If a lawyer for a limited partnership discovers the general partner is looting it, must the lawyer tell the limited partners, and may the lawyer tell outsiders?

Plain-English summary

A lawyer served as counsel to a limited partnership and also represented its sole general partner (GP) on partnership and unrelated matters. She learned that the GP had run a related business through a hidden bank account, deposited the profits there, refused to let the accountant or general manager see the records, failed to pay taxes on the proceeds, did not report the income to the limited partners or on partnership tax filings, and appeared to have taken the money for himself; he had stopped responding to her letters urging corrective steps. The committee answered that she must disclose the GP's actions to the limited partners but is not required to disclose to others, and that the partners' differing interests likely require her to withdraw.

The committee anchored the analysis in the entity-as-client principle: under DR 5-109 and EC 5-18, a lawyer for an organization owes allegiance to the entity, not to any constituent, so the partnership, not the GP, is the client. When the lawyer for an entity discovers a partner's or employee's impropriety that may harm others in it, the lawyer may disclose to the entity's governing body; and where the governing body is itself implicated and cannot be expected to protect the others, disclosure to the limited partners is warranted. Because the GP was the sole general partner and could not be expected to protect the limited partners, the lawyer should disclose his improprieties to them. The duty of loyalty to the partnership was paramount to any duty to keep the GP's secrets, even though the GP was also a client.

On disclosure to outsiders, the committee concluded there was no corresponding duty. Even if the lawyer had information "clearly establishing" the GP's fraud (a factual determination, mindful that "fraud" requires scienter under Definition 9 and that doubts go to the client under EC 7-6), the information was a protected "secret" under DR 4-101(A) that DR 4-101(B)(1) bars her from revealing; the duty survives the representation under DR 5-108(A)(2). The only exception, DR 4-101(C)(3), permits but does not require disclosing an intended future crime, a question of law for the lawyer. And because no third party was a "tribunal," DR 7-102(B)(2) imposed no duty even if the GP were not a client. Finally, under DR 5-105(B) the differing interests likely required the lawyer to discontinue representing the partnership, the GP, or any limited partner on partnership matters if her independent judgment would be affected. The committee answered the first question yes and the second no.

Currency note

This opinion was issued in 1994, before New York replaced the Code of Professional Responsibility (the Disciplinary Rules cited here) with the New York Rules of Professional Conduct, effective April 1, 2009. The organization-as-client duties are now addressed by Rule 1.13, confidentiality by Rule 1.6, and conflicts by Rule 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: Who is the client when a lawyer represents a partnership?

A: The committee concluded the partnership entity is the client; under DR 5-109 and EC 5-18 the lawyer owes allegiance to the entity, not to the general partner or any individual constituent.

Q: Must the lawyer tell the limited partners about the general partner's misconduct?

A: The committee concluded she must, because the sole general partner (the governing body) was implicated and could not be expected to protect the limited partners' interests.

Q: Can the lawyer report the wrongdoing to outsiders or authorities?

A: The committee concluded she may not, because the information is a protected secret; the only exception permits, but does not require, disclosing an intended future crime.

Q: Does the lawyer have to withdraw?

A: The committee concluded the differing interests of the general and limited partners likely require her to discontinue representing the partnership, the general partner, or any limited partner on partnership matters under DR 5-105(B), if her independent judgment would be affected.

Background and rules framework

The opinion applied New York Code DR 5-109 (a lawyer for an organization dealing with its constituents), DR 4-101(A), (B)(1), and (C)(3) (confidences and secrets and the future-crime exception), DR 5-108(A)(2) (duties to a former client), DR 5-105(B) (declining concurrent employment that affects judgment), and DR 7-102(B)(1) and (2) (rectifying or revealing fraud), with EC 5-1, EC 5-14, EC 5-18, EC 4-4, EC 7-6, and Definitions 6 and 9. The analysis corresponds to ABA Model Rule 1.13 (organization as client), Model Rule 1.6 (confidentiality), and Model Rule 1.7 (conflicts of interest).

Citations and references

Rules of Professional Conduct:

• New York Code DR 4-101(A), DR 4-101(B)(1), DR 4-101(C)(3), DR 5-105(B), DR 5-108(A)(2), DR 5-109, DR 7-102(B)(1), DR 7-102(B)(2); EC 5-1, EC 5-14, EC 5-18, EC 4-4, EC 7-6 (applied in the opinion)
• MR 1.13 (organization as client); MR 1.6 (confidentiality); MR 1.7 (conflicts of interest)

Cases:

• Spector v. Mermelstein, 361 F. Supp. 30 (S.D.N.Y. 1972), aff'd in part, 485 F.2d 474 (2d Cir. 1973), duty to give the client material information

Other opinions cited:

• N.Y. City 1986-2: disclosing a constituent's wrongdoing to an entity's governing body or members
• ABA 202 (1940); ABA Informal Op. 1318 (1975); Texas 387 (1977); Florida 65-59 (1965): entity disclosure where the governing body is implicated

See also

• NYC Bar Formal Op. 1994-8: Client Fraud, Withdrawal, and a Former Client's Secrets
• NYC Bar Formal Op. 1994-1: In-House Lawyer's Discrimination Suit Against a Former Employer

Source

• Landing page: https://www.nycbar.org/reports/formal-opinion-1994-10-confidences-and-secrets-disclosure-of-organizational-wrongdoing-limited-partnership/