CA-Reese
Determine the actions that are forbidden, permitted, or required by the rules?
1. Reveal the fraud to the bank or the district attorney if Reese refuses to do so?
Pursuant to ABA §1.6(b)(3), it is permissible to disclose confidential information about the client's
past fraudulent conduct if the client used the lawyer's services to engage in the conduct at issue.
In Charlie Reese and Paula Suarez (the "Reeses") case, they acquired loans from the bank by
submitting forged lease documents. They then took the proceeds from those loans and
purchased vehicles. The firm provided some work around the necessary documentation required
for the leases and also provided legal opinions confirming that the Reese's company owned the
cars. The legal opinion provided were used by the Reeses to obtain a loan from the bank and
submit forged leases, which misled the bank regarding their companies' financial condition. The
Reeses also misled the the bank, as they relied upon the legal opinions given by the firm before
making distributions to the Reeses’ company.
After the fraud is brought to the firm’s attention, pursuant to §1.13, it should reach out to the
relevant authorities and communicate that the Reeses are violating the law. If these authorities
fail to take action, the firm should also disclose the information to the bank. Pursuant to §1.6(a),
the firm should persuade Reese's company to provide informed consent to disclose the facts
about forged leases, though they would be unlikely to do so. And, pursuant to §1.6(b)(2), given
that it is reasonably certain that if the firm does not reveal the information relating to the forged
leases, substantial financial injury to the bank will be caused, §1.6 provides an permissible
exception to reveal confidential information and disclose the forged lease information.
2. Do not reveal the fraud but stop representing executive leasing services.
If the firm knows that the client used legal opinions derived from fraudulent activity, and the client
is likely to continue to defraud the bank this will put the firm at risk for direct violation of §1.2(d)
by assisting the client in continuous "conduct that lawyer knows is criminal or fraudulent."
Therefore, the firm is required, pursuant to §1.16(a)(1) to withdraw from representing the
company.
3. Do not reveal the fraud and continue representing Executive Leasing Services, taking
more care that the company does not engage in future fraud.
In this situation, the firm may take the position that §1.6 is permissible, and then they have the
discretion as to whether to reveal confidential information when the fraud has previously
occurred. However, if it is reasonably certain that fraud will cause substantial financial injury and
the client has used the firm’s service in part to commit the fraud, (§1.6 (b)(2)), model §4.1(b) is
triggered when disclosure is necessary to prevent the client's scheme of fraud or crime. Applying
§4.1(b) to these facts, it appears that the firm is required to reveal information because failure to
do so will be construed as assisting the Reeses in the fraudulent activity at issue. In this case, it
is required for the firm to disclose under §4.1(b). actual necessity in fact, as distinct from a
reasonable but incorrect belief that such a necessity exists.
Ultimately, in real life there are always commercial considerations. And most firms will weigh the
implications of disclosing on their firm as a going concern. Even though disclosing the
information about Reese's company will have a severe impact on the firm's performance,
violating ethical requirement could have even more severe consequences. Non-disclosure of
this information will be equivalent to violation of ABA §2.1(d), §4.1(b), and §1.13. The firm might
have to reduce headcount and cut back on budget and salaries, due to lost revenue, but a severe
violation could result in closing up shop altogether.