Must a California lawyer inform the adverse party of a settlement overpayment the lawyer's client received, and if the client refuses, may the lawyer continue the representation?

Plain-English summary

The opinion considers Plaintiff's Counsel who, after reviewing settlement checks sent directly from Defendant to Plaintiff, realizes Defendant has overpaid by one check. The Plaintiff is unaware of the mistake. The committee addresses three questions: must Counsel inform the client; if informed and the client demands confidentiality, must Counsel respect it; and if the client refuses to allow disclosure, must Counsel withdraw?

The committee concludes that under former Rule 3-500 and Bus. & Prof. Code section 6068(m), Counsel must inform the client about the overpayment because it is a significant development. Counsel must also counsel the client to disclose and return the overpayment.

If the client insists on confidentiality, former Rule 3-100 and Bus. & Prof. Code section 6068(e) require Counsel to maintain the confidence. Counsel has no obligation, and no permission, to disclose the overpayment to the adverse party over the client's instruction. The committee notes that California's confidentiality posture differs from ABA Model Rule 1.6, which provides explicit fraud-related exceptions California has not adopted.

If the client refuses to disclose or return the overpayment, Counsel must analyze whether the silence is fraudulent under Considine Co. v. Shadle, Hunt & Hager (1986) 187 Cal.App.3d 760 and Skarbrevik v. Cohen, England & Whitfield (1991). If continued representation would require Counsel to assist or be complicit in fraud, withdrawal under former Rule 3-700(B)(2) is mandatory. The committee notes Rule 3-210 (no advising violation of law) and Bus. & Prof. Code section 6106 also bear on the analysis.

The opinion declines to opine on the substantive legal question of whether retention of the overpayment is a tort or restitution claim; it limits itself to Counsel's ethical duties.

In practice

The opinion holds that, under California's rules as they stood in 2007, the lawyer must inform the client and counsel disclosure, but cannot tell the adverse party over the client's confidentiality instruction. The lawyer must analyze whether continued representation entails complicity in fraud and may need to withdraw under former Rule 3-700(B)(2). The opinion specifically distinguishes California's confidentiality framework from ABA Model Rule 1.6's fraud-disclosure permissions.

This opinion predates California's November 1, 2018 rule revisions and is framed under former Rules 3-100, 3-210, 3-500, and 3-700. Current California Rules 1.4 (client communication), 1.6 (confidentiality), 1.2.1 (advising violation of law), and 1.16 (withdrawal) carry forward the equivalent concepts.

Common questions

Q: My client's settlement check is too high. Do I have to tell my client?

A: Per the opinion, yes. Former Rule 3-500 and Bus. & Prof. Code section 6068(m) require Counsel to inform the client about significant developments, which includes an overpayment.

Q: My client wants to keep the overpayment. Can I tell the defense?

A: Per the opinion, no. Former Rule 3-100 and Bus. & Prof. Code section 6068(e) prohibit disclosure over the client's instruction. California has not adopted ABA Model Rule 1.6's fraud-disclosure permissions.

Q: Do I have to withdraw if my client refuses to return the overpayment?

A: Per the opinion, you must analyze whether continued representation requires you to assist in or be complicit in fraud. If yes, mandatory withdrawal under former Rule 3-700(B)(2) follows. The opinion does not categorically require withdrawal in every overpayment case.

Q: What if I have already cashed the check and disbursed funds to the client?

A: The opinion's analysis applies at the moment Counsel learns of the mistake. The client must still be informed and counseled, and the withdrawal analysis still applies if the client refuses to disclose or return.

Q: Can I withhold the overpayment in trust pending the client's decision?

A: The opinion focuses on the duty to inform and the withdrawal analysis. Trust-account duties under former Rule 4-100 are not specifically addressed, but the duty to safeguard disputed funds is implicated where Counsel still holds the funds.

Background and rules framework

The opinion interprets former California Rule 3-100 (confidentiality), Rule 3-210 (no advising violation of law), Rule 3-500 (client communication), and Rule 3-700 (withdrawal). Statutory anchors are Bus. & Prof. Code section 6068(e) (preservation of secrets), section 6068(m) (duty to inform), and section 6106 (moral turpitude). The fraud analysis draws on Considine Co. v. Shadle, Hunt & Hager and Skarbrevik v. Cohen, England & Whitfield.

Citations and references

Rules of Professional Conduct:

• Former California Rule 3-100 (confidentiality)
• Former California Rule 3-210 (no advising violation of law)
• Former California Rule 3-500 (client communication)
• Former California Rule 3-700 (withdrawal)
• ABA Model Rule 1.4(b) (informed-decision communication)

Statutes:

• Bus. & Prof. Code section 6068(e) (preservation of client secrets)
• Bus. & Prof. Code section 6068(m) (duty to inform of significant developments)
• Bus. & Prof. Code section 6106 (moral turpitude)

Cases:

• Chambers v. Kay, 29 Cal.4th 142 (Cal. 2002)
• Considine Co. v. Shadle, Hunt & Hager, 187 Cal.App.3d 760 (1986), attorney complicity in client fraud
• In re O.S., 102 Cal.App.4th 1402 (2002)
• In re Young, 49 Cal.3d 257 (Cal. 1989)
• People v. Singh, 123 Cal.App. 365 (1932)
• Skarbrevik v. Cohen, England & Whitfield, 231 Cal.App.3d 692 (1991), aiding fraud by silence

Other opinions cited:

• LACBA Formal Opinions 504 (2000), 498 (1999), 452 (1988), 417 (1983), 386 (1980), 274 (1962), 267 (1960), 264 (1959)
• California State Bar Formal Opinions 2003-161, 1988-96, 1981-58

See also

• LACBA Opinion 498: Disclosure of Client Misrepresentation in Fee Dispute
• No other sibling opinions yet indexed.

Source

• Landing page: https://lacba.org/?pg=ethics-opinions
• Original PDF: https://lacba.org/docDownload/2010583