Opinion 1633

The committee discussed your inquiry regarding the ethical responsibilities of a lawyer and a law firm upon discovery that a previous shareholder or employee had misappropriated client funds. In your inquiry, the ex-shareholder had also forged signatures on a client's check and misrepresented to the client that the law firm's bookkeeper had committed fraud and misappropriated the moneys.

In response to the ex-shareholder's conduct, the lawyers in the firm took the following actions: (1) made full restitution to the client; (2) performed an internal audit of all the ex-shareholder's trust accounts; (3) received a signed and sworn statement from the ex-shareholder of the circumstances of the misappropriation as well as a statement under oath that there were no other misappropriations; (4) independently corroborated the ex-shareholder's statements by comparing them to the law firm's records; (5) reviewed the bookkeeping and trust account mechanisms to assure compliance with RPC 1.14; and (5) employed outside legal assistance to determine the propriety and completeness of the actions taken. You asked the RPC Committee if the lawyer and law firm should take any additional actions to comply with the RPCs.

According to RPC 8.3(a), the lawyer and law firm should promptly report the ex-shareholder's misconduct to the appropriate professional authority. As the rule uses the term "should" rather than "shall", there is no mandatory duty to report misconduct. However, because the term "should" is stronger than "may", the Committee strongly suggests that a lawyer and a law firm promptly report such misconduct.

In addition, the Committee was of the opinion that the lawyer and law firm had a duty under RPC 1.4(b) to notify the client of the following: (1) any potential claims against the client has against the law firm; and (2) that the client may need to seek the advice of independent counsel regarding any other remedies available to the client.

Advisory Opinions are provided for the education of the Bar and reflect the opinion of the Committee on Professional Ethics (CPE) or its predecessors. Advisory Opinions are provided pursuant to the authorization granted by the Board of Governors, but are not individually approved by the Board and do not reflect the official position of the Bar association. Laws other than the Washington State Rules of Professional Conduct may apply to the inquiry. The Committee's answer does not include or opine about any other applicable law other than the meaning of the Rules of Professional Conduct.