UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER鈥橲 CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 98-18
Attorney's Client contracted with General Contractor to construct a project on Client's land. The project is completed; however, several subcontractors have filed mechanics' liens and commenced foreclosure proceedings on these liens. General Contractor has declared insolvency and is unable to pay the subcontractors.
Client owed General Contractor $150,000 under their contract when a plumber gave notice of his claim under a mechanics' lien filing. Client thereafter made an additional payment of $50,000 to General Contractor. Several more subcontractors' mechanics' liens were then filed, totaling $250,000.
Attorney has informed plumber and the other subcontractors that $100,000 remains unpaid by Client to General Contractor under their contract. Plumber is not aware of the $50,000 payment made by client to General Contractor after notice had been given by plumber.
QUESTIONS:
1. Must Attorney disclose to plumber that client paid $50,000 to General Contractor after notice of plumber's mechanics' lien?
2. May Attorney make a statement to all of the subcontractors that client owes to subcontractors no more than the amount owed to General Contractor and stating that $100,000 is the amount currently owed, not mentioning the $50,000 payment made after notice of the plumber's mechanics' lien?
SUMMARY:
1. The issue of disclosure is a question of substantive law beyond the scope of this committee because it turns on the issue of whether a criminal or fraudulent act has occurred. Assuming no fraudulent or criminal act has occurred, there is no duty to disclose Client's payment to General Contractor.
2. Attorney's statement that $100,000 is all that is owed to the subcontractors violates RPC 4.1(a), Rule 407, SCACR, because this proposed statement is false and misleading.
OPINION:
Rule of Professional Conduct 4.1 states:
In the course of representing a client a lawyer shall not knowingly:
(a) Make a false statement of material fact of law to a third person; or
(b) Fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.
Applicable comments under this Rule are:
MISREPRESENTATION
A lawyer is required to be truthful when dealing with others on a client's behalf, but generally has no affirmative duty to inform an opposing party of relevant facts. A misrepresentation can occur if the lawyer incorporates or affirms a statement of another person that the lawyer knows is false. Misrepresentations can occur by failure to act.
STATEMENT OF FACT
This rule refers to statements of fact. Whether a particular statement should be regarded as one of fact can depend on the circumstances. Under generally accepted conventions in negotiation, certain types of statements ordinarily are not taken as statements of material fact. Estimates of price or value placed on the subject of a transaction and a party's intentions as to an acceptable settlement of a claim are in this category, and so is the existence of an undisclosed principal except where nondisclosure of the principal would constitute fraud.
This committee does not pass on the issue of the duty to disclose under section (b) of Rule 4.1 because among the other issues raised, it raises an issue of substantive law which is beyond this committee's scope.
Attorney is under no duty to give any information concerning the issue if he so chooses. This could be obtained in accordance with discovery procedure under the rules of civil procedure. However, having chosen to give a summary statement of the law and facts, there is a duty not to make a false or misleading statement of a material fact to a third person. The summary given by Attorney is false and misleading in that it did not state the amount due to General Contractor prior to client receiving notice of the plumber's mechanics' lien.
The summary stated by Attorney is in the nature of negotiation between parties. A lawyer is not required to inform an opposing party of all relevant facts, but must not make false statements of fact. Opposing parties can get the facts through the discovery procedure contained in the South Carolina Rules of Civil Procedure.