a significantly narrower scope to reveal information about already completed
crimes than the ABA model.
 See, e.g., Wayne LaFave, Substantive Criminal Law § 13.6 & n.86
(2013) (“There is a misprision of felony statute in the United States Code, but
it is not a true misprision statute in that it requires an act of concealment
in addition to failure to disclose.”); People v. Belge, 83 Misc. 2d 186, 372 N.Y.S.2d 798 (Co. Ct.
Onondaga) (dismissing, on grounds of attorney-client privilege and in interests
of justice, indictment of lawyer for failure to report, under Public Health Law
§§ 4143 (requirement to report death occurring without medical attendance) and
4200 (duty of decent burial), where location of murder victim’s body had been
disclosed in attorney-client communication), aff’d, 50 A.D.2d 1088, 376 N.Y.S.2d 771 (4th Dept.
1975), aff’d, 41 N.Y.2d 60, 390 N.Y.S.2d 867 (1976); Stephen
Gillers, Guns, Fruits, Drugs, and Documents:
A Criminal Defense Lawyer’s Responsibility for Real Evidence, 63 Stan.
L. Rev. 813, 829-46 (2011) (discussing criminal statutes and court cases
dealing with disclosure of evidence of a crime).