If a client insists on a fraudulent scheme, must the lawyer withdraw, and may the lawyer later disclose the former client's past fraud?

Plain-English summary

A lawyer representing a real estate buyer learned, after contract and on the eve of closing, that the buyer had agreed to pay the seller cash "under the table" outside the purchase contract to evade New York City and State transfer tax. The lawyer advised the buyer of the risks of filing false returns, refused to assist or sign fraudulent returns, and, when the buyer insisted on proceeding, withdrew; the buyer retained substitute counsel and closed. The committee answered three questions, framing the inquiry as a clash between the duty to protect client confidences and secrets and the duty not to assist, and to try to rectify, fraud.

The committee explained that DR 7-102(A)(7) bars a lawyer from counseling or assisting conduct the lawyer knows to be illegal or fraudulent, and DR 7-102(B)(2) requires a lawyer who receives information clearly establishing that a client perpetrated a fraud to call on the client to rectify it and, failing that, to reveal it to the affected person or tribunal, except where the information is a protected confidence or secret. Whether the lawyer had information "clearly establishing" fraud was a factual question the committee could not decide, and it cautioned that "fraud" in the Code requires scienter or intent to mislead (Definition 9) and that doubts about the client's state of mind should be resolved in the client's favor (EC 7-6).

On disclosure, the committee concluded the information was a "secret" under DR 4-101(A) because it was gained in the professional relationship and its disclosure would be detrimental to the buyer, and that the duty to preserve secrets is broader than the privilege and survives the end of the representation (DR 5-108(A)(2), EC 4-4). The only applicable exception, DR 4-101(C)(3), permits but does not require disclosing a client's intention to commit a future crime, is strictly construed, and turns on a legal question outside the committee's jurisdiction; a purely past fraud could not be revealed. Finally, where a client refuses to rectify a fraud and the lawyer cannot reveal it, the lawyer must withdraw under DR 2-110(B)(2), because continued employment would aid the fraud. The committee answered the first two questions yes and the third 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. Confidentiality and its crime-fraud exceptions are now addressed by Rule 1.6, and mandatory withdrawal by Rule 1.16; the current rules treat disclosure of client fraud differently in some respects. 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: If a client won't drop a fraudulent scheme, must the lawyer withdraw?

A: The committee concluded that where the client refuses to rectify the fraud and the lawyer cannot reveal it, the lawyer must withdraw under DR 2-110(B)(2), because continued employment would aid the fraud.

Q: Can the lawyer tell the seller's lawyer or successor counsel about the fraud?

A: The committee concluded the lawyer may not disclose a former client's past fraud, because the information is a protected "secret" under DR 4-101(A) and the duty to preserve it survives the representation.

Q: Is there any exception that lets the lawyer disclose?

A: The committee noted DR 4-101(C)(3) permits, but does not require, disclosing a client's intention to commit a future crime; it is strictly construed and does not reach purely past conduct.

Q: When does conduct count as "fraud" for this purpose?

A: The committee explained that "fraud" in the Code requires scienter, deceit, or intent to mislead (Definition 9), and that doubts about the client's state of mind should be resolved in the client's favor (EC 7-6).

Background and rules framework

The opinion applied New York Code DR 7-102(A)(7) (no assisting illegal or fraudulent conduct), DR 7-102(B)(2) (rectifying or revealing client fraud, subject to the confidence/secret exception), DR 4-101(A), DR 4-101(B)(1), and DR 4-101(C)(3) (defining and protecting confidences and secrets, with the future-crime exception), DR 5-108(A)(2) (duty to a former client), and DR 2-110(B)(2) (mandatory withdrawal), with EC 4-4, EC 4-6, EC 7-6, and Definition 9. The analysis corresponds to ABA Model Rule 1.6 (confidentiality, including crime-fraud exceptions) and Model Rule 1.16 (declining or terminating representation).

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 5-108(A)(2), DR 7-102(A)(7), DR 7-102(B)(2), DR 2-110(B)(2); EC 4-4, EC 4-6, EC 7-6; Definition 9 (applied in the opinion)
• MR 1.6 (confidentiality); MR 1.16 (declining or terminating representation)

Other opinions cited:

• N.Y. State 528 (1981): scope of the duty to preserve client secrets
• N.Y. City 1986-8: secrets survive the end of the representation
• N.Y. County 560 (1968); N.Y. State 454 (1976): withdrawal where the client refuses to rectify fraud

See also

• NYC Bar Formal Op. 1994-1: In-House Lawyer's Discrimination Suit Against a Former Employer
• No sibling opinions yet indexed.

Source

• Landing page: https://www.nycbar.org/reports/formal-opinion-1994-8-duty-to-disclose-client-fraud-duty-to-preserve-secrets-of-former-client/