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Attorneys face a variety of ethical challenges. While doing the “right”thing may not always be easy, it should always be clear. Rules of professional conduct demarcate the line between right and wrong in some instances. Other areas, however, are left to common law (and judicial interpretation) to develop. The question is whether (and, if so, under what circumstances) an attorney (and in our case legal counsel of the Society) maybe held liable for aiding and abetting a clients breach of fiduciary duty and hence criminal Breach of Trust.
Attorneys face a variety of ethical challenges. While doing the “right”thing may not always be easy, it should always be clear. Rules of professional conduct demarcate the line between right and wrong in some instances. Other areas, however, are left to common law (and judicial interpretation) to develop. The question is whether (and, if so, under what circumstances) an attorney (and in our case legal counsel of the Society) maybe held liable for aiding and abetting a clients breach of fiduciary duty and hence criminal Breach of Trust.
Attorneys face a variety of ethical challenges. While doing the “right”thing may not always be easy, it should always be clear. Rules of professional conduct demarcate the line between right and wrong in some instances. Other areas, however, are left to common law (and judicial interpretation) to develop. The question is whether (and, if so, under what circumstances) an attorney (and in our case legal counsel of the Society) maybe held liable for aiding and abetting a clients breach of fiduciary duty and hence criminal Breach of Trust.
nath@computer.org He is an Independent researcher engaged in research in informa-
tion security, privacy, law & justice. 1 Contents I Introduction 3 II Aiding and Abetting Standard 3 III Application of Aiding and Abetting Liability Standard 4 IV Liability for an Attorney 4 V Mr Lawyer: First, Do No Harm; Second, Prevent Harm 5 VI Civil Conspiracy 6 VII Fraudulent Scheme 6 VIIIThird Party Derivative Client 7 IX Lawyers Duty to Client Who is a Trustee 8 X Perpetrating Frauds or Illegal Activity 9 XI Society Context 9 XII Conclusion 10 2 LAWYER OF A SOCIETY AS A FIDUCIARY I Introduction A ttorneys face a variety of ethical challenges. While doing the right thing may not always be easy, it should always be clear. Rules of professional conduct demarcate the line between right and wrong in some instances. Other areas, however, are left to common law (and judicial interpretation) to develop. The question is whether (and, if so, under what circumstances) an attorney (and in our case legal counsel of the Society) may be held liable for aiding and abetting a clients breach of duciary duty and hence criminal Breach of Trust.. II Aiding and Abetting Standard The common law of torts imposes liability for aiding and abetting another in commission of a wrongful act. The parameters of aiding and abetting liability are laid out in the Restatement (Second) of Torts using a three-prong test: 1. the aided party must commit tortious conduct; 2. the aider must know that the aided partys conduct constitutes a breach of duty; and 3. the aider must give substantial assistance or encouragement to the aided party. Advice or encouragement to act operates as a moral support to a tortfeasor and if the act encouraged is known to be tortious it has the same eect upon the liability of the adviser as participation or physical assistance. However, assistance can be so slight so as to avoid liability; the factors to consider in determining liability are: 1. the nature of the act encouraged; 2. the amount of assistance given by the defendant; 3. the presence or absence of the defendant at the time of the tort; 4. the defendants relation to the other; and 5. the defendants state of mind. 3 III Application of Aiding and Abetting Lia- bility Standard A duciary relationship is one in which one person [called a duciary] is un- der a duty to act for the benet of another [called a beneciary] on matters within the scope of the relationship. Common examples of duciary relation- ships include guardian-ward, agent-principal, and attorney-client.The du- ciarys obligation to act for the benet of another is known as a duciary duty, and breach of that duty causes the duciary to be liable to the beneciary. Combining aiding and abetting liability with this breach of duciary duty liability creates a straightforward result: one who knowingly provides sub- stantial assistance or encouragement to another in breaching a duciary duty is liable for aiding and abetting the breach of duciary duty. As explored above, providing advice or encouragement satises the substantial assistance prong. Therefore, it follows that an attorney who counsels his or her client to breach a duciary duty should be liable for aiding and abetting that breach of duciary duty. Aiding in a breach of duciary duty may also be aiding in the commission of a crime. For example, an attorney may advise a trustee on how to siphon funds from a beneciary. In this case, since the breach of duciary duty is a Criminal Breach of Trust by a public servant ( Section 409 in The Indian Penal Code, 1860 and punishable with imprisonment of either description for a term which may extend to ten years, and shall also be liable to ne), the act of the lawyer is a clear case of aiding and abetting a crime. IV Liability for an Attorney If an attorney advised that agent or that partner as to how to breach their duciary duty with greater stealth or success, that attorney would have aided and abetted in a breach of duciary duty. This begs the question of whether the attorney, who owes a duciary duty to his or her own clients, should be liable to their clients beneciary. Reynolds sued Schrock and Markely for breach of duciary duty for aiding and abetting a breach of duciary duty. The lawsuit against Schrock was settled, leaving Markley as the sole defendant. The court held that summary judgment in the attorneys favor was proper, recognizing an exception for attorneys from liability for aiding and abetting a clients breach of duciary duty. However, the exception created for attorneys is not unlimited: For a third party to hold an attorney liable for aiding and abetting a client in breach of a duciary duty, the burden is on the third party to prove that the lawyer acted outside the scope of the lawyer- 4 client relationship. This exception extends liability to attorney conduct that is unrelated to the representation of a client (even if the person is a client), in the attorneys own self-interest, or within the crime or fraud exception to the attorney-client privilege. While the court in Granewich 1 did accept as true the allegations in the complaint pleading that the attorneys acted outside the scope of their legitimate employment, the court did not state that this fact was determinative to its decision, declaring instead that the defendants status as lawyers is irrelevant. V Mr Lawyer: First, Do No Harm; Second, Prevent Harm This leads us to the question whether attorneys have an armative duty to prevent their clients from causing harm in the form of a breach of duciary duty. The argument over whether an attorney must, must not, or may dis- close to a clients beneciary that the client is acting inappropriately with regard to the duciary relationship presupposes the basic notion that the attorney should not contribute to the clients malfeasance. Professor Georey Hazard, perhaps the primary gure in legal ethics to day,advocates that where an attorneys client is a duciary of a third party, that third party assumes derivative client status and the actual client is the primary client.(THE LAW AND ETHICS OF LAWYERING 5th ed. Foundation Press 2010 with Susan P. Koniak, Roger C. Cramton, George M. Cohen & W. Bradley Wendel) Under this model, the attorney eectively has two clients: the primary client (the actual client who hired the attorney) and the derivative client (the beneciary of the primary clients duciary duty). Since the primary client (as a duciary) is obligated to work in the interest of the derivative client (as a beneciary), the attorney is as well. Three consequences of this primary-derivative client model follow: 1. the lawyers obligation to avoid participation in his or her clients fraud is engaged by a more sensitive trigger than usual; 2. the lawyer must ensure that the duciary-primary client volunteers complete and truthful information to the third party-derivative client; and 3. the lawyer has a duty to disobey instructions that would wrongfully harm the third party-derivative client (because a client is not permitted to use an attorney to harm the clients beneciary). 1 http://caselaw.findlaw.com/or-court-of-appeals/1437855.html 5 While the appellate court armed the trial courts dismissal, it is ap- parent that the decision was inuenced by the monumental stupidity of the plaintis legal theory! VI Civil Conspiracy Civil conspiracy is a separate cause of action that requires, interalia, 1. an underlying tort and a meeting of the minds among the co-conspirator on the object or course of action to be taken. By contrast, a cause of action requires only the knowing participation of a party in a breach of a duciary duty and does not require a conspiratorial agreement. 2. Second, the breach of duciary duties or scheme of oppression must involve misrepresentations, failure to disclose, or deceptive conduct so that breach of duciary duties constitutes fraudulent conduct. 3. Third, the plainti must plead and prove that the attorney had knowl- edge of the object and purpose of the conspiracy; that there was an understanding or agreement to inict a wrong against, or injury on, the third party; that there was a meeting of minds on the object or cause of action; and that there was some mutual mental action coupled with an intent to commit the act that resulted in the injury. 4. Finally, the plainti must plead and prove that the attorneys conduct went beyond mere fulllment of his professional duties to the majority shareholder. In the present context of the Society counsel, all the above are satised. Certainly, personal benet from the proceeds of the fraud would certainly satisfy this burden. Here in the present context, Society counsel beneted from the appointment as legal counsel of the Society over a prolonged period. VII Fraudulent Scheme The plainti could also plead and prove conduct by the attorney necessary to the accomplishment of the fraudulent scheme, such as meaningless work designed to convey a false impression. The illegitimate and illegal Rules of the Society and the Societys insistence on compliance of the members of the Society to these Rules are sucient to prove this. The welfare facade of the Society that it is engaged in some noble welfare activity for the veteran is another fraudulent scheme. 6 The attorney will argue that everything done in devising and imple- menting a scheme to oppress the members of the Society over a period of 3 decades is merely the rendering of legal services; however the plainti should counter that these particular services are foreign to the duties of an attorney. Poole v. Houston & T.C. Ry, 58 Tex. 134, 137 (1882). VIII Third Party Derivative Client Professor Hazard advocates that where an attorneys client is a duciary of a third party, that third party assumes derivative client status and the actual client is the primary client. Under this model, the attorney eectively has two clients: the primary client (the actual client who hired the attorney) and the derivative client (the beneciary of the primary clients duciary duty). Since the primary client (as a duciary) is obligated to work in the interest of the derivative client (as a beneciary), the attorney is as well. Three consequences of this primary-derivative client model follow: 1. the lawyers obligation to avoid participation in his or her clients fraud is engaged by a more sensitive trigger than usual; 2. the lawyer must ensure that the duciary-primary client volunteers complete and truthful information to the third party-derivative client; and 3. the lawyer has a duty to disobey instructions that would wrongfully harm the third party-derivative client (because a client is not permitted to use an attorney to harm the clients beneciary). Professor Hazard accounts for such problems however, stating that where the client is openly adverse to the beneciary, the joint client model is not viable. Examples of such clear cases arise: 1. where the lawyer is retained to represent the duciary in litigation concerning the performance of the duciary duty; 2. where the lawyer is hired to represent the duciary in negotiating the terms and conditions of his or her oce (the duties and compensation of the duciary, for example); and 7 3. where a lawyer with no prior involvement is hired to negotiate for the termination or reformation of the duciary-beneciary relationship. However, Hazard argues that in the normal legal relationship between duciary and beneciary the duciary is fullling his or her duties and therefore the joint client model poses no such problems. However, if the properly functioning duciary relationship collapses and becomes antagonistic, the lawyer would only be able to represent the interests of his or her true (or primary) client. IX Lawyers Duty to Client Who is a Trustee Traditionally, an attorney could only be liable in tort to his or her own client. However, inroads have reconstructed this maxim, and an attorney has certain responsibilities to third parties, particularly when the third party has a relationship with the attorneys client. In the situation where a lawyers client is also a duciary, the lawyer may have a duty to prevent the client from breaching his or her own duties to the non-client. While argument exists as to whether an attorney is required to prevent a clients breach of duciary duty, a lawyer owes a duty of care to a nonclient when and to the extent that: 1. the lawyers client is a trustee, guardian, executor, or duciary acting primarily to perform similar functions for the nonclient; 2. the lawyer knows that appropriate action by the lawyer is necessary with respect to a matter within the scope of the representation to pre- vent or rectify the breach of a duciary duty owed by the client to the nonclient, where (a) the breach is a crime or fraud or (b) the lawyer has assisted or is assisting the breach; 3. the nonclient is not reasonably able to protect its rights; and 4. such a duty would not signicantly impair the performance of the lawyers obligations to the client. As laid out in subsections above, this duty does not attach in all cir- cumstances in which the client is a duciary only those in which the client exercises substantial power over another (as in the case of a guardian or trustee) and the clients beneciary is not reasonably able to protect its own rights. (Here the Society Members qualify on this as they suered under this 8 for 3 decades) This duty requires attorneys in certain circumstances to clean up their own mess when they have assisted a clients breach of duciary duty, or prevent a mess from being made when the clients breach of duciary duty would be illegal or fraudulent. Such armative duties imply a fundamental duty not to aid in a clients breach of duciary duty at the oset. While imposing a duty of disclosure on the attorney could arguably create con- ict of interest problems and chill clients willingness to communicate frankly with their attorneys, those same problems do not arise by merely barring the attorney from advising or participating in a clients breach of duciary duty . Despite courts conclusions to the contrary, no solid foundation exists to create an exception for attorneys from liability for aiding and abetting a clients breach of duciary duty. Whether created explicitly or by strict interpretation of the elements of the tort, such an exception is inappropriate. X Perpetrating Frauds or Illegal Activity In protecting attorneys from lawsuits alleging aiding and abetting a breach of duciary duty through the imposition of a heightened pleading standard, requiring the plainti to lay out his or her claim in more rigorous detail in the complaint is especially inappropriate. Pleading with such particularity is usually reserved for situations in which even the allegation of the tortious activity could damage a potentially innocent defendant (for example, fraud or mistake). Allegations of aiding and abetting a breach of duciary duty do not rise to the same level of damage in accusation. Any charge of tortious activity inevitably causes some harm to the defendant, but this particular cause of action does no more harm to a professional reputation than other torts, such as malpractice, which do not command heightened levels of specicity at the pleading stage.Attorneys who aid or advise clients in perpetrating frauds or engaging in illegal activity may be held liable for their actions, and indeed the attorney client privilege is not available for communications regarding the fraud or crime. XI Society Context In the present context, the attorney is the legal counsel of the registered So- ciety and paid from contributions of the contributing members ( and NOT the members of the Board of Management) of the Society. He is fully aware that the BoM are usurpers and the rules constructed to administer the Soci- ety are both illegitimate and also illegal to boot. He is aware that that he is 9 NOT employed by a Trustee company providing services of trusteeship and his compensation did not come from the trustee company funds! Hence, the beneciary members of the Society are the actual clients of the legal counsel because the funds came from the Members of the Society! Thus, he decid- edly, deliberately, knowingly and willingly violated his duciary duties to his actual clients. XII Conclusion The acts of the legal counsel are hence unconscionable from this legal theory alone. The reasoning behind such a rule (that a legal counsel is criminally liable) is that society rightfully wishes to discourage attorneys from making such suggestions to clients. The same rationale applies to advising clients to breach duciary duties. Since such advice is to be discouraged, attorneys who proer it should be held liable to the extent they cause harm. Legal counsel of the Society should prepare to be charged with criminal liability on the basis of this legal theory alone. Where all the counsel from A to Z from the legal counsel are illegal, is it possible that the counsel was referring to laws unknown or conicting with the laws of the land? Or, could it be that all the advise of the counsel and the decisions of the defendant monumental stupidity of his legal theory? One such theory seems to be that Society can be compelled to be compliant to the rule of law only if its aggrieved members take them to the court, not other wise with all the exhortations to comply with the law. For us, the essence of adjudication is the opportunity to state our case in our own words to some one who is listening. ********************************** 10