Informal 91-22.

• Case Date: December 05, 1991
• Court: Connecticut

Connecticut Ethics Opinion 1991. Informal 91-22. December 5, 1991INFORMAL OPINION 91-22Fraudulent TransfersWe received the following inquiry: My client and his wife are joint owners of the house and land where they live. My client owes substantial debts that he can not repay. May I ethically recommend to my client that he transfer his interest in the house to his wife? Does it make any difference if the client suggests it to me and I draft the deed, have it executed and filed without giving notice? I realize that the transfer of my client's interest in the house to his wife is what is called a fraudulent transfer. However, the Rules of Professional Conduct seem to me to define fraud or fraudulent in the beginning "Terminology" section (of the Rules) in a more restrictive way. The definition requires having a purpose to deceive and not merely negligent misrepresentation or failure to apprise another of relevant information. In the case I am presenting, the deed is on public record, so the creditors cannot be said to have been deceived. Once the deed has been executed and filed, the definition says that I am not required to apprise the creditors of the fact of the deed. Please let me know the opinion of your committee on this issue. It is our opinion that a lawyer may not counsel or assist a client to engage in a fraudulent transfer that the lawyer knows is either intended to deceive creditors or that has no substantial purpose other than to delay or burden creditors. The basis for our Opinion are Rules 1.2(d) and 4.4, and in certain limited circumstances, Rule 8.4(c). In this Opinion, we use the term fraudulent transfer rather than fraudulent conveyance because Connecticut adopted the Uniform Fraudulent Transfer Act effective October 1, 1991. PA 91-297. Although the inquirer invites us to focus on fraudulent transfers, we wish to point out that whether or not a particular transaction is a fraudulent transfer as a matter of substantive law is not the decisive factor in applying the rules. The decisive factors are whether the lawyer knows that transfer constitutes conduct having a purpose to deceive (See Rule 1.2(d)) or whether in counseling or assisting the client the lawyer is using means that have no substantial purpose other than to embarrass, delay or burden third parties (See Rule 4.4). Where fraudulent transfers are concerned, we wish to point out a distinction that we have drawn based on the rules and their history. The distinction is between fraudulent transfers that the lawyer knows are either intended to deceive creditors or that have no substantial purpose other than to delay or burden creditors on the one hand, and fraudulent transfers where the lawyer does not know of any intention to deceive and the lawyer is aware of a substantial purpose other than the delaying or burdening of creditors. The reason for the distinction is that while all fraudulent transfers are generally thought of as illegal and can be set aside, the rules do not apply to all illegal conduct but rather to conduct that is known to be criminal or fraudulent. Our conclusion, that the rules do not apply to all illegal conduct, is based on the language of Rule 1.2(d) as well as on the following history of Rule 1.2(d), including DR 7-102(d) of the Code of Professional Conduct: A. The predecessor to Rule 1.2(d) was DR 7-102 Representing a Client within the Bounds of the Law, which provided as follows: (A) In his or her representation of a client, a lawyer shall not: (7) Counsel or assist his or her client in conduct that the lawyer knows to be illegal or fraudulent. B. In drafting the rules, originally the Kutak Commission proposed a bar against a lawyer's assisting a client to conclude an agreement "that the lawyer knows or reasonably should know is illegal, contains legally prohibited terms, would work a fraud, or would be held to be unconscionable as a matter of law." Model Rule 4.3 (Discussion Draft, Jan. 30, 1980). The Commission abandoned this position for the following one.1 C. Proposed Rule 1.2(d): A lawyer shall not counsel or assist a client, in conduct that the lawyer knows is criminal or fraudulent, or in the preparation of a written instrument containing terms the lawyer knows are expressly prohibited by law, but a lawyer may counsel or assist a client in a good faith effort to determine the validity, scope, meaning or application of the law. The New York Bar proposed, among other things, that the phrase "or in the preparation of a written instrument containing terms the lawyer knows are expressly prohibited by law" be deleted. The Commission opposed that amendment but it was adopted by the ABA.2 Rule 1.2(d) as now in effect in Connecticut reads as follows: A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law. This chronology shows an unmistakable narrowing of the type of conduct to which Rule 1.2(d) was intended to apply from illegal or fraudulent conduct to criminal or...