[CLBS] New ABA Formal Ethics Opinion #491

[Paul Ross]

 FYI

New ABA Formal Ethics Opinion #491 imposes a higher standard, a duty of
inquiry, on lawyers who may be assisting clients in prebankruptcy planning.

"Lawyers have ethical duties to inquire whether a client is seeking to use
their services to commit fraud or other criminal activity.

This duty to inquire extends beyond Model Rule 1.2(d)
<https://l.facebook.com/l.php?u=https%3A%2F%2Fwww.americanbar.org%2Fgroups%2Fprofessional_responsibility%2Fpublications%2Fmodel_rules_of_professional_conduct%2Frule_1_2_scope_of_representation_allocation_of_authority_between_client_lawyer%2F%3Ffbclid%3DIwAR085kKrMvyl-RhpW8aoH1yr9e_-5RTgXN25gWzJ2taNvJe16wht_8vA8cA&h=AT19NoBp2tOQEq2KvctoXJrYVJtyDkDm3dFdmiNAlmOxjltuaiJjrFE0Zn7YC3h72AdI-gmFk-_N720AsRiINKiqH91nnBu6hp9HvS20nE7J3BEe98aMh851BdCdIBWXMQVMcJ2UAnKZS_XHrcE>,
which prohibits a lawyer from advising or assisting a client with conduct
the lawyer knows is criminal or fraudulent. The ABA’s Standing Committee on
Professional Responsibility has issued Formal Opinion 491
<https://l.facebook.com/l.php?u=https%3A%2F%2Fwww.americanbar.org%2Fcontent%2Fdam%2Faba%2Fadministrative%2Fprofessional_responsibility%2Faba-formal-opinion-491.pdf%3Ffbclid%3DIwAR2h7OeeL2kOwMFmDwVonXYg6aAmNKlhw4hrP2k8oQPJJzOaIeYnxtY0HTg&h=AT1VihxafmoY1aPE2xAaVh0M9UqE9GhHZUwYHEnA9NJSJZHQ7-bTVbXoitb9Mf7KaxWzH_NfxkrQmaa6cMI6cDXLUBhrqoPC-6jGY7da27WPb-gV5vtqC0jWb8fZevfdBF6W7xNAamVvC_c-nJo>
to clarify this requirement in the wake of increased reporting of
individuals using legal services for money laundering and terrorist
financing.

The opinion states that “the legal professional has become increasingly
alert to the risk that a client or prospective client might try to retain a
lawyer for a transaction or other non-litigation matter that could be
legitimate but which further inquiry would reveal to be criminal or
fraudulent.”

In other words, a lawyer cannot simply turn a blind eye by claiming he or
she wasn’t positive that the client was involved in criminal activity. If
the facts “indicate a high probability” the client is using the lawyer to
commit fraud or crime, the lawyer must inquire. The lawyer cannot “ignore
the obvious.”

But the opinion notes that “Rule 1.2(d) is not the only source of a
lawyer’s duty to inquire.” The ethical duties also involve the duty of
competency under Rule 1.1
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the duty of diligence under Rule 1.3
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the duty to communicate with clients under Rule 1.4
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the duty to avoid professional misconduct and avoid dishonesty under Rule
8.4(b) and (c)
<https://l.facebook.com/l.php?u=https%3A%2F%2Fwww.americanbar.org%2Fgroups%2Fprofessional_responsibility%2Fpublications%2Fmodel_rules_of_professional_conduct%2Frule_8_4_misconduct%2F%3Ffbclid%3DIwAR1yK18mKMtO_K8ny4aRcuLKG5pgOlHlhGYiMi8YQvRKOHco4HqkMl8u_7g&h=AT1lL7_Iygxnyo3ywQjHAIRx5cTsqiIPZNGZqBS9QzUHpWB1e1TCWeX6W5eh_mAAMJrC8Gf4DFB5CCYmw-81dr5MUh-1RCIfuVnLINoYwlP_8LRo39TU0vM41uU83MebUtdMTRpX3OzrPKfsvgU>;
and the duty to withdraw under Rule 1.16
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The opinion also cites Rule 1.13
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which imposes a duty to inquire into the interests of an organization or
entity the lawyer is representing.
If the client refuses to answer a lawyer’s questions or asks the lawyer not
to evaluate whether a course of action or transaction is legal, the lawyer
must still make an “appropriate inquiry.” If the client will not provide
the necessary information to the lawyer, the lawyer must withdraw or
decline representation.

If the lawyer can obtain information from sources other than the
prospective client without breaching confidentiality obligations under Rules
1.6
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or 1.18
<https://l.facebook.com/l.php?u=https%3A%2F%2Fwww.americanbar.org%2Fgroups%2Fprofessional_responsibility%2Fpublications%2Fmodel_rules_of_professional_conduct%2Frule_1_18_duties_of_prospective_client%2F%3Ffbclid%3DIwAR012LaE0RLc-9S-W5OTcEcV3PT1BMbUQFgMKQdo_yT1x9nHZmSxDpGFB-U&h=AT32Ht0aSCp58FOGmn2SP9jagKg8LJa6wH7Jb2puYUNVGf3s-VDaWENODDqz8UYmGepImuoEM-lAZvmTO8HbvhzwLYR8kwI8YbXu0yhF6D3vzQumr-JEr8E1S2GG_aal01q_e_ti6qOB0pskCUA>,
the lawyer should seek the information. “Overall, as long as the lawyer
conducts a reasonable inquiry, it is ordinarily proper to credit an
otherwise trustworthy client where information gathered from other sources
fails to resolve the issue, even if some doubt remains,” the opinion reads.
For example, the lawyer may have represented the client previously or “know
the client personally, professionally, or socially.”

https://www.americanbar.org/content/dam/aba/administrative/professional_responsibility/aba-formal-opinion-491.pdf

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