Will the New Jersey ethics committee say whether a lawyer may represent a CPA who wants to sell information about his employer's fraud, when that turns on unresolved trade-secret and criminal-law questions?

Plain-English summary

An attorney asked whether he could represent a certified public accountant who, while working as controller of a company, had discovered a double set of books understating sales subject to a licensing agreement and wanted to sell that information anonymously to the licensor (M Company) for negotiated compensation. The inquirer himself framed the "threshold issues" as whether the information was a trade secret or confidential information, and whether the CPA's disclosure would violate the criminal laws.

The Committee concluded it could not resolve the ethical question without first deciding those substantive-law questions, and that doing so was not its function. Under R. 1:19, which establishes the Advisory Committee on Professional Ethics, the Committee has no power to decide substantive law; its authority is to address proper conduct for members of the legal profession under the rules governing attorneys. The present inquiry turned on the conduct of a CPA under the State's substantive law, beyond the Committee's advisory capacity.

The Committee added that even a conditional answer (for example, "if A's activity is not a crime, then the representation would not violate DR 7-102") would be improper, because it could encourage unwarranted reliance and influence the parties' actions, which the rules barring opinions affecting parties to a pending matter are meant to prevent. Reminding the bar of the limits of its scope and its need to avoid intruding into areas of substantive law and judicial functions, the Committee rejected the inquiry.

Currency note

This opinion was issued in 1975, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct, and predates the 1984 replacement of the Disciplinary Rules by the RPCs. The conduct rules it referenced, including DR 7-102 (representing a client within the bounds of the law), are now reflected in RPC 1.2 (scope of representation; no assisting crime or fraud) and RPC 1.6 (confidentiality). 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 Treat this page as historical context, not current guidance.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: Did the Committee say whether the lawyer could take the CPA's case?

A: No. It rejected the inquiry, concluding it could not answer without first deciding substantive trade-secret and criminal-law questions that lie outside its jurisdiction.

Q: Why wouldn't the Committee give even a conditional answer?

A: Because a conditional opinion could encourage unwarranted reliance and influence the parties, which the rules barring opinions affecting parties to a pending matter are designed to prevent.

Q: What does this opinion establish about the Committee's role?

A: That the Advisory Committee on Professional Ethics decides questions of proper attorney conduct under the rules, not questions of substantive law, and it will decline inquiries whose ethical answer depends on first resolving substantive law.

Background and rules framework

The opinion rests on R. 1:19 and R. 1:19-2, which define the Committee's jurisdiction over proper attorney conduct and bar opinions affecting parties to a pending matter, and references DR 7-102 (representing a client within the bounds of the law). In current New Jersey terms, the underlying conduct concerns map to RPC 1.2 and RPC 1.6.

Citations and references

Rules of Professional Conduct:

• DR 7-102 (representing a client within the bounds of the law), as in effect 1975; analogous concerns now under MR 1.2 / NJ RPC 1.2 and MR 1.6 / NJ RPC 1.6

Court rules:

• R. 1:19 and R. 1:19-2 (establishing the Advisory Committee on Professional Ethics and defining its jurisdiction)
• R. 1:19-3 (memorandum required with an inquiry)

See also

• NJ ACPE Op. 308: A Freeholder-Attorney Opposing the County Prosecutor
• NJ ACPE Op. 439: Confidences of Zoning Violations in a Real Estate Sale
• NJ ACPE Op. 664: Disclosure of a Corporate Client Employee's Report of Alleged Illegal Activities

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp302-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

98 N.J.L.J. 219, March 13, 1975

OPINION 302

Representing C.P.A. in Disclosing Fraudulent Records Trade Secret - Criminal Issue

An attorney of the bar asks if he may represent a certified public accountant, employed by a corporation which is the licensee in a licensing agreement, for the purposes of negotiating for compensation in exchange for anonymous disclosure of information concerning fraudulent manipulation of books which measure the value of the licensing agreement.

The C.P.A. (hereinafter "A") is presently employed as a controller by the XYZ Company. There is no written employment contract between the parties. XYZ Company is a subsidiary of a publicly-held corporation.

During the course of his employment, A has discovered the XYZ Company maintains a double accounting system with respect to a licensing contract with M Company. This is accomplished by the use of a second set of corporate books which grossly understate the sales subject to the licensing agreement. The obvious results are that M Company does not receive proper payment in accordance with the licensing agreement and a corresponding misrepresentation and misstatement of the financial records of XYZ Company. It is clear to A that this practice has been engaged in by XYZ Company for several years. The licensing agreement confers on M Company the right to inspect the corporate books of XYZ Company but discovery of the fraud would be extremely difficult, if not impossible, without knowledge of the double set of books.

A is not involved, direct or anew, with any accounting aspects of this licensing agreement. A has chosen not to discuss the matter with his supervisor. A intends to terminate his employment with XYZ Company, although definite arrangements in this regard have not been made. He wishes to contact M Company and disclose this information in return for an amount of compensation to be agreed upon between the parties prior to disclosure. He desires to keep his identity secret, but is aware that the possibility of disclosure is present. The attorney has submitted a memorandum with his inquiry as required by R. 1:19-3. In addition to the provisions of the Code of Professional Responsibility which he thinks are relevant the inquirer points out what he believes to be the "threshold issues" as follows:

First: Is the information intended to be disclosed a trade secret or confidential information? And secondly, will disclosure by A constitute a violation of our criminal laws?

Counsel fails to recognize that without determination of a question of substantive law, a resolution of the ethical issues involved cannot be made. He has pointed out in his memorandum that the trade secret issue and the more controversial issue of criminal law must first be solved before the ethical questions can be approached. That is not the function of this Committee.

In R. 1:19, which establishes the Advisory Committee on Professional Ethics, there is no mention of any power given to the Committee to make decisions of substantive law. To act in that capacity would denigrate the function of this Committee. The rule speaks of accepting inquiries "concerning proper conduct for a member of the legal profession under the XYZ and other rules ... governing the practice of attorneys." R. 1:19-2. The present inquiry involves questions concerning the conduct of a C.P.A. in a given set of facts under the laws of the State. It is clearly beyond the bounds of this Committee's advisory capacity.

In addition to the foregoing any qualified response by this Committee (e.g., "If A's activity does not constitute a crime, then counsel's representation will not be violative of DR 7-102(7)," etc.) would not be proper because of the possibility of encouraging unwarranted reliance by parties. The rules governing the Committee expressly prohibit opinions affecting the interests of parties to a pending action, R. 1:19-2, but even limited interpretation of substantive law by this Committee could have the effect of influencing the parties' actions.

The Advisory Committee must recognize the limits of its scope to avoid interference with judicial functions and maintain the quality of service to the bar. It must be chary of intruding into areas of substantive law, and this opinion is intended to remind the bar of the limitations of the Advisory Committee.

The inquiry is rejected.