After a North Carolina lawyer's bankruptcy client is discharged, can the lawyer reveal an unreported inheritance the client refuses to disclose?

Plain-English summary

This is the State Bar's substitute final opinion, adopted to correct bankruptcy-law inaccuracies in a version the council had adopted on January 15, 1999; the ethical advice is essentially the same. A lawyer who had represented a client in a closed, discharged Chapter 7 case learned from the client's domestic-matter lawyer that the client had recently inherited a substantial sum. Under 11 U.S.C. 541, property acquired within 180 days of filing is estate property, and 11 U.S.C. 521 and Bankruptcy Rule 1007(h) require a debtor to report such an inheritance within that window. The client had not yet reported it and the period had not lapsed, and although the case was closed the trustee had a year to reopen it. The committee answered three questions.

First, the information from the other lawyer was confidential under Rule 1.6: although the rule's definition might appear limited to information from the client or during the representation, Comment [5] applies confidentiality to all information relating to the representation, whatever its source, and this information related to the lawyer's representation while he was keeping the client informed of his estate-property duties. Second, Rule 3.3(a) did not require the lawyer to reveal the inheritance to the court or bankruptcy administrator: the candor duty applies only during a proceeding and ends once the proceeding concludes (Rule 3.3(b)), and the Chapter 7 case was closed, so notwithstanding the trustee's power to reopen, there was no pending proceeding triggering Rule 3.3. Third, while a lawyer ordinarily may not disclose confidential information (Rule 1.6(c)), Rule 1.6(d)(3) permits, but does not require, disclosure to the appropriate authority when required by law. Because 18 U.S.C. 152 criminalizes fraudulently concealing estate property, the lawyer might determine he had a legal duty to reveal the information; he should consult the relevant federal statutes and rules. A lawyer should comply with a statute compelling disclosure unless disclosure would substantially damage the client's interests and a compelling legal interest of the client (such as a constitutional right) entitles the lawyer not to reveal it (citing RPC 175). Before disclosing, the lawyer should give the client the chance to comply, informing the client of the ongoing duty to amend the schedules, the perjury penalties, and that the lawyer may reveal the information if the client does not.

Currency note

This opinion was issued in 1999, before North Carolina's adoption of the 2003 revisions to the Rules of Professional Conduct, and it cites the confidentiality and candor rules under the numbering then in effect (Rule 1.6(c), 1.6(d)(3), and Comment [5]; Rule 3.3(a), (b)). These provisions were renumbered and revised in later amendments. Treat this page as historical context, not current guidance. Verify against current rules and the cited federal statutes before relying on any specific provision mentioned here.

Common questions

Q: Is a tip from another lawyer about a client's inheritance confidential in North Carolina?

A: Yes. The opinion held that, under Comment [5] to Rule 1.6, confidentiality covers all information relating to the representation whatever its source, so information from the client's other lawyer that related to the bankruptcy representation was confidential.

Q: Does the candor rule require disclosing the inheritance after the bankruptcy closes?

A: No. The opinion held Rule 3.3 applies only during a proceeding and ends when the proceeding concludes (Rule 3.3(b)); because the Chapter 7 case was closed, Rule 3.3 did not compel disclosure even though the trustee could reopen it.

Q: Can the lawyer disclose the inheritance to the authorities anyway?

A: Possibly. The opinion held Rule 1.6(d)(3) permits, but does not require, disclosure when required by law, and that 18 U.S.C. 152 (fraudulent concealment of estate property) might create such a legal duty, to be assessed under the federal statutes and rules.

Q: What should the lawyer do before disclosing?

A: The opinion held the lawyer should first give the client the chance to comply, telling the client of the ongoing duty to amend the schedules, the perjury penalties, and that the lawyer may reveal the information if the client fails to do so.

Background and rules framework

The opinion applied North Carolina Rule 1.6 (confidentiality, including 1.6(c), 1.6(d)(3), and Comment [5]) and Rule 3.3 (candor toward the tribunal, including the duration limit in 3.3(b)), the analogues to Model Rules 1.6 and 3.3, against the federal bankruptcy framework (11 U.S.C. 541, 521; Bankruptcy Rule 1007(h)) and the criminal concealment statute 18 U.S.C. 152. It relied on RPC 175 for when a client's compelling legal interest may excuse compliance with a disclosure statute.

Citations and references

Rules of Professional Conduct:

• MR 1.6 (confidentiality of information) / NC Rule 1.6(c), 1.6(d)(3), Comment [5]
• MR 3.3 (candor toward the tribunal) / NC Rule 3.3(a), (b)

Statutes:

• 11 U.S.C. 541 (property of the estate); 11 U.S.C. 521 (debtor's duties)
• 18 U.S.C. 152 (fraudulent concealment of estate property)
• Fed. R. Bankr. P. 1007(h) (duty to report after-acquired property)

Other opinions cited:

• NC RPC 175: a client's compelling legal interest may excuse a lawyer from complying with a disclosure statute

See also

• NC State Bar Op. 99 FEO 15: Disclosure of Fraud of a Former Bankruptcy Client
• ABA Formal Op. 93-376: Client Lies in Discovery
• NY State Bar Op. 797: Client Fraud and a False Affidavit

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/98-formal-ethics-opinion-20/

Original opinion text

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

Editor's Note: This is a final opinion of the State Bar. The State Bar Council voted to substitute this opinion for the opinion previously adopted by the council on January 15, 1999, as 98 Formal Ethics Opinion 20 because the prior opinion contained some inaccuracies relative to the practice of bankruptcy law. The ethical advice in the original opinion and in the substitute opinion is essentially the same. For this reason, the council chose not to publish the substitute opinion as a proposed opinion.

Inquiry #1:

Attorney A represented Client in a Chapter 7 Bankruptcy proceeding. The discharge has been entered and the case closed. Subsequently, Attorney A learned from Attorney B, Client's attorney in a domestic matter, that Client recently inherited a substantial sum of money. According to 11 U.S.C. § 541, property of the bankruptcy estate includes any property that the debtor acquires or becomes entitled to within 180 days of the date of filing the petition. 11 U.S.C. § 521 and Bankruptcy Rule 1007(h) require a debtor to report income or assets acquired through bequest, devise, or inheritance within the 180 days. Client's inheritance would be considered property of the estate, thus, triggering the reporting requirement. Client has not yet reported this income and the applicable time period has not lapsed. Although the case is closed, the trustee has one year to reopen the case and distribute assets. Attorney A has informed Client he has a duty to report his inheritance.

Is the information received from Attorney B confidential information under Rule 1.6?

Opinion #1:

Yes. Rule 1.6 defines confidential information as "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." Although this definition may appear on its face to limit confidential information to information either received from the client or received during the course of the representation, the comment to the rule clarifies that "[t]he confidentiality rule applies not merely to matters communicated in confidence by the client but also to all information relating to the representation, whatever its source." Rule 1.6, cmt. 5. In this case, the information, although received from another attorney, relates to Attorney A's representation of Client and was acquired at a time when Attorney A had undertaken to keep Client informed of his responsibilities regarding bankruptcy estate property.

Inquiry #2:

If Client refuses to report his inheritance, does Rule 3.3(a) require that Attorney A reveal this information to the court or bankruptcy administrator so that the case may be reopened?

Opinion #2:

No. Rule 3.3(a) imposes a duty of candor on an attorney appearing before a tribunal in a court of law or adjudicative proceeding. The rule, however, places a time limitation on an attorney's duty to disclose. Once a proceeding has concluded, Rule 3.3(a) ceases to govern attorney conduct; that is, the duty to disclose arises only during the proceedings and not thereafter. Rule 3.3(b). See Annotated Model Rules of Professional Conduct Rule 3.3 cmt. (3rd ed. 1996); Charles W. Wolfram, Modern Legal Ethics § 12.5.3, at 660 (1986). Here, the bankruptcy proceeding was closed. Notwithstanding a trustee's ability to reopen the case, in the Chapter 7 context, there currently is no case or proceeding triggering a duty to disclose under Rule 3.3.

Inquiry #3:

May Attorney A reveal information about Client's inheritance under Rule 1.6(d)?

Opinion #3:

Ordinarily, an attorney may not disclose confidential information of a client. Rule 1.6(c). Rule 1.6(d)(3) of the Revised Rules of Professional Conduct permits, but does not require, Attorney A to reveal the information to the appropriate authority when required by law.

A Chapter 7 estate is created upon the filing of the case and terminates upon closure of the case. Under a federal criminal statute relating to bankruptcy, 18 U.S.C. § 152, a person who

knowingly and fraudulently conceals from a custodian, trustee, marshal, or other officer of the court charged with control or custody of property, or, in connection with a case under title 11, from creditors or the United States Trustee, any property belonging to the estate of a debtor . . . shall be fined under this title, imprisoned not more than 5 years, or both. [emphasis added]

Because property of the estate includes property acquired by the debtor within 180 days of commencement of the case, Attorney A may determine that, under 18 U.S.C. § 152, he has a legal duty to reveal information regarding the Client's estate, and that there may be criminal consequences for his failure to do so. Other federal statutes including Title 11, Title 18, the Federal Rules of Bankruptcy Procedure (e.g. Rules 1007(h) and 1008), or local rules of Court should be consulted in this regard. This opinion is limited to the facts stated, in a Chapter 7 case, and may not apply in other bankruptcy contexts.

A lawyer should comply with a statute compelling disclosure of confidential information unless disclosure will substantially damage the interests of the client and there is a compelling legal interest of the client that may entitle the lawyer not to reveal the information. See RPC 175 ("a lawyer may be unwilling to comply with the child abuse reporting statute because he or she believes that compliance would deprive a client charged with a crime of the constitutional right to effective assistance of counsel"). Of course, before disclosing any confidential information to the authorities, Attorney A should give Client the opportunity to comply with the disclosure requirement by informing Client of his ongoing duty to amend his schedules to reflect the inheritance, that he is subject to the penalties of perjury if he does not do so, and that Attorney A may reveal the information to the authorities if Client fails to do so.