Preventing Client Crime or Fraud

Preventing Client Crime or Fraud

Rule 1.6(b)(2) permits a lawyer to reveal information relating to the representation, to the extent the lawyer reasonably believes necessary, to prevent a client from committing a crime or fraud that is reasonably certain to cause substantial injury to another’s financial interests or property and in furtherance of which the client has used or is using the lawyer’s services.¹ The clause opens with the words to prevent, and those words set its direction. Paragraph (b)(2) looks forward, and the permission lasts only while the client’s wrong can still be stopped.

The remaining clauses narrow that permission one step at a time. The crime-or-fraud clause reaches a wrong the client is planning or already carrying out, because in both cases the injury lies ahead and a disclosure can still change the outcome. The injury clause sets the stakes: the loss to another’s financial interests or property must be both substantial and reasonably certain. The services clause supplies the gate by tying the exception to the lawyer’s own work.² The reasonable-necessity limit then confines any disclosure to what stops the loss, and a warning to the people about to be hurt may be all the facts require.

The services clause speaks in two tenses, has used or is using, and together they stretch the exception beyond a single act of assistance. A client who is using the lawyer’s services now, by asking for another document that carries the deception forward, plainly qualifies. A client who has used them earlier has also enlisted the lawyer’s work, and the text still reaches a wrong that remains unfinished: the question is whether the lawyer’s services furthered the crime or fraud that disclosure would prevent.³ Continuing misuse of the lawyer’s work therefore keeps the exception open for as long as the injury remains avoidable.

The same permission disappears once the wrong is over. A scheme that has run its course leaves nothing for a warning to prevent, and the failing element is easy to miss because the lawyer’s services and the client’s fraud both remain plainly visible in the facts.

A completed scheme may still fall under (b)(3), which adds mitigation and rectification for injury that has already resulted from a client’s crime or fraud.⁴ The next section develops that paragraph. Meanwhile (b)(2) remains the paragraph for wrongs that can still be stopped, and the habit to build is placing the harm on a timeline before reaching for the text. A fact pattern that stresses how large the losses were invites an application of (b)(2) anyway, but size answers only the injury clause, and the purpose clause fails on those facts.

Comparing (b)(2) with (b)(1) shows what (b)(2) adds. Paragraph (b)(1) turns on the harm alone, reasonably certain death or substantial bodily harm, and it requires neither a client crime nor any use of the lawyer’s services.⁵ Paragraph (b)(2) turns on harm, conduct, and connection together: a client crime or fraud, a financial injury, and the lawyer’s services.⁶ Two plans by the same client show the gap. A plan to sell a product reasonably certain to kill customers triggers (b)(1) whether or not the lawyer did any work on the sale. A plan to cheat the same customers out of money triggers (b)(2) only if the lawyer’s own work forms part of the scheme.

Paragraph (b)(2) is permissive, because the text says a lawyer may reveal information to the extent the lawyer reasonably believes necessary.⁷ A lawyer in a Model Rule jurisdiction who stays silent in the ongoing-contracts scene therefore breaks no duty under (b)(2) itself, although another rule, discussed next, can change that. The revision that brought the ABA Model Rule more in line with the prevailing rule in the vast majority of states did so by granting this permission.⁸ Local text still controls the outcome. California, Washington, and the District of Columbia continue to prohibit a lawyer from telling anyone outside the corporation that a client is about to engage in illegal conduct, while New Jersey and Florida require a lawyer to disclose client confidences to prevent criminal acts.⁹

Rule 4.1(b) adds a second source of pressure. It provides that a lawyer shall not “fail 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.”¹⁰ The closing qualifier links the two rules. When (b)(2) permits a disclosure, Rule 1.6 no longer prohibits it, the qualifier stops excusing silence, and the two rules read together can require disclosure in narrow circumstances. Where a jurisdiction’s version of Rule 1.6 bars outside disclosure of a client’s securities fraud, the qualifier still shelters silence. The source says that securities lawyers there may, and often must, withdraw, and that it may sometimes be necessary to alert a third party to the withdrawal and to disaffirm a previously prepared document, opinion, or affirmation.¹¹ The last section of this chapter returns to withdrawal and noisy withdrawal.

Permission under one rule can also be cut back by another. For an organizational client, Rule 1.13(c) permits a lawyer to disclose confidential information to those outside the organization to protect it, but Rule 1.13(d) withdraws that permission when the organization retained the lawyer to investigate an alleged violation of law, or to defend the organization or an officer, employee, or other constituent against a claim arising out of an alleged violation of law.¹²

Steps one and four do the most work on exam facts. A completed scheme ends at step one and sends the analysis toward (b)(3), while a client fraud that never touched the lawyer’s work ends at step four however large the loss. Heavy financial loss makes the exception feel satisfied in both situations, which is why those two steps come before any discussion of how much to reveal.