ETHICS DOCKET NO. 2004-20

MARYLAND STATE BAR ASSOCIATION, INC.

COMMITTEE ON ETHICS

ETHICS DOCKET NO. 2004-20

CONFIDENTIALITY: May a Lawyer Engaged in a Fee Dispute with a Client Report that Client’s Delinquent Account to a Credit Reporting Agency

Your letter states that a client owes his attorney a substantial amount of money for legal fees for services and litigation expenses arising out of a representation agreement for the defense of claims and assertion of counterclaims in a litigation matter. The attorney has made demands for payment by the client, but the client has failed to pay the attorney for amounts due and owing. The amounts due and owing to the attorney have been outstanding and delinquent for over six months.

You ask whether it would violate the Maryland Rules of Professional Conduct if the attorney reports the client's delinquent account to a credit reporting agency so that the amounts due and owing the attorney would be reflected on the client's credit report as an outstanding and unresolved debt obligation.

Rule 1.6(a) of the Maryland Rules of Professional Conduct provides that "[a] lawyer shall not reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraph (b)." This confidentiality rule applies not merely to matters communicated in confidence by the client, but also to all information relating to the representation, whatever its source.

If the client consented to the report to the credit reporting agency, after consultation, the lawyer could report the delinquent debt to the agency. Otherwise, the attorney may not report the delinquent debt to the credit reporting agency unless such disclosure is "impliedly authorized in order to carry out the representation" or permitted by the exceptions found in Rule 1.6(b).

The Committee does not believe the report of the delinquent debt to the credit reporting agency is "impliedly authorized in order to carry out the representation." It would appear from the facts that the representation is now complete and a report to a credit reporting agency was never contemplated by either party at the outset of the representation. On the other hand, if the representation agreement signed at the beginning of the representation acknowledged that the attorney had the right to report the delinquent debt to the credit reporting agency, then the Committee believes such a report might be possible, assuming that the client had granted its consent after consultation.

The exceptions to restrictions on disclosure appear in Rule 1.6(b) which provides that:

"(b) A lawyer may reveal such information to the extent the lawyer reasonably believes necessary:

1. to prevent the client from committing a criminal or fraudulent act that the lawyer believes is likely to result in death or substantial bodily harm or in substantial injury to the financial interests or property of another;
2. to rectify the consequences of a client's criminal or fraudulent act in the furtherance of which the lawyer's services were used;
3. to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, or to establish a defense to a criminal charge, civil claim, or disciplinary complaint against the lawyer based upon conduct in which the client was involved or to respond to allegations in any proceedings concerning the lawyer's representation of the client.
4. to comply with these Rules, a court order or other law."

These exceptions elaborate circumstances under which it is permissible for an attorney to disclose confidential information. Rule 1.6(b)(3) permits an attorney to disclose confidential information to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client. This exception would permit the lawyer to pursue a claim against the client for the payment of fees.

The comments to Rule 1.6 make it clear that a lawyer may disclose confidential information "to establish or collect his fee". Such disclosure, however, is limited to the extent necessary to establish the lawyer's claim. The lawyer must make "every effort practicable" to avoid unnecessary disclosure of information relating to the representation, to limit disclosure to those having a need to know it, and to obtain protective orders or make other arrangements minimizing the risk of disclosure.

Although the specific question you ask has never before been considered in Maryland, ethics committees in other states have considered whether an attorney may report delinquent accounts to credit bureaus. These other ethics committees have generally advised lawyers not to report delinquent accounts to credit bureaus, which merely maintain records and provide reports on credit, because such reporting to credit bureaus is not necessary for debt collection, is punitive and risks unauthorized disclosure of confidential client information. (See Alaska Ethics Opinion 2000-3 (2000); N.Y. State Bar Ass'n Comm. on Professional Ethics, Op. 684 (1996); and S.C. Bar Ethics Advisory Comm., Op. 94-11 (1994).)

In 1991, this Committee considered whether a law firm could provide its bank with a list of the law firm's accounts receivable - a condition required by the bank for renewal of the law firm's line of credit. In Ethics Docket 91-54, the Committee concluded that the identity of the law firm's clients is information relating to the representation of those clients and, without the consent of the clients, the law firm could not reveal this information to the bank.* The Committee was subsequently asked to reconsider its opinion in Ethics Docket 91-54 and re-affirmed its decision, stating in Ethics Docket 93-8:

"Disclosure of a client's identity and the fact that he owes money...is governed by the rules of confidentiality.... The Comments to Rule 1.6 also make it clear that a lawyer must be scrupulous in his adherence to the mandates of the rule.... [D]isclosure to a lender of a client's identity and the fact that he owes money to a law firm is prohibited by Rule 1.6."

The Committee did indicate, however, in Ethics Docket 93-8, its belief that a law firm could seek the consent of its clients, in an initial engagement letter or otherwise, authorizing the firm to reveal such information.

The Committee believes that the prudent course of action, absent having received the client's consent and given the fact that the fees owed to the attorney are substantial and have been delinquent for more than six months, would be to pursue other means of collection, giving the client an opportunity to assert any defenses that might be available. The Committee notes that the Maryland State Bar Association has a program that focuses on resolution of attorney client fee disputes through mediation or binding arbitration. This program is conducted by the MSBA's Resolution of Fee Disputes Committee and might benefit the attorney in resolving this fee dispute with his client. The Comments to Rule 1.5 of the Maryland Rules of Professional Conduct recommend that a lawyer "conscientiously consider" submitting to procedures such as mediation or arbitration established by the bar for resolution of fee disputes.

Otherwise, the Committee believes that the lawyer cannot report the delinquent account to the credit agency and at the same time avoid unnecessary disclosures, limit disclosure to those having a need to know and obtain protective orders or make other arrangements minimizing the risks of disclosure. The sole purpose of reporting to a credit agency is to publicize the debt of the client to all parties seeking copies of the client's credit report. For this reason, a report to the credit agency would be a violation of Rule 1.6, because such reporting is not designed to expedite payment and the attorney cannot practically make "all practicable efforts" to avoid unnecessary disclosures.