Tuesday, March 12, 2013

All's Not Well

Stephen Gillers, Regulation of Lawyers
"All's Not Well"

              In this problem, Ben Mackey, a lawyer, is confronted with the issue of whether he may reveal information prejudicial to his client to right a potential fraud or whether the duty of confidentiality owed to the client prevents him from releasing the information.  Here, Ben Mackey is representing a family, whom he previously represented when their son was in a car accident, in the sale of their home.  Prior to the sale, the seller commissioned an inspection from Copeland Engineering.  The seller gave a copy of this report to Ben Mackey, who then shared the report with the buyer and the buyer’s lawyer.  The deal closed at $1.95 million.  Later, Ben Mackey ran into the engineer who did the inspection of the seller’s home and learned that there was a problem with the well—specifically, that the owner of the home would need to dig a new well to support the home (estimated to cost $100,000).  This issue was not in the report that the seller originally gave to Ben Mackey, and now Ben wants to know how he should proceed.
            The problem implies that the seller removed the information about the well from the copy of the report they gave to Ben Mackey, which was later transmitted to the buyer.  Ben Mackey only became aware of the well issue after the closing.  In general, “[a] lawyer shall not reveal information relating to representation of a client . . .” (Model Rule 1.6(a)).  Notably, this rule, unlike attorney-client privilege, covers all information relating to representation of a client and not just conversations between the lawyer and client (see Comment 3 to Rule 1.6).  At first blush, the information about the well would seem to fall within the category of information relating to the representation of the client.  Even though the sale of the home has closed and the attorney-client relationship may arguably be complete, the lawyer continues to owe this duty of confidentiality to the client beyond the end of representation.
            Rule 1.6 is subject to certain exceptions.  Specifically, Rule 1.6(b)(3) notes that the lawyer may reveal information relating to representation of a client “to prevent, mitigate or rectify substantial injury to the financial interest or property of another that is reasonably certain to result or has resulted from the client’s commission of a crime or fraud in furtherance of which the client has used the lawyer’s services . . . .”  At the outset, note that even if this exception applies, it does not compel the lawyer to reveal the information but leaves it to the discretion of the lawyer.  For this exception to apply, we must investigate further whether there is (1) substantial injury, (2) fraud, (3) and whether the fraud was furthered by use of the lawyer’s services.  Since the well repairs are estimated to cost $100,000 (around 5% of the total purchase price), it is certainly likely that this would be considered substantial injury to a financial interest.  Furthermore, the intentional omission from the report of the facts about the well would likely constitute fraud.  Finally, since the seller retained the lawyer and gave the report to the lawyer to pass on to the buyer, the fraud was furthered by use of Ben’s services.  Thus, it seems that Ben may have a possible avenue to reveal the information, should he choose to do so.
            Several other factors may contribute to Ben’s ultimate decision on how to proceed.  First, Comment 12 to Rule 1.6 notes that other law may require disclosure about a client.  Here, there may be applicable state law that requires disclosure about fraud in the sale of a home.  Ben should also consider how revealing, or choosing not to reveal, the information will affect his practice.  If Ben chooses not to reveal and the buyer later discovers the problem, Ben may risk his reputation in the community as an honest lawyer.  Since his main business involves buying and selling homes, Ben should be concerned that not revealing such information would harm future business.  Alternatively, one could argue that revealing the information would signal to potential clients that Ben is too honest and may not work to the best interests of his client.  Additionally, Ben’s own sense of morality may weigh in favor of revealing the information.
            Ben’s logical first step is to consult his client and confirm that the client did know about the well problem.  From there, the Model Rules leave it to Ben’s discretion to decide whether to reveal such information.
            On a related note, the buyer should probably fire their lawyer.  It is standard industry practice for homebuyers to conduct their own inspection on a home prior to purchase.  Reliance upon the seller’s report is ill advised—caveat emptor.

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