The Law of Fraud and Professional Obligation

The Law of Fraud and Professional Obligation

The law of fraud limits the legally acceptable conduct of lawyers and clients. If you or your client commit fraud, civil or criminal consequences could result. If you do so, you also face a third possibility: professional discipline. The Model Rules contain four provisions that effectively incorporate all of the law of fraud, deceit, dishonesty, and misrepresentation into a professional obligation. Lawyers can be disciplined if they make any false statement of material fact to tribunals or third persons while representing clients, whether or not the statement is relied on, or causes harm. n16 Lawyers also can be disciplined for any conduct (representing a client or not) "involving dishonesty, fraud, deceit or misrepresentation." n17 Beyond your own conduct, you can be disciplined for knowingly counseling or assisting your client's fraudulent or criminal conduct. n18
 
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n16 Model Rules 3.3(a)(1) (making false statements of fact to a tribunal), 4.1(a) (making false statement of material fact to a third person).
n17 Model Rule 8.4(c).
n18 Model Rules 1.2(d), 3.3(a)(3) and (b), 4.1(b).
 
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The vast scope of the modern law of fraud reflects its common occurrence and often-disastrous consequences. Liars are "free riders": Persons who hope to gain an advantage from everyone else's honesty while benefiting from their own deceit. n19 Deceitful practices can undercut competition, raise the price of goods, and cause loss of confidence in the market system by diminishing trust in its mechanisms. In some cases, fraud can chill faith in individual relationships and social ties. Your advice can play a central role in avoiding these massive personal and social costs.
 
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n19 Sissela Bok, Lying: Moral Choice in Public and Private Life 23 (Vintage Books, 2d. ed. 1999).
 
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The law of fraud includes hundreds of criminal provisions as well as extensive tort liability. Dishonest conduct also creates a defense to otherwise valid claims, and invalidates an otherwise lawful consent in tort, property, and contract law. In short, fraud vitiates everything, even court orders and judgments. n20
 
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n20 Sydney Edward Williams, Kerr on Fraud and Mistake 4 (Sweet & Maxwell, 5th ed. 1920); Fed. R. Civ. P. 60(b).
 
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To sum up: you cannot lie, and if your client does, you probably have to do something about it. Lies short of actual fraud or crime do not trigger a duty to remedy a client lie, but if you or your client are close to the line, remember the four steps to identifying and responding to the limits of the law:
1. Competence requires that you know just how close to which legal line the conduct or proposed conduct creeps.
2. Communication demands that you tell your client so, in clear terms.
3. If the conduct is over the line of crime or fraud, you must withdraw. If it makes you worry, and you have a reasonable belief it might constitute a crime or fraud, you may withdraw.
4. If your client will not desist from questionable conduct, you need to identify whether your withdrawal from the matter prevents your assistance in the matter. If it is not enough, check to determine whether your jurisdiction's confidentiality exceptions allow or require disclosure to prevent, mitigate, or rectify the harm. If such an exception exists, you also may also have an obligation to disclose if reasonably necessary to prevent assisting the client's crime or fraud. n21
 
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n21 Model Rule 4.1(b); RLGL § 98.
 
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- Ultimate Red Flag- Recognizing and responding to client fraud creates some of the worst lawyer headaches, and can tempt lawyers to overidentify with clients. 
 
Excerpt from Red Flags: A Lawyer's Handbook on Legal Ethics