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In the Matter of the Audit of the RMI Legal Aid Office [1997] MHSC 1; 2 MILR 80 (28 January 1997)

2 MILR 80

IN THE SUPREME COURT
REPUBLIC OF THE MARSHALL ISLANDS

S. Ct. CIVIL NO. 1996-04
(High Ct. Civil No. 1996-140)

IN THE MATTER OF THE AUDIT OF THE RMI LEGAL AID OFFICE BY THE OFFICE OF THE AUDITOR GENERAL.

APPEAL FROM THE HIGH COURT

JANUARY 28, 1997

FIELDS, C.J.
DANZ, A.J. pro tem,¹ and PLASMAN, A.J. pro tem²

SUMMARY:

This is an appeal from an order of the High Court directing the Legal Aid Office, a statutory authority, to comply with a subpoena from the Auditor General for the productions of documents related to client trust funds held by the Legal Aid Office. The Supreme Court affirmed rejecting claims by the Legal Aid Office to attorney-client privilege and limitations on the constitutional authority of the Auditor General to audit public funds and private funds relevant or related to the use of public funds.

DIGEST:

1. CONSTITUTIONAL LAW - Construction - Article VIII: The word "public" in Article VIII, Section 13 of the Constitution does not necessarily limit the word "accounts."

2. CONSTITUTIONAL LAW - Same - Same: There is no constitutional restriction prohibiting the audit by the Auditor General of the accounts of statutory authority such as the Office of Legal Aid. There is a constitutional requirement that the Auditor General shall perform such an audit and report any irregularities in the account to the Nitijela, Article VIII, Section 15(4).

3. EVIDENCE - Privileges - Attorney - Client: The attorney-client privilege rules only protects (1) "confidential communications," (2) "made by a client to an attorney," (3) "to obtain legal advice or assistance."

4. EVIDENCE - Same - Same: The attorney-client privilege does not protect all communications between a lawyer and client but, rather, hinges upon the client's belief that he/she is consulting a lawyer in order to seek confidential legal advice.

5. EVIDENCE - Same - Same: Since the attorney-client privilege works to suppress otherwise relevant evidence and forestall a search for the truth, the limitations which restrict its operation must be assiduously heeded. In other words, the privilege must be strictly limited to the purpose for which it exists.

6. EVIDENCE - Same - Same: The purpose for which the attorney-client privilege exists is to protect disclosures between client and attorney to obtain legal advice, which might not be given in the absence of the privilege.

7. EVIDENCE - Same - Same: Deposits and disbursements (and records of deposits and disbursements) from a client's trust account cannot be characterized as "confidential communications" within the meaning of the rule.

8. EVIDENCE - Same - Same: Monies or fees collected from clients to cover publication expenses and the like are also not confidential.

9. ATTORNEY - Duty to Client - Confidences and Secrets: ABA Model Code of Professional Responsibility, Canon 4 (1980 version) provides that "[a] lawyer should preserve the confidences and secrets of a client." DR 4-101 (A) defines "confidence" and "secret": "Confidence" refers to information protected by the attorney client privilege under applicable law, and "secret" refers to other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would likely to be detrimental to the client.

10. ATTORNEY - Same - Same: It is not an ethical violation to disclose a client confidence or secret if required by law. See DR 4-101 (C) (2).

11. CONSTITUTIONAL LAW - Construction - Article VIII: Client trust accounts of the RMI Legal Aid Office, even if containing private funds, are "relevant" and "related to" the Auditor General's investigation of RMI Legal Aid's use of public funds.

12. CONSTITUTIONAL LAW - Construction - Article VIII: The Auditor General has the authority to audit a government program, such as RMI Legal Aid, to determine whether the desired results or benefits of the program are being achieved.

13. ATTORNEY - Duty to Client - Client's Funds: The RMI Legal Aid Office also has the duty not to commingle public funds with its client's funds. ABA Model Code of Professional Responsibility Canon 9, EC 9-5.

OPINION OF THE COURT BY FIELDS, C.J.

On April 12, 1996, the Auditor General acting pursuant to the Constitution of the Republic of the Marshall Islands Article VIII Section 15 requested, by subpoena, all financial records of the Legal Aid Office. The Legal Aid Office refused to comply, claiming many records are private matters between attorney and client and as such are not subject to an audit by the Auditor General.

On April 30, 1996, the Attorney General filed a motion in the High Court to compel Legal Aid to produce all requested documents.

On May 20, 1996, the High Court issued its order requiring the production of all documents subpoenaed by the Auditor General.

Legal Aid filed this appeal claiming (1) the Nitijela created Legal Aid and provided that office with constitutional, statutory and customary rights to privacy and confidentiality with its clients; (2) that Legal Aid has the authority to establish and maintain trust accounts for its clients; (3) that existing laws protect the privacy of the clients trust accounts; (4) that the trust accounts contain clients' secrets; and (5) that the Constitution, Article VIII, Section 15(l) limits the Auditor General to auditing only public funds and account.

The office of the Auditor General is a creation and exists by virtue of the Constitution of the Republic of the Marshall Island, Article VIII Section 13. The Constitution, Section 15, sets forth the duties of the Auditor General. It provides that:

(1) The Auditor-General shall audit the public funds and accounts of the Republic of the Marshalls including those of all Departments or offices of the legislative, executive and judicial branches of government and of any public corporation or other statutory authority constituted under the law of the Republic....

[1,2] The word "public" does not necessarily limit the word "accounts" and this court is not so declaring such a limitation. It is clear that the Legal Aid is a "statutory authority" created by the Nitijela. There is no constitutional restriction prohibiting the audit by the Auditor General of the accounts of the Office of Legal Aid. There is a constitutional requirement that the Auditor General shall perform such an audit and report any irregularities in the account to the Nitijela, Article VIII, Section 15(4). Since this report to the Nitijela deletes the names of individuals there would be no breech of any attorney-client confidentiality if such existed. This court holds there is no such confidentiality in this case.

A. The attorney-client privilege set forth by 23 MIRC, Ch. 1A, Section 502(b) is not applicable and cannot prevent disclosure of the requested documents.

RMI Legal Aid argues financial information in its "client trust account" is confidential information privileged under 38 MIRC, Ch. IA, Section 502(b) (hereinafter Evidence Rule 502(b)). Evidence Rule 502(b) provides, in relevant part:

Confidential communications made by a client to an attorney in order to obtain legal advice or assistance are privileged.... only the client or the client's estate has the authority to claim or waive it; provided, however, the attorney may claim the privilege on behalf the client.

Counsel have cited no authority indicating that a client's trust account is within the scope of the "attorney-client" privilege and the court is unaware of any. The court, therefore, briefly examines the nature of the privilege in determining whether this privilege is applicable to RMI Legal Aid's claim of privilege a to its "clients' trust account."

[3] The rule, on its face, only protects (1) "confidential communications," (2) "made by a client to an attorney," (3) "to obtain legal advice or assistance."

[4] The "attorney-client" privilege does not protect all communications between a lawyer and client but, rather, hinges upon the client's belief that he/she is consulting a lawyer in order to seek confidential legal advice. Colonial Gas v. Aetna Cat. & Sur. Co., 144 F.R.D. 600 (D. Mass. 1992); United States v. Leplinger, [1985] USCA7 988; 776 F.2d 678 (7th Cit. 1985).

[5] Since the privilege works to suppress otherwise relevant evidence and forestall a search for the truth, the limitations which restrict its operation must be assiduously heeded. In other words, the privilege must be strictly limited to the purpose for which it exists. DiCenzo v. Izawa, 723 P.2d 171 (Hawaii 1986); Misek-Falkoff v. International Business Machines Inc., 144 F.R.D. 40 (S.D. NY 1992).

[6] The purpose for which the evidentiary privilege exists is to protect disclosures between client and attorney to obtain legal advice, which might not be given in the absence of the privilege. United States v. Upjohn Co., [1979] USCA6 457; 600 F.2d 1223 (6th Cir 1979).

[7] Deposits and disbursements (and records of deposits and disbursements) from a client's trust account cannot be characterized as "confidential communications" within the meaning of the rule. Probate awards, War Claim awards, money awards arising out of civil judgments, and any other sort of money obtained by court judgment which might be placed in a client's trust account are matters of public record and are, by no means, confidential. Disbursements from certain trust accounts arising out of probate awards can be made only upon order of the court. Whether such disbursements are authorized is a matter of public record and a client has no reasonable expectation that such disbursements will remain confidential.

[8] Monies or fees collected from clients to cover publication expenses and the like are also not confidential. The payment of any such fees or costs by a client are likely to be paid by the client even in the "absence of the privilege." The nature of the "attorney-client" privilege is not meant to protect such information. Disclosure of any such fees violates no confidence of the client and does not disclose the substance of any legal advice given. As the Attorney General points out in its reply "no harm could conceivably be done to a client if the Auditor General were to see and examine such client's account."

The privilege is intended to prevent disclosures of client's confidences. Bank records and other documents evidencing activity on the "clients' trust account" would disclose no client confidence. The court concludes the "attorney-client" privilege of Evidence Rule 502(b) is not applicable to RMI Legal Aid's claim of confidentiality.

B. Information contained in RMI Legal Aid's "Client Trust Account" records are not "secrets."

[9] ABA Model Code of Professional Responsibility, Canon 4 (1980 version) provides that "[a] lawyer should preserve the confidences and secrets of a client." DR 4 - 101 (A) defines "confidence" and "secret":

"Confidence" refers to information protected by the attorney client privilege under applicable law, and "secret" refers to other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would likely to be detrimental to the client.

RMI Legal Aid has not shown how the disclosure of records pertaining to its "client's trust account" it's likely to be embarrassing or detrimental to any of its clients. Monies contained in the account come from court judgments which are of public record. It is hard to imagine that disclosure of a client's payment of any fees or costs into the account would be embarrassing to the client or that a reasonable expectation of nondisclosure exists.

[10] It is not an ethical violation to disclose a client confidence or secret if required by law. See DR 4-101 (C) (2). As discussed below, the court is of the opinion that the information requested by the Auditor General regarding the "client's trust account" is required by law.

C. The documents and records pertaining to private funds in the "client's trust account" are relevant to the audit of RMI Legal Aid's use of public funds and should be disclosed.

RMI Legal Aid argues the Auditor General may only audit "public funds," not the alleged "private funds" in the "client's trust account" and therefore, even if not privileged, an audit of the "client's trust account" is beyond the statutory authority of the Auditor-General.

As authority RMI Legal Aid cites 3 MIRC, Ch. 9, Section 2(b) which provides:

"[A]udit" means an independent examination of books, performance, documents, records, and other evidence relating to the receipt, possession, charge, disbursement, expenditure, application or use of public funds by any agency or any activity or any agency.... (emphasis added).

Section (2) (b) should be construed in "pari materia" with all other provisions of the Auditor General Act. The Auditor General is to "specially act to prevent and detect fraud, waste and abuse in the collection and expenditure of public funds." 3 MIRC Ch. 9, Section 4(1) (emphasis added).

3 MIRC, Ch. 9, Section 15 further provides:

(1) The Auditor General in carrying out the provisions of this Act shall, pursuant to Article VIII, Section 15(3) of the Constitution of the Marshall Islands have access to all records, reports, audits, reviews, papers, books, documents, recommendations, correspondence, and any other data or material that is maintained by on available to any agency which in any way is related to the activities with respect to which the Auditor General has duties and responsibilities...."

(3) The Auditor General may require by subpoena the production of all records, reports, audits, ... books, documents, recommendations, correspondence, and any other data and material relevant to any matter under investigation or audit. (emphasis added).

[11] The court finds the information requested by the Auditor General's subpoena regarding the "client's trust account," even if containing private funds, is "relevant" and "related to" the Auditor General's investigation of RMI Legal Aid's use of public funds.

RMI Legal Aid is an agency of the government and is funded by public money. The Auditor General has been provided information that RMI Legal Aid has been charging clients fees in violation of the Government Fees Act 1984, 3 MIRC, Ch. 12, as amended and Article VIII, Section 1(2) of the Constitution. (Reply Memorandum, pg. 4, pan. 2.4). The government certainly has a legitimate interest in assuring such a situation has not occurred and is not occurring.

[12] The Auditor General has the authority to audit a government program, such as RMI Legal Aid, to determine whether the desired results or benefits of the program are being achieved. 3 MIRC, Ch. 9, Secs 2, 3 and 4. It not being the intent of the government that the RMI Legal Aid Office collect fees in violation of the law, the Auditor General has the authority to investigate whether, in fact, such unlawful fees are being collected. An audit of the "clients' trust account" is likely to reveal any impropriety in the collection of fees or disbursements of funds. Documents concerning the clients' trust account are therefore relevant to any audit or investigation into whether the desired results of the RMI Legal Aid program are being achieved.

[13] The RMI Legal Aid Office also has the duty not to commingle public funds with its client's funds. ABA Model Code of Professional Responsibility Canon 9, EC 9-5.³

An audit would reveal whether public funds are being commingled with private monies in the "clients' trust account." The court finds that the records and documents pertaining to the "clients' trust account" are relevant or related to the investigation or audit of public moneys provided Legal Aid.

II. CONCLUSION

The court concludes the documents requested by the Auditor General's subpoena pertaining to RMI Legal Aid's "client's trust account" are not privileged and are relevant to the audit of the use of public funds by that office.

IT IS THEREFORE, ORDERED that all documents requested by the Auditor General's April 11, 1996, subpoena be produced forthwith.

The Judgment rendered by the High Court and filed on May 30, 1996, is hereby AFFIRMED.

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¹Honorable Gregory J. Danz, Member of the Nuclear Claims Tribunal, sitting by designation by the Cabinet.

²Honorable James Plasman, Member of the Nuclear Claims Tribunal, sitting by designation by the Cabinet.

³EC 9-5: Separation of the funds of a client from those of his lawyer not only serves to protect the client but also avoids even the appearance of impropriety, and therefore commingling of funds should be avoided.

In the context of the matter before the court the client's funds should not be commingled with the public funds in RMI Legal Aid's general account.