[textbook]Traversing the Ethical Minefield Problems, Law, and Professional Responsibility by Susan R. Martyn (z-lib.org)(1) (1)

procedural and remedial law of fraud and the way this law has been made a part of the
Rules of Professional Conduct.
The Law of Fraud
The law of fraud includes hundreds of criminal statutes, 5 extensive civil liability, 6
procedural 7 and evidentiary rules. 8 Dishonest conduct also creates a remedial defense to
otherwise valid claims, by invalidating or providing restitution for an otherwise lawful
consent in tort, contract and restitution. 9 In short, fraud vitiates everything, even court
orders and judgments. 10
The vast scope of the modern law of fraud reflects its equally frequent and widespread
occurrence. 11 Liars are “free riders”: persons who hope to gain an advantage from everyone
else’s honesty while benefiting from their own deceit. 12 Deceitful practices can undercut
competition, raise the price of goods, and cause loss of confidence in the market by
diminishing trust in its mechanisms. Fraud can chill faith in individual relationships and
social ties. A lawyer’s diligence often will play a central role in avoiding these massive
personal and social costs.
Fraud occurs when an actor knowingly or recklessly makes a material misrepresentation
for the purpose of inducing another to act. 13 In Greycas, the lawyer deliberately lied by
stating that he has completed a UCC search when he knew he had not. Reckless
misstatements include knowledge that the actor does not have a basis for the representation
or confidence in the accuracy of the representation stated or implied, as well as statements
of ambiguous meaning without knowledge of whether the true or false meaning will be
understood. 14 In Cruze, the court let stand an allegation that the lawyer engaged in reckless
disregard of the truth when he misstated the amount of his partner’s contribution in an
investment document, knowing that his partner was stealing from others and that the deal
was necessary to keep the business afloat.
The law of fraud usually requires an affirmative misrepresentation, but courts recognize
a few situations when failure to speak can result in liability as well. Fiduciary duties create
obligations to disclose, which means that lawyers and other fiduciaries such as trustees,
partners and corporate officers have affirmative duties to disclose material information to
clients or beneficiaries. 15 Stratos illustrates how a duty to disclose also arises when
previously or partially true statements become false, misleading, or material. 16
The Model Rules
Greycas demonstrate how lawyers who lie or assist a client fraud can face professional
discipline. The Model Rules effectively incorporate all of the law of criminal and civil
fraud, deceit, dishonesty, and misrepresentation into a professional obligation. First, Rule
1.0(d) defines “fraud” by reference to the substantive and procedural law of the applicable
jurisdiction. This definition is followed by three specific provisions that prohibit lawyer
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