Opinion ID: 835263
Heading Depth: 1
Heading Rank: 8

Heading: Duty to call upon client to rectify fraud

Text: DR 7-102(B)(1) (1997) provided that a lawyer who recognizes that a client has perpetrated a fraud must call upon the client to rectify it: A lawyer who receives information clearly establishing that [t]he lawyer's client has, in the course of the representation, perpetrated a fraud upon a person or tribunal shall promptly call upon the lawyer's client to rectify the same, and if the lawyer's client refuses or is unable to do so, the lawyer shall reveal the fraud to the affected person or tribunal except when the information is a confidence as defined in DR 4-101(A). The Bar alleges without specification that the accused possessed information clearly establishing that Management Company and MLP were perpetuating a fraud upon the court in the Chapter 7 proceeding. The Bar argues that the continuing payments that the individual investors made to entities other than the trustee and the continuing operation of the Hoyt enterprise amounted to fraud for purposes of the disciplinary rule. In bringing that charge and in making that argument, the Bar fails to recognize that the accused considered the investor partnerships to be entities that were separate from MLP and that they were entitled to manage and preserve their herds. Unless MLP had a right to require note payments from the investors, and unless the partnerships maintained their herds using funds that belonged to MLP, there was nothing wrong with the investor partnerships continuing to protect their cattle. MLP was the entity that was in bankruptcy, and the bankruptcy rules required that it cease business after entry of the order for relief, but the partnerships were not similarly limited. Because the Bar failed to prove the facts necessary to prove that MLP engaged in fraud in the manner asserted, the Bar failed to prove that the accused violated DR 7-102(B)(1) (1997).