Rutgers School of Law, OAL case ACPE520

112 N.J.L.J. 369
October 6, 1983

ADVISORY COMMITTEE ON PROFESSIONAL ETHICS

Appointed by the New Jersey Supreme Court

Opinion 520

Attorney-Client Privilege
Attorney-Obligation to Affected Person
or Tribunal When Client Perpetrated a Fraud

The ethical question posed is whether or not an attorney must reveal information to either the court and/or the adversary while, during the course of representing a husband in a matrimonial matter, certain facts come to the attorney's attention that were not disclosed by the client to the attorney and upon seeking authorization to disclose said facts to the adversary from the client, the same is refused.
The facts involve a matrimonial situation in which the husband is a plaintiff who, during the viability of the marriage, maintained his business on the same property in which the marital home is situated. Prior to the divorce action being filed, a substantial portion of the plaintiff's business which was held as a close corporation, was transferred to two (2) third parties for a stated consideration. Answers to interrogatories as well as Certifications supplied to the Court reflect that a certain income was being received by the plaintiff from the aforementioned business. There is no mention, however, in any of the pleadings, as to the consideration for the sale of a substantial portion of the business.

    After discovery was almost complete, facts came to the attention of the attorney which indicated (a) a portion of the business was sold for a consideration in excess of that which was represented to him and subsequently by him to his adversary on numerous occasions; and (b) that the monies that the client was receiving from the business substantially exceeded those which were represented in the Certifications and Preliminary Disclosure Statements as referred to hereinbefore.
    Immediately upon the matter coming to his attention, the inquirer drafted a letter to his client to assure that there was no misunderstanding. He personally met with the client. The attorney read the letter to his client and explained each point therein, which stated basically that certain facts had come to the attorney's attention and that it was incumbent upon him to urge the client to disclose the information himself and to authorize the attorney to disclose the accurate information to his adversary and/or the Court. Notwithstanding the attorney's urging, the client refused to authorize him to disclose said information.
    Thereafter, the attorney made application to the Court, seeking to be relieved as counsel, setting forth in the Certification only that certain facts had come to his attention which would impede his representation of the client, particularly since their relationship had broken down. The attorney did not specifically set forth in the Certification the facts set forth above.
    This question puts in issue the obligation of an attorney to protect the confidences and secrets of his client under DR 4-101, and the obligation of an attorney to the opposing party or Court when his client perpetrates a fraud, under DR 7-102(B)(l) during the course of the professional relationship.
    In Opinion 116, 90 N.J.L.J. 688 (1967), a defendant admitted to his attorney that he was guilty of a criminal charge. He was advised not to take a stand, but after the State rested its case, the defendant insisted on testifying contrary to counsel's advice. He took the stand and denied the charge.
    We determined that counsel should make no mention of the con flict between the client's statement and his sworn testimony. He should not withdraw from the case. His presentation should be on the basis of the sworn testimony of the defendant, allowing the Court and jury to determine the defendant's innocence or guilt.
    In Opinion 163, 92 N.J.L.J. 825 (1969)) the question involved the propriety of a lawyer representing a wife who desired to obtain a divorce on the ground of desertion, but who admitted that she committed adultery and had had two of her six children fathered by a man other than her husband. We decided that since the defense of recrimination in divorce proceedings had, for all practical purposes, been abolished, it was the duty of the lawyer to preserve his client's confidences, and to do so, he should not disclose to the Court facts which amounted to an affirmative defense in the divorce action. He must point out to his client that if appropriate
questions are addressed to her, she must be truthful and answer them, unless she declines to answer them on constitutional grounds.
    In Opinion 227, 95 N.J.L.J. 65 (1972) we answered an inquiry dealing with the duty of an attorney who, during a subsequent representation, uncovered incontrovertible proof that a favorable civil judgment obtained during a previous representation was based upon his client's perjury. We stated that this brought into consideration the fundamental duty of a lawyer to protect the confidences and secrets of his client under DR 4-101 of the Disciplinary Rules, and also brought into play the conflicting duty to call upon his client to rectify a fraud perpetrated upon another person or tribunal pursuant to the provisions of DR 7-102 (B)(l).
    We said, "it becomes necessary to reconcile these two competing principles of ethical responsibility."
    We decided that where such a fraud is involved, the lawyer under the provisions of DR 7-102(B)(l) has a clear course of action, to call upon the client to rectify the fraud at once. If the client refuses or is unable to do so, the attorney should then notify his adversary or the tribunal of the fraud, and then remove himself from any further representation of the client.
    The rule which requires a lawyer to keep a confidence or secret of his client is not absolute and is subject to a number of exceptions. Wise, Legal Ethics (2d ed.1970) at 277. Our Supreme
Court, in In re Richardson, 31 N.J. 391 (1960), required an attorney to identify the party who paid his fee in the matter. The Court observed that,

        Throughout their judicial endeavor courts seek truth and justice and their search is aided significantly by the fundamental principle of full disclosure. When that principle conflicts with the attorney-client privilege it must, of course, give way but only to the extent necessary to vindicate the privilege and its underlying purposes. The matter is truly one of balance and, on balance, it seems clear to us that there should be removal of the cloak of secrecy....

        Based on the Court's observation in Richardson, supra, this Committee decided in Opinion 227, supra, that the attorney client privilege could not be invoked to shield the fraud.
        In the matter sub judice, the desired candor and frankness between the attorney and his client was not present. Instead, the client used the inquirer as an instrument to hoodwink an innocent third party and the court. The information which would unquestionably embarrass or be detrimental to the client was not freely and voluntarily given by the client during the course of the attorney's representation. Against such a background, the underlying purpose of the attorney-client privilege would not be served by protecting the information in the hands of the attorney.

        On the contrary, justice can only be served by a full and complete disclosure of the wrong that has been visited upon the judgment debtor. The purpose of the rule against disclosure is to encourage the unrestrained consultation between a lawyer and his client, not to encourage deceit and dishonesty. If we were to protect such information under the time-honored, attorney-client privilege, we would be in effect undermining the basic reason for the rule. The privilege was never intended as a tool to enable a client to deceive his attorney, then use that very privilege to hide the wrongdoing. Such an exception to the attorney-client privilege has long been recognized by our authorities. Thus, Drinker, Legal Ethics (1953), p.138, recognizes deception on the part of the client as an exception to the attorney client privilege.

    In Opinion 364, 100 N.J.L.J. 90 (1977), we dealt with a possible fraud perpetrated on a welfare agency which came to the attention of an attorney, and because of the meager facts presented by the inquirer, we believed that there was not sufficient information to clearly establish an obligation on the part of the attorney under DR 7-102(B)(l).
    In conclusion, we wish to emphasize that the principles and reasoning set forth in our Opinion 227, supra, form the basis for this Opinion, that Opinion 227 clearly distinguishes Opinions 116, 145, and 163, and that we distinguish Opinion 364 by this Opinion.
In this case, the inquirer took the proper steps to comply with DR 7-102(B)(l) by asking his client to rectify the situation, which the client refused to do. The Rule reads, "and if his client refuses or is unable to do so, he shall reveal the fraud to the affected person or tribunal."
    No prior ease has stated precisely that the word "shall" in the above Rule is intended to be mandatory. "Shall" is defined in Webster's New Collegiate Dictionary as "ought to, must, will have to, used to express a command or exhortation, used in laws, regulations or directives to express what is mandatory." The clear meaning of "shall" in the Rule must be deemed "mandatory;" otherwise, the purpose of the Rule would be frustrated. We believe our Supreme Court intended "shall" in said Rule to mean "must."
    Under the facts of this case, it is our opinion that it is mandatory for the inquirer to reveal the fraud to the affected person or to the tribunal.

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