Cal. State Bar Formal Opn. No. 2013-189 — Deceitful Conduct

THE STATE BAR OF CALIFORNIA
STANDING COMMITTEE ON
PROFESSIONAL RESPONSIBILITY AND CONDUCT
FORMAL OPINION NO. 2013-189
ISSUE: Has an attorney engaged in deceitful conduct by not alerting opposing counsel
of: (A) an apparent material error made by opposing counsel in contract
language; or (B) a material change made by the attorney in contract language?
DIGEST: Where an attorney has engaged in no conduct or activity that induced an
apparent material error by opposing counsel, the attorney has no obligation to
alert the opposing counsel of the apparent error. However, where the attorney
has made a material change in contract language in such a manner that his
conduct constitutes deceit, active concealment or fraud, the failure of the
attorney to alert opposing counsel of the change would be a violation of his
ethical obligations.
AUTHORITIES
INTERPRETED: Rule 3-700(B)(2) of the Rules of Professional Conduct of the State Bar of
California.
1
1/
Business and Professions Code section 6106.
Business and Professions Code section 6128(a).
STATEMENT OF FACTS
Buyer and Seller have been in discussions regarding the sale of the Company from Seller to Buyer, and
have agreed in concept to some of the material terms, including total consideration of $5 million to be paid
by Buyer and Buyer’s requirement that Seller enter into a covenant not to compete with the Company
following the sale. Buyer’s Attorney and Seller’s Attorney are tasked with preparing a Purchase and Sale
Agreement to reflect the agreement of the parties.
Buyer’s Attorney prepares an initial draft of the Purchase and Sale Agreement. One section towards the
back of the 50-page draft agreement contains the terms of an enforceable covenant not to compete, and
includes a provision that Buyer’s sole and exclusive remedy for a breach by Seller of its covenant not to
compete is the return of that portion of the total consideration which has been allocated in the Purchase and
Sale Agreement for the covenant not to compete. Another section in the front of the draft agreement
provides that, of the $5 million to be paid by Buyer, $3 million is to be allocated to the purchase price for
the Company and $2 million is to be allocated as consideration for the covenant not to compete.
Scenario A
After soliciting input on the initial draft from Seller and Seller’s tax advisor, Seller’s Attorney provides
Buyer’s Attorney with comments on the initial draft, including the observation from Seller’s tax advisor
that payments received by Seller with respect to the covenant not to compete are not as favorable, from a
tax perspective, as payments with respect to the purchase price for the Company.
Buyer’s Attorney then prepares a revised version of the Purchase and Sale Agreement which, apparently in
response to the comments of Seller’s Attorney, provides for an allocation of only $1 as consideration for
1/ Unless otherwise indicated, all future references to rules in this opinion will be to the Rules of
Professional Conduct of the State Bar of California.

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the covenant not to compete with $4,999,999 allocated to the purchase price for the Company. In
reviewing the changes made in the revised version, Seller’s Attorney recognizes that the allocation of only
$1 as consideration for the covenant not to compete essentially renders the covenant meaningless, because
Buyer’s sole and exclusive remedy for breach by Seller of the covenant would be the return by Seller of $1
of the total consideration. Seller’s Attorney notifies Seller about the apparent error with respect to the
consequences of the change made by Buyer’s Attorney. Seller instructs Seller’s Attorney to not inform
Buyer’s Attorney of this apparent error. Seller’s Attorney says nothing to Buyer’s Attorney and allows the
Purchase and Sale Agreement to be entered into by the parties in that form.
Scenario B
2
After receiving the initial draft from Buyer’s Attorney, Seller’s Attorney prepares a revised version of the
Purchase and Sale Agreement which provides for an allocation of only $1 as consideration for the covenant
not to compete, with the intent of essentially rendering the covenant not to compete meaningless. Although
Seller's Attorney had no intention of keeping this change secret from Buyer's Attorney, Seller's Attorney
generates a “redline” of the draft that unintentionally failed to highlight the change, and then tenders the
revised version to Buyer's Attorney. Subsequently, Seller’s Attorney discovers the unintended defect in the
“redline” and notifies Seller about the change, including the failure to highlight the change, in the revised
version. Seller instructs Seller’s Attorney to not inform Buyer’s Attorney of the change. Seller’s Attorney
says nothing to Buyer’s Attorney and allows the Purchase and Sale Agreement to be entered into by the
parties in that form.
Under either Scenario, has Seller’s Attorney violated any ethical duties?2/
DISCUSSION
Following Client’s Instruction to Not Disclose
Attorneys generally must follow the instructions of their clients. See ABA Model Rule 1.2(a) (“a lawyer
shall abide by a client's decisions concerning the objectives of representation and, as required by [ABA
Model] Rule 1.4, shall consult with the client as to the means by which they are to be pursued. A lawyer
may take such action on behalf of the client as is impliedly authorized to carry out the representation …”).3/
However, if the client insists on certain unethical conduct, the attorney may have an obligation to withdraw
from the representation. Rule 3-700(B)(2) provides “[a] member representing a client . . . shall withdraw
from employment, if: . . . [t]he member knows or should know that continued employment will result in
violation of these rules or of the State Bar Act.” Such an obligation, for example, may arise if the unethical
conduct in question involves a fraudulent failure to make a disclosure. As the Los Angeles County Bar
Association has opined, upon discovering that an adverse party made an overpayment under a settlement
agreement, “[c]ounsel is obligated to inform his/her client of the overpayment under [rule] 3-500. Under
[Bus. & Prof. Code,] § 6068(e) . . ., where the client has requested the information be held in confidence,
the attorney is obligated to preserve the secret. The attorney should counsel the client to disclose and return
2/ This opinion addresses a situation arising out of a transaction setting only, and because the matter is
not pending before a tribunal, a lawyer’s duty of candor to the court found in rule 5-200 and Business and
Professions Code section 6068(d) are not being addressed in this opinion. See Datig v. Dove Books, Inc.
(1999) 73 Cal.App.4th 964, 980-981 [87 Cal.Rptr.2d 719].
3/ The ABA Model Rules are not binding in California but may be used for guidance by lawyers where
there is no direct California authority and the ABA Model Rules do not conflict with California policy.
City & County of San Francisco v. Cobra Solutions, Inc. (2006) 38 Cal.4th 839, 852 [43 Cal.Rptr.3d 771].
Thus, in the absence of related California authority, we may look to the ABA Model Rules, and the ABA
Opinions interpreting them, as well as the ethics opinions of other jurisdictions or bar associations for
guidance. (Rule 1-100(A) (ethics opinions and rules and standards promulgated by other jurisdictions and
bar associations may also be considered); State Comp. Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644,
656 [82 Cal.Rptr.2d 799]).

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the overpayment. If the client refuses, however, the attorney must consider whether the failure to disclose
constitutes fraud. The attorney must then determine whether he/she may or must withdraw from the
representation pursuant to [rule] 3-700.” Los Angeles County Bar Assn. Formal Opn. No. 520.
Under either Scenario A or Scenario B of our Statement of Facts, once Seller’s Attorney has informed
Seller of the development,
3
4/ Seller’s Attorney must abide by the instruction of Seller to not disclose. If,
however, failure to make such disclosure constitutes an ethical violation by Seller’s Attorney, then Seller’s
Attorney may have an obligation to withdraw from the representation under such circumstances. See Cal.
State Bar Formal Opn. No. 1996-146.
Failure to Alert Opposing Counsel
Attorneys are held to a high standard, and may be subject to general obligations of professionalism. For
example, attorneys have been held to have a duty to respect the legitimate interests of opposing counsel.
“An attorney has an obligation not only to protect his client’s interests but also to respect the legitimate
interests of fellow members of the bar, the judiciary, and the administration of justice.” Kirsch v. Duryea
(1978) 21 Cal.3d 303, 309 [146 Cal.Rptr. 218] (overturning a malpractice judgment against an attorney for
withdrawing from a case he believed lacked merit). Further, this Committee has previously concluded that
attorneys should treat opposing counsel with candor and fairness. (See Cal. State Bar Formal Opn. No.
1967-11 [“It is true that, under [former] canon 15 of the Canons of Ethics of the American Bar Association,
an attorney must zealously advance the interests of his client, but not by using ‘any manner of fraud or
chicane. He must obey his own conscience and not that of his client.’ One of the obligations of conscience
to which the lawyer must conform is stated in [former] canon 22: his conduct with other lawyers ‘should be
characterized by candor and fairness.’ [Former] canon 29 states that a lawyer ‘should strive at all times to
uphold the honor and to maintain the dignity of the profession . . .’ All of the canons are commended to the
members of the State Bar by rule [former] 1 of the Rules of Professional Conduct of the State Bar.”]). 5/
See also ABA Model Rule 3.4.6/
4/ Attorneys have an obligation to keep their clients reasonably informed about significant developments
relating to the matter for which they have been employed. Rule 3-500 and Bus. & Prof. Code, § 6068(m).
See also rule 3-510. Both the apparent error made by Buyer’s Attorney in Scenario A and the intentional
change made by Seller’s Attorney in Scenario B would constitute a “significant development,” which
would require that Seller be informed of the potential for added costs and burdens of enforcement,
including litigation and the likelihood that Buyer may seek reformation of the Purchase and Sale
Agreement. See Civ. Code, §§ 3399, 1689. See also Dyke v. Zaiser (1947) 80 Cal.App.2d 639 [182 P.2d
344] and Stare v. Tate (1971) 21 Cal.App.3d 432 [98 Cal.Rptr. 264]. On the other hand, if Seller’s
Attorney intends to inform Buyer’s Attorney of the apparent error, Seller’s Attorney need not inform Seller
of the apparent error. Where a client has already agreed to a contract provision which is inadequately
reflected in the draft contract prepared by opposing counsel, the inadvertent error by opposing counsel by
itself (i.e., unless left uncorrected in the final executed version) does not constitute a significant
development, and the client’s attorney may correct the drafting error and need not inform the client. See
ABA Informal Opn. No. 86-1518 (attorney has no obligation to inform his client of the error because “the
decision on the contract ha[d] already been made by the client.”).
5/ An insertion added by the Committee is placed in brackets and italicized to distinguish it from
bracketed insertions appearing in the original material.
6/ See also, the California State Bar’s California Attorney Guidelines of Civility and Professionalism,
(posted online at http://ethics.calbar.ca.gov/LinkClick.aspx?fileticket=mPBEL3nGaFs%3d&tabid=455 (as
of May 20, 2013)) which, among other things, encourages attorneys “to be professional with . . . other parties
and counsel . . . .” We note, however, that such guidelines are nonbinding: “[T]he Guidelines are
[voluntary and] not mandatory rules of professional conduct, nor rules of practice, nor standards of care,
[and] they are not to be used as an independent basis for disciplinary charges by the State Bar or claims of
professional negligence.” California Attorney Guidelines of Civility and Professionalism, adopted by the
Board of Trustees July 20, 2007, long version at page 3. A copy is on file with the State Bar.

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Any duty of professionalism, however, is secondary to the duties owed by attorneys to their own clients.
There is no general duty to protect the interests of nonclients. Fox v. Pollack (1986) 181 Cal.App.3d 954,
961 [226 Cal.Rptr. 532] (“an attorney has no duty to protect the interests of an adverse party [citations] for
the obvious reasons that the adverse party is not the intended beneficiary of the attorney’s services, and that
the attorney’s undivided loyalty belongs to the client.”). See also Skarbrevik v. Cohen, England &
Whitfield (1991) 231 Cal.App.3d 692, 702 [282 Cal.Rptr. 627] (“no [attorney] duty has been found when
the third party is someone with whom the client is dealing at arm’s length, rather than someone intended to
be benefited by the attorney-client transaction.”). Furthermore, a duty to nonclients would damage the
attorney-client relationship. Fox, supra, 181 Cal.App.3d at p. 962 (“The effect of such a duty on
respondent would be the eradication of confidentiality (Bus. & Prof. Code, § 6068 subd. (e); Evid. Code, §
950 et seq.), the creation of a conflict of interest ([former] rules 4-101, 5-101, 5-102, Rules Prof. Conduct)
and the consequent destruction of the attorney-client relationship between respondent and his clients.”).
Attorneys generally owe no duties to opposing counsel nor do they have any obligation to correct the
mistakes of opposing counsel. There is no liability for conscious nondisclosure absent a duty of disclosure.
Goodman v. Kennedy (1976) 18 Cal.3d 335, 342, 346 [134 Cal.Rptr. 375]. There is also no duty to correct
erroneous assumptions of opposing counsel. See ABA Formal Opn. No. 94-387 (no duty to disclose to
opposing party that statute of limitations has run). See also Ethical Guidelines for Settlement Negotiations
(August 2002), ABA Section of Litigation, at page 56,
4
7/ (“there is no general ethics obligation, in the
settlement context or elsewhere, to correct the erroneous assumptions of the opposing party or opposing
counsel . . .”).8/
On the other hand, it is unlawful (and a violation of an attorney’s ethical obligations) for an attorney to
commit any act of moral turpitude, dishonesty, or corruption. Business and Professions Code section 6106
provides that: “The commission of any act involving moral turpitude, dishonesty or corruption, whether the
act is committed in the course of his relations as an attorney or otherwise, and whether the act is a felony or
misdemeanor or not, constitutes a cause for disbarment or suspension.” It is similarly inappropriate for an
attorney to engage in deceit or active concealment, or make a false statement of a material fact to a
nonclient. Business and Professions Code section 6128(a) provides that: “Every attorney is guilty of a
misdemeanor who . . . [i]s guilty of any deceit or collusion, or consents to any deceit or collusion, with
intent to deceive the court or any party.” Also, an attorney may not knowingly assist his or her client in any
criminal or fraudulent conduct. See: rule 3-210 (“A member shall not advise the violation of any law, rule,
or ruling of a tribunal unless the member believes in good faith that such law, rule, or ruling is invalid.”);
Business and Professions Code section 6068(a) (it is the duty of an attorney to “support the Constitution
and laws of the United States and of this state.”); and ABA Model Rule 1.2(d) (“A lawyer shall not counsel
a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent.”).9/
7/ Posted online at:
http://www.americanbar.org/content/dam/aba/migrated/2011_build/dispute_resolution/settlementnegotiatio
ns.pdf (as of May 20, 2013). A copy is on file with the State Bar.
8/ This opinion does not address a scrivener’s error. See ABA Informal Opn. No. 86-1518: interpreting
Model Rule 1.2(d) to conclude that where a transcription of an agreement contains a scrivener’s error, an
attorney cannot allow his or her client to benefit from the mistake and must notify the other party’s attorney
(“Where the lawyer for A has received for signature from the lawyer for B the final transcription of a
contract from which an important provision previously agreed upon has been inadvertently omitted by the
lawyer for B, the lawyer for A, unintentionally advantaged, should contact the lawyer for B to correct the
error and need not consult A about the error.”). See also In re Conduct of Gallagher (Or. 2001) 332 Or.
173 [26 P.3d 131] (attorney who was aware of opposing counsel’s mistake regarding settlement checks –
settlement amount had been wrongly calculated – had a duty to correct such mistake). But see Md. State
Bar Ass’n, Comm. on Ethics Opn. No. 89-44 (1989) (opining that there is no obligation to reveal the
omission of a material term in a contract).
9/ See also ABA Model Rule 8.4(c) (“It is professional misconduct for a lawyer to . . . engage in conduct
involving dishonesty, fraud, deceit or misrepresentation”); ABA Model Rule 4.1 [Truthfulness In
Statements To Others] (“In the course of representing a client a lawyer shall not knowingly: (a) make a

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As a result, an attorney may have an obligation to inform opposing counsel of his or her error if and to the
extent that failure to do so would constitute fraud, a material misstatement, or engaging in misleading or
deceitful conduct.
5
10/ “While an attorney’s professional duty of care extends only to his own client and
intended beneficiaries of his legal work, the limitations on liability for negligence do not apply to liability
for fraud. [Citation.] Accordingly, a lawyer communicating on behalf of a client with a nonclient may not
knowingly make a false statement of material fact to the nonclient [citation] . . . .” Vega v. Jones, Day,
Reavis & Pogue (2004) 121 Cal.App.4th 282, 291 [17 Cal.Rptr.3d 26].11/ Even when no duty of disclosure
would otherwise exist, “where one does speak he must speak the whole truth to the end that he does not
conceal any facts which materially qualify those stated. [Citation.] One who is asked for or volunteers
information must be truthful, and the telling of a half-truth calculated to deceive is fraud.” Cicone v. URS
Corp. (1986) 183 Cal.App.3d 194, 201. See Goodman, supra, 18 Cal.3d at pp. 346-347 and Shafer v.
Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2003) 107 Cal.App.4th 54, 72 [131 Cal.Rptr.2d
777].12/
Scenario A
In Scenario A of our Statement of Facts, although the Purchase and Sale Agreement contains a covenant
not to compete, the apparent error of Buyer’s Attorney limits the effectiveness of the covenant because the
penalty for breach results in payment by Seller of only $1. However, Seller’s Attorney has engaged in no
conduct or activity that induced the apparent error. Further, under our Statement of Facts, there had been
no agreement on the allocation of the purchase price to the covenant, and the Purchase and Sale Agreement
does in fact contain a covenant not to compete the terms of which are consistent with the parties’ mutual
understanding. Under these circumstances, where Seller’s Attorney has not engaged in deceit, active
[footnote continued…]
false statement of material fact or 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.”); Ethical Guidelines for Settlement Negotiations (August 2002), ABA
Section of Litigation, at pages 56–57, (“the duty to avoid misrepresentations and misleading conduct
implies a professional responsibility to correct mistakes induced by the lawyer or the lawyer’s client and
not to exploit such mistakes.”); and In Re Martinez (Bankr. D. Nev. 2008) 393 B.R. 27, 35 (attorneys
sanctioned for “advocating the propriety of [a] mistaken stipulation when they knew, or should have
known, that the continued assertion of the validity of the stipulation, and the order entered on it, was not
‘warranted by existing law.’”).
10/ “Active concealment or suppression of facts by a nonfiduciary ‘is the equivalent of a false
representation, i.e., actual fraud. [Citation.]’” Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th
282, 291 [17 Cal.Rptr.3d 26]. See Fox, supra, 181 Cal.App.3d at p. 962 and 5 Witkin, Cal. Procedure (4th
ed. 1997) Pleading, 678, p. 136.
11/ If a person commits actual fraud, the fact that such person does so in the capacity of attorney does not
relieve the person of liability. See: Goodman, supra, 18 Cal.3d at p. 346; and Vega, supra, 121
Cal.App.4th at p. 291 (“A fraud claim against a lawyer is no different from a fraud claim against anyone
else.”). Also, the fact that the other person is also an attorney makes no difference. Cicone v. URS Corp.
(1986) 183 Cal.App.3d 194, 202 [227 Cal.Rptr. 887] (“the case law is clear that a duty is owed by an
attorney not to defraud another, even if that other is an attorney negotiating at arm’s length.”).
12/ See also Vega, supra, 121 Cal.App.4th at p. 294 (“it is established by statute ‘that intentional
concealment of a material fact is an alternative form of fraud and deceit equivalent to direct affirmative
misrepresentation’ [citations omitted] . . . . In some but not all circumstances, an independent duty to
disclose is required; active concealment may exist where a party ‘[w]hile under no duty to speak,
nevertheless does so, but does not speak honestly or makes misleading statements or suppresses facts which
materially qualify those stated.’” [Fn. omitted.]); Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85, 97
[111 Cal.Rptr.2d 711]; Stevens v. Superior Court (1986) 180 Cal.App.3d 605, 608 [225 Cal.Rptr. 624].

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concealment or fraud, we conclude that Seller’s Attorney does not have an affirmative duty to disclose the
apparent error to Buyer’s Attorney.
6
13/
Scenario B
Had Seller’s Attorney intentionally created a defective “redline” to surreptitiously conceal the change to the
covenant not to compete, his conduct would constitute deceit, active concealment and possibly fraud, in
violation of Seller’s Attorney’s ethical obligations. However, in Scenario B of our Statement of Facts,
Seller’s Attorney intentionally made the change which essentially renders the covenant not to compete
meaningless, but unintentionally provided a defective “redline” that failed to highlight for Buyer’s Attorney
that the change had been made. Under these circumstances, and prior to discovery of the unintentional
defect, Seller’s Attorney has engaged in no such unethical conduct. But once Seller’s Attorney realizes his
own error, we conclude that the failure to correct that error and advise Buyer’s Attorney of the change
might be conduct that constitutes deceit, active concealment and/or fraud, with any such determination to
be based on the relevant facts and circumstances.14/ If Seller instructs Seller’s Attorney to not advise
Buyer’s Attorney of the change, where failure to do so would be a violation of his ethical obligations,
Seller’s Attorney may have to consider withdrawing.15/
CONCLUSION
Where an attorney has engaged in no conduct or activity that induced an apparent material error by
opposing counsel, the attorney has no obligation to alert the opposing counsel of the apparent error.
However, where the attorney has made a material change in contract language in such a manner that his
conduct constitutes deceit, active concealment, or fraud, the failure of the attorney to alert opposing counsel
of the change would be a violation of his ethical obligations.
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State
Bar of California. It is advisory only. It is not binding upon the courts, the State Bar of California, its
Board of Trustees, any persons, or tribunals charged with regulatory responsibilities, or any member of the
State Bar.
13/ We do not address whether such conduct is offensive or unprofessional – only that such conduct does
not violate Seller’s Attorney’s ethical obligations.
14/ Any such determination – which may depend, for example, on whether the changed provision is
further negotiated and revised (thereby effectively calling Buyer’s Attorney’s attention to the changed
language) – is beyond the scope of this opinion. See, e.g., Cal. State Bar Formal Opn. No. 1996-146 (“A
lawyer acts unethically where she assists in the commission of a fraud by implying facts and circumstances
that are not true in a context likely to be misleading.”); cf. Datig, supra, 73 Cal.App.4th at pp. 980-981
(once attorney realized he had negligently misled the court, the attorney had an affirmative duty to
immediately notify the court).
15/ Subject to any ethical obligations regarding withdrawal from representation. See, e.g., rule 3-700.

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