Must a lawyer who learns of a former client's hidden fraud, through a new client, disclose it to the former client and the court?

Plain-English summary

Attorney A had represented a wife in a divorce in which she contended that the husband was secreting assets; discovery turned up nothing, the parties settled the equitable-distribution issue, and a judgment incorporated the agreement. Two years later, A was retained by a purchaser to buy the same property the couple had sold as part of the settlement, and the purchaser told A he would be assuming a secret, unrecorded $70,000 mortgage the husband had obtained at the time of the sale and never disclosed to the wife. A withdrew from the purchase representation and asked whether he was now obligated to tell his former client, the wife.

The Committee held that he was. It analyzed whether the purchaser's revelation fell within the attorney-client privilege and concluded that, under Fellerman v. Bradley, the crime-or-fraud exception in Evidence Rule 26(2)(a) applied: the privilege does not extend to a communication made in aid of a crime or fraud, and "fraud" is construed broadly, including a fraud on the court. Turning to RPC 1.6, the Committee acknowledged the argument that subsections (b) and (c) might not literally apply, because the lawyer's own client had not committed the fraudulent act and the lawyer's services had not been used in it, and the wrong was not presently being "committed." It rejected that reading, citing the lawyer's inherent obligation not to participate in the continuance of a wrong, and held that the exceptions in Evidence Rule 26(2)(a) and RPC 1.6(b)(1) and (2), together with Fellerman, required A to notify the court and the wife of the facts he had uncovered.

Currency note

This opinion was issued in 1986, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Does the privilege protect a former client's concealed fraud a lawyer learns about later?

A: Per the opinion, no. The Committee held that the crime-or-fraud exception in Evidence Rule 26(2)(a), construed broadly under Fellerman v. Bradley, removed the protection.

Q: Did the lawyer have to disclose even though his own client had not committed the fraud?

A: Yes. The opinion held that the exceptions in Evidence Rule 26(2)(a) and RPC 1.6(b)(1) and (2) required the lawyer to notify the court and the former wife.

Background and rules framework

The opinion reads RPC 1.6 together with the evidentiary attorney-client privilege (N.J.S.A. 2A:84A-20; Evidence Rule 26) and its crime-or-fraud exception (Evidence Rule 26(2)(a)), as interpreted in Fellerman v. Bradley. It treats the husband's concealed mortgage as a continuing fraud on the court that the lawyer may not silently allow to stand.

Citations and references

Rules of Professional Conduct:

• MR 1.6 / NJ RPC 1.6(b)(1), (2) (exceptions to confidentiality; fraud likely to injure another or perpetrated on a tribunal)

Statutes and evidence rules:

• N.J.S.A. 2A:84A-20; Evidence Rule 26 (attorney-client privilege)
• Evidence Rule 26(2)(a) (crime-or-fraud exception)

Cases:

• Fellerman v. Bradley, 99 N.J. 493 (1985), scope of the crime-or-fraud exception to the privilege

See also

• NJ ACPE Op. 585: Disclosure of Insurance Fraud
• NJ ACPE Op. 595: Threatening Criminal Charges in a Collection Letter

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp586-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

117 N.J.L.J. 533, April 24, 1986

OPINION 586

Attorney-Client Confidentiality - Disclosure of Fraud to Former Client Which May Affect Innocent Current Client

The operative facts provided in this inquiry are as follows:

Attorney A represented a "Wife" in a matrimonial matter. The "Wife" throughout the divorce proceeding contended that her "Husband" was secreting assets. Discovery failed to turn up any assets not disclosed in discovery. Thereafter, a settlement which included the issue of equitable distribution was consummated. A Judgement was entered incorporating the agreement between the parties. Some two years thereafter, A was retained by "Purchaser" to represent him in the acquisition of real estate. The parcel was the same as that which "Husband" and "Wife" had sold as part of the divorce settlement. "Purchaser" advised A that a secret, unrecorded mortgage in the amount of $70,000 obtained by the "Husband" at the time of the sale, and not disclosed to the "Wife", would be assumed by him. A notified "Purchaser" that under the circumstances he could not continue as counsel.

Inquirer asks whether he now has an obligation to notify his former client, "Wife", since there is a possibility that the transaction might be jeopardized by such disclosure.

The question which must be resolved is whether the revelation of the fact of the undisclosed mortgage by purchaser to A falls within the attorney-client privilege and, therefore, is confidential.

In the recent case of Fellerman v. Bradley, 99 N.J. 493 (1985), the Court discussed the issues with which the Committee is confronted. Justice Handler, writing for the Court, recognized the statutory and evidentiary basis for the attorney-client privilege. (See N.J.S.A. 2A:84A-20 and Evidence Rule 26). While the privilege is deemed indispensable in providing effective legal representation, it is not absolute. Public policy and concern for an unstinting effort to search for the truth have led to several exceptions to the privilege. Fellerman, supra, at pp. 502, 503. The exception which must here be considered is found in Evidence Rule 26(2)(a). That Rule provides that "[The] privilege shall not extend (a) to a communication in the course of legal service sought or obtained in aid of the commission of a crime or a fraud..." In discussing this section of the Rule, the Court in Fellerman, supra, said at p. 503:

The 'crime or fraud' exception to the privilege represents a statutory recognition of a situation in which the purpose of the privilege would not be served by its enforcement. This exception encompasses a type of communication that is alien to the fundamental reasons that underline the privilege.

Thus, the Courts have liberally construed the word "fraud" in these situations and have expanded the term beyond traditional criminal law or tort definitions. This broad interpretation reflects itself in its application where the attempt is made to perpetrate a "fraud on the Court". The Courts have held that the privilege cannot be used to interfere with the proper administration of justice; it cannot be used to frustrate the fundamental efforts of a search for truth and dispensation of fair and just results. See Fellerman v. Bradley, supra, and cases cited therein.

In considering the issue presented, cognizance must also be taken of the Rules of Professional Conduct. RPC 1.6 provides the standard of conduct for lawyers receiving confidential information. Exclusions to the confidentiality requirement as related to this case are found in RPC 1.6:

(b) A lawyer shall reveal such information to the proper authorities, as soon as, and to the extent the lawyer reasonably believes necessary, to prevent the client (1) from committing a...fraudulent act that the lawyer believes is likely to result in...substantial injury to the financial interest or property of another; (2) from committing a...fraudulent act that that lawyer reasonably believes is likely to perpetrate a fraud upon a tribunal...

(c) A lawyer may reveal such information to the extent the lawyer reasonably believes necessary: (1) to rectify the consequences of a client's ...fraudulent act in the furtherance of which the lawyer's services had been used....

It may be argued that RPC 1.6(c)(1) does not apply in this situation, first, because A's client did not commit a fraudulent act, and, second, because A's services had not been used in furtherance of the act. Further, from a literal reading of RPC 1.6(b)(1) and (2) one may conclude that they do not apply because here A's client is neither "committing" a fraudulent act nor perpetrating a fraud upon a tribunal.

However, this Committee cannot agree with the analyses set forth above. The Court in Fellerman v. Bradley, supra, enjoins us to construe the concept of fraud broadly and to go beyond the criminal law or tort definitions. Also, we are not unmindful of the inherent obligation which a lawyer has to prevent a continuance of a wrong which may have occurred, and to participate in its continuance. A failure to disclose obviously would result in what may be termed a continuing fraud on the Court, or a continuing conspiracy by which a fraud remains uncovered. A certainly should not participate in that "silent conspiracy".

We, therefore, hold that the exceptions contained in Evidence Rule 26(2)(a) and RPC 1.6(b)(1) and (2) construed together with the law set forth in Fellerman, supra and other cases cited therein require A to notify the Court and "Wife" of the facts he has uncovered. In short, the exceptions to the Contention of Privilege apply.