Ethics Opinon 1990-2

I
QUESTION PRESENTED

An Attorney represents an Executor in the probate of an estate. During the course of representation, the Attorney learns that the Executor has taken estate funds for personal use and intends to conceal the misappropriation in an accounting to be filed with the court. What are the duties of the Attorney upon discovery of the misappropriation.

II
SUMMARY

1. Probate presents a unique situation in which the Executor, as a fiduciary, owes duties to the heirs, beneficiaries and creditors of the estate. Although that fiduciary relationship makes the Attorney and Executor accountable to the heirs, beneficiaries and creditors, it is the Executor who is the client and with whom the Attorney has a confidential relationship.

2. Communications between the Attorney and the Executor are completely confidential unless they come within one of the exceptions to the duty to protect a client's secrets and confidences.

3. The Attorney must first call on the client to rectify any mismanagement and to forego any advantage the client may have wrongfully gained. If the client refuses to correct the accounting, the Attorney should prepare an alternate accounting and send it to the client for signature. If the client refuses to sign the corrected version, the Attorney may not file any accounting. If cited into court for failure to file an accounting, the Attorney may state in his or her declaration that an alternate accounting was submitted to the client.

4. It may be advisable for the Attorney to withdraw if it can be done without causing prejudice to the client. The Attorney may not disclose the client's misappropriation to new counsel. However, upon transfer of the files, the Attorney may include the letter transmitting the alternate accounting to the client, but not the accounting itself.

III
ANALYSIS

Identity of Client

Although the Executor is charged with special obligations to beneficiaries, [Estate of Palm, (1945) 68 Cal.App.2d 204, 211, 156 P.2d 62] and counsel owes an indirect duty of care to them, California courts have held that the attorney-client relationship extends only to the executor, not to the beneficiaries. [See Lasky, Haas, Cohler & Munter v. Superior Court (1985) 172 Cal.App.3d 264; 218 Cal.Rptr. 205; Estate of Effron (1981) 117 Cal.App.3d 915, 928-29.] In an analogous trustee-beneficiary relationship, the court in Lasky, Haas, et al., supra, expressly rejected the contention that the attorney for a trustee has a "joint client" relationship with the trustee and the trust beneficiaries. Similarly, in Estate of Effron, supra, at pg. 929, the court declined to adopt a rule that would grant estate beneficiaries an absolute right to discharge the executor's attorney.

Duty of Confidentiality

Business and Professions Code Section 6068(3) provides: "It is the duty of an attor-ney . . . . (e) To maintain inviolate the confidences, and at every peril to himself to preserve the secrets, of his or her client."

Evidence Code Section 952 defines "confidential communication" to mean "information transmitted between a client and his lawyer in the course of that relationship and in confidence by a means which, so far as the client is aware, discloses the information to no third persons other than those who are present to further the interest of the client in consultation . . . ." See also ABA Model Rule 1.6.

The application of this protection for fiduciary clients has been noted and supported in the guardianship context by Los Angeles County Bar Opinion 267 (1960), and in the estate executor context by Los Angeles County Bar Opinion 274 (1962), and by San Diego County Bar Opinion 1983-10.

Business and Professions Code Section 6068(e) requires an attorney to maintain inviolate the secrets of a client. It is complimented by ABA Model Rule 1.6, which requires preservation of client confidences.

If a client announces an intent to commit a crime there may be an exception to the attorney's obligation not to disclose confidences or secrets. Several Los Angeles County Bar Opinions have considered the application of this exception in instances involving civil fraud or perjury by a fiduciary client and have determined that the prohibition against exposing client confidences extends to protect the client in such instances. [Los Angeles County Bar Opinion 264 (1959) (conservatee receiving aid to which he is not entitled because he has hidden funds); Los Angeles County Bar Opinion No. 274 (1962) (improper diversion of estate assets by an attorney/administrator); see also Los Angeles County Bar Opinion 386 (1982) (client perjury in contested litigation).]

A competing obligation is set out in Business and Professions Code Section 6068(d), which obligates the attorney to employ only such means as are consistent with the truth and never to seek to mislead the judge by false statements. Evidence Code Section 956 supports this obligation by stating that there is no privilege if services of the attorney are sought to aid in fraud.

Several ethics opinions have been published by the Los Angeles County Bar in which the obligation to preserve a client's confidences is weighed against the obligation to be candid with the court. These opinions consistently determine that the exceptions providing for disclosure are severely limited and that the attorney's obligation to the client takes priority over the obligation to disclose corrupt or dishonest conduct. [Los Angeles County Bar Opinions 386 (client perjury in contested litigation) and 274 (improper diversion of estate assets by an attorney/administrator).

Los Angeles County Bar Opinion 274 weighed these competing standards in the context of an attorney/fiduciary who had improperly diverted estate funds and determined that disclosure may not be made without the consent of the client. The protection of client confidences has priority even though the attorney/client "may never be disciplined for his reprehensible conduct and that he may, as a result, in the future again abuse the privileges accorded him by his professional standing." Los Angeles County Bar Opinion 274 at p. 3.

The duty of the attorney, as an officer of the court, to disclose to the court any fraud that the Attorney believes is being practiced on the court does not transcend the duty to preserve client confidences. ABA Opinion 268; Los Angeles County Bar Opinion 267 (1960).

Attorneys Duty to Court - Withdrawal

The Attorney should first use every effort to cause the client to rectify the misappropriation without violating the confidential communication rule. [Los Angeles County Bar Opinions 386 (1982) (client perjury) and 267 (1960) (guardian misuse of ward's funds).]

Business and Professions Code Section 6068(d) and California Rule of Professional Conduct 5-200 require that the attorney employ only such means as are consistent with the truth. Clearly, the attorney may not file a false, misleading account or use any document which he may have prepared based upon false information. If the client refuses to correct the accounting, the Attorney should prepare an alternative version and send it to the client with a letter recommending the client to sign the accounting and return it for filing. Prior opinions are consistent in the determination that if the client refuses to sign a true account the attorney has no option except to refuse to file any account. Eventually the client will be cited for failure to file the account with such consequences as the law provides. Los Angeles County Bar Opinion 267; San Diego County Bar Opinion 1983-10 (fiduciary conversion of assets). In the event the Attorney and client are cited into court for failure to file an accounting, and the Attorney should prepare a declaration stating that the alternate declaration was presented to the client for signature.

If the client refuses to correct the situation, the Attorney should seek to withdraw without disclosing the reasons to the court. This is the favored option by the Los Angeles County Bar Association (Los Angeles County Bar Opinion 386), provided prejudice to the client is avoidable and the attorney takes reasonable steps to avoid any prejudice to the client. See also San Diego County Bar Opinion 1983-10, supporting this option with the same conditions.

The attorney's duty to preserve client confidences continues even after he withdraws or is substituted out. San Diego County Bar Opinion 1983-10 concluded that disclosure to the court, heirs, district attorney, new attorney, or even to the State Bar if the client is an attorney, is not allowed. See also Los Angeles County Bar Opinion 274 (1962); AA Opinion 268. Upon withdrawal, the Attorney should be careful not to disclose the misappropriation to new counsel. When transferring the file new counsel, the Attorney may send a copy of the cover letter to the client without the corrected accounting.

If the attorney is denied permission to withdraw or withdrawal will prejudice the client (See Rules of Professional Conduct rule 3-700(a)(2)], the Attorney should continue vigorous representation of client as if the wrong had never occurred. If this option is chosen, the attorney may not knowingly act in a manner which facilitates the wrongful acts of the Executor and must refrain from any conduct intended to mislead the court with any false statement regarding the estate finances and management. Bus. & Prof. Code Section 6128 (deception of the court), Section 6868(d) (conduct inconsistent with the trust or misleading to the court); Cal. Rule of Professional Conduct 5-200.

In either case, the attorney may not disclose the client's secret to the court. Los Angeles County Bar Opinion 386 and State Bar of California Formal Opinion 1983-74.

Finally, the Committee wishes to note the potential impact upon this opinion of proposed amendments to the Rules of Professional Conduct of the State Bar of California. The Board of Governors of the State Bar of California drafted a comprehensive revision of the existing Rules of Professional Conduct. The initial draft of the proposed rules included proposed new rule 3-100, which dealt with the duty of an attorney to maintain client confidences and secrets inviolate. Subparagraph (E) stated:

When a member comes to know beyond a reasonable doubt that material evidence offered to a tribunal by the member on behalf of a client is false, the member shall confidentially exhort the client to permit the correction of the false evidence. If the client refuses to permit such correction, the member shall withdraw from further representation of the client before the tribunal if permissible under rule 3-700. If such withdrawal is not possible, the member shall not further the deception, subject to the duty in this rule to protect the client's confidence and secrets.

Because of a comment made by the Supreme Court to another sub-paragraph of proposed rule 3-100, the Board of Governors withdrew that proposed rule for further study and it was not adopted by the Supreme Court. It should be noted that the Court did not make any comment on sub-paragraph (E).

This opinion is advisory only. It is not binding upon the State Bar, the Board of Governors, its agents or employees, or the San Diego County Bar Association, its officers, directors, members or employees.

Disclaimer: This opinion was issued by the Legal Ethics Committee of the San Diego County Bar Association. It is advisory only and is not binding upon any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors, or any persons or tribunals charged with regulatory responsibilities. The SDCBA, its officers, directors, agents, and the Legal Ethics Committee members assume no responsibility or liability in rendering this opinion.