Must a lawyer disclose a client's financial fraud when the lawyer himself was used to give a third party a false assurance the client never intended to honor?

Plain-English summary

A client retained the attorney to protect substantially all of the client's father's assets, $70,000 in cash, while the father was in a V.A. hospital being treated for alcoholism. The client invested the cash in a personal residence in the client's own name and for the client's use. Meeting with the father, the attorney learned the father understood he was making a loan whose repayment proceeds would support him. The attorney told the father he would prepare and file a mortgage to protect the father's interest and that the father should also get independent advice. The client then refused to execute the mortgage and ordered the attorney to have no contact with the father.

The committee explained there are three situations in which a lawyer may report a client's possible criminal acts to third persons, two of them mandatory. Two are in Rule 16-106(B) and (C): where the client intends a crime likely to result in imminent death or substantial bodily harm (disclosure mandatory), and where the client intends a crime likely to result in substantial injury to finances or property (disclosure optional). The third arises under Rule 16-401, the lawyer's duty to third persons: even though Rule 16-106(C) does not require disclosure for purely financial harm, where the lawyer has become an unwilling participant in the client's criminal scheme by being caused to mislead or fail to disclose, the duty to the third person mandates disclosure.

Applying this, the committee noted the harm was financial (the father's assets) and that the attorney believed the client had converted the assets by getting the father to believe his interest would be protected. Because the attorney had actually communicated with the third person in a way that caused the father to rely on a false statement (that the client would execute the mortgage), the committee concluded disclosure is mandatory, even though analysis under Rule 16-106(C) alone would have left the choice optional. Where the harm is to a property right, the committee added that under Rule 16-116 the attorney should advise the client before disclosing, in an attempt to gain the client's compliance.

Currency note

This opinion was issued in 1988, under the New Mexico Rules of Professional Conduct effective January 1, 1987 (Rules 16-106, 16-401, and 16-116). It predates the State Bar of New Mexico's November 3, 2008 revisions to those Rules (the New Mexico adoption of the ABA Ethics 2000 changes), and the confidentiality exceptions have changed materially since. 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: Is disclosure of a client's purely financial fraud mandatory or optional?

A: The committee explained that under Rule 16-106(C), disclosure of a client's crime likely to cause substantial financial or property injury is ordinarily optional, in contrast to the mandatory disclosure for threats of death or substantial bodily harm under Rule 16-106(B).

Q: Why was disclosure mandatory in this case?

A: The committee concluded that because the lawyer had been caused to communicate with the third party in a way that made the father rely on a false statement, the lawyer's duty to that third person under Rule 16-401 made disclosure mandatory.

Q: What should the lawyer do before disclosing a client's property-related fraud?

A: The committee concluded that under Rule 16-116 the attorney should advise the client before making the disclosure, in an attempt to gain the client's compliance.

Q: What triggered the duty to the third person here?

A: The committee pointed to the lawyer having become an unwilling participant in the client's scheme by being caused to mislead the father with an assurance (the mortgage) the client then refused to honor.

Background and rules framework

The opinion applied the Rules of Professional Conduct effective January 1, 1987: Rule 16-106(B) and (C) (confidentiality and its exceptions for client crimes threatening death or bodily harm, and financial or property injury), Rule 16-401 (truthfulness in statements to others; duty to third persons), and Rule 16-116 (declining or terminating representation; advising the client before disclosure). These correspond to current Model Rules 1.6, 4.1, and 1.16.

Citations and references

Rules of Professional Conduct:

• Rule 16-106(B), (C) (confidentiality exceptions for client crimes)
• Rule 16-401 (truthfulness; duty to third persons); Rule 16-116 (advising the client before disclosure)

See also

• NM Ethics Op. 1989-1: Reporting a Non-Client's Criminal Activity

Source

• Landing page: https://www.sbnm.org/Leadership/Committees/Ethics-Advisory-Committee/Ethics-Advisory-Opinions
• Original PDF: https://www.sbnm.org/Portals/NMBAR/AboutUs/committees/Ethics/1988/1988-9.pdf

Original opinion text

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

Advisory Opinion 1988-9
Attorneys Duty Re: Criminal or Fraudulent Acts of Client:
The client has retained an attorney regarding protection of substantially all of client's father's assets, consisting of $70,000.00 cash. Father is in a V.A. hospital being treated for alcoholism. Client has invested the cash in a personal residence for client's use and in client's name. When attorney met with father, attorney learned that it was father's intention and understanding that he was making a loan and that repayment proceeds would be used by him for his support. Attorney advised father that attorney would prepare and file a mortgage to protect his interest but that he should get independent advice as well. Client has refused to execute the mortgage and ordered attorney to have no contact with father.
There are three situations where an attorney may report knowledge about a client's possible criminal acts to third persons. In two of these situations, a report is mandatory.
Two of the three situations are set out in Rule 16-106B and C: that is where client intends to commit a crime likely to result in imminent death or substantial bodily harm; or where the client intends to commit a crime likely to result in substantial injury to finances or property. In the matter of death or bodily harm the disclosure is a mandatory one; while in the matter of finances and property it is merely optional.
The third situation arises pursuant to Rule 16-401, in regard to the lawyer's duty to third persons. While 16-106(C) does not obligate an attorney to make disclosures when the harm is to a financial or property interest, where the attorney has become an unwilling participant in the criminal scheme of the client by being caused to mislead or fail to disclose, duty to the third person mandates the disclosure.
In this particular case, the subject matter is financial, substantially all of client's father's assets. Attorney believes the client has converted assets by getting the father to believe that his interest would be protected; and the attorney has communicated this to the father. While an analysis of the problem using only Rule 16-106C would leave the attorney with a choice, we believe that under this set of facts that because the attorney has actually communicated with the third person in such a way as to cause the third person to rely on a false statement (that client would execute the mortgage), disclosure is mandatory.
Where the harm is to a property right, pursuant to § 16-116 attorney should advise the client prior to making the disclosure in an attempt to gain client's compliance.