Confidentiality Exceptions to Protect Third Parties  BGF 2009

 

1)       Ethical Duty not to counsel or assist a client’s criminal or fraudulent conduct.

a)       M.R.1.2(d) – Don’t “counsel or assist” a client in violating law

i)         Can provide information about the law even if you know that client intends a violation

ii)       Prohibition refers more to active participation

iii)      Client’s use of information in crime or fraud does not, by itself, make attorney a party

b)      Even if not allowed to reveal under 1.6(b), may not further by suggesting how to conceal

2)       Client Crimes & the Duty of Confidentiality

i)         Confidentiality – Rule has many variations among the states

ii)       Older versions of rules focus on criminal or fraudulent conduct

b)      Discretion & revealing crimes: McClure v. Thompson, 323 F.3d 1233 (9th Cir. 2003)

(1)     nature of relationship with client and those who might be injured

(2)     lawyer’s own involvement

(3)     extenuating factors

(4)     should seek to persuade client to take suitable action

ii)       When does the May become a Must?

(1)     Some rules require disclosure (e.g. Tennessee, Texas)

(2)     If court orders and privilege doesn’t protect

(3)     If “required by law”

(a)     E.g., Tort liability after Tarasoff v. Regents of Univ. of Calif.);

(b)    E.g., Statutory disclosure requirements

iii)      Should be no greater in amount and manner than reasonably believe necessary

3)       Client Frauds & the Rules of Professional Conduct

a)       Even more variation than client crimes

b)      ABA floor amendments to Rule 1.6 were a reaction to SEC regulations threatening to require attorneys to report client financial wrongdoing outside of the corporation.

c)       In general:

i)         Definition of “fraud” in the rules – not mere negligence

ii)       Rule 1.6 – allows disclosure if

(1)     Client

(a)     Client has or will commit a crime or fraud

(b)    Client action has or will cause “substantial injury” to finances or property

(c)     Injury is “reasonably certain”

(2)     Lawyer

(a)     Lawyer’s services have been or are being used to further crime or fraud

(b)    Lawyer “reasonably believes” disclosure is necessary

(c)     Revealing information will prevent, mitigate or rectify client act or consequences

d)      Rule 1.13 and the Entity Client

i)         Entities operate through client people

ii)       Attorney

(1)     knows

(2)     a matter related to the representation

(3)     violates duty to entity or imputed to entity

(4)     likely to result in substantial injury to the organization

iii)      Report up

e)      Sarbanes-Oxley and requirements of reporting corporate fraud examples of external law creating reporting requirements

f)          

4)       Client Crimes & Frauds the Attorney-Client Evidentiary Privilege

a)     Restatement (Third) of the Law Governing Lawyers § 82 Client Crime or Fraud

The attorney-client privilege does not apply to a communication occurring when a client:

(a) consults a lawyer for the purpose, later accomplished, of obtaining assistance to engage in a crime or fraud or aiding a third person to do so, or

(b) regardless of the client's purpose at the time of consultation, uses the lawyer's advice or other services to engage in or assist a crime or fraud.

i)         Future only – Client communications regarding crimes that are completed do not fall under this exception

ii)       No attorney involvement necessary

(1)     Attorney can be completely innocent of any knowledge of the client's purposes, provided that the client had the purpose of consulting the lawyer to obtain assistance to engage in a crime or fraud.  See U.S. v. Chen, 99 F.3d 1495 (9th Cir. 1996). 

iii)      Procedure for invoking:

(1)     Prima facie showing on basis of unprivileged evidence

(2)     in camera review of the documents

iv)     What is a “fraud” for purposes of the prvilege?

(1)     Criminal & Civil frauds – but need not have prior finding

(2)     And more:  Central Constr. Co. v. Home Indemnity Co., 794 P.2d 595, 598 (Alaska 1990):  "Acts constituting fraud are as broad and as varied as the human mind can invent.  Deception and deceit in any form universally connote fraud.  Public policy demands that the 'fraud' exception to the attorney-client privilege ... be given the broadest interpretation."

5)       Misrepresentations and Negotiations

a)       Rule 4.1

i)         Key ideas: no false statements of material fact

(1)     Can include incorporating or advocating statements by others

(2)     Can include failing to correct client misrepresentations

ii)       BUT - Duty of candor does not trump 1.6 confidentiality obligations

iii)      Some statements aren’t “facts” – comment 2 – don’t read this too broadly!

b)      Consequences of Misrepresentations (Roth v. La Societe Anonyme Turbomeca Fr., Mo. 2003)

i)         During litigation – sanctions under rules of civil procedure, including dismissal

ii)       After settlement - If fraud in factum, contract is void ab initio; if fraudulent inducement, contract is voidable.

iii)      In addition, can be liable for fraud

(1)     a representation

(2)     its falsity

(3)     its materiality

(4)     the speaker's knowledge of its falsity

(5)     the speaker's intent that it be acted on by the hearer in the manner reasonably contemplated

(6)     the hearer's ignorance of the falsity of the representation

(7)     the hearer's reliance on the representation being true

(8)     the hearer's right to rely on the representation;  and

(9)     the hearer's consequent and proximate injury.

c)       Attorney liability limited

i)         "exceptional circumstances" rule limits liability to third parties to intentional torts.

ii)       Generally attorneys cannot “conspire” with their clients, unless the attorney is acting  self-serving and independent of client relationship.