Ethics Opinion 236
Divulging Client Confidences and Secrets in a Bankruptcy Proceeding in Order to Collect Fees Is Permitted in Limited Circumstances
An attorney may divulge client confidences and secrets in order to collect fees but only where such disclosure is made in the course of a legal proceeding, is as narrow as possible and there is a good-faith expectation of more than a de minimis recovery.
Applicable Rule
- Rule 1.6(d)(5) (Divulging Client Confidences And Secrets)
Inquiry
The inquirer presents the following situation. His firm was retained by a California resident for whom it provided services and by whom it is owed fees. Upon threat of a collection action, the client began to make monthly payments. The client subsequently filed a petition for bankruptcy seeking to discharge, among other debts, the debt to the inquiring law firm. This petition has preempted any effort by the firm to collect the fees which it is owed. The bankruptcy is being treated as a “no asset” proceeding. The inquiring firm has been instructed not to file a proof of claim with the trustee and it is quite unlikely, if the proceeding continues in this form, that the firm will recover any of its fee which is still outstanding.
As a result of its representation of the client, the firm has reason to believe that the client’s representations to the bankruptcy court regarding the nature of her assets and liabilities may not be accurate or complete. This information is based on information supplied during the course of the representation although some of the information is also a matter of public record. The inquirer asks whether, as part of an effort to collect its fees, it is permissible to disclose through proceedings available in the bankruptcy court, the information in the firm’s possession regarding the client’s assets.
Discussion
Rule 1.6(d)(5) provides that:
A lawyer may use or reveal client confidences or secrets . . . to the minimum extent necessary in an action instituted by the lawyer to establish or collect the lawyer’s fee.
This stands as a limited but well-recognized exception to the general rule regarding the confidentiality of client information. It is based on “the principle that the beneficiary of a fiduciary relationship may not exploit it to the detriment of the fiduciary.” Rule 1.6, Comment [24]1 The exception has been applied to bankruptcy proceedings. For example, the Maryland Bar has construed the corresponding code section to permit an attorney to pursue an Application for Allowance of Fees and Disbursements to be paid by the bankruptcy estate under the provisions of the Bankruptcy Code which could involve client confidences and secrets. Committee On Ethics of the Maryland State Bar Association Opinion 83-19 (9/27/82). The Los Angeles County Bar Association has determined that a lawyer who had represented a client in a bankruptcy case and was discharged by the client may file a claim for fees in the bankruptcy court as well as proceedings to have his debt declared non-dischargeable. Ethics Committee of the Los Angeles County Bar Association Opinion 452 (11/21/88).
The comments to Rule 1.6 emphasize that any disclosure should be as narrow as possible and that the lawyer should seek the use of John Doe pleadings, in camera proceedings, and/or protective orders where possible to avoid the unnecessary disclosure of information. Id. See also “Annotated Model Rules of Professional Conduct” at 88 (“. . . the lawyer must make every effort practicable to avoid unnecessary disclosure of information relating to a representation, to limit disclosure to those having the need to know it, and to obtain protective orders or make other arrangements minimizing the risk of disclosure.”). Moreover, disclosure is not permitted in non-fee proceedings. See Florida Bar v. Ball, 406 So. 2d 459 (Fla. 1981) (lawyer suspended for disclosing to adoption agency that clients had not paid the lawyer’s fee and thus might be a financial risk); Matter of Nelson, 327 N.W.2d 576, 578-79 (Minn. 1982) (ethical violation where attorney, following fee dispute, reported client’s alleged tax violations to state authorities).
The course of action proposed by the inquirer regarding the collection of his fees2 is permitted under the governing Rule assuming several conditions are met.3 First, so long as the proposed disclosure is made by the lawyer in a proceeding initiated by the attorney or otherwise in the context of an ongoing legal proceeding, it is properly considered to be part of an “action instituted by the lawyer.” In the absence of any specific authority to the contrary, it is the view of the Committee that this language limits only disclosures made out of the context of formal proceedings.4 Second, the proposed disclosure to the bankruptcy court must be as narrow as possible, providing only the minimal information necessary to establish or collect a fee. In addition, if possible, the inquirer should use protective orders, in camera proceedings, John Doe pleadings, and/or other appropriate mechanisms to protect the identity and interests of the client.
Finally, the inquirer must have a good faith expectation of recovering more than a de minimis amount of the outstanding fee. It must be emphasized that the exception in the Rule only goes to an attempt to “establish or collect” a fee. It does not permit the disclosure of client confidences or secrets for any other reason. This includes an effort to bring a potential fraud to the attention of the court, salutary as the underlying policy concern may be. Cf. Matter of Nelson, supra. As a result, if, for whatever reason, the lawyer does not have a reasonable expectation of more than a de minimis recovery, the disclosure would violate the rule.
In sum, the well-established but narrow exception to the general rule against revealing client confidences and secrets based in Rule 1.6(d)(5) permits the disclosure of such information in connection with actions to establish or collect fees in bankruptcy proceedings in limited circumstances.
Inquiry No. 92-10-36
Adopted: February 9, 1993
1. See also Cannon v. U.S. Acoustics Corp., 532 F.2d 1118, 1120 (7th Cir. 1976) (permits fee collection action to proceed based on this exception to attorney-client privilege); Nakasian v. Incontrade, Inc., 409 F. Supp. 1220, 1224 (S.D.N.Y. 1976) (attachment of client funds facilitated by use of confidential information permissible); ABA Center for Prof. Resp., Anno. Model Rules of Prof. Conduct (1991) at 88 (“A lawyer entitled to a fee is permitted . . . to prove the services rendered in an action to collect it”) and at 96 (citing Cannon v. U.S. Acoustics Corp).
2. Neither the inquiry nor this opinion directly addresses the nature of client confidences and secrets that may be disclosed in order to establish a fee.
3. This Committee does not decide factual questions; we therefore express no opinion regarding the underlying facts here.
4. The earlier version of Rule 1.6(d)(5), which is found in DR 4-101(C)(4), permitted a lawyer to reveal “[c]onfidences or secrets necessary to establish or collect his fee or to defend himself or his employees or associates against an accusation of wrongful conduct.” The history of Rule 1.6 does not explain this change in language.
