ETHICS OPINION 303-1932

ETHICS OPINION 303

NUMBER 303 1932

Question. I have been from time to time employed by a client who makes it a business to purchase second mortgages at a discount. He would make his terms with the mortgagor or assignor, and my function was to arrange with the title company for insurance, and to attend at the closing. For this service I received a fixed sum deemed by me reasonable, and I also received, with the knowledge and consent of my client, the customary percentage from the title company which it allows to attorneys.

I have now, however, learned that my client, in making the terms with the mortgagor or assignor, included as an item for his attorney’s fees a larger amount than the amount which I charged and received. The mortgagor or assignor also paid the title company’s fee for insurance.

My client thus without my knowledge or consent demanded and received as attorney’s fees more than he paid to me. Immediately upon discovering this fact, I refused to permit my client to make such representations of fact, or to collect as an attorney’s fee more than I actually received from him.

As a result he no longer employs me, but I am informed that he employs another lawyer who permits the client to persist in this course, thus exacting for an attorney’s services more than he actually pays the attorney.

In the opinion of the Committee is my course with my client the appropriate one, or could I, with professional propriety, have consented to the continuance of the course by the client of which I thus learned, and which, as I understand, is now being pursued by the attorney whom he subsequently employed?

Answer. The Committee understands that the attorney submitting the question believed, and it assumes he had good reason to believe, that the client habitually represented to the mortgage seller that the client expected to pay a certain sum to his attorney in the transaction, knowing that the payment would be less, and thereby fraudulently induced the mortgage seller to pay the client the amount of such excess.

In the Committee’s opinion it was the attorney’s duty under these circumstances, first, to endeavor to dissuade his client from perpetrating such fraud in any such transaction in which the attorney was employed, and failing in this, to refuse further to serve the client in the transaction. Otherwise the attorney, in effect, would be assisting his client in the perpetration of a fraud.

It appears that the attorney submitting the question pursued the proper course above indicated. If, under like circumstances, the client’s present attorney does not do likewise, his conduct is unprofessional. (See Canons 16, 32 and 41 of the Canons of Professional Ethics of the American Bar Association.)