When opposing counsel records a deed understating the purchase price to cut the grantor's tax, must the other lawyer report it to the bar and to the tribunal?

Plain-English summary

A commercial parcel that the seller had acquired for $250,000 was sold for a contract price of $425,000, and the purchaser provided that full amount through the seller's attorney (Attorney A) based on a $425,000 settlement statement. The purchaser then recorded the deed stating the consideration to the clerk as only $250,000, paying the state grantor's tax on the lower figure. When Attorney A raised it, the purchaser's lawyer (Attorney B) said his client treated the $175,000 difference as consulting fees, not purchase price. Attorney A confirmed at the clerk's office that the recorded consideration and the grantor's tax were based on $250,000. The committee was asked whether Attorney B's conduct was unethical, what Attorney A's obligations were, and whether Attorney A had to report the misstatement.

The controlling rules were DR 1-102(A)(4) (dishonesty, fraud, deceit, or misrepresentation reflecting adversely on fitness), DR 1-103(A) (duty to report another lawyer's violation that raises a substantial question as to fitness), DR 7-102(A)(5) (no knowing false statement of law or fact), and DR 7-102(B)(1) (a lawyer who receives information clearly establishing that a nonclient has perpetrated a fraud upon a tribunal must promptly reveal it to the tribunal).

The committee concluded that, because Attorney B knew the contract price was $425,000 and knew the deed was recorded at $250,000, he knowingly made a false statement of fact in violation of DR 7-102(A)(5), and possibly DR 1-102(A)(4) (citing LE Op. 1429). It applied the two-prong DR 1-103(A) test and found that stating an incorrect consideration to avoid the grantor's tax on the higher amount raised a substantial question as to fitness, so Attorney A may have a duty to report Attorney B. Finally, it concluded that under the plain language of DR 7-102(B)(1), Attorney A was obligated to reveal the misstatement of the purchase price to the tribunal (the clerk), absent the mitigating factors the committee enumerated (recency, seriousness, likelihood of repetition, effect on competence).

Currency note

This opinion was issued in 1993, under Virginia's former Code of Professional Responsibility (the disciplinary rules and ethical considerations it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. 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: Is it misconduct for a lawyer to record a deed understating the purchase price?

A: Under this 1993 opinion, yes. The committee held that a lawyer who knew the contract price was $425,000 yet let the deed be recorded at $250,000 knowingly made a false statement of fact in violation of DR 7-102(A)(5), and possibly DR 1-102(A)(4).

Q: Must the other lawyer report the understated deed to the bar?

A: The committee held that the lawyer may have a duty under DR 1-103(A), because understating the consideration to avoid the grantor's tax raised a substantial question as to the other lawyer's fitness to practice.

Q: Does the lawyer have to tell the tribunal about the misstatement?

A: Yes. The committee held that under the plain language of DR 7-102(B)(1), the lawyer was obligated to reveal the misstatement of the purchase price to the tribunal (the clerk), absent the enumerated mitigating factors.

Background and rules framework

The opinion interpreted former Virginia DR 1-102(A)(4), DR 1-103(A), DR 7-102(A)(5), and DR 7-102(B)(1). The reporting duty is now in Virginia Rule 8.3, the dishonesty bar in Rule 8.4(c), and the duty of candor toward a tribunal, including remedial disclosure of fraud, in Rule 3.3.

Citations and references

Rules of Professional Conduct:

• Former Virginia DR 1-102(A)(4); DR 1-103(A); DR 7-102(A)(5); DR 7-102(B)(1) (Code of Professional Responsibility)
• ABA Model Rule 8.3 (reporting misconduct); Model Rule 8.4 (misconduct); Model Rule 3.3 (candor toward the tribunal)

Statutes:

• Va. Code § 58.1-802 (formerly § 58-54.1): state grantor's tax.

Other opinions cited:

• Virginia LE Op. 1429: knowing false statements may also violate DR 1-102(A)(4).

See also

• VA LEO 1528: Duty to Report a Lying Lawyer
• VA LEO 1608: Submitting Known-False Evidence
• VA LEO 1545: Reporting Opposing Counsel

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1522.pdf

Original opinion text

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

Committee Opinion
May 11, 1993
LEGAL ETHICS OPINION 1522

ATTORNEY MISCONDUCT OBLIGATION TO REPORT
MISCONDUCT – ZEALOUS
REPRESENTATION - NONCLIENT
FRAUD UPON A TRIBUNAL:
ATTORNEY MISSTATING PURCHASE
PRICE OF PROPERTY ON RECORDED
DEED.

You have presented a hypothetical situation in which Seller acquires a parcel of
commercial real property for $250,000. Attorney A represents Seller in the acquisition
and the subsequent sale of the commercial real estate. Purchaser is represented by
Attorney B in all aspects of the sale transaction, including contract negotiation. The
contract states that the purchase price is $425,000. Purchaser provides funds to Attorney
A as Seller's attorney for the $425,000 transaction, based upon a settlement statement
reflecting $425,000 to be the purchase price pursuant to the contract.
You further indicate that Purchaser causes the deed to be recorded with the
consideration being stated to the clerk as $250,000. State grantor's tax pursuant to § 58.1802 (formerly § 58-54.1) of the Code of Virginia, as amended, is paid on the $250,000
stated consideration. You indicate that Attorney A then contacts Attorney B after learning
of the incorrectly stated consideration and that he is informed by Attorney B that his
client (Purchaser) considers the difference to be consulting fees and not a part of the
purchase price. You further indicate that Attorney B states that his client is merely
duplicating the acquisition transaction in which Seller acquired title to the property.
Finally, you indicate that Attorney A then goes to the clerk's office and confirms by
viewing the original instrument that the purchase price was stated to the Clerk as being
$250,000 and that the state grantor's tax is based upon that amount.
You have asked the committee to opine whether, under the facts of the inquiry, the
conduct described constitutes unethical conduct by Attorney B. You also inquire as to
ethical obligations of Attorney A. Finally, you ask whether Attorney A is obligated to
report [to the Bar] the misstatement of consideration to the clerk.
The appropriate and controlling Disciplinary Rules related to your inquiry are DR:1102(A)(4) which states that a lawyer shall not engage in conduct involving dishonesty,
fraud, deceit, or misrepresentation which reflects adversely on a lawyer's fitness to
practice law; DR:1-103(A) which provides that a lawyer having information indicating
that another lawyer has committed a violation of the Disciplinary Rules that raises a
substantial question as to that lawyer's fitness to practice law in other respects, shall
report such information to the appropriate professional authority; DR:7-102(A)(5) which
states that a lawyer shall not knowingly make a false statement of law or fact; and DR:7102(B)(1) which requires that a lawyer who receives information clearly establishing that
a person other than his client has perpetrated a fraud upon a tribunal shall promptly reveal
the fraud to the tribunal.

Committee Opinion
May 11, 1993
The facts you have provided indicate that Attorney B represented Purchaser throughout
all phases of the sale and that Attorney B was aware of the $425,000 contract price. The
facts also indicate that Attorney B was aware that the deed was recorded with the
consideration stated as $250,000. Based upon these facts, the committee is of the opinion
that Attorney B thus knowingly made a false statement of fact, in violation of DR:7102(A)(5). Such conduct may also be violative of DR:1-102(A)(4). See LE Op. 1429.
As to Attorney A's ethical obligations, the committee believes that the attorney may
have a duty to report Attorney B's misconduct under DR:1-103(A) since that rule
contains a two-prong test: first, a lawyer must have information indicating that another
lawyer has committed a violation of the Disciplinary Rules. Since the committee has
opined above that Attorney B's conduct is violative of DR:7-102(A)(5), the committee
believes that the first prong has thus been satisfied. Second, the lawyer in possession of
information regarding the conduct of another lawyer must determine whether the
misconduct "raises a substantial question as to that lawyer's fitness to practice law in
other respects." Relevant factors to be considered include, but are not limited to: the
recency of the conduct; the seriousness of the conduct; the likelihood that the behavior
will be repeated; the likelihood that it will affect the attorney's competence; and any
mitigating or aggravating circumstances. The committee is of the opinion that Attorney
B's knowingly stating an incorrect consideration on a deed for the purpose of avoiding
the payment of the state grantor's tax on a higher amount, does raise a substantial
question as to the lawyer's fitness to practice law in other respects.
Finally, under the facts you have presented, as to whether Attorney A is obligated to
report the misstatement to the clerk, the committee is of the opinion that under the plain
language of the standard articulated in DR:7-102(B)(1), Attorney A is obligated to report
the misstatement of the purchase price to the tribunal, i.e., the clerk, unless there are
mitigating factors as enumerated above (including but not limited to: the recency of the
conduct; the seriousness of the conduct; the likelihood that the behavior will be repeated;
the likelihood that it will affect the attorney's competence).
Committee Opinion
May 11, 1993
Legal Ethics Committee Notes. – If information about the ethics violation is a client
confidence, a lawyer may report the other lawyer’s misconduct only if the client consents
under Rule 1.6(c)(3); the lawyer considering whether to report must consult with the
client under that Rule.