Is it misconduct for a lawyer to set up a trust transfer so a client can dodge an assignment to a creditor, and must opposing counsel report it?

Plain-English summary

A creditor (represented by Law Firm A) held a roughly $23,000 medical claim against a person under a disability (PUD). The PUD's niece, acting as attorney-in-fact and represented by Law Firm B, had executed an assignment giving the creditor the PUD's share of partition-sale proceeds, less $2,500. Before the sale closed, on Law Firm B's advice, the property was transferred into a trust so that the PUD held no interest at the time of sale, and the trustee kept the money in trust. A later letter from Law Firm B candidly explained that the trust was used "so that actually [PUD] herself did not have an interest in the property at the time of sale," that the money was held "while we waited to see if we could get away with that," and that the firm later told the trustee to pay because it doubted a court would be sympathetic to violating "the spirit, if not the letter, of the assignment." The committee was asked whether Law Firm B's conduct violated the rules and whether Law Firm A had to report it.

The controlling rules were DR 1-102(A)(4) (dishonesty, fraud, deceit, or misrepresentation reflecting adversely on fitness), DR 1-103(A) (duty to report another lawyer's violation that raises a substantial question as to fitness), and DR 7-102(A)(7) (a lawyer must not counsel or assist a client in conduct the lawyer knows to be illegal or fraudulent).

The committee concluded that, on the facts and the firm's own letter, Law Firm B counseled or assisted conduct it knew to be illegal or fraudulent in violation of DR 7-102(A)(7), and that setting up machinery to avoid honoring the assignment constituted fraud, which was also per se a violation of DR 1-102(A)(4). On reporting, it applied the two-prong DR 1-103(A) test (citing LE Op. 1004): the first prong was satisfied by the DR 7-102(A)(7) violation, and the second prong (whether the violation raises a substantial question as to fitness, weighing recency, seriousness, likelihood of repetition, effect on competence, and aggravating or mitigating circumstances) was a determination to be made by the reporting attorney.

Currency note

This opinion was issued in 1993, under Virginia's former Code of Professional Responsibility (the disciplinary rules it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. 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: Is it misconduct to structure a transfer so a client can avoid an assignment to a creditor?

A: Under this 1993 opinion, yes. The committee held that advising the trust transfer to avoid honoring the assignment counseled or assisted fraudulent conduct in violation of DR 7-102(A)(7), and was per se also a violation of DR 1-102(A)(4).

Q: Did the lawyer's own letter matter to the analysis?

A: Yes. The committee relied on Law Firm B's letter, which described holding the money "while we waited to see if we could get away with that" and violating "the spirit, if not the letter, of the assignment," as showing the firm knew the conduct was wrongful.

Q: Did opposing counsel have to report the conduct?

A: The committee applied the two-prong DR 1-103(A) test, found the first prong met by the DR 7-102(A)(7) violation, and held that whether the second prong (substantial question as to fitness) is met, and thus whether to report, was for the reporting attorney to determine.

Background and rules framework

The opinion interpreted former Virginia DR 1-102(A)(4), DR 1-103(A), and DR 7-102(A)(7). The bar on assisting a client's crime or fraud is now in Virginia Rule 1.2(d), the dishonesty bar in Rule 8.4(c), and the reporting duty in Rule 8.3.

Citations and references

Rules of Professional Conduct:

• Former Virginia DR 1-102(A)(4); DR 1-103(A); DR 7-102(A)(7) (Code of Professional Responsibility)
• ABA Model Rule 8.3 (reporting misconduct); Model Rule 8.4 (misconduct); Model Rule 1.2(d) (assisting client crime or fraud)

Other opinions cited:

• Virginia LE Op. 1004: the two-prong test for the DR 1-103(A) reporting duty.

See also

• VA LEO 1522: Misstating a Deed's Purchase Price
• VA LEO 1528: Duty to Report a Lying Lawyer
• VA LEO 1545: Reporting Opposing Counsel

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1518.pdf

Original opinion text

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

Committee Opinion
May 11, 1993
LEGAL ETHICS OPINION 1518

ATTORNEY MISCONDUCT - ZEALOUS
REPRESENTATION - OBLIGATION TO
REPORT MISCONDUCT: ATTORNEY
ADVISING CLIENT TO CIRCUMVENT
CREDITOR'S CLAIM.

You have presented a hypothetical situation in which Law Firm A represents a creditor
("Creditor") with a claim against a person under a disability (" PUD") in the amount of
approximately $23,000.00. The niece of PUD was appointed by PUD as PUD's attorneyin-fact and Law Firm B represents the niece of PUD who is also an employee of Law
Firm B.
Law Firm B files a partition suit on behalf on the niece of PUD to have real property
owned by PUD and other family members sold. The petition indicates that the niece has
been advised by Creditor that the real property in question must be sold to pay the
medical bills outstanding to Creditor.
You indicate that shortly after the partition suit is filed in January 1989, Law Firm A
files suit against PUD on behalf of Creditor. At the same time, a courtesy copy of the
motion for judgment is mailed by Law Firm A to Law Firm B.
On February 27, 1989, the niece, as attorney-in-fact for PUD, executes an assignment
conveying to Creditor PUD's share of the proceeds of the partition suit and sale of the
real property, less the sum of $2,500.00. On March 3, 1989, Law Firm A forwards the
assignment to Law Firm B so as to advise them of the assignment. You indicate that the
assignment is not recorded in the clerk's office for the circuit court where the real
property is located.
Subsequently, Law Firm A obtains judgment against PUD and dockets the judgment on
April 7, 1989. On April 3, 1989, however, the niece, as attorney-in-fact for PUD, creates
a trust for PUD and appoints niece's daughter as trustee. The sole asset transferred into
the trust is the real property in question, which is subject to the assignment. Law Firm B
prepares all the documentation necessary for its transfer.
Attorney for Law Firm B is ultimately appointed a special commissioner in a partition
suit to sell the property. He sells the property and does not honor the assignment
previously executed by niece as attorney-in-fact for PUD.
You indicate that, in 1992, Law Firm A inquires as to the status of the assignment and
partition suit and learns that the real estate has been sold and money distributed to parties
other than Creditor. Upon inquiry by Law Firm A, Law Firm B writes a letter stating as
follows:
I enclose a check from my trust account for full settlement [PUD's] account with
[Creditor], per the assignment. The reason that this money was not paid sooner was
that, on my advice, the property interest of [PUD] was transferred to a trust prior to

Committee Opinion
May 11, 1993
the closing so that actually [PUD] herself did not have an interest in the property at
the time of sale to generate money per the agreement. However, also on my advice,
the trustee of the trust kept the money in the trust distributed while we waited to
see if we could get away with that (not to put too fine a point on it).
When we received your inquiry, I advised the trustee to just go ahead and fork over
the money, as I didn't really feel a court would be sympathetic with the violation of
the spirit, if not the letter, of the assignment.
The enclosed check is for the entire amount, with interest, minus the $2,500.00
which the assignment called to be retained. The last sum remains in my trust account
pending your agreement that it may be distributed to [PUD's] heirs. No
disbursements were made from the trust fund previously.
The letter concludes by showing the calculations indicating that the amounts as
indicated above have been paid correctly.
You have asked the committee to opine whether, under the facts of the inquiry, (1) such
conduct by Law Firm B violates the Disciplinary Rules, specifically Disciplinary Rules
1-102(A)(3) and (4); and (2) whether Law Firm A has an obligation to report such
misconduct pursuant to Disciplinary Rule 1-103.
The appropriate and controlling Disciplinary Rules related to your inquiry are DR:1102(A)(4) which states that a lawyer shall not engage in conduct involving dishonesty,
fraud, deceit, or misrepresentation which reflects adversely on the lawyer's fitness to
practice law; DR:1-103(A) which provides that a lawyer having information indicating
that another lawyer has committed a violation of the Disciplinary Rules that raises a
substantial question as to that lawyer's fitness to practice law in other respects, shall
report such information to the appropriate professional authority, except as the
confidentiality provisions require otherwise; and DR:7-102(A)(7) which states that in his
representation of a client, a lawyer shall not counsel or assist his client in conduct that the
lawyer knows to be illegal or fraudulent.
As stated in your facts, a letter allegedly was written by Law Firm B which letter
apparently indicates that the firm knew that the transfer of PUD's property interest to the
trust was in violation "of the spirit, if not the letter, of the assignment". Based upon the
facts you have provided, then, the committee is of the opinion that Law Firm B has
counseled or assisted his client in conduct that the firm knows to be illegal or fraudulent,
in violation of DR:7-102(A)(7). Assuming that the assignment was in place and that the
lawyer set up machinery to avoid honoring the assignment, the committee is of the
opinion that such activity did constitute fraud as prohibited under DR:7-102(A)(7). The
committee is of the further opinion that such conduct would similarly be per se violative
of DR:1-102(A)(4).
As to whether Law Firm A has an obligation to report misconduct by Law Firm B, the
committee has adopted a two-pronged test to be satisfied under DR:1-103(A) before the

Committee Opinion
May 11, 1993
obligation to report misconduct arises: (1) the lawyer must have information indicating
that another lawyer's conduct has violated one of the Disciplinary Rules; and (2) that
violation must raise a substantial question as to that lawyer's fitness to practice law in
other respects. See LE Op. 1004.
Since the committee has opined that Law Firm B's conduct violates DR:7-102(A)(7),
the first prong of the test has been satisfied. Relevant factors to be considered under the
second prong include, but are not limited to, the recency of the conduct, the seriousness
of the offense, the likelihood that the conduct will be repeated, the likelihood that it
will affect the attorney's competence and any mitigating or aggravating circumstances.
LE Op. 1004. The committee advises that the determination of whether a violation must
be reported is to be made by the reporting attorney.
Committee Opinion
May 11, 1993
Legal Ethics Committee Notes. – If information about the ethics violation is a client
confidence, a lawyer may report the other lawyer’s misconduct only if the client consents
under Rule 1.6(c)(3); the lawyer considering whether to report must consult with the
client under that Rule.