Client Misconduct in the 21st Century

I. INTRODUCTION

In section 307 of the Sarbanes-Oxley Act of 2002, Congress mandated that the securities and Exchange Commission (the SEC or the Commission) adopt "minimum standards of professional conduct ... in the public interest and for the protection of investors ... for attorneys appearing and practicing before the Commission in any way in the representation of issuers."1 In response, the sec proposed what have become known respectively as its "up-theladder reporting," "permissive whistle-blowing," and "mandatory noisy disassociation" rules.2

After receiving comments, the SEC approved its up-the-ladder reporting rules3 and its permissive whistle-blowing rules,4 but deferred action on its noisy disassociation proposal in order to secure additional comments on it and an alternative that would require the "noise" following a lawyer's withdrawal be made by the client rather than the lawyer.5 Since receiving additional commentmuch of it in opposition to both the original and alternative proposal6-the SEC has taken no further action on either its original "noisy withdrawal" proposal or the alternative.

While simultaneously struggling to master the details of the up-the-ladder reporting rules, wondering about the eventual fate of the noisy disassociation proposal, and reflecting, at the request of The University of Memphis Law Review, about law and legal ethics in the twenty-first century, I came to see the Sarbanes-Oxley Act and the SEC's regulatory initiatives as but one facet of a much more pervasive problem: lawyer involvement, or the appearances of lawyer involvement, in client misconduct concerning matters in which the lawyer is representing the client and the adverse effect such involvement, or the appearances thereof, has on the legal profession's reputation for honesty, trustworthiness, and respect for the law its members profess to serve. This in turn is but one facet of yet a broader problem captured in the characterization of contemporary America as a "cheating culture."7 The question, of course, is what, if anything, should the twenty-first century legal profession do about this problem.

The Sarbanes-Oxley Act and the sec's new regulations represent a partial answer to the question, applicable to lawyers appearing and practicing before the Commission in the representation of an issuer who become aware of evidence that the issuer, or an agent of the issuer, intends to engage, is engaging in, or has engaged in a "material violation of United States federal or state securities law, a material breach of fiduciary duty arising under United States federal or state law, or a similar violation of any United States federal or state law."8

The American Bar Association also offered a partial answer when, in response to the federal initiatives, it amended the up-theladder reporting and permissive whistle-blowing provisions of its Model Rules of Professional Conduct.9 At best, however, these are only partial responses to a much broader question: What are and should be the professional responsibilities and rights of a lawyer who is representing a client in a matter and becomes aware that the client intends to engage or is engaging in misconduct?

This is a very broad question that cannot be answered in a single article. This article represents a first step in a long term effort to rethink and possibly call for revision of the rules of professional conduct that address the rights and responsibilities of lawyers concerning intended or ongoing misconduct in a matter in which the lawyer is representing a client. It begins not with whistle-blowing or noisy disassociation-the issues that have been in the limelight -but with ABA Model Rule 1.2(d) that provides:

A lawyer shall not counsel a client to engage or assist a client in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a lawyer to make a good faith effort to determine the validity, scope, meaning, or application of the law.10

This is the central provision concerning a lawyer's rights and responsibilities concerning client misconduct. For litigators representing clients in adjudicative proceedings and lawyers representing clients in non-adjudicative proceedings before a legislative body or administrative agencies, Rule 1.2(d) is supplemented by ABA Model Rule 3.3 that addresses the responsibilities of a lawyer when a client offers testimony the lawyer knows to be false or the lawyer comes to know, prior to the conclusion of the proceeding, that the client intends to engage, is engaging, or has engaged in criminal or fraudulent conduct related to the proceeding.11 For transactional lawyers and lawyers representing clients in matters other than an adjudicative, legislative or administrative proceedings, Rule 1.2(d) is supplemented by Rule 4.1(b) that provides that "in representing a client a lawyer shall not knowingly . . . fail to disclose a material fact when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client."12 The Comment to Rule 4.1 (b) describes it as a specific application of the principle in Rule 1.2(d) that addresses the situation where a client's crime or fraud takes the form of a lie or a misrepresentation.13 Rule 1.2(d) is also supplemented by Rules 8.4(b) and (c) that respectively state that it is professional misconduct for a lawyer to "commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer in other respects" or "engage in conduct involving dishonesty, fraud, deceit, or misrepresentation."14 Both these rules could be implicated by a lawyer's violation of Rule 1.2(d). Finally, Rule 1.4(a)(5) tells lawyers that they must "consult with the client about any relevant limitation on the lawyer's conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law."15 What we have, then, is a tight little nest of rules addressing client misconduct that, for all practical purposes, have been overlooked in the recent discussions about lawyer's responsibilities when faced with client misconduct relating to the lawyer's representation of the client.

It is with these rules that any rethinking of a lawyer's rights and responsibilities concerning client misconduct must begin. Yet even these rules raise more questions that can be addressed in a single article. Thus this article looks only at client misconduct in connection with a lawyer's representation of the client in matters other than an adjudicative, legislative or administrative proceeding, thus making it unnecessary for me to consider the distinctive problems addressed by Rule 3.3 and its distinctive solution to those problems. My paradigm will be the lawyer representing a client in a business transaction, but it could as well be the negotiation of an out-of-court settlement of a dispute, the filing of an application for a license, compliance with generally applicable reporting requirements, such as the filing for income returns or other reports required by law, or an investigation or examination of the client's affairs conducted by government investigators or examiners.16 The common feature of all these situations is that Rule 3.3 is inapplicable and the lawyer's basic responsibilities concerning client misconduct are set forth in Rules 1.2(d), 1.4(a)(5), 4.1(b) and 8.4(b) and (c). The centerpiece of these rules is Rule 1.2(d). Yet even this single rule standing alone, raises more issues that can be addressed in a single article. Thus this article begins with an examination of the Model Rule's specification of the client misconduct that a lawyer may not encourage or assist ____ i.e., criminal or fraudulent conduct. What misconduct is encompassed by Rule 1.2(d)'s references to criminal or fraudulent conduct? What uncertainties, if any, may be lurking in the incorporation into the Model Rules of such general references to criminal conduct and fraudulent conduct? Of equal importance is the identification of client misconduct that may be both harmful and wrongful, but that a lawyer may encourage or assist because it is neither criminal nor fraudulent. Finally, I will consider whether the legal profession should take steps that broaden the class of client misconduct that lawyers will not be allowed to encourage or assist. This is the foundation upon which a twenty-first century initiative to rethink and perhaps revise the professional rights and responsibilities of lawyers who become aware of client misconduct in connection with a matter in which the lawyer is representing the client must be built.17

II. CLIENT MISCONDUCT: CRIME, FRAUD AND OTHER WRONGDOING

At the center of a lawyer's responsibilities concerning client misconduct is the proposition in ABA Model Rule 1.2(d) that:

A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law."18

Nor may a lawyer attempt to violate Rule 1.2(d), or "knowingly assist or induce another to do so, or do so through the acts of another."19 There has been no change in Rule 1.2(d) since it was first approved by the ABA in 1983. From 1983 until amended in 2002, "fraud or fraudulent" was defined in the terminology section of the Rules as denoting "conduct having a purpose to deceive and not merely negligent misrepresentation or failure to apprise another of relevant information."20 As amended in 2002, fraud is now defined in Rule 1.0(d) to denote "conduct that is fraudulent under the substantive or procedural law of the applicable jurisdiction and has a purpose to deceive."21 A new comment clarifies that fraud does not include "merely negligent misrepresentation or negligent failure to apprise another of relevant information" and that "[f]or purposes of these Rules it is not necessary that anyone has suffered damages or relied on the misrepresentation or failure to inform."22 Knowingly is defined as denoting "actual knowledge of the fact in question" coupled with the proposition that "a person's knowledge may be inferred from circumstances." The Rules do not contain a definition of "criminal," "counsel to" or "assist in."

This core prohibition is supplemented by Rule 4.1 (b) that provides, as it has since 1983, that "[a] lawyer shall not knowingly . . . 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."23 Also implicated in the issue of assisting client misconduct is the prohibition against a lawyer "knowingly . . . mak[ing] a false statement of material fact or law to a third person." 4 The rub comes when a lawyer learns, after the fact, that she has innocently made a false statement of material fact or law, based on false information provided to the lawyer by the client in connection with the client's perpetration of a crime or fraud against either a tribunal or a third party. In this regard, the comment to Rule 4.1 explains, as it has since 1983, that "[a] misrepresentation can occur if the lawyer incorporates or affirms a statement of another person that the lawyer knows is false."25 As amended in 2002, it adds that misrepresentations "can also occur by partially true but misleading statements or omissions that are the equivalent of affirmative false statements."26 Although Rule 4.1 applies to statements by the lawyer, the lawyer's misstatements or omissions may both be the result of client misconduct and, if uncorrected once the lawyer knows the truth, could assist the client in carrying out a crime or fraud. As will be discussed below, however, Rule 4.1 (a) may require the lawyer to take action even if the client innocently provided the false information to the lawyer.

Finally, these core provisions are supplemented by two catchall provisions in Rule 8.4. Rule 8.4(b) prohibits a lawyer from committing "a criminal act that reflects adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer in other respects."27 This prohibition is significant because it incorporates the criminal law into the Model Rules and it typically is a crime for a persone.g., the lawyer-to solicit another to commit a crime with the purpose of promoting or facilitating the commission of the offense or, with the same purpose, to aid, agree, or attempt to aid the other in planning or committing the offense.28 Commission of such a crime presumably reflects adversely on the lawyer's fitness to practice law. Thus, the lawyer needs to be concerned about both criminal liability and disciplinary responsibility for conduct that violates Rule 1.2(d), Rule 4.1, or Rule 8.4(b).

Similarly, the prohibition in Rule 1.2(d) against counseling a client to, or assisting the client in, conduct the lawyer knows is fraudulent is supplemented by the prohibition in Rule 8.4(c) against a lawyer engaging in "conduct involving dishonesty, fraud, deceit, or misrepresentation."29 This is significant because this would seemingly import into the Model Rules the substantive principles of tort law that impose liability for such conduct, including the generally accepted proposition that a person who knows that another person's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other is subject to liability to a third person for harm suffered from the tortious conduct.30 Thus, not only do lawyers need to worry about criminal liability, but also about civil liability, not to mention disciplinary responsibility, for violating Rule 8.4(c) as well as Rules 1.2(d) or 4.1. Indeed, it is a risky legal world for a lawyer when the lawyer's client is treading anywhere near the boundaries of criminal, fraudulent, or other wrongful conduct. Thus, it is important that we carefully identify the kinds of client misconduct that a lawyer may not encourage or assist-first, conduct that constitutes a crime, and then, conduct that constitutes a fraud.

A. Crime

Turning first to criminal conduct, there is a consensus within the legal profession that lawyers should not be allowed to counsel a client to, or assist the client in, conduct that the lawyer knows is criminal. As Rule 4.1(b) is declared to be a special application of Rule 1.2(d), there would appear to be a consensus that a lawyer should generally be prohibited from assisting a client to commit a crime by remaining silent when doing so will have that effect. This latter consensus is subject only to the considerable disagreement about whether compliance with this duty should be subordinate to the lawyer's duty to preserve confidentiality of information relating to a client's representation.31 There is also a consensus that a lawyer should be subject to professional discipline for committing a criminal act that reflects adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer in other respects.32

As a starting point, it seems fair to assume that what counts as criminal for purposes of Rules 1.2(d) and 4.1(b) will count as criminal within the meaning of Rule 8.4(c). It should be noted, however, that "criminal" is not a defined term. We are not told why, but perhaps the drafters assumed that all lawyers would know what was meant by a criminal act. More particularly, "criminal," unlike "fraudulent," is not defined by specific reference to substantive law in the applicable jurisdiction. Again, we are not told why, but perhaps the drafters assumed there was substantial uniformity in the law of crimes or that lawyers practicing criminal law were not likely to be engaging in a multi-jurisdictional practice. More likely, however, the want of a definition of "criminal" was simply due to the fact that no one foresaw any problems likely to result from this omission. What is left, however, is an undefined term employed in the rules of professional conduct, that was probably intended to be construed by reference to the criminal law in the applicable jurisdiction, but can also be understood more generally, and either more broadly or narrowly than it would be understood by a lawyer practicing criminal law. For example, the comment to Rule 8.4 refers to "illegal" conduct33-presumably used as a synonym for "criminal" conduct, but capable of being construed to embrace other misconduct as well.

What, then, is the "criminal" conduct or "criminal" act of a client that the lawyer cannot encourage or assist or the "criminal" act for which a lawyer may be disciplined if that act reflects adversely on the lawyer's honesty, trustworthiness, and fitness as a lawyer in other respects? First, it is not likely that "criminal" will be construed by disciplinary authorities in the lay sense of "any offense, serious wrongdoing, or sin," or "a foolish, senseless, or shameful act."34 More likely, the term will be understood as "an action or instance of negligence that is deemed injurious to the public welfare or morals or to the interests of the state and that is legally prohibited."35 This is what would be understood by a definition of "criminal" as denoting conduct that "breaks the law."

Another characteristic of a crime is that the prohibition of the conduct deemed injurious to the public welfare is enacted by the legislative branch. There is no longer a common law of crimes. This adds to the democratic legitimacy of the prohibition and strengthens the case for requiring lawyers to expect their clients to abide by the criminal law. Yet another characteristic of a crime is that engaging in the conduct prohibited by the legislature subjects the perpetrator to prosecution and punishment by the state as prescribed by the legislature. The purpose of the punishment is to punish the perpetrator, deter the perpetrator and others from engaging in the proscribed conduct, or rehabilitate the perpetrator. Again, these purposes strengthen the case for requiring lawyers to expect their clients to abide by the law.

Finally, "criminal" conduct or acts can be defined by reference to the type of punishment to be imposed by the state upon a criminal wrongdoer. For example, the Model Penal Code-as good a source as there is to look to for a standard legal understanding of what constitutes a crime-defines a crime as "an offense," defined by statute, for which sentence of death or imprisonment is authorized.36 A crime can be categorized for purposes of punishment as a felony, a misdemeanor, or a petty misdemeanor. A felony can be graded relative to the perceived seriousness of the offense.37 More importantly, for present purposes, the Model Penal Code distinguishes a "crime" from a "violation," which is defined as an offense for which the only authorized penalty is "a fine, or fine or forfeiture, or other civil penalty."38 A "cancellation or suspension of a license" is noted in the comment as another example of a civil penalty.39 An offense will also be deemed a "violation" rather than a "crime" if the statute specifies that the offense "does not constitute a crime."40

Apart from the difference in penalty-imprisonment as opposed to fine, forfeiture, or civil penalty-the significance of the distinction between a crime and a violation for the purposes of the criminal law is that "conviction of a violation shall not give rise to any disability or legal disadvantage based on conviction of a criminal offense."41 The drafters of the Model Penal Code thought there was need for the state to have a means to impose a public sanction calculated to secure compliance with standards of conduct "where it would be impolitic or unjust to condemn the conduct as criminal . . . ."42 The drafters gave a traffic violation as an example,43 but they clearly had in mind a much larger class of more serious misconduct that was being prohibited and penalized by statutes that conferred enforcement power upon prosecutors and regulatory agencies. In particular, they thought that a class of offenses called "violations," distinguishable from crimes, was needed in light of the increased number of strict liability offenses-"a phenomenon of ... pervasive scope in modern regulatory legislation."44

For present purposes-given the specific reference to "criminal" conduct or acts in Rules 1.2(d), 4.1(b), and 8.4(b)-the point is that if the Model Penal Code's distinction between crime and violation is taken seriously, a lawyer will be allowed to encourage and assist a client to commit "violations." So also will the lawyer be allowed to commit "violations" and not be subject to discipline for a violation of Rule 8.4(b). Also of significance is the possibility that the Model Penal Code distinction between a crime and a violation may be embraced in some jurisdictions and rejected in others-leading to "crimes" meaning one thing in one jurisdiction and something else in another jurisdiction. It also raises the question of whether the undefined reference to criminal conduct or acts in Rules 1.2(d), 4.1(b), and 8.4(c) should be construed to follow the substantive law of the applicable jurisdiction or rather should be distinctively defined for purposes of professional discipline. If distinctively defined, the question arises whether the disciplinary rules should define crimes to include both crimes and violations, just crimes, or should be redefined in yet another way-for example, crime defined as either a crime or a violation, but with the definition of a violation narrowed to exclude an offense for which the sole "penalty" imposed by the state would be a revocation or suspension of a license, or a lesser sanction affecting the violator's status as a licensee. Such conduct would not, by itself, be classified either as a crime or a violation. The bottom line is that there appears to be considerable room for differences about what conduct should be branded, prosecuted, and punished by the state as criminal, which in turn raises new questions about the proper breadth of the profession's specification of the client conduct that a lawyer is prohibited from encouraging or assisting by Rule 1.2(d).

There is also room for disagreement about whether Rule 1.2(d)'s prohibition should be limited to crimes and frauds. Prior to its replacement by the Model Rules of Professional Conduct, the ABA's Code of Professional Responsibility prohibited lawyers from counseling or assisting a client in conduct that the lawyer knows is "illegal or fraudulent."45 Illegal conduct certainly includes criminal conduct, but it can also embrace violations within the meaning of the Model Penal Code, and, as Professor Hazard noted in 1981, might even embrace some torts.46 While most states now model their rules of professional conduct after the ABA Model Rules and have adopted Model Rule 1.2(d), a few states still use the Model Code provision.47 Of particular interest is New Jersey's rule that prohibits lawyers from assisting a client in "illegal," as well as "criminal" or "fraudulent" conduct.48 It nicely highlights that illegal means something other than criminal. To this mix of variants can be added Maine's Rule 3.6(d) that states even more broadly that "[a] lawyer shall not counsel or assist a client in the violation of any law, rule, or order of a tribunal."49 Most recently, the Supreme Court of Ohio's Task Force on Rule of Professional Conduct has recommended adoption of a version of Rule 1.2(d) that would apply to "illegal or fraudulent conduct," with "illegal" being defined to denote "criminal conduct or violations of applicable statutes or administrative regulations."50

Finally, the narrow reference in Rule 1.2(d) to criminal and fraudulent conduct should be contrasted with the specification in the sec's Sarbanes-Oxley regulations of the misconduct lawyers must try to prevent or rectify: "a material violation of an applicable United States federal or state securities law, a material breach of fiduciary duty arising under United States federal or state law, or a similar material violation of any United States federal or state law."51 Although the scope of the catchall reference to similar material violations of any United States federal or state law is not clear, it is clear that the a lawyer's duty under the Sarbanes-Oxley regulations can be triggered by client conduct that is prohibited by a state or federal statute or administrative rule, but that is not punishable as a crime. Indeed, maybe that is one of the reasons practicing lawyers were so uniformly opposed to the SEC's proposals.

1. Criminal Behavior

The reference in Rule 1.2(d) to the client's "conduct" that the lawyer knows is criminal, the reference to a client's criminal "act" in Rule 4.1(b) and reference to a lawyer's criminal "act" in Rule 8.4(b) indicate that it is not necessary for a violation of these rules that the client or the lawyer be convicted of a crime. It is the client's or the lawyer's criminal behavior, not the conviction that counts. Typically, disciplinary enforcement follows a criminal conviction, but in occasional cases, a lawyer could be defending against a claim that either he or his client committed a crime in a disciplinary proceeding rather than in a criminal court. Although this point has been made in reference to Rule 8.4(b),52 it also applies to Rules 1.2(d) and 4.1(b). When standing in judgment of a client's conduct as is required by Rules 1.2(d) and 4.1(b), the lawyer must act as a judge and a jury of one and determine whether the client would be subject to criminal liability if the client persists in the conduct in question.

Rules 1.2(d) and 4.1(b) requires that the lawyer appraise the client's "conduct" or "act." There is no definition in the Model Rules of "conduct" as used in Rule 1.2(d) or "act" as used in Rules 4.1(b) and 8.4(b); nor is there any explanation of why the different formulations were used as they were. Nor is there a definition of criminal. This leaves lawyers-many of whom do not practice criminal law and at best have only vague recollections of what they learned about criminal law as a law student or when studying for the bar examination-without guidance as to what they must "know" in order to know that their client's conduct or act is criminal. This problem is compounded by the fact that the reference in Rule 1.2(d) to the client's conduct and the reference in Rule 4.1(b) to the client's act unduly emphasize only one of the elements necessary for the client to be subject to criminal liability. Several points need to be made in this regard.

The first is that the reference to criminal conduct in Rule 1.2(d) and the reference to a criminal act in Rule 4.1(b) may blind insensitive lawyers to the possibility that a client can be subject to criminal liability for omissions as well as acts. Although in common parlance, an act or conduct can be understood to denote doing something rather than nothing or failure to do something, the Model Penal Code defines the verb "acted" to "include, where relevant, Omitted to act.'"53 It also defines conduct as "an action or omission and its accompanying state of mind, or, where relevant, a series of acts or omissions."54 Finally, the Model Penal Code expressly addresses criminal liability for omissions by providing that "liability for the commission of an offense may not be based on an omission unaccompanied by action unless . . . the omission is expressly made sufficient by the law defining the offense; or a duty to perform the omitted act is otherwise imposed by law."55

My only concern in this regard is the lack of notice given to lawyers. Without further specification, an "act" can readily be differentiated from inaction, failure to act, omission or nonfeasance. The broader reference to conduct in Rule 1.2(b) can just as easily be understood as a synonym for actions. Thus, these rules might be construed as only applying to crimes of commission or misfeasance. There is, however, no evidence that the drafters of the Model Rules had in mind a distinction between criminal omissions and criminal acts and that by their failure to refer to a "criminal act or omission" or to "conduct or inaction known to be criminal" they intended to allow lawyers to encourage and assist crimes of omission. Indeed, to the contrary, one of the examples of a crime that would reflect adversely on a lawyer's fitness to practice law is "the offense of willful failure to file an income tax return."56 Nor can I think of a good reason for treating crimes of omission differently than crimes of commission for purposes of a specification of client conduct that a lawyer must not encourage or assist. This does not, however, make the question go away. Thus it may be desirable to clarify, either by way of a definition or a comment, that lawyers must not encourage or assist a client to commit any crime, whether it is one of commission or omission.

The reference to criminal conduct or a criminal act also obscures the fact that there may be more to a crime than the client's actions or omission. Indeed in this regard, the Model Penal Code defines the material elements of an offense as including "such conduct or ... such attendant circumstances or ... such a result of conduct as ... is included in the description of the forbidden conduct; or ... establishes the required kind of culpability; or ... negates an excuse or justification for such conduct."57 Typically the client's conduct will only be one piece of the elements that must be present for the client's conduct to be criminal. Thus, for Rule 1.2(d) or 4. l(b) to apply, a lawyer may need to know not only what the client intends to do or is doing, but also something about the circumstances attendant to and the consequences of what the client intends to do or is doing.

The focus on conduct and acts in the Model Rules also obscures the central importance of the actor's state of mind in criminal law. Indeed, in the Model Penal Code, conduct is defined as "an act or omission and its accompanying state of mind, or where relevant a series of acts and omissions."58 For a person to be guilty of a criminal offense, the person must have engaged in the prohibited conduct either purposely,59 knowingly,60 recklessly61 or negligently,62 as specified by the applicable statute, with respect to each element of the offense, or if not so specified, either purposely, knowingly or negligently. This is important because it tells us what a lawyer must know about his or her client's conduct in order to be subject to Rules 1.2(d) and 4.1(b). The lawyer must know that all the requisite elements of the offense are present or will be present if the client persists in the conduct at issue. The lawyer must also know the client is acting with the state of mind that is required for the client's conduct to be criminally culpable.

In the end, what is obscured by the simple reference to criminal conduct or a criminal act is that the nature of the act or conduct, understood narrowly as a series of actions, is only one of the elements that must be present for the client's conduct to be branded as criminal. For the act to be forbidden, the requisite attendant circumstances and results must be present. For the forbidden conduct to be criminal, the requisite act or omission, attendant circumstances, and results must each be accompanied by the requisite state of mind. This is important because it makes the terse prohibitions in Rules 1.2(d) and 4.1(b) much more difficult to apply and enforce than might be expected. This is particularly true to the extent that the lawyer must not only know what his client intends to do or is doing, but also must know what the client is thinking about what he will be or is doing, i.e., whether the acts are purposive, knowing, reckless, or negligent. In this regard, I posit that it is more difficult for a lawyer to know a client's state of mind than to know what the client is doing or not doing. In some instances, it is so difficult that at least one court has held that a lawyer cannot know a client's intent or purpose unless the client tells her so.63 Admittedly, this case involved a criminal defense lawyer and a criminal defendant's perjury, but I do not see why the same point would not apply to other client crimes in other settings. To the extent it will be difficult for the lawyer to determine that a client is subject to criminal liability, it will be equally, if not more, difficult for a disciplinary counsel to prove that a lawyer knew all that had to be known, remembering, of course, that disciplinary counsel will have the burden of proof. The task is not made any easier by the great variety of criminal laws that might be implicated by a client's activities in a matter in which the lawyer is representing the client. With this said, special note needs to be taken of the criminal laws of which a lawyer's client might run afoul.

2. Business Crimes

The Model Rules take note of several crimes that might be committed by a lawyer or a lawyer's client. For example, the comment to Rule 1.2 mentions a client's "transaction to effectuate criminal . . . avoidance of tax liability."64 Similarly, the comment to Rule 8.4 mentions, among others, "offenses involving fraud," "the offense of willful failure to file an income tax return," and "offenses involving violence, dishonesty, [or] breach of trust."65 Because a large number of business lawyers and legal ethics professors do not spend much time studying or even reading about criminal law, and most law students will either not have studied white collar crime in their required criminal law course or will have forgotten most of what they learned by the time they enroll in their required professional responsibility course (in which little attention will be paid to the specifics of white collar crime), it seems useful at this point to take a quick look at some of the crimes that a lawyer must not encourage or assist a client to commit. The catalog to follow is at best incomplete and shallow,66 but at least it marks the beginning of an effort to better alert transactional lawyers to the criminal law of business transactions so that they can better identify problems that need to be resolved by reference to Rules 1.2(d), 4.1(b), and 8.4(c). It may also help to identify some of the problems these rules pose for lawyers who are trying to comply with them.

Using the Model Penal Code as a guide to business client crimes, one finds numerous crimes of which a business lawyer should be aware. For example, there is "theft by deception," a crime that specifically identifies four deceits by which a person might criminally seek to obtain property from another.67 Thus, it is a crime for a person to obtain property of another by purposely:

(1) creatfing] or reinforc[ing] a false impression, including false impressions as to law, value, intention or other state of mind;

(2) preventing] another from acquiring information which would affect his judgment of a transaction;69

(3) fail[ing] to correct a false impression which the deceiver previously created or reinforced, or which the deceiver knows to be influencing another to whom he stands in a fiduciary or confidential relationship;70 or

(4) failfing] to disclose a known lien, adverse claim or other legal impediment to the enjoyment of property which he transfers or encumbers in consideration for the property obtained, whether such impediment is or is not valid, or is not a matter of official record.71

All of these criminal prohibitions, however, are subject to the caveat that "[t]he term 'deceive', however, does not include falsity as to matters having no pecuniary significance, or puffing by statements unlikely to deceive ordinary persons in the group addressed."72 If the amount involved exceeds $500, theft by deception is a felony; otherwise it is a misdemeanor.73

It is particularly important that lawyers be aware of the relationship between criminal deception and civil fraud, particularly if the prohibition against criminal deception is formulated more broadly than is the common law specification of the conduct for which a person is subject to civil liability in fraud. For example, "materiality" is not an element of the crime of deception, but one will not be civilly liable to another unless the misrepresentation relates to a material matter.74 Also the Restatement of Torts does not subject a person to civil liability for fraud because of a failure to disclose a known lien.75 As breach of fiduciary duty is commonly distinguished from both crime and fraud, lawyers should take special note of criminal deception by failure to correct a false impression known to be influencing a person standing in a fiduciary or confidential relation. This species of theft by deception is also conduct for which a person would be subject to civil liability in an action for deceit.76

Because lawyers frequently represent clients who are serving in a fiduciary capacity, note should also be taken of "theft by failure to make required disposition of funds received."77 It constitutes theft-a felony if more than $500 is at issue-if a person who "purposely obtains property upon agreement, or ... legal obligation, to make specified payment or other disposition . . . from his own property to be reserved in an equivalent amount... deals with the property obtained as his own and fails to make the required payment."7 Officers or employees of financial institutions are presumed to know of their legal obligations with respect to receipt or disposition of property.79 The key point is that, although Rule 1.2(d) does not mention breach of fiduciary duty as client misconduct that a lawyer must not encourage or assist, some breaches of fiduciary duties may also be a crime.

In addition to these instances of theft, the Model Penal Code also criminalizes forgery80 and a variety of "fraudulent practices."81 To this list of state crimes, of course, can be added the various provisions of the federal criminal law, with mail fraud being one of the most far-reaching offenses, and the criminal provisions of the 1933 securities Act83 and the securities Exchange Act of 193484 being quite pertinent in the post-Enron world.

Although a full study of white collar crime is necessarily beyond the scope of this article, several offenses in this litany of white collar crime merit special note. First, under the rubric of deceptive business practices, it is a misdemeanor for a person to make "a false or misleading statement in any advertisement addressed to the public or to a substantial segment thereof for the purpose of promoting the purchase or sale of property or services."85 It is also a misdemeanor to make a "false or misleading written statement for purpose of obtaining property or credit;"86 or to make a "false or misleading written statement for the purpose of promoting the sale of securities, or [to] omit information required by law to be disclosed in written documents relating to securities."87 With respect to each of these offenses, a defendant may offer an affirmative defense if he or she can prove "by a preponderance of the evidence that his conduct was not knowingly or recklessly deceptive."88 As will be discussed below, this raises the question of what effect the availability of an affirmative defense has on the permissibility of a lawyer assisting a client to engage in criminal conduct for which there may be an affirmative defense. Should the applicability of Rule 1.2(d) be determined by the specification of the crime or by the specification of the crime and the possible availability of the affirmative defense?

Also of special interest are two white collar misdemeanors where the criminal law meets fiduciary duties, the breach thereof not being mentioned in Rule 1.2(d). For example, under the rubric of commercial bribery, it is a misdemeanor when a person:

solicits, accepts or agrees to accept any benefit as consideration for knowingly violating or agreeing to violate a duty of fidelity to which he is subject as . . . partner, agent or employee of another, ... trustee, guardian, or other fiduciary; . . . lawyer, ... accountant, appraiser, or other professional adviser; . . . officer, director, manager, or other participant in the direction of the affairs of an incorporated or unincorporated association.89

Similarly, under the rubric of misapplication of entrusted property, it is a misdemeanor for a person to apply or dispose of property worth more than $50.00 that has been "entrusted to him as a fiduciary ... in a manner which he knows is unlawful and involves substantial risk of loss or detriment to the owner of the property or to a person for whose benefit the property was entrusted."90 A fiduciary is defined as including a "trustee, guardian, executor, administrator, receiver, and any other person carrying on fiduciary functions on behalf of a corporation or other organization which is a fiduciary."91 Even though a fiduciary owes fiduciary duties to a principal, the definition of a fiduciary excludes agents, employees, partners, or corporate officers or directors; thus, the misapplication of funds in violation of their fiduciary duties owed to their principal does not constitute a crime. Whether such conduct might be deemed fraud will be discussed below.

Also significant to an understanding of the breadth of Rule 1.2(d) is the fact that some statutes impose criminal liability for reckless or negligent conduct as well as purposeful or knowing misconduct.92 Even though the Model Penal Code is hostile to the concept of strict criminal liability,93 there are statutes that impose strict criminal liability without regard to the actor's good intent or due care.94 In addition, although silence alone has not typically been enough to support a criminal conviction, there are now statutes-notably in the environmental area-that in effect penalize the failure of a person to apprise another of relevant information.95 Failure to file a tax return is also a criminal offense.96 In short, lawyers need to be aware that the expansion of the criminal law may bring within the scope of Rule 1.2(d)'s prohibition a broad array of conduct some of which the Model Rule definition of fraud was probably meant to exclude.

Finally, it should be noted that the prohibition in Rule 1.2(d) attaches without regard to whether the crime is likely or reasonably certain to cause substantial injury to the financial interest or property of another. When it comes to a lawyer's counseling or assisting a client to commit a crime, inappropriate behavior is wrong without regard to the magnitude of the financial loss likely to be caused by the crime. In this respect, the duty not to assist a client is broader than the grant of permission in Rule 1.6(b) to reveal information relating to a client's representation to the extent the lawyer reasonably believes necessary to prevent the client from committing a crime. The grant of permission is limited to crimes "reasonably certain to result in substantial injury to the financial interests or property of another."97 Thus, a lawyer must not assist a client in committing misdemeanors that are classified as such because less than $500 is involved, even though the lawyer would be prohibited from revealing information relating to the client's representation to prevent the crime because so little money was involved.

3. Organizational Clients

Because many business lawyers represent organizational clients, it is as important to know how organizations can be subjected to criminal liability as it is to know the crimes that might be committed. ABA Model Rule 1.13 tells a lawyer who is representing an organizational client that the organization is his or her client acting through its duly authorized constituents, including directors, officers, employees, agents and the like.98 These constituents do not become the lawyer's client by virtue of the lawyer's representation of the organization.99 Technically, the organization-the lawyer's client-cannot commit a crime because as a legal fiction it cannot engage in the voluntary physical acts necessary for a crime, but such an organization can be held criminally accountable for criminal acts of its constituents, some of whom will be the duly authorized constituents to whom the lawyer is providing legal services on behalf of the organizational client. The problem for the organization's lawyer is identifying conduct of organizational constituents that the lawyer may not encourage or assist because it is criminal conduct that will be imputed to the organization and subject the organization to criminal sanctions. In this regard, Rule 1.13 identifies "a violation of law that reasonably might be imputed to the organization" as constituent misconduct that will trigger the lawyer's duty to proceed as is "reasonably necessary in the best interest of the organization," but only if, I must emphasize, the imputable violation of law "is likely to result in substantial injury to the organization."100 Neither Rule 1.13 nor its comment identifies the circumstances in which a constituent's violation of law will be imputable to the organization for purposes of determining whether Rule 1.2(d) bars the lawyer from assisting the crime even though the lawyer is not required to go up the organization because the crime is not likely to result in substantial injury to the organization. To figure these circumstances out, we must turn once again to the criminal law, in particular the criminal law governing the criminal liability of corporations. And once again, the Model Penal Code is as good a starting point as any.

There are three circumstances in which a corporation will be subject to criminal liability for the act of a constituent. First, the corporation will be criminally liable for any offense that "consists of an omission to discharge a specific duty of affirmative performance imposed on corporations by law."101 The corporation may also be convicted of an offense if the offense is a "violation"-an offense for which the sole penalty is a fine, forfeiture, or other civil penalty-or is defined by a statute other than the Penal Code in which a legislative purpose to impose liability on corporations plainly appears, and if the constituent who commits the offense acts on behalf of the organization and within the scope of the constituent's office or employment.102 To know that his corporate client will be subject to criminal liability, then, a lawyer must know not only that the constituent's conduct constitutes a violation, but also that the constituent is acting on behalf of the organization and within the scope of the constituent's office or employment. Under the Model Penal Code, however, this scope of employment test is primarily applied to "violations" for which the sole penalty is a fine, forfeiture, or other civil penalty103. This would include almost all strict liability offenses.

The third circumstance in which criminal liability will be imputed to a corporation is when the constituent's criminal conduct "was authorized, requested, commanded, performed or recklessly tolerated by the board of directors or by a high managerial agent acting in behalf of the corporation within the scope of his office or employment."104 This applies to "real" crimes, as well as violations.

Technically, then, Rule 1.2(d) would allow a lawyer to assist a corporate constituent in criminal conduct undertaken on behalf of the organization but without the blessing of high authorities in the organization. Also, if the constituent's conduct is not likely to cause substantial injury to the organization-in part because the organization cannot be held criminally accountable-then the lawyer is not required to take the matter to the high managerial agent or the board. This seems to be an undesirable, but probably unintended, gap in the coverage of Rules 1.2(d) and 4.1(b) that should be closed. One way to close the gap would be to modify Rule 1.2(d) to prohibit a lawyer from counseling or assisting "a client or a constituent of an organizational client acting on its behalf and within the scope of the constituent's office or employment" to commit a crime. This formulation would bring within the prohibition of Rules 1.2(d) and 4.1(b) some criminal conduct by constituents that would not be imputable to the organization. This option seems preferable to the gap in the rules. Another approach would be to require an organization's lawyer to go "up the ladder" before assisting a constituent who the lawyer knows is engaging in criminal conduct. If the higher-ups intervene to terminate the criminal activity, then the lawyer is off the hook. On the other hand, if the higher-ups do nothing in response, they can be said to have recklessly or even knowingly tolerated the constituent's conduct, therefore imputing the conduct to the organization and triggering the prohibition against the lawyer counseling or assisting the constituent to commit the imputable crime. At a minimum, the rules or their comments should provide lawyers for organizational clients with some guidance about how the prohibition against counseling or assisting a client to commit a crime applies to organizational clients, which cannot commit crimes except through the act of its officers, directors, employees, shareholders, and other constituents, none of whom are deemed to be the lawyer's client by virtue of the lawyer's representation of the organization.

4. Choice of Law

The second set of problems arises because the criminal law may vary from state to state, and federal criminal law may differ from state law. Although the rules of professional conduct in all states prohibit lawyers from encouraging or assisting clients to commit crimes, there is less uniformity in the criminal codes than in the codes of professional conduct. This creates special problems when lawyer's clients are engaged in multi-state business transactions and the lawyers themselves are engaging in a multi-state practice. In such circumstances, the lawyer must decide what law to consult to determine whether a client's conduct constitutes a crime. This is the choice of law question that is addressed both by the rules of professional conduct and the criminal law.

The first step for a lawyer engaged in a multi-state representation of a client concerning a multi-state business transaction is to determine which state's rule of professional conduct are applicable. This is governed by ABA Model Rule 8.5, which now requires the lawyer to comply with the rules of the jurisdiction in which the lawyer's conduct-i.e., the counseling or assisting-will occur, or if the predominant effect of the conduct is in a different jurisdiction, then the rules of that jurisdiction apply.105 In recognition of the difficulty of identifying where conduct has its predominant effect, the Rule provides that a lawyer shall not be subject to discipline if the lawyer's conduct conforms to the rules of a jurisdiction in which the lawyer reasonably believes the predominant effect of the lawyer's conduct will occur.106 Fortunately, we need not tarry to grapple with these issues because all state rules of professional conduct prohibit lawyers from encouraging or assisting clients to commit crimes.

Notwithstanding efforts-such as the ALFs Model Penal Code-to promote uniformity in criminal law, there remains considerable variety in the criminal law as enacted in the various states. For the lawyer representing a client in a multi-state business transaction, then, the question arises as to which state's criminal law must be consulted to determine whether the client's conduct is criminal. This is a choice of criminal law issue, also described as a question of the territorial applicability of criminal law.107

Turning once again to the Model Penal Code for guidance, a lawyer should consult the criminal law in the jurisdiction(s) in which the client could be convicted of an offense by virtue of his own conduct or the conduct of another for which he is legally accountable. Subject to two exceptions, a jurisdiction may convict the lawyer's client of a crime if the client's conduct is an element of the offense, or a specified result is an element of the offense, and the conduct or the result occurs within the jurisdiction.109 The first exception applies when:

causing a specified result or a purpose to cause or danger of causing such a result is an element of the offense and the result occurs or is designed or likely to occur in another jurisdiction where the conduct charged would not constitute an offense, unless a legislative purpose plainly appears to declare the conduct criminal regardless of the place of the resuit.110

The second exception applies "when causing a particular result is an element of an offense and the result is caused by conduct occurring outside the State that would not constitute an offense if the result had occurred there, unless the actor purposely or knowingly caused the result within the State."111 Although there are other specifications of circumstances in which a person can be subjected to a jurisdiction's criminal statutes, this should be enough to alert business lawyers to the problem. The problem is compounded because a client engaged in a single multi-state transaction can be subject to conviction for a crime related to the transaction in more than one state. I would assume that if the client's conduct constituted a crime in any one of the states that has criminal jurisdiction, it would constitute a crime for purposes of Rules 1.2(d) and 4.1(b). Sorting this all out may be very difficult in a multi-state business transaction involving conduct in multiple jurisdictions and affecting people in multiple jurisdictions, and no guarantee exists that the conduct and effect will be in the same jurisdiction. Also, how do you pin down the locus of conduct or its effect when the conduct may be a failure to act? Let me temporarily conclude by looking ahead and suggesting that the choice of ethics rule and choice of law problems can only be eliminated by the nationwide adoption of a rule of professional conduct that defines a lawyer's professional responsibility without incorporating the vagaries of state law, such as defining "crime" to denote "such conduct as is denominated either as a misdemeanor or a felony under the ALI Model Penal Code." As this is not likely to happen, however, transactional lawyers should remain sensitive to the need to be informed about the white collar crimes that a client might be tempted to commit while engaged in a multi-state business transaction. Having determined that the client's conduct does not constitute a crime, however, does not end the inquiry, because Rules 1.2(d) and 4.1(b) apply to fraudulent as well as criminal conduct. Although there are many frauds that are crimes-e.g., theft by deception or fraudulent business practice-there are frauds that are not punishable as crimes. Such frauds, however, must also be understood as client misconduct that a lawyer must not encourage or assist.

B. Fraud

Rules 1.2(d) and 4.1(b) also prohibit a lawyer from counseling a client engage, or assisting a client in, conduct the lawyer knows is "fraudulent." Until the adoption of the Ethics 2000 amendments in 2003, the ABA Model Rules defined "fraud" or "fraudulent" as denoting "conduct having a purpose to deceive and not merely negligent misrepresentation or failure to apprise another of relevant information."112 This definition was adopted in numerous states and is still in force in most of them.113 In 2002, accepting a recommendation of its Ethics 2000 Commission, the ABA House of Delegates amended the definition of "fraud" or "fraudulent" to denote "conduct that is fraudulent under the substantive or procedural law of the applicable jurisdiction and has a purpose to deceive."114 Several jurisdictions have adopted the new definition,115 Florida, however, has retained the 1983 definition after rejecting the new ABA version as too narrow."6 Ohio now proposes to do so too.117 Several other jurisdictions have crafted their own definitions.118 Ohio now proposes to do so too. 119To understand what client conduct a lawyer may not encourage or assist because it is fraudulent, we must take a closer look at the ABA Model Rule definitions and several distinctive state variations.

In seeking to understand the meaning of fraud as defined in the Model Rules, it is important to be aware of the other provisions in the Model Rules that also can be characterized as prohibiting various types of fraudulent conduct. The broadest of these "antifraud" provisions is the general prohibition in Rule 8.4(c) against a lawyer engaging in "conduct involving dishonesty, fraud, deceit, or misrepresentation,"120 either while representing a client or while engaged in activities not involving the lawyer's law practice.121 Also pertinent to our understanding of what might be meant by fraud are Rules 3.3(a)(1) (prohibiting a lawyer from knowingly making a false statement of fact or law to a tribunal or failing to correct a false statement of material fact or law previously made to the tribunal by the lawyer), Rule 4.1 (a) (prohibiting a lawyer, in the course of his representation of a client, from knowingly making a false statement of material fact or law to a third person),123 Rule 7.1 (prohibiting a lawyer from making a false or misleading communication about the lawyer or the lawyer's services),124 Rule 8.1 (prohibiting a lawyer involved in a bar admission application or a disciplinary hearing from failing to disclose a fact necessary to correct a misapprehension known by the person to have arisen in the matter),125 and Rule 8.2 (prohibiting a lawyer from making a statement that the lawyer knows to be false or with reckless disregard as to its truth or falsity concerning the qualifications or integrity of a judge, adjudicatory officer, or public legal officer, or of a candidate for election or appointment to judicial or legal office).126 Although these rules establish standards to guide the lawyer's own conduct-rather than ones to be used to judge a client's conductand do not use the words fraud or deceit, they all prohibit specific kinds of conduct that might be characterized as fraudulent. These rules should be kept in mind as guides to understanding fraud and deceit as those terms are employed in Rules 1.2(d), 4.1(b), and 8.4(c). Finally, although Rule 1.13(b) deals with a lawyer's duty to protect a client from the wrongdoing of others, note should be taken of Rule 1.13(b), which requires a lawyer who represents an organizational client to take preemptive action to protect an organization if the lawyer:

knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization.127

Special note should be taken of the broad reference to acting or refusing to act in a matter that is "a violation of a legal obligation to the organization" or is "a violation of law" that may be "imputed to the organization."128

1. Fraud as Defined in the ABA Model Rules (1983-2002)

Prior to 1983 the predecessor to Rule 1.2(d) prohibited a lawyer from counseling and assisting clients in illegal or fraudulent conduct.129 There was no definition of "fraudulent."130 In 1983, the ABA addressed the same issue in Rule 1.2(d). For present purposes the key change was the addition of a definition of fraud as "conduct having a purpose to deceive and not merely negligent misrepresentation or failure to apprise another of relevant information."131 As noted above, this definition has been adopted and is still in force in many states that have adopted the ABA's Rules 1.2(d) and 4.1(b). What, then, is meant by fraud defined as "conduct having a purpose to deceive?"

First, by way of negative reference, it is clear that fraud defined as conduct with a purpose to deceive does not embrace all "intentional violation[s] of a civil obligation, other than failure to perform a contract or failure to sustain a good faith claim to property."132 This is what Professor Geoffrey C. Hazard thought should be understood as "illegal" within the meaning of the ABA Code then in effect. Such a specification, of course, would encompass fraud, which was separately mentioned in the Code as client conduct that a lawyer must not encourage or assist. Although Professor Hazard published this thought about lawyers assisting clients in wrongful conduct while he was serving as the reporter for the ABA Commission on Evaluation of Professional Standards, his views obviously did not prevail, with the exception of his exclusion of negligent violations of one's civil obligations, failure to perform a contract, and failure to sustain a good faith claim to property. The definition of fraud excludes negligent misrepresentation and, under one reading of the definition, negligent failure to apprise another of relevant information. Such conduct might be tortious134 but was not typically understood to be fraudulent. No mention is made in the definition of failure to perform a contract or failure to sustain a good faith claim to property, but this is probably because it was not within anyone's contemplation that such conduct might be regarded as deceitful. Also, because negligent misrepresentation was declared not to be fraudulent, it was obviously not necessary to state that innocent misrepresentation was not fraudulent either, even though one can be subject to civil liability for innocent misrepresentation.135

The second negative reference for the ABA's definition of fraud as "conduct having a purpose to deceive" is the sec's definition of a "material violation" as "a material violation of an applicable United States federal or state securities law, a material breach of fiduciary duty arising under United States federal or state law, or a similar material violation of any United States federal or state law."136 Breach of fiduciary duty is defined as "any breach of fiduciary or similar duty to the issuer recognized under an applicable federal or state statute or at common law, including but not limited to misfeasance, nonfeasance, abdication of duty, abuse of trust, and approval of unlawful transactions."137 For the moment, let me just note that the reference to breach of fiduciary duty and the variations thereof-as typically thought by lawyers to differ from fraud-highlights the absence from the Model Rule definition of fraud of any affirmative indication that breaches of fiduciary duty are included within the conduct that lawyers are prohibited from encouraging or assisting. Whether that is true with respect to all breaches of fiduciary duty remains to be seen, but we can at least start with the presumption that fraudulent conduct typically does not include negligent conduct, breaches of contractual duties, invasions of another's property rights, or breaches of fiduciary duties. This leaves us with the task of determining what conduct does count as a fraud.

Fraud is defined as conduct with a purpose to deceive.138 What, then, is meant by "conduct with a purpose to deceive?" First, I think the definition of fraud should refer to "conduct undertaken for the purpose of deceiving another" rather than to conduct having a purpose to deceive. Conduct is not something capable of having a purpose. People have purposes for their conduct. Also, although intent and purpose can be used synonymously, it might be better if the definition referred to conduct undertaken with an intent to deceive. This is because it is more common in legal circles to refer to intentional torts rather than purposive torts. It may have been that the drafters of the Model Rules wanted to avoid the vocabulary used in liability rules out of concern that, notwithstanding the disclaimer in the Preamble to the Model Rules,139 courts might be tempted to use the disciplinary rules as a basis for imposing civil liability as well as professional discipline. In this regard, it should be noted that the Model Rule definition is crafted for the purpose of specifying conduct for which a lawyer will be subject to professional discipline, with no indication of an intention to incorporate into the definition any of the elements that would subject a person to civil liability for fraud. One needs to start with an open mind about whether fraud, as defined for disciplinary purposes, is, or should be, more or less inclusive than fraud as defined for liability purposes. If more inclusive, the legal profession's rules will be consistent with its assertions that lawyers, because they are lawyers, are held to higher standards of conduct than others. If less inclusive, the legal profession, which professes that lawyers must demonstrate greater respect for the law than others, will have rules in place that exempt lawyers from professional discipline for conduct for which both they and their clients may be subject to civil liability. There is, however, a third possibility-that the disciplinary definition of fraud will be construed, wherever possible, to be co-terminus with the fraud for which persons may be subject to civil liability.

As we seek the meaning of fraud, we can look to the definition itself, including inferences about what fraud is from its specification of what fraud is not. We can also look to common parlance and common legal parlance. It also makes sense to look more generally at the various "anti-fraud" provisions in the Model Rules, with the general idea that if lawyers are not allowed to engage in specified conduct that might be characterized as fraudulent, and then it is possible that they might also be prohibited from encouraging or assisting clients to engage in such conduct. In this regard, it would be expecting too much for the Model Rules to add up to a coherent whole within which each rule might logically fit. If they did, however, we could feel confident about drawing logical inferences about the meaning of fraud from the various examples found throughout the rules. Instead, all we can do is make the best of what the Rules-which are drafted separately through a political process involving a large number of lawyers-offer us by way of ideas of what client conduct should be regarded as fraudulent. Lastly, although not required by the 1983 definition, we can look to the law for ideas of what should count as fraud within the meaning of the disciplinary rules.

As will be discussed below, when we consider the definition of fraud as amended in 2002, looking to the law will require a determination of which of the various elements that must be plead and proven for a person to be held civilly liable for fraud should be incorporated into our understanding of what fraud means. Also, when looking to the law, special care needs to be taken when we arrive at the boundary between fraud and breach of contract and between fraud and breach of fiduciary duty.

Turning to the task at hand, we start with the definition of fraud as conduct with a purpose to deceive, but without any further definition of the terms by which fraud is defined: "conduct," "purpose," and "deceive." From the negative reference-not merely negligent misrepresentation or failure to apprise another of relevant information-we can safely infer that an intentional or knowing misrepresentation is conduct with a purpose to deceive. As will be discussed infra, what can be inferred from the exclusion of failures to apprise another of relevant information will depend on whether one reads negligence as modifying misrepresentation or as modifying both misrepresentation and failure to apprise another of relevant information. For the moment, however, let us press on and take a closer look at "conduct," "purpose," and "deceive" as they are conjoined in the definition of "fraud."

a. Deceptive Conduct

Conduct, of course, implies action-either an act or a series of actions. This implication is important because it enables us to differentiate between a fraudulent act, such as a misrepresentation, from a broader course of conduct such as a business transaction that the fraud might affect. In this regard, it should be noted that an entire transaction may be fraudulent-such as the "sham transaction ... to effectuate . . . fraudulent escape of tax liability" mentioned in the comment explaining Rule 1.2(d) in the 1983 Rules 140-or a transaction may simply be tainted by one or more fraudulent acts.

What is less clear is whether the reference to conduct was meant to exclude inaction, failure to act, nonfeasance, or silence. I raise the issue because the drafters of the Model Rules took care to clarify when a failure to act would violate the Model Rules-e.g, the prohibition in Rule 4.1(b) against "knowingly . . . fail [ing] to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client."141 Similarly, Rule 1.13 refers to an organizational constituent "who is engaged in action, or intends to act or refuses to act in a matter."142 Also, the Restatement of Torts clearly differentiates between misrepresentation and concealment, both of which involve affirmative action, and nondisclosure, which does not.143 Also, when talking about the requisite intent for liability for fraudulent misrepresentation, the Restatement refers to an intent to induce another "to act or refrain from acting" in reliance upon the fraudulent misrepresentation.144 Finally, and most importantly, the distinction between action and inaction takes on special significance given the ambiguity in the Model Rule's exclusion from its definition of fraud of "negligent misrepresentation or failure to apprise another of relevant information."145 Is "negligent" meant to modify both misrepresentation and failure to apprise another of relevant information, or just misrepresentation? If the latter, the differentiation between "conduct with a purpose to deceive" and "a failure to apprise another of relevant information" could be justified on the ground that nondisclosure or silence is not understood to be conduct in the normal active sense of the term.

As will be discussed below, the exclusion of all failures to apprise another of relevant information could be due to the view that nondisclosure, although deemed to be conduct, is not understood as deceitful conduct, thus making it impossible to infer a purpose to deceive from a person's silence, even when the person who fails to speak is under a legal duty to do so. For the moment, my point is simply that there is uncertainty about whether the 1983 definition of fraud includes what some call "fraud by silence," and others would simply view as a breach of a duty to speak.

Another peculiar feature of the definition of fraud is that there is no specification of the types of conduct in which the client might engage with a purpose to deceive. Nothing is said about the nature or effect of such conduct, or about any circumstances that might surround the conduct, only that it is any conduct undertaken with a purpose to deceive. Presumably, the drafters assumed that a client would have to engage in conduct that was deceptive in order to have a purpose to deceive. My guess is that "conduct with a purpose to deceive" was probably understood as meaning "intentionally deceptive conduct" or "deceptive conduct undertaken with a purpose to deceive." I would prefer either formulation because it prompts us to first look for conduct-call it deceptive conduct or conduct likely to deceive-and then to the actor's mental state, whether it be intent, scienter, or both.

Although the definition makes clear that for there to be a fraud there must be more than conduct that deceives, a lawyer will typically observe a client's conduct, conclude that the conduct is deceptive, and then infer from the deceptive nature of the conduct that the client may be acting with the purpose to deceive that brings the conduct within the meaning of the 1983 definition of fraud. What we are looking for, then, is conduct that deceives coupled with a purpose or intent to do so. Once again, because fraud is not defined in the 1983 rules by reference to the law in the applicable jurisdiction, lawyers and disciplinary counsel can look to both common parlance and general legal parlance as they try to identify what counts or should count as deceptive conduct. The meaning of fraud under the law of the applicable jurisdiction can also provide guidance.

Let me start with the observation that I have always understood "deceives" as denoting an active creation of false appearances and "deceit" as denoting a false appearance. Lay parlance also permits the use of the noun "deceit" as including "concealment or distortion of the truth for the purpose of misleading; duplicity; fraud; cheating,"146 while the verb "deceive" is understood as "mislead[ing] by a false appearance or statement."147 The reference to duplicity alerts us to the special variety of fraud in which a person makes a statement capable of two interpretations, one of which the person knows to be false.148 Also, although the most common form of deception is misrepresentation, the reference to false appearance alerts us to the fact that a fraud may also be perpetrated through conduct which leads the mind to an apprehension of a condition other than that which exists. Call one's action a scheme or an artifice, rather than a misrepresentation, but if the action deceives and is undertaken with a purpose to do so, it is every bit as much a fraud as a bald-faced lie. Indeed, that may be why the definition speaks more generally of conduct with a purpose to deceive, rather than of a misrepresentation known to be false or misleading. For purposes that will become apparent shortly, I would emphasize that deception entails affirmative action to present a false picture of reality and not merely taking advantage of another's ignorance or mistake.

Two obvious types of deceptive conduct are the misrepresentation, known colloquially as the "lie," and the concealment, one type of which is known colloquially as the "cover-up." Also, in limited circumstances, it is possible to properly characterize nondisclosure of information as deceptive conduct, and in yet other cases to treat it as if it were deceptive even though nothing deceptive was done. Each merits closer examination as part of an effort to enhance lawyers' capacity to discern if their clients may be planning to engage or are engaging in conduct that the lawyer must not encourage or assist.

i. Misrepresentations

A misrepresentation is deceptive because it presents a false or misleading picture of reality, such as can mislead another to misunderstand the circumstances relevant to a decision whether to take action or refrain from action. It can be harmful because the other person may act to his or her detriment based on the misunderstanding that resulted from the misrepresentation. The most familiar misrepresentation is the false representation of fact-words or conduct asserting the existence of a fact when the fact does not exist. A fact is understood as the existence of a tangible thing, the happening of a particular event, or the relationship between particular persons or things, as distinct from a state of mind. Colloquially, a false statement is regarded as a lie, but only if one knows that the statement is false. Otherwise it is a mistake.

Indeed, although the definition of fraud does not speak of the actor's knowledge of the falsity of the statement-referred to as scienter-it is hard to imagine that a person could have a purpose to deceive without knowledge of the falsity of the statement. Just as "lie" suggests knowledge of falsity and intent to misrepresent the truth, the very idea of deception suggests an awareness of the falsity of the appearance from which one can infer the purpose to deceive. Misrepresentations of fact, of course, may be legally actionable,149 but it is not necessary that a client be subject to liability for a misrepresentation in order for the client's lawyer to be subject to professional discipline for encouraging or assisting the client to consummate a transaction tainted by the client's lie. Although not described as fraudulent, lawyers are prohibited from knowingly making false statements of fact by Model Rules 3.3(a), 4.1 (a), and 8.1 .'50 Rule 7.1 more strictly prohibits a lawyer from making false statements about the lawyer or the lawyer's services, and Rule 8.2 prohibits a lawyer from making a statement that the lawyer knows to be false concerning the qualifications or integrity of a judge.151 Rule 8.4(c) more generally prohibits lawyers from engaging in conduct involving misrepresentation.152

Although there are some differences in these prohibitions, their common condemnation of false statements support inclusion of false statements of fact within the deceptive conduct that, if done with a purpose to deceive, will count as a client fraud that the lawyer may not encourage or assist. Also because actions can speak and deceive as loudly as words, one's actions that convey a false message can also be fraudulent. Indeed, this point is conveyed more effectively in the definition of fraud-which refers to conduct-than it is in the rules that more specifically prohibit lawyers from making false statements of material fact. The Comment to Rule 4.1 also notes that a misrepresentation can occur if a lawyer incorporates or affirms a false statement of another, including a client.153 Whether a misrepresentation must relate to a material fact in order to be fraudulent within the meaning the Model Rule definition will be discussed after an inventory of deceptive conduct and consideration of what is meant by a purpose to deceive.

In addition to false statements of fact, misleading statements of fact-or a course of conduct that conveys a misleading message-can also be catalogued as deceptive conduct. This would include a representation that is true but is misleading because of the failure to state additional or qualifying information,154 and the ambiguous statement-a statement that is susceptible to two interpretations, one of which is false and the other true.155 The statement with an omission of information necessary to make that which was said not misleading is the more common type of misleading statement. It is interesting, in this regard, that the only specific prohibition against a lawyer making misleading statements in the Model Rules is found in Rule 7.1, which prohibits a lawyer from making "a false or misleading communication about the lawyer or the lawyer's services," and which defines misleading as "omit[ting] a fact necessary to make the statement considered as a whole not materially misleading."156 The Comment to Rule 4.1 was modified in 2002 to state that "[misrepresentations can also occur by partially true but misleading statements . . . ,"157 but Rule 4.1 (a), in noticeable contrast to Rule 7.1, only prohibits "false" statements of fact and law.158

This difference raises the question of whether the comment can be justified as a legitimate interpretation of the rule, as opposed to a mistaken overstatement of the breadth of the prohibition. It should be noted, however, that the comment to Rule 4.1 was also amended in 2002 to warn that "[l]awyers should be mindful of their obligations under applicable law to avoid criminal or tortious misrepresentation."159 They should be particularly mindful that, as a matter of tort law, misrepresentation includes not only false statements of fact, but also ambiguous and misleading statements of fact. Although tort law is not determinative of the meaning of fraud in the Model Rules, it can serve as an aid to the interpretation of "conduct with a purpose to deceive" as including ambiguous and misleading messages communicated with an intent to deceive.

It is also generally recognized that false statements of opinion, law, and intention can be deceptive. Such statements can be misleading as well as false. Thus, a lawyer must also be on the alert for misrepresentations of the client's state of mind-first, a misrepresentation of intention, and second, a misrepresentation of opinion. A client can also make a misrepresentation of law, which can be either a misstatement of fact or one of opinion. All these misrepresentations are deceptive and, if coupled with the requisite scienter, will be deemed to be fraudulent as a matter of tort law. Not all will be legally actionable, but that is not required by the 1983 definition of fraud, which only requires conduct with a purpose to deceive. A quick glance at misrepresentations of intention, opinion and law, then, is needed so that a lawyer will know what to look for as they assess their client's conduct for the purpose of determining the propriety of assisting them in an impending or ongoing transaction.

A statement of intention is a representation of a person's state of mind. Such a statement is a misrepresentation if the person does not have the intention. A statement of intention is regarded as a statement of fact rather than opinion, for, as Lord Bowen said, "[t]he state of a man's mind is as much a fact as the state of his digestion."160 The ABA Model Rules do not address false representations of intention other than the comment to Rule 4.1, which states that a party's statement of intentions as to an acceptable settlement of a claim is not ordinarily considered to be a statement of material fact under generally accepted conventions in negotiation.161 The comment addresses this issue because Rule 4.1(a) only prohibits lawyers from making false statements of material fact or law, thus seemingly permitting false statements of intention or opinion.162 The comment may accurately-although I think regrettably-describe a generally accepted convention in negotiations called "puffing" which involves rendering false opinions upon which it is assumed no reasonable person would rely and would therefore not be legally actionable.163 In distinguishing such a statement from a statement of fact, however, I think the comment is wrong, at least as a matter of law. Fortunately, the Ethics 2000 Commission added a warning that lawyers should be mindful of their obligations under applicable law to avoid criminal or tortious misrepresentation.1 4 If they follow this suggestion, attorneys should learn that statements of intention are legally treated as statements of fact, and if not true, are fraudulent. Presumably, statements of intention should also be treated as statements of fact for purposes of identifying fraudulent conduct by a client that a lawyer must not encourage or assist.

In this regard, lawyers also need to be mindful that a promise can be understood as a statement of present intention about future performance-i.e., "I currently expect to perform." If, at the time of the promise, the person has no intention to perform or has knowledge of the existence of something that will make performance impossible or improbable, the statement of intention implied from the promise would be fraudulent.165

There are two types of opinions that, if false, can be deceptive. The first is a representation of belief, without certainty, as to the existence of a fact.166 This representation differs from a statement of fact because it does not positively assert the truth of the fact or imply knowledge of the fact. Although a fact is knowable, a representation about one's "belief," made without suggestion of certainty, is a statement of opinion. Such statements of opinion will be false if they do not reflect the person's true opinion about the matter in question, and if made with the requisite scienter, will be deemed fraudulent as a matter of law. For liability to be imposed, however, the recipient must justifiably rely on the statement. Reliance on a representation of belief, without certainty as to the existence of a fact, is not deemed justifiable in an arm's length business transaction, unless the party who offers the opinion:

purports to have special knowledge of the matter that the recipient does not have,.. . stands in a fiduciary or other similar relation of trust and confidence to the recipient, . . . has successfully endeavored to secure the confidence of the recipient, . . . [or] has some other special reason to expect that the recipient will rely on his opinion."167

This does not mean that the opinions rendered are not deceptive or fraudulent, but only that one of the elements of the cause of action for a fraudulent misrepresentation-justifiable reliance-is lacking.

In the situations in which a party is justified in relying on an opinion as to a fact, a fraudulent opinion would be legally actionable. Given a purpose to deceive, offering such a fraudulent opinion presumably should be treated as a fraud that a lawyer cannot encourage or assist a client to commit. On the other hand, that the representation is not legally actionable does not mean that it is not deceptive and may have been rendered with a purpose to deceive. While not legally actionable, such opinions may be deemed fraudulent for purposes of triggering the prohibitions in Rule 1.2(d) and 4.1(b). A lawyer should also note, however, that some statements of opinion as to facts not disclosed and not known to the recipient will be regarded as an implied statement of fact-either that the facts are not incompatible with the opinion or that there are sufficient facts to justify the opinion.168 Obviously, such statements could be false and, if so, would be deceptive. There is no mention of such opinions in the Model Rules, but once again lawyers may be well advised to heed the warning in the comment to Rule 4.1 regarding tortious misrepresentation. That a client may not be liable for false opinions about factual matters in an armslength transaction does not mean that such an opinion is not deceptive. If made with the requisite intent to deceive, a false opinion will trigger the lawyer's duty not to counsel or assist the client to complete the transaction to which the false opinion relates.

The second type of opinion is a person's statement of her judgment "as to quality, value, authenticity, or other matters of judgment."169 Such opinions can be false if what is stated does not accurately represent the person's opinion. The comment to Rule 4.1 only calls lawyers' attention to this type of representation by stating that "[ejstimates of price or value placed on the subject of a transaction" are not ordinarily treated as one of fact under generally accepted conventions of negotiation-subject, of course, to the warning about tortious misrepresentation.170 As a matter of law, the rules governing justifiable reliance on opinions are the same as those governing opinions of fact where it is unreasonable for the recipient to regard the opinion as an implied representation about the bona fides of the opinion. However, as before, this limitation on the right of the recipient to rely on the opinion does not alter the deceptive character of a false opinion.

I must acknowledge some uncertainty as to whether fraudulent representations that are not legally actionable will be deemed to be conduct with a purpose to deceive. While the opinion may be fraudulent in every sense of the term, the fact that, as a matter of law, the recipient is not justified in relying upon that opinion might be seen as a reason for not treating the misrepresentation as fraudulent for purposes of defining client conduct that a lawyer may not encourage or assist. Might one not argue that rendering an opinion on which a person cannot justifiably rely does not evidence a purpose to deceive, at least in the sense of there not being substantial certainty the recipient will act or refrain from acting upon the opinion? On the other hand, one might argue that the ideal deception is the statement of opinion that prompts action in reliance thereupon, but is not legally actionable. After all, is not one of the hallmarks of fraud the preying upon the most gullible and trusting among us who have never been told that they should not trust others to tell the truth when they are rendering an opinion?

Finally, that a person can make false statements of law is clearly contemplated by ABA Model Rules 3.3(a), 4.1(a), 7.1, 8.1, and 8.2. Unlike the Model Rules, however, the Restatement of Torts differentiates between a statement of law that is a statement of fact-e.g., that a particular statute has been repealed-and a statement of law that is a statement of opinion-e.g., a statement, without certainty, of the legal consequences that would attach under specified circumstances. As a matter of law, the rules governing justifiable reliance on false statements of opinion about the law or legal consequences are the same as those governing other opinions, but I would once again argue that this is not relevant to a determination that a false opinion about the law is deceptive conduct that will constitute fraud if rendered with a purpose to deceive. Typically, a lawyer will not have to worry too much about a client making false statements about the law unless, of course, the lawyer's client is a lawyer, or the lawyer's client is an organization whose duly authorized constituent is a lawyer.

ii. Concealment

To these various misrepresentations must be added concealment or other actions that prevent a person from acquiring information about a matter.171 These actions can occur during a transaction or after a transaction has been completed, with the latter colloquially called a cover-up. One can try to conceal a defect that otherwise would be discoverable172 or one can try to prevent or dissuade another from undertaking an investigation or impede its progress.173 The Restatement treats the concealment or the prevention of discovery as a false assertion that the facts in questions were non-existent.174 Examples of concealment provided in the Restatement include a person reading a contract to a person and intentionally omitting a material portion and "so stacking] aluminum sheets that he is selling as to conceal defective sheets in the middle of the pile."175

Concealment also consists of action that prevents the other party from making an investigation that one otherwise would have undertaken and which, if made, would have revealed the truth.176 Frustrating an ongoing investigation can constitute fraudulent concealment as well, as when a person sends another on a search in the wrong direction.177 Obviously, such conduct is deceptive-even if one chooses not to characterize the concealment as a misrepresentation-because it is conduct that generates a false impression of the true state of affairs. The only reference to concealment in the Model Rules is in Rule 3.4(a), which tells lawyers that they "shall not unlawfully obstruct another party's access to evidence or unlawfully . . . conceal a document or other material having potential evidentiary value" and "shall not counsel or assist another person to do any such act."178 Although this prohibition only applies in connection with pending or anticipated litigation,179 it should put lawyers on notice that such conduct by a client in a business transaction may be deemed to be fraudulent conduct that the lawyer must not encourage or assist.

iii. Nondisclosure

Finally, we turn to silence. The failure of one person to provide another with information can be harmful, but generally it is not considered wrongful or legally actionable.180 Nor do I think of remaining silent as deceitful. This is because there is no affirmative effort to alter appearances by misrepresentation or concealment. Having said this, however, we have already considered a situation in which silence can be deceptive; that is where a representation is true but is misleading because of the failure to state additional or qualifying matters. Are there other situations in which an argument can be made that a failure to apprise another of relevant information should be regarded as deceptive and, as such, might be deemed to be fraudulent and/or legally actionable?

Here, we must return to the 1983 Model Rule definition of fraud, which is conduct having a purpose to deceive, "not merely negligent misrepresentation or failure to apprise another of relevant information."18 As noted above, if "negligent" only modifies misrepresentation, the definition of fraud would exclude all instances of nondisclosure even if, as a matter of law, there are instances of nondisclosure that are treated as if they were a misrepresentation. This reading sees the definition as addressing two separate matters. First, it makes the point that defining fraud as conduct with a purpose to deceive precludes fraud from being construed to include a negligent, as opposed to an intentional, misrepresentation. second, it makes the separate point that the definition of fraud precludes it from being construed to include a failure to apprise another of relevant information. Silence is simply not deceitful within the common understanding of the term. While this is the more plausible reading of the definition, it would not be irrational, and probably not even unreasonable, to read the exception to apply only to negligent misrepresentation and negligent failure to apprise another of relevant information. While such a reading would leave open the possibility that in some cases a failure to apprise another of relevant information could be deceptive and be coupled with an intention to deceive, it would still leave us to distinguish the situations in which silence deceives from those situations in which it does not.

As already noted, silence can be deceptive if it takes the form of a failure to supplement or amplify a statement that standing alone will be misleading because of its incompleteness. This is recognized twice in the Restatement of Torts,183 in the comment to ABA Model Rule 4.1 that states "misrepresentations can also occur by partially true but misleading statements,"184 and in Model Rule 7.1.185 Apart from the nondisclosure that leaves a misleading or ambiguous statement to work its mischief, there is also the possibility that a person's silence can serve as an affirmation of a statement made by another-as when a party states to another that they will assume something to be true, unless advised to the contrary, and the other party remains silent, knowing that the assumption is wrong. In such a case, silence would serve as an affirmation of the assumption, and if the assumption is false, the affirmation would be deceptive. Indeed, this may be what is contemplated by the statement in the comment to Rule 4.1, added in 2002, that refers to "omissions that are the equivalent of affirmative false statements."186 This might also explain the indication in the comment that there may be situations in which an agent's failure to disclose that he is acting for a principal could be fraudulent.187 Also, a statement may be necessary to prevent one's conduct from conveying a message that is false or misleading-such as when a lawyer continues to negotiate a settlement after her client has died.188 The appearance in a representative capacity for an individual is, in effect, a representation that the individual is alive.189

A third possibility arises when a person acquires information that makes a prior true statement either false or misleading. For purposes of tort liability, the Restatement of Torts deals with these situations by first imposing upon parties to business transactions a duty to use reasonable care to disclose such information to the other party prior to consummating the transaction.190 The restatement then treats a failure to disclose as a false representation of the non-existence of the newly acquired information.191 I think it is just as easy to regard one's action in proceeding with the transaction as an ongoing affirmation of the truth of the previous representation. Because the former statement is no longer true, the affirmation is a misrepresentation. Although disclosure is the remedy, the wrong is the conduct that reaffirms the truth of the prior representation when it is no longer true. In each case there is a representation that, unless withdrawn or corrected, is false or misleading. This is recognized by the amendment to Rule 3.3(a) in 2002 that prohibits a lawyer from failing to correct a false statement of material fact or law the lawyer previously made to the tribunal.192

There remain, however, two other situations in which, as a matter of tort law, nondisclosure has been characterized as a misrepresentation of the non-existence of the fact that is not disclosed and has been held to be actionable as fraud.193 As will be discussed below, however, in neither of these situations is there an actual misrepresentation or concealment upon which the imposition of liability can be based. That tort liability may be imposed, of course, is not determinative of whether the nondisclosure will or should be deemed deceptive within the meaning of the 1983 definition of fraud, but it at least requires us to take seriously the possibility that, for purposes of lawyer discipline, deception might be viewed as expansively as the courts have viewed misrepresentation for the purpose of imposing liability for fraudulent misrepresentation. That the law says something should be treated as if it were a misrepresentation does not mean it is a misrepresentation-indeed, that is the very meaning of a legal fiction as is sometimes used by a creative judge to pour new legal wine into old legal bottles. Even if the fiction furthers sound policy, it may come at a costparticularly if the fiction is carried from the setting in which the fiction took hold to another setting in which the fiction might set a trap for the unwary or simply not be sound policy. Alternatively, the policy might make eminent good sense, but one can still question the wisdom and fairness of imposing such policy on lawyers by a flight of fancy into the realm of legal fiction.

In the two situations of concern, the essence of the complaint is simply that one party to a business transaction was aware of information not known to the other and did not share it with the other. Failure to do so left the other party in a state of ignorance, the consequences of which were not bliss. Although generally such a failure to apprise another of relevant information is not thought to be wrongful, much less deceitful, there are two situations in which the Restatement of Torts treats this silence as though it were a misrepresentation of the non-existence of the undisclosed facts.

The first instance arises when a party to a business transaction fails to disclose to the other party information known to him that might induce the other to act or refrain from acting in the matter and the matter not disclosed is information that the other is entitled to know because of a fiduciary relationship or other similar relation of trust and confidence between them.194 Because the fiduciary relationship imposes a duty upon the fiduciary to exercise reasonable care to disclose the matter in question, the Restatement treats the failure to do so as a "constructive," "virtual," or "legal fictional" misrepresentation of the nonexistence of the matter that was not disclosed. I attach these labels to the misrepresentation because there is no false or misleading statement that can be seen as being affirmed by the silent consummation of the transaction; there is only the breach of the fiduciary duty. Indeed, the drafters of the Restatement appear to have recognized their feat of fiction for what it was because they titled the section imposing liability for nondisclosure "Liability for Nondisclosure," in contrast to the prior sections entitled "Liability for Fraudulent Misrepresentation" and "Liability for Fraudulent Concealment."195

The duty to disclose that courts have creatively transformed into a fraudulent misrepresentation only applies to fiduciary relationships and similar relations of trust and confidence. The comment considers trustees, agents, and corporate directors to be fiduciaries, but declares that it is beyond the scope of the Restatement to determine the duty of disclosure which under the law of business associations the directors of a company owe to its shareholders.196 The drafters of the Restatement probably were happy to avoid the issue, because one of the thornier issues in corporate law is whether (or when) directors owe fiduciary duties to shareholders, and, if so, the nature of the duty. The comment also mentions "similar relations of trust and confidence." These include the relations between an executor of an estate and a beneficiary, a bank and an investing depositor, physician and patient, attorney and client, priest and parishioner, partners, tenants in common, and guardian and ward.197 It also gives a nod to the family as typically being a relation of trust and confidence, but steps out of the realm of legal fiction long enough to acknowledge the reality of dysfunctional families.198 Finally, it notes that certain contractual relationships-suretyship, guaranty, joint venture, and insurance-are treated as confidential relationships that demand full disclosure of all material facts.199

It is interesting in this regard to consider ABA Model Rule 1.8(a), which requires a lawyer who is transacting business with a client to fully disclose in writing all terms of the transaction in a manner that can reasonably be understood by the client and to provide all information necessary to secure the client's informed consent to the essential terms of the transaction and the lawyer's role in the transaction, including whether the lawyer is representing the client in the matter.200 This is a sensible duty, but there is nothing about it that suggests that a violation of the fiduciary duty is regarded as a misrepresentation that, if made with requisite scienter or intention, constitutes a fraud. Indeed, I wonder if this oversight might make it even more difficult for the lawyer to appreciate that similar conduct by a client or fiduciary in a transaction with a beneficiary could constitute a fraud that triggers the prohibition in Rule 1.2(d).

The only other provision in the Model Rules pertinent to an understanding of what might constitute client fraud is the terse, ambiguous, and not very helpful comment to Rule 1.2 that, as the third of five comments discussing the lawyer's responsibilities concerning a client's criminal or fraudulent conduct, states that "[w]here the client is a fiduciary, the lawyer may be charged with special obligations in dealings with a beneficiary.201" We are not given a hint about what the special obligations may be. Nor are we told what kind of fiduciary the comment is referring to, although my best guess would be that the comment is focused on traditional fiduciaries such as trustees or guardians, and that the comment should not be read more broadly to refer to any client who owes a fiduciary duty to another. Also, the general reference to "dealing with a beneficiary" could either mean the client's dealing with the beneficiary or the lawyer's dealings with the beneficiary. And finally, the general reference to "special obligations" does not indicate whether they are special professional responsibilities of the lawyer that transcend the duty not to assist the client in committing a crime or fraud in their dealings with the beneficiary, or whether the special responsibilities are special legal obligations that may be imposed on lawyers representing fiduciaries.202 There is clearly nothing to suggest that this comment was meant to alert lawyers to the possibility that they may have special professional responsibilities that arise when they represent a fiduciary because some breaches of fiduciary duty will be treated as a fraud even though the same conduct would not be regarded as fraudulent in an arm's length transaction.

The first explanation of the comment seems to be the least satisfactory, because there are no cross-references to a rule that sets forth such special professional responsibilities. There is, however, a comment to Rule 1.14 (Client Under a Disability) stating that "[i]f a lawyer represents the guardian, as distinct from the ward, and is aware that the guardian is acting adversely to the ward's interest, the lawyer may have an obligation to prevent or rectify the guardian's misconduct."203 This comment includes a crossreference to Rule 1.2(d).204 The problem is that Rule 1.2(d) does not impose an obligation to prevent or rectify a client's fraud. Also, in 1983, the ABA House of Delegates expressly rejected a proposal that would allow lawyers to reveal information relating to a client's representation in order to prevent a crime or fraud, or to rectify such if the client had used the lawyer's services in furtherance of the crime or fraud.205 There simply is no rule in the Model Rules that charges a lawyer for a trustee, a guardian, or similar fiduciary, with any special professional responsibilities to protect a beneficiary. This is not to say there should not be such a duty, but only that the Model Rules do not recognize such a duty. This lack of recognition of a duty was specifically recognized in ABA Formal Ethics Opinion 94-380 when the ABA Standing Committee on Ethics and Professional Responsibility opined, without mention of either of the pertinent comments, that "[t]he fact that [a] fiduciary client has obligations toward the beneficiaries does not impose parallel obligations on the lawyer, or otherwise expand or supersede the lawyer's responsibilities under the Model Rules of Professional Conduct."206

The most plausible understanding of comment 8 to Rule 1.2, as viewed in tandem with comment 4 to Rule 1.14, is that it was intended as a warning to lawyers who represent trustees that they might have some special legal responsibilities to the beneficiaries in a jurisdiction that holds that a lawyer for a trustee also represents the beneficiaries. The warning also applies to lawyers in jurisdictions that hold that the lawyer may owe a duty of care to the beneficiaries either because it is foreseeable that they would be injured by a breach of the lawyer's duty of care, or because the beneficiaries can be regarded as intended third party beneficiaries of the lawyer's representation of the trustee.207 That a lawyer needs to worry about civil liability does not, of course, mean that the lawyer is subject to professional discipline simply because he has been held civilly liable for a breach of a duty of care or, as will be discussed below, for a breach of fiduciary duty not involving a crime or a fraud.

In the end, maybe these comments should be read as a warning to lawyers that although there may be some client conduct that they are allowed to encourage or assist in an arms-length transaction with a third person, their freedom in this regard may be limited if the client is a fiduciary since some breaches of fiduciary duty may be characterized, treated, and sanctioned as a fraud. In such a special circumstance, the lawyer would not be allowed to encourage or assist the fiduciary to breach such a duty, and would possibly even have a professional responsibility to prevent the client from using the lawyer's services to that end or to rectify injury caused by use of the lawyer's services.

This forces one to speculate about what the special circumstances are that trigger these special obligations. Of course, there would not be anything special about the lawyer's duty if the client, in the course of perpetrating the breach of fiduciary duty, has lied, made material misrepresentations, or worked to conceal the truth from the beneficiary. In this case, the lawyer's client has engaged in conduct that constitutes fraud-albeit fraud perpetrated in connection with a breach of fiduciary duty. What would be special is if the breach of fiduciary duty did not involve fraud within the ordinary meaning of the term, but was nonetheless treated as fraudulent. Perhaps the cryptic comment to Rule 1.2 is an encrypted warning that fraud, as defined in the Model Rules, encompasses the failure by a fiduciary to apprise a beneficiary of relevant information in a transaction between the fiduciary and the beneficiary. If this were the intended message, however, it seems fair to take the Kutak Commission to task for hiding the code needed to decipher the message.

In the end, however, I think most lawyers would conclude that a breach of fiduciary duty to disclose information to the beneficiary of the duty is just that-a breach of fiduciary duty, and not a fraud. This is not to say that lawyers should be allowed to assist clients' breach of fiduciary duties-indeed, I will argue to the contrary-but it is wrong to stretch the normal understanding of fraud and deceit beyond recognition to include one particular breach of fiduciary duty to the exclusion of other equally wrongful breaches. I suspect that most lawyers would be surprised and upset to discover that fraud, as defined in the Model Rules, includes what they know as breach of a fiduciary duty. In this regard, it should be noted that the ABA Ethics 2000 Commission rejected a reporter's recommendation for the addition of a new rule that would have provided that "[a] lawyer shall not counsel or assist a client in conduct the lawyer knows is a breach of the client's fiduciary duty to another."208

The second instance in which a duty of care to disclose is recognized is the situation in which a party to a business transaction is required to disclose "facts basic to the transaction, if he knows that the other is about to enter into it under a mistake . . . and that the other, because of the relationship between them, the customs of the trade, or other objective circumstances, would reasonably expect a disclosure of such facts."209 When this duty is breached, the nondisclosure is imaginatively transformed into a false representation of the non-existence of the undisclosed fact. The only provision in the Rules of Professional Conduct that is analogous to this duty is Rule 8.1(b), which requires an applicant for admission to the bar, or a lawyer in connection with a bar admission application or a disciplinary matter, to "disclose a fact necessary to correct a misapprehension known by the person to have arisen in the matter . . . ."210 Once again, there is no false o