If a California lawyer discovers that the client is committing an ongoing fraud and the client has used the lawyer's services to advance it, what may the lawyer say, what must the lawyer refuse to do, and when must the lawyer withdraw?

State Bar of California COPRAC Formal Opinion 1996-146: Lawyer's Ethical Duties on Discovery of an Ongoing Client Fraud

Short answer: The opinion concluded that a lawyer who learns of an ongoing or future fraud by the client must preserve client confidences under Business and Professions Code section 6068(e) but may not participate in or further the fraud. The lawyer should advise the client that the conduct is fraudulent, may decline to send misleading correspondence the client has requested, may help the client rectify prior misrepresentations, and must either limit the scope of representation to matters that do not involve the fraud or withdraw. Withdrawal is mandatory under former Rule 3-700(B)(2) when continued employment will result in violation of the rules or the State Bar Act.

Currency note

This opinion was issued in 1996, before the State Bar of California's adoption of the November 1, 2018 revisions to the Rules of Professional Conduct. The opinion interprets former Rules 3-210, 3-500, and 3-700, together with Business and Professions Code section 6068, subdivisions (d), (e), and (m), and section 6128. The substance is now distributed across current Rules 1.2(d), 1.4, 1.6, 1.16, 3.3, and 4.1, but the opinion's analysis is rooted in the former framework. Notably, the opinion long predates the 2003 enactment of subdivision (e)(2) of Business and Professions Code section 6068, which permits, but does not require, disclosure of confidential information to prevent a criminal act likely to result in death or substantial bodily harm; the disclosure analysis below should be read with that limited later exception in mind. Subsequent rule amendments and later opinions may have changed parts of the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule reference.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the State Bar of California's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.

View original opinion

Plain-English summary

The opinion analyzed a developer-warranty fact pattern in which the lawyer drafted a purchase contract containing a code-compliance warranty, then learned across successive construction phases that substandard piping had been installed in violation of that warranty. After a homeowner complained, the developer asked the lawyer to send all Phase I and II homeowners a letter that, while not literally false, was designed to suggest no inferior materials had been used. The committee answered two questions: what does the lawyer owe the client by way of confidentiality, and what may the lawyer refuse to do.

On confidentiality, the committee opined that Business and Professions Code section 6068(e) protects information about a client's fraudulent conduct as fully as any other client information. The duty does not depend on the source of the information (a non-client homeowner's disclosure was protected because it implicated the client), does not turn on whether the facts are part of the public record, and reaches information that the client filed a fraudulent bankruptcy, received money to which the client is not entitled, committed perjury, or is operating as a suspended corporation. The committee cited its own prior opinions (1986-87, 1987-93, 1988-96, 1983-74) and county-bar opinions on those points. The committee concluded the lawyer could not disclose the developer's prior misrepresentations without consent.

On participation, the committee opined that the lawyer's duty to use only means consistent with the truth (Business and Professions Code section 6068(d)) and former Rule 3-210's prohibition on advising violations of law together barred the lawyer from sending the proposed homeowner letter. Although the letter's words were arguably literally true, the committee concluded that in context the letter would further the client's nondisclosure and create a false impression that inferior materials were not used.

The committee then mapped the lawyer's options. When confronted with ongoing fraud, the lawyer should advise the client that the conduct is fraudulent and explain the consequences as a significant development under former Rule 3-500 and section 6068(m). The lawyer may affirmatively counsel the client to refrain from further misrepresentation and may assist in rectifying past ones (for example, by drafting compliant disclosure correspondence the client transmits). If the client refuses to stop, the lawyer must either limit the scope to matters that cannot further the fraud or withdraw. Where the fraud has tainted the entire engagement, withdrawal may be the only option. Under former Rule 3-700(B)(2), withdrawal is mandatory when the lawyer knows or should know that continued employment will result in violation of the rules or the State Bar Act; the lawyer should seek to withdraw without revealing the reason to homeowners, while taking reasonable steps to avoid foreseeable prejudice to the client.

Common questions

Q: Can the lawyer disclose the client's fraud to protect third parties?

A: Per the opinion as written in 1996, no. Section 6068(e) bars disclosure even of fraudulent conduct, and the protection extends regardless of whether the information came from the client or a third party. The opinion predates the 2003 enactment of subdivision (e)(2) of section 6068, which permits, but does not require, disclosure to prevent a criminal act likely to result in death or substantial bodily harm; the 1996 analysis should be read with that later exception in mind.

Q: May the lawyer send the proposed letter to the homeowners?

A: Per the opinion, no. Although the letter's words might be literally true, the committee concluded that in context the letter would further the nondisclosure and create a false impression. The lawyer's duty to employ only means consistent with the truth under section 6068(d), together with former Rule 3-210's prohibition on advising violations of law, precluded sending the letter.

Q: What must the lawyer say to the client?

A: Per the opinion, the lawyer should advise the client that the conduct constitutes a fraud and, when warranted, explain the consequences. The committee tied that disclosure to former Rule 3-500 and section 6068(m), treating it as a significant development the lawyer must communicate.

Q: Can the lawyer help the client fix the problem?

A: Per the opinion, yes. The lawyer may affirmatively advise the client to refrain from further misrepresentation and may assist in rectifying prior ones, for example by drafting correspondence that complies with the client's disclosure obligations and transmitting it to the client for use.

Q: When must the lawyer withdraw?

A: Per the opinion, if the client refuses to refrain from further fraud, the lawyer must limit the scope of representation to matters that will not further the fraud or withdraw. Where the fraud has tainted the entire project, withdrawal may be required. Under former Rule 3-700(B)(2), withdrawal is mandatory when continued employment will result in a violation of the rules or the State Bar Act, and the lawyer should seek to withdraw without disclosing the reasons to the homeowners while taking reasonable steps to avoid foreseeable prejudice to the client's rights.

Background and rules framework

The opinion interprets former California Rules 3-210 (advising the violation of law), 3-500 (client communication), 3-700 (termination of employment), and 5-200 (in connection with the duty of candor), together with Business and Professions Code sections 6068(d) (means consistent with truth), 6068(e) (confidentiality), 6068(m) (client communication), and 6128 (deceit or collusion with intent to deceive the court or a party). The functional successors in current California numbering are Rules 1.2(d), 1.4, 1.6, 1.16, 3.3, and 4.1, but the opinion's analysis is rooted in the former framework. The opinion's confidentiality discussion expressly notes that section 6068(e) is broader than the lawyer-client privilege and protects the client's trust in the lawyer beyond the bare transmission of information.

Citations and references

Rules of Professional Conduct (former, in effect at time of opinion):

• Former California Rule 3-200 (frivolous or harassing matters)
• Former California Rule 3-210 (advising violation of law)
• Former California Rule 3-500 (client communication)
• Former California Rule 3-700, particularly 3-700(B)(2) and 3-700(C) (withdrawal)
• Former California Rule 5-200 (means consistent with truth before a tribunal)

Statutes:

• California Business and Professions Code sections 6068(d), 6068(e), and 6068(m)
• California Business and Professions Code section 6128(a)
• California Code of Civil Procedure section 211(5) (1872 source of section 6068(e))

Cases:

• Goldstein v. Lees (1975) 46 Cal.App.3d 614, section 6068(e) duty broader than lawyer-client privilege
• Anderson v. Eaton (1930) 211 Cal. 113, fidelity component of client confidence
• Jeffry v. Pounds (1977) 67 Cal.App.3d 6, loyalty component of client confidence
• Kisling v. Shaw (1867) 33 Cal. 425, early articulation of confidence as trust
• People v. Singh (1933) 123 Cal.App. 365, liberal application of section 6068(e)
• In re Young (1989) 49 Cal.3d 257, lawyer's duty not to further client misconduct

Other opinions cited:

• California State Bar Formal Opinion 1983-74: information that client committed perjury
• California State Bar Formal Opinion 1986-87: section 6068(e) preservation of trust
• California State Bar Formal Opinion 1987-93: 1872 derivation of section 6068(e)
• California State Bar Formal Opinion 1988-96: protection of information about fraudulent conduct
• Los Angeles County Bar Association Formal Opinion Nos. 264, 267, 274, 305, 386, 408, 417, 422, 436: range of confidentiality applications
• Bar Association of San Francisco Formal Opinion No. 1977-2
• San Diego County Bar Association Ethics Opinions Nos. 1983-10 and 1990-2: withdrawal without disclosing reasons

See also

• CA COPRAC Op. 2013-189: Deceit in Contract Drafting
• CA COPRAC Op. 2015-192: Withdrawal and Client Confidences
• CA COPRAC Op. 1997-151: Discovery Sanctions and Lawyer Duties

Source

• Landing page: https://www.calbar.ca.gov/legal-professionals/ethics-compliance-practice-resources/ethics/ethics-opinions
• Original HTML: https://www.calbar.org/ethics/Opinions/1996-146.htm

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

THE STATE BAR OF CALIFORNIA

STANDING COMMITTEE ON

PROFESSIONAL RESPONSIBILITY AND CONDUCT

FORMAL OPINION NO. 1996-146

ISSUES:

1. What are a lawyer's ethical obligations when she knows or should know her client is committing an ongoing or future fraud upon the public?

2. What are the lawyer's obligations where the client has used the lawyer's services in furthering the fraud?

DIGEST:

A lawyer acts unethically where she assists in the commission of a fraud by implying facts and circumstances that are not true in a context likely to be misleading. When a client is engaging in an ongoing fraud, the lawyer must be careful to avoid assisting in the fraud in any way. The lawyer should advise the client that the client's actions constitute a fraud. The lawyer may affirmatively advise the client to refrain from engaging in misrepresentations and assist the client in rectifying previous misrepresentations. If the client does not refrain from the fraudulent conduct, the lawyer must either limit the scope of her representation to matters that do not involve participation in or furthering the client's fraud, or withdraw.

AUTHORITIES INTERPRETED:

Rules 3-210, 3-500, and 3-700 of the California Rules of Professional Conduct.

Business and Professions Code sections 6068, subdivisions (d), (e), and (m), and 6128.

STATEMENT OF FACTS

A general contractor asks his lawyer to draft a purchase and sales contract for homes in a new development. The developer asks the lawyer to include a provision in the contract warranting the quality of all building materials, including, inter alia, the piping used in the plumbing lines.

Building takes place in four "Phases." Near the end of Phase I, the developer informs the lawyer that his subcontractors have installed substandard plumbing lines in the homes due to cost considerations. The developer advises the lawyer that this piping violates the building code and that rapid corrosion and leakage almost always occur within a year or two after installation. The developer assures the lawyer that he will comply with the code in the remaining Phases.

In discussions with the lawyer after completion of Phase II, the developer admits that inferior piping was again used in the homes in Phase II, because he did not supervise the subcontractors carefully enough. He assures that he will carefully oversee the development of Phase III.

A few months later, a Phase I homeowner calls the developer and complains that he saw substandard piping at the Phase III construction site. He believes that his home may have the same substandard pipe. He seeks a rescission of the purchase and sales agreement.

To head off further complaints, the contractor approaches the lawyer and asks her to write a letter to all Phase I and II homeowners. The language they discuss is as follows: "The warranty in your contract means that [developer] has promised that all materials, including plumbing lines, meet plans and specifications, including all code requirements. The warranty speaks for itself."

DISCUSSION

Protection of Client Confidential Information

Information about client misconduct imparted to a lawyer in the course of a lawyer-client relationship or which is involved in the representation of a client is subject to California Business and Professions Code section 6068 (e), which provides:

It is the duty of an attorney:

(e) To maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.

A lawyer's duty to protect client information under section 6068 (e) is much broader than the obligations imposed by the lawyer-client privilege. (Goldstein v. Lees (1975) 46 Cal.App.3d 614, 621, fn. 5 [120 Cal.Rptr. 253].) "This ethical precept, unlike the evidentiary privilege, exists without regard to the nature or source of information or the fact that others share the knowledge." (ABA Model Code Prof. Responsibility, EC 4-4; cf. Goldstein v. Lees, supra, 46 Cal.App.3d at p.621.) This Committee has repeatedly recognized that in its broadest sense, the preservation of the client's "confidence" means that a lawyer must maintain the trust reposed in the lawyer by the client. (Cal. State Bar Formal Opn. No. 1986-87.) As stated in California State Bar Formal Opinion Number 1987-93:

Section 6068 (e) is derived from the Code of Civil Procedure section 211(5), enacted March 11, 1872. The concept of confidence as trust is firmly embedded in the decisional law of California. It first appears in Kisling v. Shaw (1867) 33 Cal. 425, 441 which was decided by the California Supreme Court five years before the enactment of the original statute.

In addition to having trust in a lawyer, a client's confidence in that lawyer requires that the client have the fidelity and loyalty of the lawyer. (Anderson v. Eaton (1930) 211 Cal. 113, 116 [fidelity]; Jeffry v. Pounds (1977) 67 Cal.App.3d 6, 11 [136 Cal.Rptr. 373] (loyalty); and In re Soale (1916) 31 Cal.App. 144, 153.)

Thus, while the concept of "confidence" is not limited to the transmission of information, a significant cornerstone of the duty to maintain a client's confidence relates to the protection of information about the client to which the lawyer is privy during the lawyer-client relationship.

In this case, the disclosure by the lawyer of information received about the installation of defective piping would certainly undermine the confidence of the client with regard to the fidelity and loyalty of the lawyer, as well as the trust that can be reposed in the lawyer. The efforts the client is making to conceal the information demonstrate that the client does not want it disclosed. It is detrimental to the client because it may subject the client to civil or criminal liability, may adversely affect the value of the client's property or may subject the client to ridicule or scorn. In light of the client's effort to conceal the information, disclosure by the lawyer is likely to be embarrassing to the client to say the least.

Under section 6068 (e), the fact that the lawyer received the information from a non-client (a homeowner) makes no difference. While the client's communications with the lawyer receives additional protection under the lawyer-client privilege, the lawyer's ethical duty under section 6068 (e) does not depend on the source of the information. (L.A. Cty. Bar Assn. Formal Opn. Nos. 305, 386, 417 & 436.)

The next question is whether the client's conduct affects the lawyer's duty under section 6068 (e).

Client's Fraudulent Conduct

The scope of the protection of client confidential information under section 6068 (e) has been liberally applied. (See People v. Singh (1933) 123 Cal.App. 365 and L.A. Cty. Bar Assn. Formal Opn. Nos. 274 & 386.) The duty applies even where the facts are already part of the public record or where there are other sources of information. (L.A. Cty. Bar Assn. Formal Opn. Nos. 267 & 386.)

The prohibition against revealing a client confidence or secret extends to information about a client's fraudulent conduct. (Cal. State Bar Formal Opn. No. 1988-96, Bar Assn. of S.F. Formal Opn. No. 1977-2, L.A. Cty. Bar Assn. Formal Opn. Nos. 264, 274 & 386.) The protection includes information that a client has filed a fraudulent bankruptcy or is receiving money to which the client is not entitled. (L.A. Cty. Bar Assn. Formal Opn. Nos. 417 & 422.) It includes information that the client has committed perjury. (Cal. State Bar Formal Opn. No. 1983-74, L.A. Cty. Bar Assn. Formal Opn. No. 386.) It includes information that the client is operating as a suspended corporation. (L.A. Cty. Bar Assn. Formal Opn. No. 408.)

In all of these instances, the lawyer's duty to the client under section 6068 (e) required the lawyer to refrain from disclosing the client's deception without the client's consent. As in those instances, the fact that the client here has engaged in a misrepresentation, and may be continuing to do so, does not release the lawyer from the obligations to maintain the client's confidence and preserve the client's secrets under section 6068 (e).

While the lawyer may not disclose the client's fraudulent conduct, the lawyer also may not participate in or further such conduct. The ethical duty to tell the truth is reflected in section 6068 (d) which provides:

It is the duty of an attorney:

(d) To employ, for the purpose of maintaining the causes confided to him or her such means only as are consistent with truth, and never to seek to mislead the judge or any judicial officer by an artifice or false statement of fact or law.

These principles are also found in the California Rules of Professional Conduct. Rule 3-210, in part, provides:

A member shall not advise the violation of any law, rule, or ruling of a tribunal unless the member believes in good faith that such law, rule, or ruling is invalid.

The Discussion to this rule makes it clear that it applies not only to advice given to the client, but also to actions taken on behalf of a client that further an illegal end. (See rule 3-210, Discussion;

See also, In re Young (1989) 49 Cal.3d 257 [261 Cal.Rptr. 59] (court held that the lawyer had a duty not to further his client's misconduct).)

These principles fall squarely into place with respect to the letter that the client has requested the lawyer to prepare. While some might argue that the words used in the letter are not fraudulent in and of themselves, contextually, the letter would further the client's nondisclosure and create the false impression that inferior materials were not used when in fact such materials were used. The lawyer's duty to use only those means as are consistent with the truth would preclude the lawyer from sending such a letter on the client's behalf.

When a lawyer faces a situation in which the client is engaging in an ongoing fraud, the lawyer should advise the client that the client's actions constitute a fraud and, when circumstances warrant, explain the possible consequences to the client of engaging in such conduct. The Committee believes that such disclosure is required as part of the lawyer's duty to inform a client of significant developments relating to the lawyer's representation of a client found in rule 3-500 and section 6068 (m). The precise nature of the communication with the client will depend on the particular circumstances and the extent to which the client is aware of the fraud and the consequences of engaging in such conduct.

When a client is engaging in an ongoing fraud, the lawyer must be careful to avoid furthering the fraud in any way. The lawyer may affirmatively advise the client to refrain from engaging in misrepresentations to the home buyers and assist the client in rectifying previous misrepresentations. This should be consistent with the lawyer's obligation to advise the client about possible liability and the effects on such liability of any client admission. (L.A. Cty. Bar Assn. Formal Opn. No. 386.) Such actions may include drafting correspondence to the home buyer which complies with the client's disclosure obligations and transmitting such correspondence to the client.

If the client does not refrain from the fraudulent conduct, the lawyer must either limit the scope of the representation to matters that do not involve participation in or furthering the client's fraud, or withdraw. However, the lawyer must be fully confident that her circumscribed representation will in no way further the fraud. If the fraud has tainted the entire project, the lawyer may be required to withdraw.

If the client refuses to follow the lawyer's advice and insists that the lawyer engage in activities that further the client's fraud, the lawyer's obligation is to withdraw from the representation. Under rule 3-700(B)(2) withdrawal is mandatory when a member "knows or should know that continued employment will result in violation of . . . [the] rules or of the State Bar Act." The lawyer should seek to withdraw without disclosing the reasons to the homeowners, provided the lawyer takes reasonable steps to avoid any reasonably foreseeable prejudice to the rights of the client. (See S.D. Cty. Bar Assn. Ethics Opinions 1983-10 & 1990-2 [supporting this option with the same conditions].)

This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of California. It is advisory only. It is not binding upon the courts, the State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.