Opinion 2006-8
(February 2007)

The inquirer's client purchased a property for investment purposes. Before doing so, he received disclosures from the sellers indicating there was no structural problem with the property. He then hired an inspector who provided the client with a report which did not disclose any problem with the structural integrity of the property, and the client then purchased the property.

The client then had another inspector inspect the property and this second inspector found serious problems with the property including structural problems. This was all the inquirer was told about the matter when the client hired the inquirer to sue the first inspector and sellers for failure to disclose the problems, including the settlement (sloping) of the property. The client advised members of the inquirer’s law firm that except for the very minor defects disclosed by the first inspector in his report (containing no information about the structural integrity of the property), he, the client, did not know about any defects in the property, including that the property sloped.

The inquirer entered into a retainer agreement with the client who paid a retainer and agreed to pay the inquirer's fees moving forward.

The inquirer exchanged emails, telephone calls and prepared a Complaint on the inquirer's behalf. In the Complaint, the inquirer wrote a paragraph stating that before the closing, the client did not know about any defects in the property other than as disclosed by the first inspector in his report. The client signed a Verification attesting that this was true and returned it to the inquirer.

Shortly thereafter, the client sent the inquirer an e-mail that before closing, he went to the property and saw that the property sloped. He wrote that the seller's son told him, with the realtor present, that the sloping might be settlement. He admitted that he thought the problem could be structural, although he also said it could be “aesthetic.” The inquirer indicates that she does not know what the inquirer meant by “aesthetic.”

The inquirer informed the client by email about the economic loss rule (i.e. that in a negligence case such as this where only money damages are alleged, the contributory negligence doctrine applies and that if the client were found to be even 1% negligent, he might not be entitled to recover anything). The inquirer told the client that his being told about the settlement could potentially negatively impact his case as the finder of fact could determine that since the client knew there might be settlement, he should have looked into that question before closing. The inquirer notes that there is nothing to indicate that the client told the inspector to look for settlement or comment on the sloping of the property.

The client replied to the inquirer’s email that no one had witnessed the conversation about the property sloping (a fact that the inquirer notes is not only irrelevant but contradicted by the fact the client had written that the realtor was present at the time) and that "each side will likely claim they have no recollection," indicating to the inquirer that the client would lie about being told about the settlement.

In a subsequent phone conversation, the client told the inquirer he wished he had never said anything about the conversation, suggesting to the inquirer he would have preferred to file a false Complaint and lie if called to testify.

So as to avoid filing a false Complaint, the inquirer's law firm then terminated the client’s representation. The client now refuses to pay the inquirer’s fees.

The inquirer indicates that her firm spent over 19 hours of attorney time working on this case in reliance upon the client’s false misrepresentations about not knowing of any sloping or structural problems with the property before the client bought it. The inquirer wants to file suit against the client for false misrepresentation, in addition to breach of the client's contract to pay the firm’s legal fees. However, the inquirer is concerned about whether such a suit can be brought in light of the attorney client privilege. The inquirer asks if there is a way in which the firm can do so and not violate the attorney client privilege rule.

The Committee notes that there is a difference, often confused, between the attorney-client privilege, which is a substantive evidentiary rule, and the ethical doctrine of confidentiality. The attorney-client privilege concerns the protection of communications made between an attorney and a client during the course of a representation as those communications relate to the handling of the case at hand. The ethical doctrine of confidentiality as reflected in Pennsylvania Rule of Professional Conduct (the “Rules”) 1.6 is much broader and encompasses any and all information regarding a representation whether or not known by third parties. This opinion will only address the issues presented by the inquiry under the ethical doctrine of confidentiality.

Rule 1.6 Confidentiality of Information provides that:

(a) A lawyer shall not reveal information relating to representation of a client unless the client gives informed consent, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraphs (b) and (c).
…

(c) A lawyer may reveal such information to the extent that the lawyer reasonably believes necessary:
…

(4) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim or disciplinary proceeding against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer’s representation of the client;
…
Comment [20] to the Rule provides in pertinent part that:

Paragraph (c) permits disclosure only to the extent the lawyer reasonably believes the disclosure is necessary to accomplish one of the purposes specified… In any case, a disclosure adverse to the client’s interest should be no greater than the lawyer reasonably believes necessary to accomplish the purpose. If the disclosure will be made in connection with a judicial proceeding, the disclosure should be made in a manner that limits access to the information to the tribunal or other persons having a need to know it and appropriate protective orders or other arrangements should be sought by the lawyer to the fullest extent practicable. [emphasis added]

Although the inquirer presents an issue that includes a fee dispute, it is clear that the inquirer wishes to pursue an additional cause of action against the client, and that the exception to confidentiality as contained in Rule 1.6c4 permits that. This Committee and the ABA have previously commented on this issue in a different context. ABA formal opinion 01-424, and this Committee’s past opinion 99-6 both concern a suit by in-house counsel against the employer, both permit disclosure of confidential information necessary to pursue the wrongful discharge claim against the employer. However, in line with the comment [20] above, both opinions make it clear that only the minimum information required in order to pursue the claim should be revealed. As applied to the present inquiry, this means that the suit, if filed, should be done under seal. It is important even within the situation in which the inquirer finds herself (i.e. adverse to her former client) to nevertheless take steps to avoid unnecessary prejudice to that client in the underlying matter. The client could decide to pursue the claim with other counsel making full disclosures. Unnecessary revelation of confidential information by the inquirer could needlessly prejudice the client's decision to proceed with his claim now or at a future date.

There are two collateral issues to which the Committee draws the inquirer's attention. The first concerns the issue of abusive disclosure. The ABA/BNA Lawyers Manual on Professional Conduct Practice Manual § 55:714 provides in part that:

Abusive Disclosure

The existence of a dispute that would arguably permit the lawyer to disclose some confidential client information does not open the door to unlimited disclosure. The lawyer's right to disclose confidential information in order to assert a claim or defense applies only to information necessary to establish the particular claim or defense."

Thus, the inquirer may not pursue this additional claim against the client if its purpose is merely to coerce a settlement in the fee claim. Making the claim for negligent misrepresentation is not necessary to collect the fee, and if done merely to obtain leverage in the collection matter is not permitted. It is similar in nature to reporting the client’s fee delinquency to a credit bureau which has been frowned upon in several jurisdictions.

Finally, the Committee cautions the inquirer to make sure that such an additional claim is legitimate and supported by the facts under all the circumstances surrounding the representation.

CAVEAT: The foregoing opinion is advisory only and is based upon the facts set forth above. The opinion is not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. It carries only such weight as an appropriate reviewing authority may choose to give it.