Concept
Consequences of Crossing the Line
Counseling or assisting criminal or fraudulent conduct (Rule 1.2(d))
Consequences of Crossing the Line
A lawyer who breaks Rule 1.2(d) pays in two ways. The rule commands that a lawyer "shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent,"1 and the earlier parts of this chapter showed what that command forbids, what it leaves protected, and what a lawyer must do when a client will not change course. A prohibition means little without consequences, so this section follows two of them: the exposure the lawyer takes on, and the fate of the confidences the client shared while seeking help.
The first consequence reaches the lawyer from several directions at once. A violation invites professional discipline, and because the rule takes its terms "criminal" and "fraudulent" from other bodies of law, the same acts can also bring civil or regulatory liability. These exposures coexist because each protects a different interest: discipline guards the public and the profession, while liability enforces substantive law and compensates the people it harms.
The second consequence reaches the client and concerns evidence. Communications between lawyer and client are ordinarily privileged so that clients can speak candidly and receive sound advice. A client who seeks legal services to further a crime or fraud loses that protection for those communications, because the privilege exists to foster legitimate legal services and shelters no plan for a wrong. Both consequences turn on the line that has run through this chapter, between analyzing what the law allows and facilitating a wrong.
Discipline and Liability
Rule 1.2(d) sets the lawyer's professional duty, and the consequences of breaking it divide according to the source of law that supplies them.2 A violation is a disciplinary matter. The rule does not say when conduct is criminal or fraudulent, so whether a lawyer who helped a client has also defrauded a victim or violated a securities regulation depends on the substantive law that defines those wrongs.
Civil liability to outsiders is where students most often assume the ethics rules do too much. In re Enron Corp. Securities, Derivative & ERISA Litigation, a federal district court called attorney liability involving a duty to disclose nonmisleading information to nonclients "a thorny one," because the need to give a remedy to parties who lose money through a lawyer's conduct pulls against the confidentiality, loyalty, and zealous representation that the attorney-client relationship demands.3 The court held that ethical rules such as disciplinary rules do not create corresponding legal duties and do not constitute standards for imposing civil liability on lawyers.4 It added that a rule violation gives rise to no private cause of action and creates no presumption that a legal duty has been breached, although the rules do reflect public policy concerns.5 The limit makes sense once the rules are seen for what they do. They condition a lawyer's license, and treating them as a damages standard would give everyone a lawyer's conduct touches a claim founded on a code written for a different purpose.
SEC v. Fehn shows the first investor's side of that contrast in a decided case. The lawyer edited a client's quarterly reports and submitted them to the SEC without properly advising the client about material omissions, and the court held that he lent substantial assistance to the client's securities violation.6 He argued that his efforts were reasonable. The court rejected the argument because his efforts were not "reasonable" in light of well-established disclosure requirements, and Rules 10b-5 and 12b-20 clearly prohibited the misstatements and omissions in the reports.7 When a requirement is plain, then, the lawyer's sincerity adds little. The court also explained why securities lawyers get no leniency: effective regulation depends fundamentally on lawyers advising clients properly about disclosure requirements, and a system premised on open disclosure makes it incumbent on practitioners to know those requirements and insist that clients comply.8 Fehn applied the securities regulations and not Rule 1.2(d), so it shows what following a client's wrong can cost without ruling on the ethics rule's knowledge element.
Other rules of professional conduct can compel a lawyer to act in order to avoid assisting. Model Rule 4.1(b) bars a lawyer from failing "to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6," and the commentary adds that a lawyer may sometimes need to alert a third party to a withdrawal (a "noisy withdrawal") and to disaffirm a previously prepared document, opinion, or affirmation.9 Because these rules are applied jurisdiction by jurisdiction, a securities lawyer must know the current rules of professional conduct that govern admission to the bar in each relevant jurisdiction.10
A lawyer sued by a litigation adversary may argue that the challenged conduct fell within the scope of the representation. One commentator answers that it is hard to see how fraudulent conduct can ever fall within that scope, because Texas, like the Model Rules, provides that a lawyer shall not assist or counsel a client to engage in conduct the lawyer knows is criminal or fraudulent.11 If the Cantey Hanger court wanted to protect lawyers from adversaries' claims, the commentator adds, a no-duty rule would have been clearer than suggesting that fraud is sometimes within the scope of representation.12
Students often run the two systems together. One version assumes that violating Rule 1.2(d) lets an injured nonclient sue under the rule, and the other assumes the lawyer escapes discipline because no prosecution or judgment followed. Discipline asks whether the lawyer counseled or assisted conduct the lawyer knew was criminal or fraudulent, while liability asks whether substantive law imposed a duty on the lawyer and the lawyer breached it.
Crime-Fraud Exception
Rule 1.2(d) separates a lawyer who discusses the legal consequences of a proposed course of conduct from one who counsels or assists conduct the lawyer knows is criminal or fraudulent.14 Evidence law draws a matching line for a different purpose, which is deciding when a lawyer can be made to repeat what a client said. Every jurisdiction recognizes a privilege covering most private communications between client and lawyer made in professional consultation, but one formulation of the exceptions provides that no privilege exists if the lawyer's services were sought or obtained to enable or aid anyone to commit or plan to commit what the client knew or reasonably should have known was a crime or fraud.15 That provision is the crime-fraud exception. Like the permissions in Rule 1.2(d), it protects a client who asks what the law allows and withholds protection from a client who recruits the lawyer into a wrong.
The exception follows from the purpose of the privilege. The privilege fosters legitimate legal services, so statements by clients seeking advice about how to commit crimes or frauds are not privileged.16 Society has an interest in letting clients get sound legal advice, but none in protecting communications or advice meant to further a crime or fraud.17 When a client uses legal services to advance or conceal criminal or fraudulent conduct, the illegitimacy of the objective prevents formation of an authentic attorney-client relationship, and that is so with or without the lawyer's knowledge.18 The feature sets the exception apart from Rule 1.2(d). The rule turns on what the lawyer knows, while the exception looks to the client's purpose, so a lawyer who suspected nothing may still have to testify about a consultation the client used to advance a fraud.
A neighboring exception in the same list runs in the lawyer's favor. There is no privilege for a communication necessary for a lawyer to defend, in a legal proceeding, an accusation that the lawyer assisted the client in criminal or fraudulent conduct.19 A lawyer accused of assisting a client's wrong therefore need not stay silent about what the client said when the defense requires it, which links this subsection to the last.
The first requirement concerns timing. What happens to the privilege when a client asks where the legal line sits and, a year later, decides to cross it? In re Grand Jury Subpoena, the Third Circuit held that the exception does not apply unless the client was committing or intending to commit a crime or fraud at the time of the consultation.20 The court's illustration is a client who consults a lawyer, hears which actions would be legal and which illegal, and a year later decides to cross the line. The exception does not apply, even if the client clearly used the earlier advice in furtherance of the crime or fraud, because the client lacked the requisite intent at the time of the consultation.21 A rule that let later intent reach backward would punish the client who asked, and the clients most inclined to ask where a boundary lies would stop asking.
A court can prove intent from circumstances. The client in the Third Circuit case consulted a lawyer about a payment to a banker meant to ensure that a project was approved in a timely manner. The lawyer advised against paying, and the client said he was going to make the payment anyway. The court inferred that he had already weighed the advisability of paying and decided it served his interest, and it found added support in the fact that the payment occurred in the same month the bank approved the project financing.22 That reply turned the consultation from exploration into a decision already made.
The second requirement asks for more than a connection to the wrong. The district court in the Second Circuit case had asked whether the subpoenaed documents, read collectively, had "the real potential of being relevant evidence of activity in furtherance of a crime." The Second Circuit held that this relevant-evidence test departs from the correct in-furtherance test.23 The exception does not apply simply because privileged communications would give an adversary evidence of a crime or fraud, since the privilege would then be virtually worthless: a client could not freely give, nor an attorney request, evidence that might support a finding of culpability. The exception applies only when the court determines that the client communication or attorney work product was itself in furtherance of the crime or fraud.24 The Third Circuit likewise holds that the advice must advance, or the client must intend it to advance, the client's criminal or fraudulent purpose, and that the advice cannot merely relate to the crime or fraud.25
The two clients mirror the past-versus-future line that governs whether a lawyer may accept an engagement. A person who retains counsel to defend against past crimes or fraud keeps the privilege, and after-the-fact evidence of the wrong does not defeat it.26 A client who instead asks the lawyer to conceal the wrong is using legal services to advance or conceal the behavior, which is exactly what the exception targets.27
A lawyer who merely tells a client that a proposed action is illegal does not trigger the exception. The Third Circuit offered a pair of lawyers to show it. A client intending an illegal course consults one lawyer who advises that the course is illegal, and then, dissatisfied, consults a second who says it is legal. Both consultations remain privileged, because each lawyer only opined on the lawfulness of the conduct, and an opinion about lawfulness cannot be used in furtherance of the crime.28 This is the evidentiary counterpart of Rule 1.2(d)'s permission to discuss the legal consequences of any proposed course of conduct.
The actual Third Circuit case sits just past that pair, and the court acknowledged it was a close one. The communication between lawyer and client was brief and consisted mainly of informing the client of the applicable law and advising him not to make the payment.29 What tipped the result was that the lawyer also asked whether the bank was a governmental entity and whether the banker was a government official. Those questions would have told the client that the governmental connection was the key to violating the Foreign Corrupt Practices Act.30 The court affirmed an order compelling the lawyer to testify before the grand jury. It reviewed only for abuse of discretion and conceded that it could not know how the client processed the information, but it held that the client "could easily have used [the advice] to shape the contours of conduct intended to escape the reaches of the law."31
The difference between this lawyer and the first lawyer in the pair lies in what the lawyer supplied and what the client had already decided. The first lawyer stated a conclusion about legality. This lawyer also gave information about which conduct violates the law, and the client was already set on an illegal course. Because the case was close and reviewed deferentially, it marks where the line can fall and does not hold that explaining the law to a would-be wrongdoer forfeits the privilege. The exception asks how the client could use the advice, while the discipline rule asks what the lawyer knew and furthered.
Because the exception removes a protection clients ordinarily rely on, the party invoking it must make a threshold showing, and courts phrase that showing differently. The Second Circuit requires at least probable cause to believe that a crime or fraud was attempted or committed and that the communications were in furtherance of it.32 The Third Circuit applies the exception where there is a reasonable basis to suspect that the privilege holder was committing or intending to commit a crime or fraud and that the communications or work product were used in furtherance of it.33 Another formulation puts the burden on the party seeking the communication to make a prima facie showing that the communications were in furtherance of an intended or present illegality, together with some relationship between the communications and the illegality.34 Each formulation aims at the same two facts: the client's wrongful purpose at the time of consultation, and the communication's role in advancing it.
The privilege and the duty of confidentiality are different protections with different exceptions. The privilege is an evidentiary rule that decides whether a tribunal can compel a lawyer to testify, while Rule 1.6 governs whether a lawyer may reveal information relating to the representation on the lawyer's own initiative. A client who merely announces an intent to commit a future crime, without exploiting the representation to advance it, keeps the privilege. The lawyer may nonetheless have discretion, or even a duty, to disclose that intent through an exception to confidentiality, and the surviving privilege still keeps the lawyer from being called to testify against the client about the communication.35
The opposite combination also occurs, because the privilege exception is wider than the Rule 1.6 permissions covered earlier in this chapter, which depend on a reasonably certain substantial financial injury and on the client's use of the lawyer's services. The privilege formulation reaches any crime or fraud, contains no injury threshold, and is satisfied when the client sought the lawyer's services, whether or not the lawyer ever provided them.36
Students often treat the exception as a single switch that the lawyer's knowledge or the client's wrongdoing in general can flip. It turns on the client's purpose at the time of consultation and on whether the communication was in furtherance of the wrong. Asking a lawyer about a crime, discussing a crime already committed, and hearing from a lawyer that a plan is illegal all leave the privilege in place.