Monday, January 30, 2012

Is It Ever Permissible For a Law Firm to be Adverse to a Current Client?

The answer in Texas is "yes" in state court but "no" in federal court.

Comment 11 to Texas Disciplinary Rule 1.06 states:   "Ordinarily, it is not advisable for a lawyer to act as advocate against a client the lawyer represents in some other matter, even if the matter is wholly unrelated....However, there are circumstances in which a lawyer may act as an advocate against a client, for  a lawyer is free to do so unless this Rule or another [disciplinary] rule is violated.     For example, a lawyer representing an enterprise with diverse operations may accept employment as an advocate against the enterprise in a matter unrelated to any matter being handled for the enterprise if the representation of one client is not directly adverse to the representation of the other client."

Under this rule, for example, a lawyer practicing in a large multi-office firm likely would not be prohibited from being adverse to a client for whom his firm was doing completely unrelated work in an office of the firm on the other side of the world.

Federal courts sitting in Texas, though, follow the Fifth Circuit, which itself follows the law under the ABA Model Rules of Professional Conduct.    Those rules, as interpreted by the ABA committee which issues formal ethical opinions for the ABA has a "per se" rule that prohibits being adverse to a current client under any circumstances.    In an opinion of that committee in 1995, for instance, it stated:    "All members of this committee agree that a lawyer may never take a position directly adverse to a client...no matter how minor the matter and no matter how distant geographically, by industry or personnel, the new proposed representation is from the original one the lawyer is handling.    Not only is that the rule, but that is what the rule should be."   (Formal Opinion 95-390, 1995)

Monday, January 23, 2012

Are Disqualifications Rules the Same For Lawyers and Paralegals?

No.   For instance, if a lawyer with personal knowledge of a case is hired by a new firm, his personal knowledge is automatically imputed to the other lawyers in that firm so that the firm cannot be adverse to his former client.   Henderson v. Floyd, 891 S.W.2d 252 (Tex. 1995).

However, in Phoenix Founders v. Marshall, 887 S.W.2d 831 (Tex. 1994), the Supreme Court held that where a paralegal with knowledge of a particular matter transfers to another law firm acting adversely to that paralegal's former client on a substantially related matter, the paralegal (and thus the new firm) would not be disqualified if the paralegal were properly screened from participation in the matter.    Then-Justice Cornyn, in Conflicts of Interest--Recent Developments in the Texas Supreme Court, 16 REV. LITIG. 515, 528 (1997) stated, regarding this ruling:    "Underlying the Court's result is an expressed concern for the mobility of paralegals and other non-lawyers, especially those who work in large firms on massive, complex litigation."    This distinction regarding paralegals was re-stated and confirmed in In re Mitcham, 133 S.W. 2d 274, 276 (Tex. 2006).

Of course, from this it does not follow that a paralegal can actually work on the other side of the same case after moving to a new firm.     In re Columbia Valley Healthcare Systems, Inc., 320 S.W.3d 819 (Tex. 2010).

It is interesting that the Supreme Court has this concern for the employment mobility of paralegals but does not have the same concern for the mobility of lawyers.     The sweeping imputations of knowledge characterized by cases like Henderson v. Floyd, supra, do, in fact, hinder lawyer job mobility.

For that reason, the Restatement (Third) of the Law Governing Lawyers, Section 204, would provide the same solution (screening) for lawyers that the Texas rule allows for paralegals.     The Texas Supreme Court would do well to re-examine its position on this issue and to consider adopting that favored by the Restatement.

Monday, January 16, 2012

Do Lawyers Have a Duty of Loyalty to Former Clients?

No.   Though one court has said otherwise.

Lawyers clearly have a duty of confidentiality to former clients, that is, a duty not to disclose privileged information learned during the attorney client relationship.   And, for that reason, Texas Disciplinary Rule 1.09 prohibits lawyers from being adverse to former clients in matters that are substantially related to the prior representation--recognizing that that situation carries with it too much danger of misuse of confidential information.    No actual misuse of confidential information need be shown to disqualify a lawyer or his firm in that situation; rather, the substantial relationship itself is enough.

But what about a duty of loyalty?    Certainly, there is a duty of loyalty to current clients.    But aside from the duty of preserving confidences, courts generally have not recognized any other sort of loyalty that must be maintained for former clients.  

An exception is the Fifth Circuit in In re American Airlines, 972 F.2d 605 (Fifth Cir. 1992).    In that case, Vinson Elkins was acting adversely to American Airlines in an antitrust case, and American was a former client.    (There was a contention by American that it was even a current client, but that did not appear to be correct based on the evidence and was not a basis of decision of the Court).     The Court also did not rely on there having been a substantial relationship between VE's prior representation of American and the case at bar.     Rather, the Court stated that VE had violated a "duty of loyalty" to its former client and also invoked the then and now discredited doctrine that a firm should be disqualified when there is even an "appearance of impropriety."

The decision has been strongly criticized by commentators, one of whom was Dean Sutton, who was the principal author of the current Texas Disciplinary Rules.    He called the decision's reasoning "unfathomable froth."    (Sutton, Introduction to Conflicts of Interest Symposium: Ethics, Law, and Remedies, 16 REV. LITIG. 490, 513 (1997).   Another commentator called its reasoning "incoherent."  Schneyer, Nostalgia in the Fifth Circuit:   Holding the Line on Litigation Conflicts Through Federal Common Law, 16 REV. LITIG. 537, 558 (1997).   Shneyer at the time was a professor at the University of Arizona Law School.

I also criticized it in my own article, Boyd Current Trends in Conflict of Interest Law, 53 BAYLOR L. REV. 1 (2001).

Whether the Fifth Circuit would use the same reasoning now is an open question; my guess would be "no."

Monday, January 9, 2012

Law Firm Disqualification--Some Bad Supreme Court Dicta

It is, of course, the law in Texas that a lawyer may not sue a former client regarding a matter that is substantially related to the former representation.   Texas Disciplinary Rule 1.09.    Moreover, if one lawyer in a firm is disqualified for that reason, his knowledge is imputed to the rest of the lawyers in his firm, and they are disqualified, as well.    Id.   However, suppose that a lawyer in Firm A is disqualified from being adverse to a particular client only because he has purely imputed knowledge from another lawyer in his firm who actually represented the former client.   If that lawyer leaves that firm, is his imputed knowledge then re-imputed to his new partners at Firm B so that they are disqualified just as would be any lawyer at Firm A?

The answer is no; Texas does not allow that second imputation.    That is the thrust of paragraph (c) of Rule 1.09 and is more specifically explained in Comment 7 thereto.

Nonetheless, consider this language (which was dicta) from In re Mitcham, 133 S.W. 3d 274, 276 (Tex. 2006):    "There is an irrebutable presumption that attorneys gain confidential information on every case at the firm where they work (whether they work on them or not) [citation omitted] and an irrebutable presumption that they share that information with the members of a new firm.    Henderson v. Floyd, 891 S.W.2d 252 (Tex. 1995)."

I have no problem with the first part of this quote--up to and including the citation omitted.    But the second part of the quote could be construed to mean that the second firm would have to impute even imputed knowledge from a lawyer from the first firm so as to disqualify its lawyers in the same manner as the lawyers at the first firm.    As noted, that is not the law in Texas. 

If the word "they" in the second half of that quote refers only to lawyers who actually worked on the prior representation, the quote would be accurate.    But the "they" could be construed to also include lawyers with only imputed knowledge, and that is where the language strays.

The citation at the end of the dicta is to Henderson v. Floyd, 891 S.W.3d 252 (Tex. 1995).    That case did not involve a lawyer with purely imputed knowledge moving to a second firm and then imputing his imputed knowledge to his new partners (thereby disqualifying it).   Rather, it involved a lawyer moving to a new firm who had actual knowledge of a case on which his new firm was working, thereby disqualifying it.    So, that citation does not support the second and broader interpretation of the latter part of the citation in In re Mitcham, supra

Thus, Texas law--and, for that matter, the law of all the other states--has never supported what I would call a "double imputation"--that is, the imputing of purely imputed knowledge to disqualify law firms.   The reason is obvious when you think about it.    The imputation has to stop somewhere.    If you allow a second imputation, why not a third, or a fourth?    Such a policy would lead to complete gridlock where most firms were disqualified from most cases, and for no good reason.

Let's hope the Supreme Court clarifies that language in its next disqualification case.