How often in the course of a representation do you think to yourself, if only I could act on this information, I could really make some money with it? Or, couldn’t I just “guide” my friends in business to better choices- I wouldn’t be hurting anybody? In the current foreclosure mess in the United States, this thought has apparently crossed enough minds that a recent Ethical Opinion was issued to clarify the rules of confidentiality and lawyer self-dealing.

In the United States, when it comes to the use of information and your professional responsibilities, much depends on whether the information is “disadvantageous” or “detrimental” to the client. If not, it might be possible for the lawyer to use the information to his own benefit- even without consent, though it is important to carefully judge the Rules before engaging in such side businesses.

A recent (November 2013) NY Ethics opinions address these issues under illuminating and tempting circumstances. In Opinion 991 (11/12/13), we exam to what extent information gained by a young lawyer through his role in trials and as a mediator in foreclosure cases on behalf of Lenders can be transmitted to his college pals to assist in evaluating “good investment” property for their LLC – an LLC the old friends have asked that he join.

As the friends are only asking for “good leads” on foreclosure properties and the trials or mediations are public record, it is possible to at first think this information to be beyond the scope of a lawyer’s duty of confidentiality (Rule 1.6). And in fact, a quick reading of Rule 1.6, Confidentiality, might lead a person to believe so, as it states:

"Confidential information" consists of information gained during or relating to the representation of a client, whatever its source, that is (a) protected by the attorney client privilege, (b) likely to be embarrassing or detrimental to the client if disclosed, or (c) information that the client has requested be kept confidential. "Confidential information" does not ordinarily include (i) a lawyer's legal knowledge or legal research or (ii) information that is generally known in the local community or in the trade, field or profession to which the information relates.

In recent years, the NY regulators have taken steps to clearly articulate the limit of what is “generally known”. Information that is generally known in the local community or in the trade, field or profession to which the information relates is not protected, unless the client and the lawyer have otherwise agreed. However, Opinion 991 was explicit in reiterating that “Information is not "generally known" simply because it is in the public domain or available in a public file.”

Many NY lawyers have believed that so long as information they were disclosing was available elsewhere in a public file, it was no longer “confidential”. This is not true and the New York State Bar Association has gone so far as to amend the comments in 2011 to reflect this fact. As Opinion 991 states, “legislative history strongly suggests that information in the public domain may be protected as confidential information even if the information is not “difficult or expensive to discover” and even if it could be obtained without “great effort” and without a Freedom of Information request or other formal process.”

For this reason, information – even if available to the public- on the identity of a few particular properties that would make sound investments, out of hundreds or thousands or homes in a particular locale, is still not “generally known” and is confidential within the meaning of Rule 1.6 Confidential Information and may not be disclosed without the client’s informed consent or under another exception.

Moreover, even if you were not persuaded by Opinion 991 that the leads on foreclosed property were confidential information, when any information at issue is disadvantageous to the client, the very broad Rule 1.8(b) is also applicable. It provides:
(b) A lawyer shall not use information relating to representation of a client to the disadvantage of the client unless the client gives informed consent, except as permitted or required by these Rules.

The similarity of the two rules can be confusing: At first glance, Rule 1.8(b) appears to duplicate the prohibition in Rule 1.6(a) against using confidential information “to the disadvantage of a client.” But Rule 1.8(b) – unlike Rule 1.6(a) -- applies to all information “relating to representation of a client,” whether or not the information is protected by the attorney-client privilege, whether or not disclosure would not be embarrassing or detrimental to the client, and whether or not the client has not requested that the information be held inviolate, and whether or not the information has become “generally known.” Under Rule 1.8(b), a lawyer simply may not use information relating to the representation of a client unless either (i) “the client gives informed consent” or (ii) disclosure is “permitted or required by these Rules” (an exception that does not apply here). (Opinion 991).

The situation for which Associate was seeking clarification, providing leads to his buddies in the LLC, clearly comes within the prohibited scope of Rule 1.8(b) “whenever disclosing the identity of a promising investment property would be disadvantageous to the Lender, the Associate may not do it absent the client’s informed consent pursuant to Rule 1.0(j).” (Opinion 991).

Finally, how to determine if information was disadvantageous? Many readers are probably still thinking that those property leads could be safely used by the lawyer’s buddies without any harm to the Lender client. The NY Ethical regulators, however, do not see it so. As they explain, in perhaps the most useful part of the opinion:

Regarding detriment to the client, if the Lender’s interests differ in any material way from the LLC’s interests, then revealing confidential information about desirable investment properties to the LLC is “likely to be detrimental” to the Lender. In the context of confidentiality, we understand the term “likely” in Rule 1.6(a) to indicate a “significant risk” that revealing or using the information will harm the client….In other words, we think the phrase “likely to be detrimental” falls somewhere in between “probable” (meaning “more likely than not”) and “possible” (meaning that it can’t be completely ruled out). If there is a significant risk that revealing or using the information will disadvantage the client, then it is “likely to be detrimental” within the meaning of Rule 1.6(a). And the more sensitive the information to be disclosed, the more significant the risk, because the detriment to the client will increase as the sensitivity of the information increases.

Thus, so long as the information can have a more than “possible” detrimental effect on the client (Lender), it is considered detrimental even if it not actually probable that the Lender would be harmed. As we can all see ways how the buddies seeking low prices for good quality foreclosures may have a material interest opposite to the foreclosing Lender, the young lawyer simply cannot give out this information- at least without the Lenders consent!