Truthfulness in statements to others (Rule 4.1)

Special Coverage

PROPOSED RULES OF PROFESSIONAL CONDUCT

Proposed Rule 4.1, if adopted, will be a new disciplinary rule for which there is no current analog in California's Rules of Professional Conduct. The proposed rule prohibits attorneys in the course of representing a client from making a "false statement of material fact or law to a third person" or failing to disclose to a third person a material fact necessary to avoid assisting in a client's criminal or fraudulent conduct. Some version of Rule 4.1 has been adopted in every state except California. While California would thus be somewhat late to the party if Rule 4.1 is adopted here, it has long been recognized in California that attorneys may be disciplined for intentionally deceiving opposing counsel or civilly liable for making on behalf of a client false statements of material fact to a third party. So would adopting Rule 4.1 really change the law and rules already governing attorney conduct?

The answer to that question has been hotly debated, with those that do not support Rule 4.1's adoption claiming it is unnecessary and redundant. The Rules Revisions Commission ultimately, however, unanimously voted to adopt Rule 4.1.

Beyond debate, however, is that proposed Rule 4.1 is a substantive change to the Rules of Professional Conduct inasmuch as it articulates a precise disciplinary standard for lawyer misrepresentation to third parties, where no such disciplinary standard currently exists. Lawyers disciplined for intentional misrepresentations or fraud under the current rules would have generally been charged with violation of the more amorphous provisions of the State Bar Act, such as those requiring attorneys to employ only "means that are consistent with the truth" (Section 6068(d)) or prohibiting attorneys from committing acts of "moral turpitude [or] dishonesty" (Section 6106). Very few disciplinary charges have actually succeeded under these statutes for attorney misrepresentations to third parties. Rule 4.1 is likely to change that.

To be disciplined under proposed Rule 4.1, a lawyer must "knowingly" make a false statement or material omission, which means "actual knowledge" for purposes of the Rules. Some believe this knowledge standard may change existing law because attorneys may now be disciplined for lack of candor, dishonesty or moral turpitude based on gross negligence, recklessness or willful blindness. However, "actual knowledge" under the proposed Rules may be inferred from the circumstances. It is therefore likely that lawyers could still be disciplined for violations of Rule 4.1 based on grossly negligent, reckless or willfully blind conduct. This would also be consistent with the new language in proposed Rule 8.4 (current Rule 1-120) prohibiting attorneys from engaging in any act of "reckless or intentional misrepresentation" in any context.

Proposed Rule 4.1 prohibits false statements of material fact or law, regardless of whether there is detrimental reliance or damage to any party. This differs from the legal standard applicable to civil liability for fraudulent representation, which requires reliance and damages. In addition, only statements of readily ascertainable fact may give rise to civil liability. Statements of opinion or law are generally not actionable. Proposed Rule 4.1, however, prohibits both false statements of fact as well as material mis-statements of law to third parties.

The rule may also be violated if an attorney fails to disclose a material fact "when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client," unless such disclosure would violate the attorney's duty of confidentiality to the client.

A partially true but misleading material statement or material omission may be the equivalent of a false representation of material fact under the proposed rule. False statements under the rule, however, generally do not include the representations made by a client in an agreement drafted by the attorney, as to which the attorney does not necessarily affirm or vouch for the truthfulness. The rule also does not create a general affirmative duty to inform opposing parties of the relevant facts.

Comment 2 to the proposed rule states that the "Rule refers to statements of fact," which is not consistent with the plain language of the rule, which also applies to statements of law. The main point of Comment 2, however, is that whether a statement may be considered one of fact or not may depend on the circumstances. In negotiation, for example, certain statements by attorneys, such as those about the client's ultimate settlement position, are not ordinarily accepted as statements of fact and so would not violate the proposed rule. This is consistent with the current rules. See COPRAC Form. Opinion 2015-194 (Puffing in Negotiations).

The prohibition on assisting client fraudulent or criminal conduct by failing to disclose material facts is a species of conduct subsumed within the general prohibition on assisting a client in known criminal or fraudulent activity set forth in proposed Rule 1.2.1 (current Rule 3-210), which is referenced in Comment 3. The comment leaves open the issue of whether an attorney who withdraws from representation to avoid assisting in such activity may be required after withdrawing to disaffirm a prior opinion, document, or other affirmation by the attorney that may assist in the fraudulent or criminal conduct. Language to the effect that disaffirmation may be required is present in Comment 3 to Model Rule 4.1, but removed from California's proposed Rule 4.1. This removal, however, does not necessarily mean that there is no duty to disaffirm even after withdrawing. Attorneys confronted with that issue would have to consider carefully whether disavowal is necessary or permitted under the circumstances.

Although Rule 4.1 is limited to representations or omissions in the course of representing a client, false representations by attorneys outside the context of representing a client may still violate the Rules and State Bar Act, as is the case now. Section 6106 of the State Bar Act prohibits lawyer dishonesty outside the context of client representation, as would the new provisions of proposed Rule 8.4.

Thus, while Rule 4.1 is consistent with the present rules and law governing attorney conduct, its reach may be further than what we have presently. At a minimum, because it articulates a more precise disciplinary standard than the amorphous statutes under which these cases may presently be brought, disciplinary charges for attorney misrepresentations to third parties is likely to increase under this rule.

Rule 4.1 Truthfulness in Statements to Others

(Proposed rule adopted by the board Nov. 17, 2016)

In the course of representing a client a lawyer shall not knowingly:*

(a) make a false statement of material fact or law to a third person;* or

(b) fail to disclose a material fact to a third person* when disclosure is necessary to avoid assisting a criminal or fraudulent* act by a client, unless disclosure is prohibited by Business and Professions Code § 6068(e)(1) or rule 1.6.

Comment

[1] A lawyer is required to be truthful when dealing with others on a client's behalf, but generally has no affirmative duty to inform an opposing party of relevant facts. A misrepresentation can occur if the lawyer incorporates or affirms the truth of a statement of another person* that the lawyer knows* is false. However, in drafting an agreement or other document on behalf of a client, a lawyer does not necessarily affirm or vouch for the truthfulness of representations made by the client in the agreement or document. A nondisclosure can be the equivalent of a false statement of material fact or law under paragraph (a) where a lawyer makes a partially true but misleading material statement or material omission. In addition to this rule, lawyers remain bound by Business and Professions Code § 6106 and rule 8.4.

[2] This rule refers to statements of fact. Whether a particular statement should be regarded as one of fact can depend on the circumstances. For example, in negotiation, certain types of statements ordinarily are not taken as statements of material fact. Estimates of price or value placed on the subject of a transaction and a party's intentions as to an acceptable settlement of a claim are ordinarily in this category, and so is the existence of an undisclosed principal except where nondisclosure of the principal would constitute fraud.*

[3] Under rule 1.2.1, a lawyer is prohibited from counseling or assisting a client in conduct that the lawyer knows* is criminal or fraudulent.* See rule 1.4(a)(4) regarding a lawyer's obligation to consult with the client about limitations on the lawyer's conduct. In some circumstances, a lawyer can avoid assisting a client's crime or fraud* by withdrawing from the representation in compliance with rule 1.16.

[4] Regarding a lawyer's involvement in lawful covert activity in the investigation of violations of law, see rule 8.4, Comment [5].