Mitigating or Rectifying Injury

Rule 1.6(b)(3) carries the financial-fraud exception past the client's act and onto the injury that act causes. It permits a lawyer to reveal information relating to the representation, to the extent the lawyer reasonably believes necessary, “to prevent, mitigate or rectify substantial injury to the financial interests 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.”¹ The paragraph uses the same three building blocks as (b)(2): a client crime or fraud, substantial financial injury to another, and use of the lawyer's services. Everything the prior section said about those blocks carries over. What changes is the response the paragraph allows and the moment at which that response is available.

Three differences in wording do the work. First, the purposes: (b)(2) permits disclosure “to prevent the client from committing a crime or fraud,” while (b)(3) names three purposes and adds mitigate and rectify to prevent.² Second, the injury need only be “reasonably certain to result or has resulted,” so the paragraph reaches harm that is still coming and harm that is already complete.³ Third, (b)(2) asks whether the client “has used or is using” the lawyer's services, while (b)(3) asks only whether the client “has used” them.⁴ The shorter formula fits the subject. Paragraph (b)(3) deals with injury flowing from a crime or fraud the client has committed, so the use of the lawyer's work lies in the past by definition. A scheme that has run its course leaves nothing for (b)(2) to prevent, yet it can still satisfy (b)(3), because the injury has resulted and the lawyer's services were used to advance the wrong.

The two added verbs correspond to two stages of injury. Mitigation addresses loss that is accruing, where a disclosure can limit how much the victim ends up losing. Rectification addresses loss that is complete, where the question is whether a disclosure can help repair the consequences. Because (b)(3) hangs from the same lead-in as every other exception, the permission stays discretionary, and any disclosure is confined to what the lawyer reasonably believes necessary.⁵

Mitigating Ongoing Injury

To mitigate an injury is to reduce its size or severity when it cannot be avoided altogether, and that is the verb that governs a loss still growing. Mitigation is easiest to see against (b)(2), because the two paragraphs aim at different targets. Paragraph (b)(2) permits disclosure “to prevent the client from committing a crime or fraud,” so what it aims to stop is the client's own act, and that aim lapses once the act is done.⁶ Paragraph (b)(3) aims at the injury, and its reach over injury “reasonably certain to result or has resulted” does not depend on whether the client's wrongful act is still under way.⁷ Between a finished act and a finished loss there is often a stretch of time in which collateral is dissipating, further advances are going out, or the victim's chance to protect itself is closing. A disclosure made in that stretch can still change how much the victim loses, and that is the work mitigation does.

The services requirement explains why the permission exists and why it is narrow. A lawyer whose own documents or opinions carried the deception is an instrument of the loss, and while the loss keeps growing, silence leaves that work operating on the victim. Two features keep the permission from spreading. The services element confines it to lawyers whose work is part of the wrong, so a lawyer who merely learns of a client's fraud falls outside it. The lead-in limits any disclosure to what the lawyer reasonably believes necessary,⁸ so the lawyer reveals what the victim needs in order to act, such as that a collateral list is false, and keeps the rest of the client's affairs confidential.

Hypothetical Illustration

A lawyer drafts the loan documents for a client's credit facility, and the documents attach a collateral list the client has inflated. The lender advances the first tranche, and the facility calls for more advances on a set schedule. Before the next one is due, the lawyer learns that the list is false. The client's deception of the lender is complete as to the first tranche, so no disclosure can undo that act. The lender's loss is still reasonably certain to grow, because the collateral is worth far less than the lender believes and more money is about to go out against it. The lawyer's services were used and the injury is substantial, so she may tell the lender what it reasonably needs to know, for instance that the list is inaccurate, so that it can hold back further advances and look for real collateral.

The tempting answer to the loan scenario is that the fraud is over and nothing is left to prevent, but that answer tests the facts against (b)(2) and stops. The question under (b)(3) is whether substantial injury has resulted or is reasonably certain to follow, and whether a limited disclosure could still reduce it. Where the loss is already fixed, with nothing further to limit, the analysis moves to rectification. Because (b)(3) lists prevent alongside mitigate and rectify, a lawyer facing a mix of finished and continuing wrongdoing need not sort each disclosure under a single label, since the paragraph covers all three purposes once its elements are met.⁹

Two matters outside the paragraph affect how the lawyer in the loan scene proceeds. Rule 4.1(b) says 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 qualifier matters here. Where (b)(3) permits the disclosure, Rule 1.6 does not prohibit it, so the qualifier no longer shelters silence if disclosure is necessary to avoid assisting the client's fraud. Local text matters as well. The sources report that the Model Rule's revision brought it in line with most states, that California, Washington, and the District of Columbia continue to prohibit a lawyer from disclosing that a client is about to engage in illegal conduct, and that New Jersey and Florida go the other way and require disclosure to prevent criminal acts.¹¹ A lawyer must therefore check what the jurisdiction actually adopted. Where disclosure is barred, withdrawal remains available, and it may sometimes have to be paired with notice to a third party and disaffirmance of a document the lawyer prepared, the so-called noisy withdrawal that the end of this chapter takes up.¹²

The paragraph that opens the door for the lawyer who drafted the loan documents stays shut for a lawyer hired to defend the client against the fraud charge. The scene below holds the loss as large and as certain as before and changes only whose work carried the fraud.

A lawyer representing a criminal defendant therefore cannot use this exception to reveal information about the charged crime in order to mitigate injury. The text of (b)(3) never mentions defense lawyers. The limit comes from the services clause, which requires that the client have used the lawyer's services in furtherance of the crime or fraud.¹³ A defense lawyer is retained after the conduct and in response to the charge, and services rendered to answer a charge cannot have been used to commit it. Other rules draw a similar line. Rule 1.13(d) withdraws the permission in Rule 1.13(c) to disclose confidential information outside the organization from a lawyer retained to investigate an alleged violation of law or to defend the organization or a constituent against a claim arising from one.¹⁴ Reading (b)(3) this way keeps the exception tied to what it targets, a lawyer's own work being turned against a third party.

Rectifying Completed Injury

To rectify is to set a wrong right, and the words “has resulted” in (b)(3) make that verb available once the loss is complete.¹⁶ A disclosure made for this purpose aims at repairing or undoing consequences that already exist, for instance by letting the victim reverse a transaction, revise a plan built on false assumptions, or pursue recovery. Mitigation shrinks a loss that is still growing. Rectification works on a loss that is fixed.

The reason to allow disclosure after the fraud is finished lies in how a lawyer's work behaves. A document, an opinion, or an estate plan prepared by a lawyer does not stop operating when the client's last wrongful act ends, because the victim keeps relying on it until someone corrects the picture. A lawyer whose services supplied the instrument of the deception would otherwise have to watch that reliance continue in silence. The services requirement supplies the limit. A client who confessed an old wrong to a lawyer who contributed nothing to it, or who hired a lawyer only to defend against its consequences, stays inside the protection of confidentiality. Without that fence, rectification would become a general power to expose past client misconduct.

A. v. B., a New Jersey case, shows rectification at work on a finished deception. The firm's services had been used in preparing a wife's estate plan. It learned that her husband had an illegitimate child, not from him in confidence, but through its representation of the child's mother in a paternity action against him, and he had concealed the child from both his wife and the firm.¹⁷ The firm wrote to the husband that it believed it had an ethical obligation to tell his wife that he had an illegitimate child, though not who the child was, and that her current estate plan might pass part of her assets through him to that child.¹⁸ It suggested that he tell her himself and said that if he did not, it would.¹⁹ Restraints imposed by the Appellate Division meant the firm had not yet disclosed anything.²⁰

The court first rejected the mandatory route. It held that the possible inheritance of the wife's estate by the husband's illegitimate child was too remote to be “substantial injury to the financial interest or property of another” under RPC 1.6(b).²¹ It then turned to RPC 1.6(c)(1), which permits, but does not require, a lawyer to reveal confidential information to the extent the lawyer reasonably believes necessary “to rectify the consequences of a client's criminal, illegal or fraudulent act in furtherance of which the lawyer's services had been used.”²² The rule did not define a fraudulent act, so the term took its meaning from the court's construction of fraud in the analogous crime-or-fraud exception to the attorney-client privilege.²³ On that footing the court concluded that, in effect, the husband had used the firm's services to defraud his wife in the preparation of her estate.²⁴ It also noted that the firm did not learn of the child through a confidential communication from the husband, so his expectation of nondisclosure may have been less than if he had told the firm in confidence.²⁵

Read as a rectification case, the facts divide into a finished wrong and a continuing consequence. The husband's concealment was complete when the plan was prepared, so no ongoing act remained to prevent or to mitigate. What remained was an estate plan resting on incomplete information that might route part of the wife's assets through him to a child she did not know about. Telling her could set that right, because she could revisit the plan with the full picture. The firm's proposed disclosure also stayed within the necessity limit, since it covered the child's existence and the plan's effect and withheld the child's identity.²⁶ The same facts failed under the mandatory paragraph and succeeded under the permissive one because the rectification clause, as the court quoted it, asks for a fraudulent act, the use of the firm's services, and a disclosure reasonably necessary to rectify the consequences, and it contains no substantial-injury threshold.²⁷

Because the case construed New Jersey's rule, it supports the Model Rule's paragraph only by analogy. The court observed that the Model Rule, as then adopted, permitted disclosure only to prevent a client's criminal act likely to cause imminent death or substantial bodily harm, with no provision for fraud or financial injury, and that RPC 1.6 was broader.²⁸ New Jersey therefore permitted rectification before the Model Rule did. Paragraph (b)(3) now covers that ground but keeps an element the New Jersey clause, as quoted, lacked, namely substantial injury that has resulted or is reasonably certain to result.²⁹ Whether a wife's contingent loss of inheritance would meet that element is a separate question, and the court's own remoteness holding shows why it could be contested.

A question that describes a finished fraud and a large, certain loss invites the answer that rectification applies, and the usual error is to stop at the loss. The loss answers only the injury element. The services element still has to be met.

A completed injury also leaves (b)(3) as the only candidate, since (b)(2) is limited to preventing the client from committing the wrong.³⁰ The tense of the services clause points the same way. Paragraph (b)(3) asks only whether the client has used the lawyer's services, which fits a wrong that lies in the past, and services rendered after the wrong cannot have furthered it.³¹