Can a North Carolina lawyer disclose that a former client concealed assets in a bankruptcy filing the lawyer did not handle?

Plain-English summary

A potential client met with Attorney A about filing bankruptcy. During the meeting, problems surfaced (preferential payments to relatives, excessive equity, co-signed loans) that would block a Chapter 7 filing or sharply raise a Chapter 13 payment, and Attorney A described them in detail. The client then retained Attorney B, filed a petition, and at the Section 341 meeting of creditors Attorney A came to believe the client had deliberately hidden these problems from Attorney B. The committee addressed what Attorney A could do.

The opinion concluded that what Attorney A learned in the conference was confidential client information that could not be disclosed to third parties, including bankruptcy officials and the client's new lawyer, unless an exception in Rule 1.6 applied. Two exceptions were relevant. Rule 1.6(d)(3) permits disclosure when required by law; the opinion noted that several bankruptcy statutes and 18 U.S.C. 152 (criminalizing fraudulent concealment of estate property) bear on the question, but stressed that the rule only governs whether disclosure is permitted, not whether the law compels it, and that whether a duty to disclose exists is a legal question beyond the opinion's scope.

Rule 1.6(d)(5) permits a lawyer to reveal confidences to the extent reasonably necessary to rectify the consequences of a client's criminal or fraudulent act in which the lawyer's services were used. Mere suspicion of a fraud on the court was not sufficient. If Attorney A knew the petition was fraudulent and that his services had been used to perpetrate it, he could reveal confidences as necessary to rectify the fraud, disclosing only to the extent necessary and proceeding in steps: first a letter asking the former client to fix the fraud, then disclosure to the client's current lawyer, and finally notice to the bankruptcy administrator if no corrective action followed.

Currency note

This opinion was issued in 2000, before North Carolina's adoption of the 2003 revisions to the Rules of Professional Conduct, and it cites the confidentiality rule under the numbering then in effect (Rule 1.6(d), including subsections (d)(3) and (d)(5)). The confidentiality exceptions were renumbered and revised in later amendments. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule subsection mentioned here.

Common questions

Q: Is information from a consultation with someone who does not become a client confidential in North Carolina?

A: The opinion treated it as confidential client information protected by Rule 1.6, which could not be disclosed to third parties (including bankruptcy officials and the person's later lawyer) unless an exception applied.

Q: Is suspecting that a former client lied in a bankruptcy filing enough to disclose?

A: No. The opinion held that mere suspicion of a fraud on the court does not trigger the Rule 1.6(d)(5) exception; the lawyer must know that the client committed the fraud and that the lawyer's services were used in it.

Q: When may the lawyer disclose, and to whom?

A: The opinion held that if the lawyer knows of the fraud and that his services were used, he may reveal confidences only to the extent necessary, escalating from a letter to the former client, to disclosure to the client's current lawyer, to notice to the bankruptcy administrator if the fraud is not corrected.

Q: Did the opinion decide whether the lawyer was required to disclose?

A: No. The opinion held that whether bankruptcy statutes or 18 U.S.C. 152 compel disclosure is a legal question beyond its scope; Rule 1.6(d)(3) governs only whether disclosure is permitted when required by law, not whether the law requires it.

Background and rules framework

The opinion applied North Carolina Rule 1.6 (confidentiality of information), the analogue to Model Rule 1.6, focusing on the then-existing exceptions at Rule 1.6(d)(3) (disclosure required by law) and Rule 1.6(d)(5) (disclosure to rectify the consequences of a client's crime or fraud in which the lawyer's services were used). It referenced 18 U.S.C. 152 and 98 Formal Ethics Opinion 20 for the boundary between what the rules permit and what other law may require.

Citations and references

Rules of Professional Conduct:

• MR 1.6 (confidentiality of information) / NC Rule 1.6(d)(3), 1.6(d)(5)

Statutes:

• 18 U.S.C. 152 (fraudulent concealment of property belonging to a debtor's estate)

Other opinions cited:

• NC 98 Formal Ethics Opinion 20: whether a lawyer is compelled to disclose is determined by law outside the Rules

See also

• ABA Formal Op. 93-376: Client Lies in Discovery
• NY State Bar Op. 797: Client Fraud and a False Affidavit
• NY State Bar Op. 831: Disclosing Client Fraud on a Tribunal

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/99-formal-ethics-opinion-15/

Original opinion text

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

Inquiry:

Client seeks advice from Attorney A on filing bankruptcy under either Chapter 7 or 13 of the bankruptcy code. During the course of the initial meeting, it becomes apparent to Attorney A that Client has substantial problems (e.g., preferential payments to friends or relatives, excessive equity in property, co-signed loans) that either preclude the filing of a Chapter 7 bankruptcy or significantly raise Client's anticipated monthly Chapter 13 payment. Attorney A describes in detail the problems Client's case presents. Client thanks Attorney A for his time and leaves his office.

Several weeks later, at the Section 341 First Meeting of Creditors, Attorney A learns that Client retained Attorney B to represent him and has filed a bankruptcy petition. Attorney A recalls that he previously determined that there were a number of obstacles to filing bankruptcy for Client. Attorney A believes that Client intentionally failed to reveal these problems to Attorney B.

What is Attorney A's obligation under these circumstances?

Opinion:

The information that Attorney A learned during his conference with Client is confidential client information that Attorney A may not disclose to third parties, including bankruptcy officials and Client's current lawyer, unless one of the exceptions to the duty of confidentiality found in Rule 1.6 of the Revised Rules of Professional Conduct applies. Two exceptions to the duty of confidentiality are relevant.

Rule 1.6(d)(3) permits Attorney A to reveal Client's confidences if required to do so by law. A number of bankruptcy statutes require disclosure of debtor's assets and liabilities and other financial information. 18 U.S.C. §152, a federal criminal statute, imposes criminal penalties on "a person who knowingly and fraudulently conceals…any property belonging to the estate of a debtor…." Rule 1.6(d)(3) merely determines whether a lawyer is permitted to disclose confidential information, not whether the lawyer is compelled to do so by law. Whether a lawyer has a duty to disclose confidential information under the circumstances described above is a matter to be determined under 18 U.S.C. §152 and other relevant law. The determination of that legal issue is beyond the scope of this opinion. See 98 Formal Ethics Opinion 20.

Rule 1.6(d)(5) permits a lawyer to reveal confidential information of a client to the extent that the lawyer reasonably believes necessary to rectify the consequences of a client's criminal or fraudulent act "in the commission of which the lawyer's services were used." Mere suspicion that Client is committing a fraud on the court is not sufficient to trigger this exception to the duty of confidentiality. However, if Attorney A knows that Client is committing a fraud on the court and that his services were used to perpetrate the fraud, he may reveal confidential information of his former client as necessary to rectify the fraud.

If Attorney A knows that the bankruptcy petition is fraudulent and he decides to take action to rectify the fraud, Attorney should reveal confidential information of Client only to the extent necessary. The first step is a letter to his former client requesting that Client take action to rectify the fraud. If this is unsuccessful, disclosure to Client's current lawyer is permitted under Rule 1.6(d)(5). Attorney A should inform Attorney B that he will notify the bankruptcy administrator if no action is taken to rectify the fraud or he does not receive a response from Attorney B. If Attorney B fails to respond or fails to alleviate Attorney A's concerns, Attorney A may notify the bankruptcy administrator.