LEO: Confidences and Secrets - Fraud: LE Op. 1347
Confidences and Secrets - Fraud: Information Clearly Establishing
Fraud; Attorney Representing Corporation and Subsidiary
Corporate Officers and Later Learning of Possible
Related Criminal Investigation Against
June 28, 1990
You have asked the Committee to consider any duty a lawyer may have under
the Code of Professional Responsibility to reveal a criminal investigation
into a client's activities upon which an insurance settlement was based.
The following contains a summary of the pertinent facts of the inquiry
upon which the Committee will base its opinion.
An attorney ("Attorney") is corporate counsel for a District of Columbia
corporation ("Corporation") for which he has incorporated subsidiary
corporations. Subsidiary A was incorporated according to the laws of State
X and a retail facility is located in State X, but the principal office of
the subsidiary is within the Commonwealth of Virginia.
Subsequent to the formation of Subsidiary A, the retail facility within
State X was burglarized resulting in a loss of property. The burglary was
reported to local police by a corporate officer of the subsidiary and an
insurance claim was filed by the same corporate officer together with a
sworn proof of loss statement and certain other information about the
burglary. Approximately one month after the burglary, the same corporate
officer of Subsidiary A retained Attorney to settle the claim with the
After several months of insurance company not responding to Attorney's
telephone calls and fax letters regarding the claim, Attorney filed a
complaint against the insurance company alleging breach of contract and
bad faith and negligence in the processing of its claim. Insurance company
filed an answer denying Subsidiary A's claims, together with a motion to
transfer venue to and, in its answer, made reference to "suspicious
circumstances surrounding the loss." Nevertheless, Attorney and the
insurance company counsel ultimately agreed to a settlement which was
subsequently approved by the court and the action was dismissed.
Several months after the claim was dismissed, Attorney, through his
continued representation of Subsidiary A, learned of a police
investigation within State X involving certain corporate officers of
Subsidiary A, including the corporate officer who had retained Attorney,
and their possible connection with the burglary. Furthermore, during his
continued representation of Subsidiary A, Attorney learned of other facts
that may implicate officers of Subsidiary A in the burglary or that
indicated the insurance claim may have constituted fraud. The Committee
has interpreted the facts you have set out as showing that you initially
started out representing the corporation and then Subsidiary A and finally
you represented "certain of the corporate officers and directors" of the
Corporation and/or Subsidiary A.
You have asked a series of questions concerning the Attorney's
obligations in this situation. The most central Disciplinary Rules
relative to your inquiry are DR:4-101(C)(3) and DR:4-101(D)(2).
Disciplinary Rule 4-101(D)(2) mandates that a lawyer must reveal
information which "clearly establishes" that his client has, during the
course of the representation, perpetrated a fraud related to the subject
matter of the representation upon the tribunal. The rule defines and
limits the meaning of "clearly establishes" to when, and only when, "the
client acknowledges to the attorney that he has perpetrated a fraud."
Disciplinary Rule 4-101(C)(3) provides that a lawyer may reveal
information which "clearly establishes" that his client has, in the course
of his representation, perpetrated a fraud related to the subject matter
of the representation on a third party. The Committee interprets the
meaning of "clearly establishes" in this Disciplinary Rule as the same as
defined in DR:4-101(D)(2), as to be only when "the client acknowledges
to the attorney that he has perpetrated a fraud." To subscribe to a less
stringent determination would create the anomalous situation where the
attorney would be allowed to tell the third party of the fraud but, in the
same situation, the attorney would be proscribed from revealing the same
to the court. (See Doe v. Federal Grievance Committee, 847 F.2d 57, 62 (2d
The Committee has previously opined that even information which may be
public or known to third parties may be construed as a "secret" if the
client has specifically requested that it be held inviolate or if the
attorney should know that disclosure would be embarrassing or would be
likely to be detrimental to the client. (See LE Op. 1147, LE Op. 1207,
LE Op. 1349) In addition, the Committee is of the opinion that the
attorney's obligation to preserve a client's confidences and secrets
survives beyond the conclusion of the professional relationship or the
death of a client. (See EC:4-6 and LE Op. 1207, LE Op. 1307)
The Committee will address the specific questions you raised in the order
in which they appeared in the inquiry.
Attorney's Duty to the Court in Which the Insurance Claim was Filed and
Dismissed Pursuant to the Settlement.
If, during the course of the continued representation of his multiple
clients, the attorney learns through actual acknowledgment by one of the
corporate officers who has the authority to bind the corporation in this
matter that the insurance proceeds were fraudulently obtained and the
claim regarding the burglary constituted fraud, then the attorney must
advise the client of the attorney's obligation to reveal such information
to the court if the client does not first so advise the tribunal. However,
absent the client/corporate officer acknowledging that a fraud has been
perpetrated upon a tribunal by himself or other officers, it would be
improper for the attorney to reveal a client's confidences or secrets. (
See DR:4-101(A), (C) and LE Op. 1270 and LE Op. 1272)
Attorney's Duty Towards Insurance Company or its Attorneys.
If a corporate officer has acknowledged that the insurance claim was
fraudulent, it would be permissible for the attorney to reveal the fraud
to the insurance company's attorneys. (See DR:4-101(C)(3))
Privileged Nature of Communications Regarding the Burglary Between
Attorney and Client/Corporate Officers.
You have asked whether communications solely between the Attorney and the
individual officers are "privileged." Whether a communication between a
lawyer and a client is covered by the attorney-client privilege is a legal
question for a court and is, therefore, beyond the purview of the
Committee to decide.
Ethical or Legal Action the Attorney is Required to Take.
The Committee believes that, depending on whether the client has admitted
to the attorney that a fraud has been perpetrated, the attorney's ethical
duties to the court and third parties have been adequately addressed in
the foregoing sections of the opinion. As stated before, the Attorney's
legal duties are beyond the purview of the Committee.
Obligation of Attorney to Withdraw from Representation of Subsidiary A,
Corporation and Individual Corporate Officers.
The appropriate and controlling Disciplinary Rule relative to this issue
is DR:7-101(A)(2) which provides that a lawyer shall not intentionally
fail to carry out a contract of employment entered into with a client for
professional services, but may withdraw as permitted under DR:2-108, DR:
5-102, and DR:5-105.
Disciplinary Rules 2-108(A)(1) and (B)(2) provide respectively that a
lawyer shall withdraw from representing a client if continuing the
representation will result in a course of conduct by the lawyer that is
illegal or inconsistent with the Disciplinary Rules, or if the client
persists in a course of conduct involving the lawyer's services that the
lawyer reasonably believes is illegal or unjust.
Disciplinary Rules 5-105(C) [ DR:5-105] and (D) provide that a lawyer
may represent multiple clients if it is obvious that he can adequately
represent the interest of each and if each consents after full disclosure
of the possible effect of such representation on the exercise of the
lawyer's independent professional judgment on behalf of each. Furthermore,
a lawyer shall not represent another person in the same or substantially
related matter if the interest of that person is adverse in any material
respect to the interest of a former client unless the former client
Under the specific facts of the inquiry, the Committee is of the view
that Attorney should re-evaluate periodically whether he may continue to
represent the subsidiary and simultaneously carry out his duties as
counsel to Corporation and counsel to the individual corporate officers.
Furthermore, the Committee believes the Attorney should consider whether
it is obvious that the interests of his multiple clients can be adequately
represented or whether, in any specific matter, the interests of
Subsidiary A are materially adverse to that of Corporation. (See DR:5-
105(C) and (D))
Arrest of the Corporate Officers.
You have asked about the relevance of the arrest of corporate officers in
connection with the burglary prior to the ultimate disposition of their
criminal case. It is the opinion of the Committee that the arrest,
conviction, or acquittal of these people (or for that matter the
Corporation itself) would not be relevant to the attorney's ethical duty
because, as stated above, the only way to "clearly establish" the fraud is
by the acknowledgment of the client.
Committee Opinion June 28, 1990
See also LE Op. 1380.