MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2023-03
IS THERE A DUTY TO ADVISE FORMER CLIENTS OF A CHANGE IN THE LAW?
We received an inquiry from the MSBA Business Law Section asking whether an attorney has an affirmative duty to advise a former client with respect to a change in the law that may impact a former client.
Specifically, the inquiry sets forth that Congress passed the Corporate Transparency Act, codified as 31 U.S.C. 5336, (“the Act”), which became effective January 1, 2021. The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, subsequently promulgated regulations under the Act that are to take effect of January 1, 2024. 31 CFR 1010 (the “Regulations”). The Act and the Regulations require newly created business entities (with certain exceptions) to file, within 30 days of creation, Beneficial Ownership Reports that identify any individual(s) who own, directly or indirectly, 25% or more of the equity interests in the business entity or otherwise control such entity (“Beneficial Owners”). Such Beneficial Ownership Reports must also disclose certain personally identifiable information about the Beneficial Owners. The inquiry relays that the Act also requires business entities that were formed prior to January 1, 2024 to file a Beneficial Ownership Report within one year of the effective date of the Regulations, and failure to file such a report subjects the senior officers of the entity to both civil and criminal penalties (including a $500 civil penalty for each day that report is not filed and up to a $10,000 fine and two-year imprisonment).
The question posed to the Committee is:
“Whether, under the Maryland Rules of Professional Conduct, there is an affirmative obligation on the part of a lawyer to notify or attempt to notify former clients of the passage of this Act and the promulgation of the Regulations, particularly with regard to any business entity clients that the lawyer may have helped to create prior to the effective date of the Regulations? In that regard, would a failure to notify or attempt to notify such clients be considered a failure in the lawyer’s duty of diligence or competence to clients under Rules 19-301.1, 19-301.3 or 19-301.9? Does the lawyer have an affirmative obligation to the entity or the officers of the entity that he or she created, but may no longer represent, to ensure compliance with the Act and the Regulations under Rule 19-301.13?
Or, conversely, does the duty to notify the client of the obligation to file Beneficial Ownership Reports required by the Act and the Regulations fall outside the general scope of representation and the lawyer’s ethical obligations where the lawyer’s prior engagement has terminated?”
The short answer is that an attorney does not have an affirmative duty to advise a former client of a change in the law. As you note, where the representation has terminated and no attorney-client relationship exists, the individual or organization is no longer a client, but is instead a former client. With regard to the specific rules that you reference, Rule 19-301.1 (Competence), 19-301.3 (Diligence) and Rule 19-301.13 (Organization as Client) all contemplate obligations to a client as opposed to a former client. As such, they do not apply or impose an affirmative duty to notify or advise a former client after the representation has terminated. Conversely, Rule 19-301.9 (Duties to Former Clients) does expressly address duties to former clients, but does not impose any duty to provide legal advice or notification about a change in the law. Instead, the duties to former clients under the latter Rule are to avoid conflicts of interests (Rule 19- 301.9(a) & (b)) and to protect the confidentiality of information shared by the former client and refrain from using it to the disadvantage of the former client (Rule 19-301.9(c)).
The trickier issue may be determining whether the representation has terminated such that an individual or organization is actually a former client. Termination of a representation is a factual issue dependent upon the particular circumstances. A letter terminating the representation or recognizing that it has been completed is a best practice, but often there is no such writing memorializing the end of the representation. Since the inquiry assumes that the representation has terminated, this issue is beyond the scope of the inquiry.
We hope this response is helpful. Thank you for contacting the Committee on Ethics.
Very truly yours,
MSBA COMMITTEE ON ETHICS
REFERENCES:
• Rules cited
MRPC 19-301.1
MRPC 19-301.3
MRPC 19-301.9
MRPC 19-301.13