UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 90-30
Attorney A acted as the closing attorney in a real estate transaction. All required documents were properly executed and all guidelines provided by mortgage lender were followed except the requirement that the property was being purchased for use as a primary residence. Subsequent to the closing, Attorney A received a telephone call from the President of the Mortgage Broker's Company which aroused suspicion and caused Attorney A to investigate the possibility of fraudulent activities by the mortgage broker.
Attorney A believes that a fraud was perpetrated upon the lender. Attorney A has informed the mortgage broker that he will not act as the closing attorney for any transactions in which the mortgage broker is involved.
Questions:
1. May the closing attorney contact the mortgage lender to inform it that he feels a fraud may have been perpetrated on said mortgage lender?
2. May the closing attorney contact the appropriate law enforcement agencies in South Carolina and inform them that he feels a fraud has been perpetrated upon the mortgage lender?
3. May the closing attorney contact either the mortgage broker's employer or the mortgage lender itself and request that they make the appropriate inquiry and investigation?
4. May the closing attorney contact the Department of Consumer Affairs regarding the mortgage broker?
Summary:
Attorney A may not contact the mortgage lender, law enforce- ment officials or Consumer Affairs regarding the fraudulent activities of the mortgage broker.
Opinion:
An attorney is not allowed to reveal information
relating to the representation of a client unless the client consents or the disclosure is required in order to carry out the representation of the client. Since the exceptions to this general rule as stated in Rule 1.6(b) do not apply to Attorney A, he may not contact any third person relative to informing them of the mortgage broker's fraudulent activities.
If only one attorney is present at a real estate closing , that attorney potentially represents multiple interests. Assuming the closing attorney represents the mortgage broker, then Rule 1.6 applies.
The relationship between an attorney and his client is based upon the fundamental principal that all information communicated in confidence by the client or relating to the representation of a client is confidential. According to this principle, Rule 1.6(a) states that a lawyer shall not reveal information of client representation unless: 1) the client consents after consultation or 2) the client impliedly authorizes disclosure so the representation may be carried out. Rule 1.6(b)(1) and Rule 1.6(b)(2) create exceptions to the general rule by identifying two circumstances under which a lawyer may reveal information about his client.
The first exception to the general rule is that an attorney may reveal such information to the extent the attorney reasonably believes it is necessary to prevent the client from committing a criminal act. Rule 1.6(b)(1). This exception was created because an attorney is not permitted to counsel a client to engage in, or assist a client, in any conduct that the attorney knows is criminal or fraudulent. See Rule 1.2(d). Thus, in order to reveal the fraudulent and/or criminal acts of a client two requirements must be met: (1) the representation of the client has not ended; and (2) the fraudulent and/or criminal activity must be discovered during the course of representation. If these two requirements are met, the attorney has the discretion under Rule 1.6(b)(1) to reveal the information. A disclosure pursuant to Rule 1.6(b)(1); however, is limited and should be no greater than the attorney reasonably believes necessary to the purpose. (Comment Rule 1.6.) The exception created under Rule 1.6(b)(1) does not apply to the situation because the fraudulent and/or criminal act has already occurred. A disclosure of facts relating to his representation of the mortgage broker would not accomplish the purpose stated in the exception of preventing his client from committing a criminal act. Thus, Attorney A may not make disclosures to a third party based upon this exception.
The second exception created under Rule 1.6(b)(2) states that an attorney may reveal such information to the extent the attorney reasonably believes is necessary in the following situations: (1) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and client; (2) to establish a defense to criminal charges or civil claim against the lawyer based upon conduct in which the client was involved; or (3) to respond to allegations in any proceedings concerning the lawyers representation of the client. Since Attorney A is not attempting to use the information he acquired to establish a defense or claim on his behalf, this exception does not apply.
If the attorney discovers during the course of representation that his services will be used by the client in materially furthering a course of criminal or fraudulent conduct, the attorney must withdraw. Rule 1.16(a)(1), comment to Rule 1.6. After withdrawal, the attorney is not permitted to make disclosures of the client's confidences unless an exception to the general rule applies. Therefore, even though there is the possibility that the mortgage lender may engage in fraudulent activities in the future, the circumstances surrounding this transaction does not meet the requirements of Rule 1.6(b)(1) and Attorney A may not reveal information he subsequently discovered about the mortgage broker. Thus, Attorney A properly followed Rule 1.16(a)(1) and withdrew from his representation of the mortgage broker.
It should be noted, however, that if Attorney A learned that the mortgage broker was committing a fraud during the course of his representation, he would be required to withdraw from representing the mortgage broker and may reveal that information to prevent his client form committing a crime. Since Attorney A discovered this information after his representation was completed and after he had informed the mortgage broker that he would no longer represent him in a real estate closing, Attorney A may not disclose any information to any third party relative to the fraudulent activities of the mortgage broker.