State Bar of Arizona Ethics Opinions
91-02: Confidentiality of Information; Representation; Scope of Representation
Responsibilities of attorney representing worker's compensation claimant, when checks from compensation insurer in payment of client's award are in an amount larger than the client is entitled to receive under the compensation law, and client instructs him not to reveal the apparent mistake to the insurer.
The inquiring attorney represented a worker’s compensation claimant in a proceeding concerning an injury sustained in 1974. In 1979, the Industrial Commission issued a compensation award for partial permanent disability, and the client began receiving checks for a small amount each month from the compensation insurer. The inquiring attorney took out 25% of each compensation check as his fee, according to the written fee agreement.
In 1988, the client’s physical condition deteriorated, and the inquiring attorney had the proceeding reopened. The Industrial Commission awarded the client compensation for total temporary disability, and the client began receiving monthly checks in an increased amount. As before, the inquiring attorney took 25% of each check as his fee.
In 1990, the inquiring attorney reviewed his office's accounting records and, based on that review, has concluded that his client’s monthly checks are considerably larger in amount than his client is entitled to under the Worker’s Compensation Law. The inquiring attorney believes that the compensation insurer has made a mistake in calculating the amount of his client's compensation.
The inquiring attorney has informed his client of the apparent error. However, the client has asked the inquiring attorney not to reveal the apparent mistake to the insurer. The inquiring attorney has obeyed his client's instructions to date. However, he immediately reduced his fee to 25% of the amount which he believes his client should be receiving.
1. Does the inquiring attorney have an ethical obligation to disclose the overpayments to the worker’s compensation insurer?
2. If the client insists that the inquiring attorney not disclose the existence of the overpayments to the compensation insurer, does the inquiring attorney have an ethical duty to withdraw from further representation of the client in the matter?
ETHICAL RULES INVOLVED
ER 1.2. Scope of Representation
(d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences Of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.
(e) When a lawyer knows that a client expects assistance not permitted by the Rules of Professional Conduct or other law, the lawyer shall consult with the client regarding the relevant limitations on the lawyer’s conduct.
ER 1.6. Confidentiality of Information
(a) A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraphs (b), (c) and (d) or ER 3.3(a)(2).
(c) A lawyer may reveal the intention of his client to commit a crime and the information necessary to prevent the crime.
Comment to ER 1.6
.... under paragraph (c), the lawyer has discretion to make a disclosure of his client’s intention to commit a crime and the information necessary to prevent it. It is very difficult for a lawyer to "know" when such unlawful purposes will actually be carried out, for the client may have a change of mind.
The lawyer’s exercise of discretion as provided in paragraph (c) requires consideration of such factors as the nature of the lawyer’s relationship with the client and with those who might be injured by the client, the lawyer’s own involvement in the transaction and factors that may extenuate the conduct in question. Where practicable, the lawyer should seek to persuade the client to take suitable action. In any case, a disclosure adverse to the client’s interest should be no greater than the lawyer reasonably believes necessary to the purpose.
ER 1.16. Declining or Terminating Representation
(a) Except as stated in paragraph (c), a lawyer shall not represent a client or, where representation has commenced, shall withdraw from the representation of a client if:
(1) the representation will result in a violation of the Rules of Professional Conduct or other law;
(c) When ordered to do so by a tribunal, a lawyer shall continue representation notwithstanding good cause for terminating the representation.
(d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by other law.
ER 8.4. Misconduct
It is professional misconduct for a lawyer to:
(a) violate or attempt to violate the rules of professional conduct, knowingly assist or induce another to do so, or do so through the acts of another;
(c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;
The first question to be resolved in this inquiry is whether the apparently excessive amount of the client’s monthly compensation checks constitutes confidential information under ER 1.6(a). This rule imposes an obligation on an attorney to maintain the confidentiality of all “information relating to representation of a client.” The scope of information relating to representation of a client is considerably broader than the scope of confidential information protected by the legal attorney-client privilege, since it includes not only matters communicated in confidence by the client, but also information coming from any source. See Comment to ER 1.6. The duty to keep such information confidential continues after the termination of the attorney-client relationship. Id.
The amount of the inquiring attorney’s client’s compensation checks, even though it appears to be erroneous, relates directly to the client’s recovery in the worker’s compensation proceeding in which the inquiring attorney has represented the client, and is therefore “information relating to representation.” Thus, it may not be disclosed to anyone by the inquiring attorney unless either: (1) the client, after consultation, agrees to disclosure of the information, (2) the disclosure is "impliedly authorized in order to carry out the representation," or (3) an exception to the confidentiality rule provided in ER 1.6(b), (c) or (d), or ER3.3(a)(2), applies.
A review of the facts supplied by the inquiring attorney shows that the first two bases for disclosure do not apply. Therefore, one of the listed exceptions to ER 1.6 or ER 3.3(a) (2) must apply before the inquiring attorney may ethically disclose the amount of his client’s compensation checks.
The only exception that may apply here is that set forth in ER 1.6(c): “A lawyer may reveal the intention of his client to commit a crime and the information necessary to prevent the crime.” (emphasis added) Therefore, the inquiring attorney should determine whether his client’s conduct, in accepting and retaining money to which (he has been informed) he is not entitled, constitutes a crime under Arizona law. Although this committee has no jurisdiction to advise on questions of law (see our Statement of Jurisdictional Policies, paragraph 6(a)), it appears to us that there is a strong likelihood that the inquiring attorney’s client is committing the crime of theft, as defined in A.R.S. § 13-1802 (A) (1) or (A) (4). We also suggest that the inquiring attorney consult A.R.S. § 13-2310, involving fraudulent schemes and artifices.
If the inquiring attorney determines that his client is engaging in criminal conduct, he is not required to disclose this information. It remains a matter of personal judgment and discretion on his part. Additionally, if the inquiring attorney should decide to disclose the amount of his client’s monthly compensation checks, he may reveal only the intention of his client to commit a future crime, and the information necessary to prevent that crime. This creates a difficult situation for the inquiring attorney, because disclosure of the client’s intended future crimes (continuing to accept overpayments in the future) would also, by necessary implication, constitute disclosure of his client’s past crimes. Disclosure of a client’s past crimes, except for frauds on a tribunal in some circumstances (see ER 3.3 (a)), is not authorized by any provision of the Rules of Professional Conduct.
Twice before, this committee has addressed the issue of an attorney’s obligation to disclose confidential information in such a situation, when his client’s conduct constitutes a “continuing crime.” In our Opinion No. 78-5 (January 30, 1978), we determined, under DR 4-101 (C) (3) of the former Code of Professional Responsibility (the language of which is identical to the present ER 1.6(c)), that an attorney may disclose his client’s intention to commit a crime only when that crime will occur entirely in the future. We determined that the then-applicable ethical rules prohibited an attorney from revealing a client’s past or continuing crimes. This conclusion was reaffirmed in our later Opinion No. 79-7 (March 12, 1979).
The reasoning of our two opinions is sound: since an attorney must not reveal his client’s past crimes, and since the attorney’s disclosure of his client’s future crimes is merely permissive, the balance should be struck in favor of non-disclosure of continuing crimes. Therefore, we reaffirm the conclusions of our Opinions Nos. 78-5 and 79-7, and decide that, under ER 1.6(c), the inquiring attorney must not reveal his client's past acceptance of overpayments from the compensation insurer.
Our conclusion would be different if the inquiring attorney had discovered the apparent overpayment upon receiving the very first monthly compensation check in the increased amount. At that time, if the inquiring attorney had concluded that his client’s acceptance of the check would constitute a crime, he could ethically have disclosed the apparent overpayment to the compensation insurer, even if his client had told him not to do so, because at that point the client’s proposed criminal activity would be occurring entirely in the future, and the attorney’s disclosure would be ethically permissible under ER 1.6(c).
However, since the client’s conduct constitutes a continuing crime, we conclude that the inquiring attorney may not disclose the error in his client’s monthly compensation checks to the compensation insurer (or to anyone else), because it is “information relating to representation of a client” for purposes of ER 1.6(a), and because there is no applicable exception to the confidentiality requirement of that rule.
The second question facing the inquiring attorney is whether he may properly continue to represent his client, now that he knows the client is knowingly receiving money to which he is not entitled. The inquiring attorney clearly may not assist his client in conduct which he knows to be criminal or fraudulent. See ER 1.2(d). The Comment to ER 1.2 explains:
When the client's course of action has already begun and is continuing, the lawyer’s responsibility is especially delicate. The lawyer is not permitted to reveal the client’s wrongdoing, except where permitted or required by ER 1.6. However, the lawyer is required to avoid furthering the purpose, for example, by suggesting how it might be concealed. A lawyer may not continue assisting a client in conduct that the lawyer originally supposes is legally proper but then discovers is criminal or fraudulent. Withdrawal from representation, therefore, may be required.
Of course, withdrawal is required by the Ethical Rules only if one of the conditions listed in ER 1.16(a) applies. Specifically, ER 1.16(a) (1) prohibits an attorney from representing a client when the representation will result in a violation of the Rules of Professional Conduct or other law. As discussed above, the inquiring attorney will not be in violation of the Rules of Professional Conduct if he does not disclose the error in his client’s compensation checks. However, we believe that the inquiring attorney may not let the monthly compensation checks continue to pass through his trust account, while collecting his fee therefrom. Such activity constitutes assistance of his client's fraudulent, if not criminal, conduct in violation of ER 1.2(d). Therefore, since the inquiring attorney’s further representation of the client would result in the violation of an Ethical Rule, he must withdraw from further representation of his client. Any fees owing by the client to the inquiring attorney in the future must be collected by the attorney directly from the client.
Additionally, the inquiring attorney must not remain the beneficiary of his client’s fraud, and must also take steps to refund any previously earned fees which are in excess of the amount he was entitled to receive. Of course, refunding these fees directly would alert the compensation insurer to his client’s continuing crime. As discussed above, this is something that the inquiring attorney may not do. In order to preserve his client’s confidences, the inquiring attorney must refund the excess fees through an intermediary.
Of course, when the inquiring attorney withdraws from representation, he must take steps to the extent reasonably practicable to protect the interests of his client. ER 1.16(d).
In conclusion, we hold that the inquiring attorney may not reveal to the compensation insurer the fact that his client’s monthly compensation checks are in an excessive amount. However, the inquiring attorney must withdraw from further representation of the client, because he cannot ethically assist the client in criminal or fraudulent conduct. The inquiring attorney must refund to the compensation insurer any fees he has received in excess of the amount which he was properly entitled to receive. He should refund these amounts through some third person, so that his client’s confidences will be preserved.
Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings.
©State Bar of Arizona 1991
Interestingly, in our Opinion No. 78-5 (January 30, 1978), this committee specifically rejected the reasoning of the American Bar Association Committee on Professional Ethics and Grievances (as it was then known). ABA Formal Opinions 155 and 156 (both issued May 4, 1936) had allowed an attorney to disclose a client’s continuing crime. However, the American Bar Association Committee withdrew both of those opinions in its Formal Opinion 84-349 (May 7, 1984), for the reason that it believed that they were inconsistent with both the Model Rules of Professional Conduct and the Model Code of Professional Responsibility.