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

Corporate Officers.


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

insurance company.


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

Cir. 1988))


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.