BAR ASSOCIATION OF NASSAU COUNTY
COMMITTEE ON PROFESSIONAL ETHICS
Opinion No. 1996-1
(Inquiry No. )
Lawyer’s Duty To Report Fraud or Professional Misconduct of Another Lawyer — Exception for Client’s Confidences or Secrets — Fraud upon a Tribunal — Definition of “Tribunal” as Adjudicatory Body.
Inquiring Counsel is required under DR 1-103(A) to report fraud and other professional misconduct of clients’ prior lawyers, to the extent such conduct is proscribed by DR 1-102(A) and raises a substantial question as to their honesty, trustworthiness or fitness, unless Inquiring Counsel’s information is protected as a client’s confidence or secret under DR 4-101(A). Filing of backdated fraudulent retainer statement with judicial administrative office is not ” Fraud upon a tribunal,” and therefore is not required to be reported under DR 7-102 (B)(2) , unless fraudulent document is used or its application or validity urged in subsequent action, when Inquiring Counsel must disclose prior attorneys’ fraud to the court.
Definition 6 (“Tribunal”)
EC 1-1, 1-4
DR 1-102(A)(1), (4), (5), (8)
DR 1-103(A), (B)
DR 2-106(A), (C)(3)
EC 4-1, 4-2, 4-4, 4-5, 4-7
DR 4-101(A), (B)(1),(2), (C)(1),(2)
EC 7-1, 7-7, 7-8, 7-9
DR 7-102(A)(3), (B)(1), (2)
EC 8-5, 8-7
Inquiring Counsel represents clients in an action against their prior attorneys who had represented them as plaintiffs in a prior medical malpractice action. The prior attorneys were retained two years after a court rule that permitted contingency fee agreements for up to one-third of the recovery in personal injury cases was superseded by a statute limiting contingency fees to lower percentages in medical and dental malpractice actions. The prior attorneys obtained a verdict and, after an appeal had been filed, a multimillion dollar- settlement. Inquiring Counsel discovered and disclosed to the clients that the prior attorneys had essentially backdated and filed a false and fraudulent retainer statement with the Office of Court Administration (OCA) , indicating that they had been retained prior to the change in the law.1/ The net result for the clients was that their prior attorneys took a fee from their recovery more than twice the amount to which the attorneys were entitled under the applicable law.
Inquiring Counsel believes the prior attorneys conduct clearly raises a substantial question as to their honesty, trustworthiness and fitness to practice law and is aware that DR 1-103(A) of the New York Lawyer’s Code of Professional Responsibility requires a lawyer to report such fraud and professional misconduct to an appropriate authority, unless the information is protected as a client’s confidence or secret. When the clients were informed of inquiring counsel’s obligation, they requested that their prior attorneys’ professional misconduct not be reported at that time. Inquiring counsel commenced an action to recover the excessive fees paid. He believes that, if he reports the prior attorneys’ misconduct to the appropriate disciplinary authority, it is likely to result in their disbarment and possible criminal prosecution and this may directly contravene the clients’ interests and frustrate their purpose in retaining Inquiring Counsel.
Does Inquiring Counsel have an obligation under DR 1-103(A) or DR 7-102(B)(2) to report knowledge of the clients’ prior attorneys’ fraud and professional misconduct when inquiring Counsel gained this knowledge from a confidence or secret of the clients which they requested be kept inviolate and disclosure of which they believe may be detrimental to the clients’ interests?
No. For reasons indicated and under these facts and circumstances, inquiring counsel is not ethically required under either DR 1-103 (A) or DR 7-102 (B) (2) to report prior attorneys’ fraud and other professional misconduct in filing a false and fraudulent retainer statement with the Office of Court Administration.
The issues presented by this ethical inquiry are particularly difficult because they pose a dilemma in satisfying two prime goals of the legal system and the attorney-client relationship both of which undergird our legal system: first, attorneys engaged in our legal system must maintain the highest possible standards of professional integrity and competence, which is accomplished primarily through self-discipline and self- regulation of the legal profession, Wieder v. Skala, 80 N.Y.2d 628, 636, 593 N.Y.S.2d 752, 609 N.E.2d 105 (1992), citing authorities;2/ and secondly, attorneys must also maintain complete loyalty and fidelity to the clients whom the serve, particularly by preserving their confidences and secrets.3/
In this inquiry, these two goals appear necessarily opposed to each other. On the one hand, DR 1-102(A) proscribes all forms of professional, moral and illegal misconduct by attorneys, including “conduct that is prejudicial to the administration of justice” and “any other conduct that adversely reflects on the lawyer’s fitness to practice law.” DR 1-102 (A) (5) , (8) DR 1-103(A) requires all lawyers knowing of another lawyer’s violation of this rule “that raises a substantial question as to another lawyers honesty, trustworthiness or fitness in other respects as a lawyer,” to report such knowledge “to a tribunal or other authority empowered to investigate or act upon such violation.” 4/ In addition, a lawyer possessing such knowledge or evidence concerning another lawyer or a judge must, upon request, fully reveal such knowledge to a tribunal or similar authority. DR 1-103(B).
There is no question here as to the substantiality of the prior attorneys’ reported violation of the Code and other applicable laws and court rules.5/ The prior attorneys, according to Inquiring Counsel, deceived their clients and filed falsely backdated retainer statements with an administrative agency and as a result obtained an unlawfully excessive contingency fee to the detriment of their clients. Their acts certainly raise substantial questions of their honesty, trustworthiness and fitness as attorneys. See In re Dean, 147 A.D.2d 133, 541 N.Y.3.2d 555 (2d Dep’t 1989), appeal dismissed, 76 N.Y.2d 773, 559 N.Y.S;.2d 987, 559 N.E.2d 681 (1990) (disbarring attorney for, inter alia, falsely reporting dates of receipt and disbursal and clients’ recoveries in closing statements filed with OCA) ; cf. In re Daly, 67 A.D. 2d 354, 415 N.Y.S.2d 423 (1st Dept. 1979) (attorney suspended for 18 months for knowingly converting client’s funds, failing to account, neglecting legal matters, engaging in misrepresentation to client and failing to file retainer statement with OCA and failing to cooperate with disciplinary committee) ; see also In re Fernbach, 162 A.D.2d 65, 560 N.Y.S.2d 707 (2d Dept. 1990) (attorney disbarred for filing numerous false and fraudulent retainer statements with OCA, filing fraudulent closing statement, etc.) ; In re Kihl, 133 A.D.2d 725, 520 N.Y.S.2d 349 (2d Dept. 1987) (attorney’s resignation from Bar accepted for similar misconduct) . In addition to violating DR 1-102 (A) (4) , relating to fraudulent and dishonest conduct, the prior lawyers, having reportedly charged an unlawful or excessive fee, would have violated DR 2-106(A) and C (3), as well as DR 1-103 (A) (1) (violating another Disciplinary Rule) and (5) (conduct prejudicial to the administration of justice). 6/
It is clear, as shown below, that Inquiring Counsel would not be required to reveal the information obtained concerning the backdated and fraudulent retainer statement filed fly the prior attorneys, if the information is “protected as a confidence or secret,” DR 1-103(A); 7/ however, Inquiring Counsel would be required to report this information if the information clearly establishes that “a person other than the client has perpetrated a fraud upon a tribunal. . . . ” DR 7-102(B)(2) (emphasis added).
Analysis of this situation must therefore begin with a determination of whether Inquiring Counsel’s knowledge of the prior attorneys’ misconduct resulted from the clients’ “confidence or secret.” Such “confidence or secret” are defined as follows:
“Confidence” refers to information protected by the attorney-client privilege under applicable law, and “secret” refers to other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client.
DR 4-401 (A) . Inquiring Counsel gained knowledge of the misconduct from either or both a confidence and a secret of the clients, based on this definition. The information was gained during the professional relationship, possibly in confidential communications between the inquiring counsel and clients; the client asked that it not be revealed; and Inquiring Counsel stated in his inquiry letter to this Committee that he believes disclosure of the prior attorneys’ misconduct would be detrimental to the clients’ interests. Therefore, there is no duty to report this fraud under DR 1-103(A) and DR 4-101(A). 8/
The second critical issue is whether filing the false document constituted “fraud upon a tribunal,” disclosure of which is required pursuant to DR 7-102(B)(2), notwithstanding that knowledge of the fraud resulted from clients’ confidence or secret. This rule states: A lawyer who receives information clearly establishing that: . . . A person other than the client perpetrated a fraud upon a tribunal shall promptly reveal the fraud to the tribunal.
A disagreement exists between the various professional ethics committees in this State with regard to a lawyer’s duty under DR 7- 102 (B) (2) to report “fraud upon a tribunal” when committed by a non-client. Our prior Opinion 94-13 addressed this issue in depth and a re-analysis is not required here. That opinion stated that a duty exists to report “fraud upon a tribunal” by another attorney, even though knowledge of such fraud was gained as a client’s confidence or secret. See Assn. of the Bar of the City of New York, Comm. on Professional Responsibility, supra, 47 Record at 923-24. This is not necessarily inconsistent with DR 1-103(A). DR 4-101(C) enumerates exceptional situations where an attorney may reveal a client’s confidence or secret. One exception is possibly applicable in this case, DR 4-101(C)(2), which provides: “A lawyer may reveal: Confidences or secrets when permitted under Disciplinary Rules or required by law or court order.” DR 7- 102(B) (2) thus permits disclosure of a client’s confidence or secret when absolutely necessary to disclose a non-client’s “fraud upon a tribunal.” Based on our Opinion 94-13 the only question remaining therefore is whether the prior attorneys perpetrated “fraud upon a tribunal.” That opinion decided that the filing of a false confession of judgment in the County Clerk’s Office constituted fraud upon a tribunal because the County Clerk can enter judgment thereon in the Supreme Court without commencement of an action. Thus, we decided that the County Clerk may act in the capacity of a tribunal and that reporting of fraudulent. conduct was required.
Presumably, the prior attorneys filed the backdated retainer statement with the OCA and we must therefore determine whether that office is a tribunal. The “Definitions” section of the Code of Professional Responsibility defines “tribunal” to include: “…all courts and all other adjudicatory bodies.” (Emphasis added.) In this Committee’s Opinion 94-20, we relied on the Code’s definition of “Tribunal” and Professor Charles W. Wolfram’s authoritative treatise, Modern Legal Ethics 673-74 (1986), also characterizing “tribunals” as “adjudicatory bodies” conducting trial-type hearings and taking action on those hearings and other evidence. While the OCA is the administrative arm of the New York State court system, it does not have any adjudicatory power to hear or determine claims, including those for attorney’s contingency fees. 9/ Rather, it serves as a record-keeping or administrative body for the courts, litigants and the general public.
A further problem is foreshadowed, however, in that the Inquiring Counsel states that an action was commenced on behalf of the clients against their prior attorneys, seeking recovery of the excessive fees and other available remedies. If this action refers to, depends upon, or incorporates the backdated fraudulent retainer statement or if it is placed in evidence in any way by the prior attorneys or by any of their witnesses, it would constitute “fraud upon the tribunal” not to reveal its backdated and fraudulent nature and Inquiring Counsel would have the duty “promptly [to] reveal the fraud to the tribunal.” DR 7-102 (B) (2) .
The special report of the New York City Bar’s Committee on Professional Responsibility addresses the problem of reconciling the lawyer’s duty to report another lawyer’s or a client’s fraud or other serious misconduct with the lawyer’s concomitant duty to safeguard clients’ confidences or secrets as follows:
It is clear, however, that the two provisions [DR 7- 102(B)(1) and (B)(2)] cannot be easily separated in practice. What happens when a fraud on a tribunal is committed by a client’s witnesses, business associates or other lawyers representing the client? In some instances, disclosure of such a fraud could be extremely damaging to a client even where the client had nothing to do with the fraud. . . . It obviously makes little sense to have two provisions dealing with fraud on a tribunal, one of which mandates disclosure [DR 7-102 (B) (2) ] and one which prohibits it [DR 7 -102 (B) (1) ] , when the information covered by these provisions will often overlap. Because this conflict cannot easily be resolved, we suggest that disciplinary committees should be concerned only with whether a lawyer has made a good faith attempt to resolve it rather than with adherence to any filed formula. Lawyers should not be sanctioned if their decisions are reasonable and based on an awareness of, and an attempt to accommodate, the competing duties to the client and to the tribunal.
See also EC 4-7, 7-1, 7-7-to-9, 8-5, 8-7.
(Approved by Executive Subcommittee on 5/23,/95; Approved by Full Committee on 1/31/96)
1/ assuming these events took place in Nassau County, retainer and closing statements in contingency fee matters are required to be filed with the OCA by the Appellate Division, Second Department Rules, § 691.20(a) and (b). The maximum fees for most actions may not exceed 33 1/3% of the sum recovered, as provided in an initial contractual arrangement with the client, except in cases of medical, dental or pediatric malpractice, which since 1985 are governed by lower statutory maximum percentages as mandated by Judiciary Law § 474-a. Second Dep’t Rules, § 691.20(e) (2) and (8).
2/ For example, Ethical Consideration 1-1 (EC 1-1) advises us that, “Maintaining the integrity and improving the competence of the bar to meet the highest standards is the ethical responsibility of every lawyer.” We are further admonished, “The integrity of the profession can be maintained only if conduct of lawyers in violation of the Disciplinary Rules is brought to the attention of the proper officials.” For more comprehensive discussions of a lawyer’s duty to report another lawyer’s serious misconduct or a non-client’s “fraud upon a tribunal” under DR 1-103(A) and DR 7- 102 (B) (2) , see Assn. of the Bar of the City of New York, Committee on Professional Responsibility, The Attorney’s Duty To Report the Misconduct of Other Attorneys and To Report Fraud on a Tribunal, 47 Record 905 (1992) ; Roy Simon, Simon’s New York Code of Professional Responsibility Annotated, 1995-1996, at 26-30, 246-48 (1995).
3/ see EC 4-1, 4-2, 4-4, 4-5, 4-7; DR 4-101(A) , (B) (1) , (2), (C) (1), (2).
4/ Under the Second Department’s Rules, § 691.4(a) and (b), the appropriate disciplinary authority for attorneys practicing, residing or having resided in the Tenth Judicial District (Nassau and Suffolk counties) is the Grievance Committee for that district.
5/ A recent opinion of the New York City Bar’s Committee on Professional and Judicial Ethics stated it “has recognized that charging another lawyer with misconduct is a serious matter that should not be undertaken lightly. Consequently, a lawyer should not report a mere suspicion of misconduct. [Citing prior opinions.] A lawyer should only report another lawyer if he or she has either actual knowledge or ‘believes clearly’ (EC 1-4) there has been a violation of the Code.” Assn. of Bar of City of New York, Comm. on Professional and Judicial Ethics Formal Op. 1995-5 (1995) ; see also In Re Grievance Comm. of U.S. Dist. Ct., 847 F.2d 57 (2d Cir. 1988).
6/ Such reported misconduct is also arguably prosecutable as a misdemeanor under N.Y. Judiciary Law § 487(l), and subjects a guilty attorney to liability for treble damages in a civil action.
7/ In all of the above provisions, except one, DR 7-102 (13) (2) , there is an exception for information obtained by a lawyer which is “protected as a confidence or secret.”
8/ See CPLR § 4503 for the governing version of the attorney-client privilege. Inquiring Counsel does not state whether prior attorneys’ fraud became known through confidential communications with the clients; apparently, knowledge that the retainer statement was backdated was based in part on the clients’ information as to when they first retained the prior attorneys or when a retainer agreement was made, contrary to the date given in the filed retainer statement, which was discovered by inquiring Counsel. Proof of this would probably require the clients’ providing sworn testimony. In any event, none of this would be known to Inquiring Counsel except as “gained in the professional relationship” with the clients. DR 4-401(A). Therefore, the information known to Inquiring Counsel appears a “secret,” if not actually a “confidence,” under DR 4-101 (A).
9/ The OCA is referred to as part of the “judiciary” in Executive Law § 950 (6) and Judiciary Law § 249 (5); however, its statutory duties with respect to retainer and closing statements are limited, for example, to making them available to the State Department of Social Services under Judiciary Law § 474-b. A series of opinions by the Committee on Public Access to Records, confirmed by the courts, have determined under the Freedom of Information Law (FOIL) that the OCA is a state “agency” subject to that law and not exempt as part of the “judiciary.” See Quirk v. Evans, 116 Misc:.2d 554, 455 N.Y.S.2d 918 (Sup. Ct. N.Y. County 1982), aff ‘d, 97 A.1).2d 992 (1st Dep’t 1983) (determining that OCA is “agency” not “court”) ; Babigian v. Evans, 104 Misc.2d 140, 427 N.Y.S.2d 688 (Sup. Ct. N.Y. County 1980) , aff’d, 97 A. D. 2d 992 (1st Dep’t 1983) (same) ; cf . Pasik v. State Bd. of Law Examiners, 102 A.D.2d 395, 478 N.Y.S.2d 270 (1st Dep’t 1984), appeal withdrawn, 64 N.Y.2d 886 (1935) (distinguishing OCA from State Board of Law Examiners).