by Isabelle M. Smith
With a secret like that, at some point the secret itself becomes irrelevant. The fact that you kept it does not. ~ Sara Gruen, Water for Elephants (2006).
It is well settled under California law that a lawyer’s duty of confidentiality is one of the most important duties an attorney has to a client. Wutchuma Water Co. v. Bailey, 216 Cal. 564, 572 (1932); In re Jordan, 12 Cal. 3d 575, 580 (1972); Rule 3-100 of the Rules of Professional Conduct of the State Bar of California 3-100; Business and Professions Code Section 6068(e)(1). Recently, the Standing Committee on Professional Responsibility and Conduct of the State Bar of California (COPRAC)1 issued an advisory ethics opinion which concludes that a lawyer’s duty to maintain client secrets extends to publicly available information obtained by the lawyer during the representation if the client wants to maintain its secrecy or its disclosure would be embarrassing or detrimental to the client. Cal. State Bar Formal Opn. No. 2016-195. Many lawyers may not realize that even though the information they obtained from their client is publicly available, the lawyer has a duty to maintain confidentiality and cannot disclose the information.
In Formal Opinion No. 2016-195 (the Opinion), COPRAC poses the question: “What duties does a lawyer owe to current and former clients to refrain from disclosing potentially embarrassing or detrimental information about the client, including publicly available information the lawyer learned during the course of his representation?” Id. at 1. Relying on Business and Professions Code Section 6068(e)(1), Rule 3-100 of the Rules of Professional Conduct (Rules), Evidence Code Sections 952 and 954, ethics opinions and California case law, the Opinion concludes that:
A lawyer’s duty of confidentiality is broader than the attorney-client privilege, and embarrassing or detrimental information learned by a lawyer during the course of his representation of a client must be protected as a client secret even if the information is publicly available. A lawyer’s duty to preserve his client’s secrets survives the termination of the representation. If however, otherwise embarrassing or detrimental information was not learned by the lawyer by virtue of his representation of the client, it is not a client secret, and the lawyer is not bound to preserve it in confidence.
Id. at 5.
The Hedge Fund Hypothetical
Ethics opinions typically include a hypothetical or fact pattern to assist in reaching a conclusion by applying the relevant statutes, case law, and other ethics opinions. Here, the hypothetical is rather brief. “Hedge Fund Manager” hires the “Lawyer” to defend him in a lawsuit filed by his investors for financial fraud. Id. at 1. During the representation, the Hedge Fund Manager discloses to the Lawyer that in the past he had “taken certain liberties with his investors’ money,” but that in this case, no such liberties were taken. Id. As part of discovery, the Lawyer interviews some of the former investors, including “Former Investor” who reveals that Hedge Fund Manager paid her $100,000 to settle the former matter prior to filing suit. The Former Investor also sends Lawyer a link to a blog post about her accusations. Id. The Lawyer in turn sends the link to friends with the note: “interesting reading.” Id.
The current fraud suit settles early on in the case for $250,000 to each of the sixteen investors with a signed non-confidential settlement agreement filed with the court, so publicly recorded. Id. In addition, a local newspaper writes a small article about the settlement. Id. The court dismisses the suit, and the Lawyer’s representation of the Hedge Fund Manager ceases.
Months later, an interview with the Former Investor is published in the Wall Street Journal regarding her dispute with the Hedge Fund Manager. Id. The Lawyer responds to it by writing a letter to the editor bragging that, “I did a great job of getting the Hedge Fund Manager out of the lawsuit for only a seven-figure settlement.” Id. at 2.
The hypothetical closes with a DUI arrest of the Hedge Fund Manager years after the case has settled, and a comment on Facebook by the Lawyer that “Drinking and driving is irresponsible.” Id.
The Duty of Confidentiality Extends Beyond the Attorney-Client Privilege
The Opinion compares the broad scope of the duty of confidentiality, which is an express ethical obligation as provided in the State Bar Act, with the more limited “statutorily created evidentiary rule” of the attorney-client privilege. Id. Citing to California case law, Rule 3-100, and Business and Professions Code Section 6068(e)(1), the Opinion emphasizes the importance of a lawyer’s duty to preserve client secrets. Id. Business and Professions Code Section 6068(e)(1) states that a lawyer has a duty “[t]o maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.” Bus & Prof. Code § 6068(e)(1). Rule 3-100 provides that “[a] member shall not reveal information protected from disclosure by Business and Professions Code Section 6068, subdivision (e)(1) without the informed consent of the client, or as provided in paragraph (B) of this rule.” Rule 3-100.
The Opinion is notable in that it underscores the need to preserve client “secrets,” as compared to prior opinions that focus on client confidences. Id. at 2, n.2. The Opinion clarifies that a lawyer’s duty to preserve client “secrets” is separate from, and in addition to, the duty of confidence. Id. Referring to an earlier COPRAC Opinion, Formal Opinion No. 1993-133, “Client secrets means any information obtained by the lawyer during the professional relationship, or relating to the representation, which the client has requested to be inviolate or the disclosure of which might be embarrassing or detrimental to the client.” Id. at 2 (quoting Cal. State Bar Formal Opn. No. 1993-133). Thus, the duty of confidentiality relates to information about the client from any source. Cal. State Bar Formal Opn. No. 2016-195 at 2.
The protection of the disclosure of “confidential communications,” which is “information transmitted between a client and his or her lawyer in the course of that relationship and in confidence . . . ,” is codified in Evidence Code Section 954 as the attorney-client privilege. Cal. Evid. Code §§ 952, 954. The purpose is to “safeguard the confidential relationship between clients and their attorneys so as to promote full and open discussion of the facts and tactics surrounding individual legal matters.” Cal. State Bar Formal Opn. No. 2016-195 at 2 (quoting Mitchell v. Superior Court, 37 Cal. 3d 591, 599 (1984)). In comparison to the broad duty of confidentiality, the attorney-client privilege is narrow as it only includes confidential communications between a lawyer and his client. Id. at 2.
The Opinion relies on case law as well as provisions of Rule 3-100 to further support the position that the concept of “client secrets” is broader than the attorney-client privilege and includes both information about the client and confidential communications: “The principle of client-lawyer confidentiality applies to information relating to the representation, whatever its source, and encompasses matters communicated in confidence by the client, and therefore protected by the attorney-client privilege, matters protected by the work product doctrine, and matters protected under the ethical standards of confidentiality, all as established in law, rule and policy.” Id. at 2-3. As is often the case in California ethics opinions, the Opinion references an ABA Model Rule which similarly states that “[T]he confidentiality rule . . . applies not only to matters communicated in confidence by the client but also to all information relating to the representation, whatever its source.” Id. at 3, n.3 (quoting Comment [3] to ABA Model Rule 1.6). The Opinion notes, however, that ABA Model Rule 1.9(c)(1) does not extend “client secrets” to information “so generally known or widely disseminated.” Id. at 3, n.3. The Rule states that “A lawyer who has formerly represented a client in a matter . . . shall not thereafter (1) use information relating to the representation to the disadvantage of the former client except as these Rules would permit or require with respect to a client, or when the information has become generally known . . . .” Id. at 3, n.4 (quoting ABA Model Rule 1.9(c)(1) (emphasis in Opinion)).
Although California does not have an analogous rule addressing “generally known” information like the ABA Model Rule, the Opinion notes that in the California State Bar Court opinion In the Matter of Johnson, even though the court determined that the lawyer had violated his duty of confidentiality by disclosing to another client and other third persons the client’s previous felony conviction which was in the public record, the conviction was “not easily discovered.” Cal. State Bar Formal Opn. No. 2016-195 at 3, n.4 (emphasis added) (citing In the Matter of Johnson, 4 Cal. State Bar Ct. Rptr. 179, 189 (Rev. Dept. 2000)). COPRAC acknowledges that it is not taking a position in this Opinion on whether “generally known” information which is defined as “information which either is easily discovered or does not even need to be discovered to become known” is a “client secret.” Cal. State Bar Formal Opn. No. 2016-195 at 3, n.4. Rather, the Opinion “goes only as far as finding that client information does not lose its confidential nature merely because it is publicly available.” Id.
In light of the discretionary nature of a determination of what is “generally known” or “not easily discovered” it seems that the more prudent course of action for California lawyers is to maintain client secrets even if arguably it is commonly known so as to avoid any appearance of impropriety and possible disciplinary action for revealing client secrets.
Lawyer’s Disclosure of Secrets Obtained During Representation Even If Publicly Available Likely Violates the Duty of Confidentiality
Back to the hypothetical. Even though the Former Investor had written a blog post about her suit against the Hedge Fund Manager, rendering it publicly available information, the Lawyer obtained this information in the course of the Lawyer’s representation of the Hedge Fund Manager during interviews with former investors, and the Former Investor in particular. Cal. State Bar Formal Opn. No. 2016-195 at 4. Because the information was not obtained through a communication with the client (Hedge Fund Manager), it is not protected by the attorney-client privilege. Nevertheless, the information is considered a client secret. Accordingly, under his duty of confidentiality, the Lawyer was obligated to maintain its secrecy and not disseminate the information to third parties, including sending the link of the blog post to his friends. Id. By doing so, he violated his ethical duty of confidentiality. Id.
The Hedge Fund Manager’s communication to his Lawyer during representation that “he had taken certain liberties with previous investors’ money” is protected both by the attorney-client privilege and by the Lawyer’s duty to maintain client confidences, as it was a communication from client to lawyer in confidence during representation. Id. Thus, if the Lawyer disclosed this information to third parties, he would be violating both the attorney-client privilege and his duty of confidentiality.
With respect to the Lawyer’s letter to the Wall Street Journal, the Lawyer had a duty to maintain the confidentiality of the information he obtained from the Former Investor and his client even though the representation had ceased and the Hedge Fund Manager was a former client. The duty of confidentiality is a duty that does not terminate even after the relationship ends. Id. The Letter violated that duty because it disclosed client secrets and “likely caused Hedge Fund Manager harm or embarrassment.” Id. at 5. The Opinion recognizes that the settlement was publicly available in the court records as an exhibit to the motion for determination of good faith settlement. Id. Nevertheless, COPRAC concludes that the statements in the letter “could be considered a disclosure of a client ‘secret’” because it not only disclosed facts about the settlement, but also “suggested he was privy to bad facts about Hedge Fund Manager’s defense such that a ‘seven figure settlement’ was a good one.” Id. As this was information Lawyer knew from his representation of Hedge Fund Manager, he was obligated to maintain the confidentiality of the information.
By contrast, the Opinion concludes that the comment the Lawyer made after the representation terminated about the Hedge Fund Manager’s DUI arrest did not violate the duty of confidentiality as it did not disclose secrets obtained during representation, was not about an issue relevant to his representation in the fraud case, and the Lawyer no longer represented the client. Id.
What Guidance Should A Lawyer Take From Formal Opinion 2016-195?
The Hedge Fund Manager hypothetical may not contain a factual scenario that each lawyer can relate to, but it serves as a reminder of the pitfalls that await lawyers if they are not aware of the broad scope of their duty of confidentiality. Many practitioners likely operate under the belief that if information is public knowledge then it no longer is a client secret. The somewhat counter-intuitive guidance provided under this Opinion is that information likely will be considered a client secret if it is obtained by the lawyer during the representation, even if the information is public. In discovery for example, including responses to written discovery and third party subpoenas, lawyers must be careful not to reveal client secrets even if they are publicly known.
Lawyers must also be diligent in preserving the client’s attorney-client privilege and complying with the lawyer’s duty of confidentiality even after the representation has ended. And lawyers’ ethical duties do not cease to exist when they are casually chatting at the neighborhood BBQ or at parties. The Opinion serves as an important reminder for all lawyers that, even if information about a client is public and has become juicy fodder for gossip, if the lawyer obtained that information during the representation, it likely would be considered a violation of the duty of confidentiality to disclose it.
ENDNOTE
Isabelle M. Smith is a freelance attorney with Montage Legal Group, LLC. Ms. Smith formerly was a partner at Howrey, LLP in Irvine practicing in Howrey’s Commercial Litigation Group, focusing on attorney professional liability and securities litigation. Ms. Smith is a member of the OCBA Professionalism & Ethics Committee.