“Ethox, I need your help on a serious issue,” Paradox interrupted. “We are representing a client in a personal injury case. We recently learned that the client has approached a litigation funding company, seeking a non-recourse loan to be paid from the client’s recovery. We also discovered that the client may be using forged or altered pleadings to increase the value of the client’s claims to receive a larger loan.
“I suspect you are going to tell us that we need to protect client confidences, to keep this to ourselves,” Paradox added. “Can we do anything to protect ourselves?”
“It sounds like we can withdraw under ABA Model Rule 1.16(b),” Ethox answered, “because it sounds like the client is using our services to commit a crime or fraud. But I think we may also have an obligation to disclose this misconduct either before or in conjunction with our withdrawal.”
“An obligation to disclose? Why?” Paradox asked.
“Rule 4.1 sometimes interacts with Rule 1.6(b) to require lawyers to disclose certain instances of client misconduct,” Ethox answered.
“Under Rule 4.1(b), a lawyer shall—and I emphasize shall—not knowingly fail to disclose a material fact to a third person when two conditions are met,” Ethox explained. “First, the disclosure of that fact is ‘necessary to avoid assisting a criminal or fraudulent act by the client.’ And second, the disclosure is not prohibited by the obligation of confidentiality set forth in Rule 1.6.”
“But,” Paradox again interrupted, “Rule 1.6 requires us to keep all information relating to a client confidential.”
“Ordinarily, yes,” Ethox agreed. “But Rule 1.6(b) identifies have some exceptions when a lawyer may disclose—that is, when the lawyer is permitted to—disclose information relating to the representation of the client.
“And Rule 4.1(b) makes mandatory these otherwise permissible disclosures, when the other requirements of Rule 4.1(b) are met.”
As Paradox considered this, Ethox said, “Rule 1.6(b)(2) and (3) create similar exceptions to a lawyer’s duty of confidentiality. Together, these exceptions allow a lawyer to disclose information about a client engagement in certain instances when the lawyer believes the disclosure is necessary to prevent the client from committing a crime or fraud, or to mitigate or rectify a client’s crime or fraud.”
“Certain instances?” Paradox pressed.
“Yes, certain instances,” Ethox assured Paradox. “For the Rule 1.6(b)(2) and (3) exceptions to apply, the potential crime or fraud must be reasonably certain to cause substantial injury to the financial interests or property of a third person. Also, the client must be using or have used the lawyer’s services to carry out the fraud.”
“Oh,” Paradox reflected, “our client apparently is engaged in financial fraud—definitely a crime or fraud. The client is trying to use fraud to get a larger loan.”
“Correct,” Ethox agreed.
“And the client is seeking to use our pleadings—or doctored versions of our pleadings—to carry out the fraud,” Paradox completed the thought.
“Precisely,” Ethox said. “The key here is that it appears the client is actually using our legal work to further or carry out the fraud. When that occurs, Rules 4.1(b) and 1.6(b) interact such that we are obligated to disclose the client’s wrongdoing, or at least to make a so-called noisy withdrawal from the representation, disavowing our prior work product.”
“That sounds serious,” Paradox said.
“Yes, and dangerous,” Ethox concurred. “Clients often get quite upset when a lawyer accuses them of wrongdoing or withdraws while disavowing prior work product. We risk a bar complaint or being sued.
“And,” Ethox added, “from what you are telling me, our client may be willing to lie to avoid the consequences of the fraud, even if the client’s lies may get us in trouble.”
“I worry that may be the case,” Paradox answered.
“Why don’t you carefully tell me what the client has done,” Ethox suggested, “and what we know about the client’s dealings with the financing company. Hopefully we can sort this all out and determine what we should do.”