84-F-69 - Reporting Misappropriation

 

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

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.

This 12th day of April, 1984.

ETHICS COMMITTEE:

G. Wilson Horde
T. Maxfield Bahner
Charles T. Herndon, III

APPROVED AND ADOPTED BY THE BOARD