Must a lawyer who learns that another lawyer closed a deal with a known title defect and a false no-encumbrances affidavit report that conduct, and must the lawyer report a client's possible crimes?

Plain-English summary

Attorney A's title search for a vendee client found a $5,000 lien; the vendee's payments covered most of it, but $1,000 was still needed from the vendor to clear title. The vendor, a good client of Attorney A in other matters, asked to bring the $1,000 within a week, and Attorney A agreed, then closed the deal with a general warranty deed despite the outstanding $1,000. Because the vendee bought with a bank loan secured by the land, the vendee signed an affidavit stating there were no prior encumbrances, presumably relying on the lawyer's advice. The first inquiry asked whether Lawyer L, learning of this, had a duty to report Attorney A to the State Bar, and whether Attorney A's offer to escrow the $1,000 changed the answer. A second inquiry asked when Lawyer L must report the vendor's separately alleged loan and construction-contract misconduct to the Attorney General.

On the first question, the opinion concluded there appears to be reason to believe Attorney A may have violated Rule 1.2(b), Rule 7.1(a)(3), and possibly Rule 5.1; if Lawyer L has knowledge that Attorney A committed these violations, Lawyer L must report the apparent misconduct to the State Bar under Rule 1.3(a). Whether Attorney A escrows the $1,000 does not affect whether a violation occurred or whether Lawyer L has knowledge of it, though it may bear on the vendee's legal claims and on any discipline the State Bar might impose. On the second question, the opinion concluded the Rules of Professional Conduct do not address whether an attorney must report possible illegal conduct to law enforcement officers and public officials; those matters are left to the attorney's judgment, with due regard to relevant laws and to professional judgment and conscience.

Currency note

This opinion was issued in 1986, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. The provisions it applies (Rule 1.3(a) on reporting misconduct, Rule 1.2(b) on misconduct, and Rule 5.1 on conflicts) have since been renumbered and revised (the corresponding Model Rules are 8.3, 8.4, and 1.7). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Must a lawyer report another lawyer's apparent misconduct to the State Bar?

A: Yes, where the lawyer has knowledge of it. The opinion concluded that if Lawyer L knows Attorney A committed the apparent violations, Lawyer L must report them to the State Bar under Rule 1.3(a).

Q: Does the offending lawyer fixing the problem (escrowing the funds) excuse the report?

A: No. The opinion concluded that escrowing the $1,000 does not affect whether the violation occurred or whether Lawyer L has knowledge of it, though it may bear on the vendee's claims and on the discipline imposed.

Q: Must a lawyer report a party's possible crimes to the Attorney General?

A: Not under the rules. The opinion concluded the Rules of Professional Conduct do not address reporting possible illegal conduct to law enforcement or public officials, leaving it to the lawyer's judgment and conscience.

Background and rules framework

The opinion applied North Carolina Rule 1.3(a) on the duty to report another lawyer's misconduct (corresponding to Model Rule 8.3), identifying possible underlying violations under Rule 1.2(b) on misconduct (corresponding to Model Rule 8.4) and Rule 5.1 on conflicts (corresponding to Model Rule 1.7). The analysis turned on whether the reporting lawyer had knowledge of the violations, and separately on the absence of any rule compelling reports of a party's conduct to public authorities.

Citations and references

Rules of Professional Conduct:

• North Carolina Rule 1.3(a) (reporting professional misconduct)
• North Carolina Rule 1.2(b) (misconduct)
• North Carolina Rule 7.1(a)(3); Rule 5.1 (conflicts)
• MR 8.3 (reporting professional misconduct); MR 8.4 (misconduct); MR 1.7 (conflicts of interest)

See also

• NC Ethics Op. RPC 33: client's alias and candor to the tribunal
• NC Ethics Op. RPC 27: adverse to a current vs. former client

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-17/

Original opinion text

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

Inquiry #1:

Attorney A conducted a title search on a tract of property for a client, the vendee. Attorney A discovered an outstanding lien of $5000 on the land in question. The client's payments to the vendor covered most of the lien. However, the attorney still needed $1000 from the vendor to clear up the title. The vendor asked if he could bring the remaining $1000 to Attorney A within a week. The vendor had been a good client of Attorney A in other matters, and Attorney A agreed to the vendor's request. In the meantime, Attorney A closed the deal, writing up a general warranty deed, with the $1000 outstanding. In addition, because the vendee purchased the land through a bank loan and used the land as security on that loan, the vendee had to sign an affidavit stating that there were no prior encumbrances. This he did presumably relying on his lawyer's advice.

If Lawyer L becomes aware of the situation described above, is he under any duty to report Attorney A's conduct to the North Carolina State Bar? Does it affect the response if Attorney A agrees to put the $1000 into an interest-bearing escrow account in the vendee's name?

Opinion #1:

On the basis of the facts stated, there appears to be reason to believe that Attorney A may have violated Rule 1.2(b), Rule 7.1(a)(3) and possibly Rule 5.1. If Lawyer L has knowledge that Attorney A has committed these violations, Lawyer L must report the apparent misconduct to the State Bar under Rule 1.3(a). Whether Attorney A agrees to deposit the $1000 into an escrow account in the vendee's name does not affect whether the violation has occurred and whether Lawyer L has knowledge that it occurred, but would be more relevant to any legal claims the vendee would have against Attorney A and possibly in consideration as to actual discipline to be imposed by the State Bar if it found the facts as believed by Lawyer L and found them to establish unethical conduct by Attorney A.

Inquiry #2:

The same vendor, as in the circumstances above, has been accused of working privately in partnership with a loan officer at the bank involved in the transaction described above and of obtaining a large loan from that bank for the stated purpose of construction work on the property. According to third parties, the vendor, who is the construction company president, drew on the loans when there was no construction actually going on.

Additionally, the vendor allowed additional liens to build up on the property to pay for construction work which did actually occur. Although the company is contractually obligated to clear up the subsequent liens, the company in fact no longer exists. The former owner-president has indicated that he will not honor the contract and pay off the liens. He has also refused to pay liquidated damages for which the contract provides even though he was over a year late finishing up the project.

At the time the vendor sold the property and signed the construction contract, his company had been officially suspended by the Secretary of State of North Carolina for failure to pay license fees. The loan officer mentioned above has left the bank and cannot be located.

At what point, if any, must the investigating attorney, Lawyer L, report the activities of the vendor to the State Attorney General? What degree of certainty regarding the truth of the allegations is necessary before any steps are taken to report this case to the Attorney General?

Opinion #2:

The Rules of Professional Conduct do not speak to whether an attorney must report possible illegal conduct to law enforcement officers and public officials. These matters are left to the judgment of the attorney in question with due regard to any laws which may be relevant and to his professional judgment and conscience.