Concept
Why Financial Fraud Was Added
Disclosure to prevent death, bodily harm, or client crime or fraud
Why Financial Fraud Was Added
Paragraphs (b)(2) and (b)(3) of Rule 1.6 let a lawyer reveal information when a client's crime or fraud threatens, or has already caused, substantial injury to another person's financial interests or property, and both apply only where the client has used the lawyer's services in furtherance of the wrongdoing.1 The ABA added them in 2003, in the wake of the Enron scandal.2 The services condition makes sense only against the rule it amended, so this section starts with the gap the amendment filled and leaves the elements of each exception to the sections that follow.
Before the amendment, the Model Rule gave a lawyer two kinds of permission. One court opinion, reciting the 2001 text, describes them. A lawyer could, but did not have to, reveal confidential information to the extent the lawyer reasonably believed necessary to prevent a client's criminal act likely to cause imminent death or substantial bodily harm, or to establish a claim or defense in a controversy with the client, defend against a charge based on the client's conduct, or answer allegations about the representation.3 Neither permission reached a client's fraud that threatened only money, however large the loss to investors, and the second protected the lawyer rather than the victims.
Other rules pressed the lawyer away from the fraud without letting the lawyer warn anyone. Rule 1.2(d) barred a lawyer from counseling a client to engage in, or assisting a client in, conduct the lawyer knew to be criminal or fraudulent.4 Securities lawyers could withdraw on account of a client's conduct, and often had to.5 A lawyer whose opinion letters were being used to defraud investors could therefore refuse and withdraw, but under the 2001 text could say nothing to the investors unless imminent death or substantial bodily harm was at stake.
The same court called a lawyer's duty to disclose nonmisleading information to nonclients a thorny question. The need to give a remedy to people who lose money through a lawyer's conduct pulls against the confidentiality, loyalty, and zealous representation that define the attorney-client relationship.6 The amended exceptions give the lawyer room to speak in one situation, and the services condition marks where that room ends. If the client has used the lawyer's services in furtherance of the crime or fraud, (b)(2) and (b)(3) apply. If the fraud never touched the lawyer's work, they give no permission, however large the loss.7 The exceptions therefore do not reach every fraud a lawyer happens to learn about.
The permission in that scene is discretionary. The amended exceptions say a lawyer may reveal information and never say a lawyer must, and the lead-in confines the disclosure to what the lawyer reasonably believes necessary.8 The lawyer in the scene may therefore reveal only what is needed to stop the injury, and nothing beyond that.
The states show the same question answered in three ways. One source reports that the revision brought the Model Rule more in line with the prevailing rule in the vast majority of states.9 Some states, including California, Washington, and the District of Columbia, still prohibit a lawyer from disclosing to sources outside the corporation that a client is about to engage in illegal conduct. A few, including New Jersey and Florida, stand at the other end and require a lawyer to disclose client confidences to prevent criminal acts.10 New Jersey's choice was deliberate. A committee reviewing the Model Rules for the state concluded that Model Rule 1.6 would "narrow radically the circumstances in which New Jersey attorneys either may or must disclose the information of their clients' criminal or fraudulent behavior," and the New Jersey Supreme Court substantially followed that committee's recommendation when it adopted its own rules.11 The amended Model Rule falls between the poles. It permits disclosure where New Jersey requires it, and it confines the permission to a crime or fraud in which the client has used the lawyer's services.12
That lawyer may withdraw, and often must, even though the bar on outside disclosure stays in place.13 Later in this chapter, noisy withdrawal shows how the withdrawal itself can carry a warning.