CI-759
April 9, 1982
SYLLABUS
A lawyer who receives information clearly establishing that a client has perpetrated a fraud upon a person or tribunal during the course of the lawyer's representation must request the client to rectify the fraud, and, if the client refuses or is unable to do so, the lawyer must report the fraud to the affected person or tribunal.
A lawyer who receives information clearly establishing that a person other than a client has perpetrated a fraud upon a court or any other adjudicatory body, must promptly reveal the fraud to the tribunal, provided the disclosure will not violate any ethical responsibility of the lawyer to a client.
Mere suspicion of fraudulent or criminal activity should be resolved in favor of nondisclosure.
References: MCPR Canon 4, DR 4-101(A) and (C)(3), DR 7-102(B)(1) and (2); CI-515; ABA Op 341.
TEXT
A lawyer represents a client in a pending divorce and child custody matter in which the client has paid little or nothing pursuant to the child support order. The lawyer understands from statements made by a relative of the client, that the client and spouse have reconciled and are living together, and the client is working or receiving medical disability payments. The exact whereabouts of the client is at this time unknown. Given these circumstances the lawyer wishes to know if it is ethically proper to report a suspicion of welfare fraud to the appropriate authority giving the names and social security numbers of the client and spouse, accompanied by a recommendation that the authority request the Friend of the Court to take appropriate action to terminate the ADC payments and recover from the client and/or spouse any ADC payments improperly paid.
MCPR Canon 4 requires a lawyer to preserve the confidences and secrets of a client. MCPR DR 4-101 defines the terms "confidence" and "secret" as follows:
"(A) 'Confidence' refers to information protected by the lawyer-client privilege under applicable law, and 'secret' refers to other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client."
Canon 4 and DR 4-101(A) are reflective of the high fiduciary duty owed by a lawyer to the client, and only in rare instances is a lawyer permitted to disclose a client's "confidence" or "secret." DR 4-101(C) lists four exceptions to the non-disclosure rule:
"(C) A lawyer may reveal:
"(1) Confidences or secrets with the consent of the client or clients affected, but only after a full disclosure to them.
"(2) Confidences or secrets when permitted under Disciplinary Rules or required by law or Court Order.
"(3) The intention of his client to commit a crime and the information necessary to prevent the crime.
"(4) Confidences or secrets necessary to establish or collect fees or to defend themselves or employees or associates against an accusation of wrongful conduct."
DR 4-101(C)(2) gives a lawyer discretion to reveal a confidence or secret when permitted by other Disciplinary Rules. DR 7-102(B)(1) and (2) are pertinent to the inquiry since they set forth instances when disclosure would be required. DR 7-102(B)(1) and (2) state:
"(B) A lawyer who receives information clearly establishing that:
"(1) The client has, in the course of the representation, perpetrated a fraud upon a person or tribunal shall promptly call upon the client to rectify the same, and if the client refuses or is unable to do so, the lawyer shall reveal the fraud to the affected person or tribunal.
"(2) A person other than the client has perpetrated a fraud upon a tribunal shall promptly reveal the fraud to the tribunal."
DR 7-102(B)(1) tells what must be done when a lawyer determines that a client has, during the course of representation, perpetrated a fraud upon a person or tribunal. In this regard, it is important to distinguish between fraudulent and illegal activities already committed by a client which must be divulged under DR 7-102(B)(1), if clearly established, and the client's intention to commit a future crime which may, but does not have to be, revealed under DR 4-101(C)(3). The Code defines a "person" to include "any other organization or legal entity" which would include the agency responsible for administering ADC benefits.
MCPR DR 7-102(B)(2) requires a lawyer to reveal frauds perpetrated by a person other than the attorney's client. It is interesting to note that DR 7-102(B)(1) applies to fraud perpetrated by a client upon a person or tribunal, whereas DR 7-102(B)(2) applies to fraud perpetrated upon a tribunal by one other than the lawyer's client. In other words, the scope of DR 7-102(B)(2) is limited to fraud upon a tribunal only.
"Tribunal" is defined in the definition section of the code as "all Courts and all other adjudicatory bodies." The absence of the term "person" in DR 7-102(B)(2) and the definition of the term "tribunal" raises a question about the lawyer's duty to report non-client fraud perpetrated on the agency administering ADC payments. Since DR 7-102(B)(2) requires the lawyer to disclose fraud that has been perpetrated on a "tribunal" as contrasted to a "person or tribunal," arguably DR 7-102(B)(2) would not require disclosure of non-client fraud perpetrated on a non-adjudicatory administrative agency. There is, however, support for the proposition that the term adjudicatory body includes legislative or administrative bodies. This broader construction serves the spirit of the Code, which encourages all persons involved in the legal process to avoid, where possible, the infliction of needless harm on any person. While a lawyer has a duty to disclose non-client fraud perpetrated upon a tribunal, a lawyer may, but is not obligated, to report information of non-client fraud to the affected person, provided that in doing so the lawyer does not violate any ethical responsibility to the client.
In analyzing Dr 7-102(B)(1) with specific reference to the client, it must be noted that the disclosure mandate applies only if two distinct elements are clearly established. First, the lawyer's client must have perpetrated a fraud. Second, the fraud must have been perpetrated in the course of the representation by the lawyer. Unfortunately, there are no definitional guidelines for the terms "fraud," "clearly establishing," and "in the course of representation."
ABA Op 341 interprets "fraud" in DR 7-102(B)(1) to mean "active fraud" which requires scienter or the intent to deceive. If the parties have reconciled and are now living together, with the client receiving employment payments in an amount that would disqualify continuation of ADC payments, the lawyer's first duty is to call upon the client to rectify the situation by terminating further welfare assistance and refunding to the agency any payments made contrary to applicable law. If the client refuses and the lawyer has information clearly establishing that the client, has perpetrated a fraud upon the agency, the lawyer has a duty to reveal the client's fraud to the Department of Social Services. This duty to disclose does not arise until the lawyer has information clearly establishing the illegal or fraudulent conduct which requires more than mere suspicion. CI-515 ruled that if a lawyer has legitimate doubts about the fraud or legality of a client's conduct, the lawyer's obligation is to resolve any doubt in favor of the client and against disclosure.
Therefore, the question is whether or not the lawyer has received information "clearly establishing" that the client has, in the course of representation, perpetrated a fraud (or knowingly participated with another) in obtaining illegal ADC benefits, which must be divulged under DR 7-102(B)(1); or the lawyer has possession of facts indicating beyond a reasonable doubt the intention of the client to commit a crime or engage in continuing wrongdoing, which may be revealed under DR 4-101(C)(3). Based upon the information provided it does not appear that the lawyer has information "clearly establishing" the client's perpetration of a fraud requiring disclosure under DR 7-102(B)(1). Likewise, it is not evident that the lawyer is possessed with sufficient facts to conclude the client intends to commit a crime of welfare fraud. The known facts are that lawyer's client's whereabouts are unknown, the client is working and/or receiving medical disability payments, the client's spouse may still be on ADC all of which, at best, is unconfirmed. Absent further proof, the lawyer's suspicions should be resolved in favor of non-disclosure and against reporting the client to the welfare agency.
Similarly, reporting suspicions of the client-spouse's possible welfare fraud is likely to trigger a full investigation implicating the client in criminal activity. Consequently, if the lawyer is prohibited from reporting the client's suspected activities directly, the lawyer may not indirectly do so by reporting the spouse.