84-F-69 - Reporting Misappropriation

FORMAL ETHICS OPINION 84-F-69


Inquiry is made as to the obligation of Attorney A to report an ethics
violation by Attorney B when such a report may be detrimental to the
client of Attorney A in recovering funds from Attorney B in event of
suspension or disbarment.


Attorney B, while representing a savings and loan association, diverted substantial
amounts from his escrow account that was intended to be paid to a borrower of the
savings and loan association. The attorney has agreed to return the funds. He has made a
substantial refund and assigned expected fees from a lawsuit. In addition, Attorney B
owes the savings and loan association substantial amounts in various loans to him over
the years.
Attorney A represents the savings and loan association and inquires as to his obligation to
report the ethics violation by Attorney B, citing that a suspension or disbarment of
Attorney B may be detrimental to his client in recovering from Attorney B.
Attorney B has admitted to Attorney A the diversion of clients' funds and has provided
Attorney A with copies of checks from his escrow account substantiating the diversion of
funds from the savings and loan association.
Disciplinary Rule 1-102(A) of the Code of Professional Responsibility provides that a
lawyer possessing unprivileged knowledge of misconduct or violation of a Disciplinary
Rule is required to report such knowledge to the proper disciplinary authority.
Disciplinary Rule 7-101(A)(3) of the Code states that a lawyer shall not intentionally
prejudice or damage his client, except as required by DR 7-102 to report the perpetration
of a fraud by the client or a third party.
Therefore, in order to maintain the integrity of the profession, Attorney A is obligated to
report the ethics violation by Attorney B even though such report may be detrimental to
the effort of the client savings and loan association to recover funds misappropriated by
Attorney B.
84-F-69 Page 2
This 12th day of April , 1984.
ETHICS COMMITTEE:
G. Wilson Horde
T. Maxfield Bahner
Charles T. Herndon, III
APPROVED AND ADOPTED BY THE BOARD