CONFLICTS OF INTEREST WHO IS YOUR CLIENT? CARVAN E. ADKINS, Partner FREDRICK FRITZ QUAST, Associate LISA D. MARES, Associate

Transcription

1 CONFLICTS OF INTEREST WHO IS YOUR CLIENT? CARVAN E. ADKINS, Partner FREDRICK FRITZ QUAST, Associate LISA D. MARES, Associate Taylor, Olson, Adkins, Sralla & Elam, L.L.P Western Place, Suite 200 Fort Worth, Texas Telephone: (817) Toll Free: (817) Fax: (817) State Bar of Texas 21 st ANNUAL SUING AND DEFENDING GOVERNMENTAL ENTITIES COURSE July 16-17, 2009 San Antonio CHAPTER 25

2

3 Taylor, Olson, Adkins, Sralla & Elam, L.L.P Western Place, Suite 200 Fort Worth, Texas Phone: (817) Fax: (817) Carvan E. Adkins Born in Abilene, Texas in He obtained his B.B.A. degree from Baylor University in 1980, and his M.B.A., and J.D. degrees from Texas Tech University in Mr. Adkins practices with the law firm of Taylor, Olson, Adkins, Sralla & Elam, L.L.P. of which he is a founding partner. His practice consists primarily of two general areas of representation. First, he and the firm represent and provide legal counsel to a variety of public entities. He personally serves as General Counsel to a number of local MHMR community centers and Workforce Development Boards. The firm serves as city attorney for a number of local municipalities. The position of general counsel to public entities necessarily involves addressing a variety of legal issues on behalf of the public entities and their employees. Mr. Adkins' second general area of practice is in the area of employment law addressing employment issues and disputes from the job interview to post-termination litigation. In this regard, Mr. Adkins has represented clients before the Equal Employment Opportunity Commission, the Texas Commission on Human Rights, the United States Merit Systems Protection Board, and the State and Federal courts of Texas. He is a member of the State Bar of Texas and the Tarrant County Bar Association. He is admitted to practice before the U.S. Court of Appeals for the Fifth Circuit and the U.S. District Court for the Northern and Eastern Districts of Texas. He is certified as a mediator in compliance with Title 7, Chapter, Texas Civil Practice and Remedies Code, and the policies and procedures for training as defined by the Texas Mediation Trainer Roundtable Standards. Papers and Presentations: Mr. Adkins has authored a number of papers on employment law topics, including, "Sexual Harassment in the Workplace, Where Do We Go After Vinson?" Professional Education Systems, Inc., 1987, and "Defending Wrongful Discharge Claims", National Business Institute He has spoken at continuing education seminars on employment law topics of interest to both employment law practitioners and human resource managers, including, "Demystifying the EEOC Process", presented to Texas Council Risk Management Fund participants on January 20, 1999, and "Privacy Issues for Public Employees" which was presented to Texas Council Risk Management Fund participants on March 30, 1999, Privacy Issues Surrounding Internet and Usage presented to Texas Council Risk Management Fund participants on March 14, 2000, and Board Training and Open Government presented to Texas Council Risk Management Fund on October 12, Legal Employment History: Shannon, Gracey, Ratliff & Miller - August 1984 to July 1987; Reynolds, Shannon Miller, Blinn, White & Cook - August 1987 to May 1988; Fielding, Barrett & Taylor, L.L.P. - June 1988 to June 1997 (partner); Taylor, Olson, Adkins, Sralla & Elam, L.L.P. - July 1, 1997 to present (partner).

4

5 Taylor, Olson, Adkins, Sralla & Elam, L.L.P Western Place, Suite 200 Fort Worth, Texas Phone: (817) Fax: (817) Lisa D. Mares Born in Corpus Christi, Texas in 1977, Ms. Mares was raised in Niagara Falls, New York and Sour Lake, Texas. Ms. Mares attended the University of Texas at Austin where she earned her Bachelor of Arts degree in 1999 with a sociology major and a government minor. She received her joint degree in 2006, earning a Master s Degree in Public Policy from Duke University in Durham, North Carolina, and a Juris Doctor from the University of North Carolina at Chapel Hill. Ms. Mares worked as an Elections Coordinator for the Travis County Clerk s Office and as an Assistant Committee Clerk for the House Committee on Criminal Jurisprudence of the Texas State Legislature prior to her legal career. During the joint degree program, she was a policy intern for the North Carolina Department of Juvenile Justice and Delinquency Prevention and the Mexican-American Legal Defense and Educational Fund, as well as a law clerk for the North Carolina Department of Justice, the North Carolina State Board of Elections and the Charlotte City Attorney s Office. Bar Admissions: State Bar of North Carolina; State Bar of Texas Legal Employment History: Assistant Special Counsel to Attorney General Roy Cooper of the North Carolina Department of Justice - May 2006 to October 2008; Taylor, Olson, Adkins, Sralla & Elam, L.L.P. - October 2008 to present (associate).

6

7 Taylor, Olson, Adkins, Sralla & Elam, L.L.P Western Place, Suite 200 Fort Worth, Texas Phone: (817) Fax: (817) Fredrick Fritz Quast Born in Bryan, Texas in 1974, Mr. Quast was raised in the small, central Texas town of Comanche. He attended Texas A&M University where he was a member of the Corps of Cadets and the Texas Aggie Band. He received a Bachelor of Science degree in Political Science from A&M in He received his J.D. degree from Baylor University School of Law in April, 2001 and was licensed to practice law the following November. While attending Baylor, he was an Articles Editor and an Executive Editor for the Baylor Law Review and a member of Phi Delta Phi. Mr. Quast is a member of the State Bar of Texas, the Texas City Attorneys Association, the Tarrant County Bar Association and the Fort Worth-Tarrant County Young Lawyers Association. His primary areas of practice are municipal law and municipal litigation. Legal Employment History: Law Clerk for Justice Terrie Livingston, Second District Court of Appeals, Fort Worth, Texas - August 2001 to August 2002; Taylor, Olson, Adkins, Sralla & Elam, L.L.P. - September 2002 to present (associate).

8

9 TABLE OF CONTENTS I. INTRODUCTION... 1 II. SEVEN SCENARIOS... 1 III. RULES 1.12 AND A. Rule Organization as a Client... 3 B. Rule Conflict of Interest: General Rule... 3 IV. SO, WHO IS YOUR CLIENT?... 4 A. Scenarios One and Two: Organization v. an Organization s Constituents... 4 B. Scenarios Three and Four: The Insurer v. The Insured... 4 C. Scenarios Five and Six: Keeping Attorney-Client Communications Confidential... 5 D. Scenario Seven: Acting as Intermediary Between Clients... 7 V. WHAT YOU NEED TO KNOW: PRACTICAL TIPS... 9 A. Clarify Your Role to Constituents... 9 B. Clarify Your Duties to All Clients... 9 i

10

11 CONFLICTS OF INTEREST WHO IS YOUR CLIENT? I. INTRODUCTION Attorneys who sue or defend governmental entities may frequently find themselves asking, Who is the client? The importance of knowing the answer to this question may seem obvious to know where to send the bill but identifying the client is also a critical step in determining to whom an attorney s fiduciary duties run. In addition, identifying the client assists an attorney to determine which rules of the Texas Disciplinary Rules of Professional Conduct (the Rules ) apply when resolving whether or not concurrent representation creates a conflict of interest. For instance, in conducting a conflict analysis, an attorney would need to know whether an entity is a current or former client. 1 Identifying the client is important in other contexts, as well. Determining if an individual has standing against an attorney in a malpractice suit can depend on whether or not that individual was the attorney s client. 2 Similarly, identifying the client helps to avoid an unintentional waiver of attorneyclient privilege due to a third party s presence who is not the client s agent and whose presence does not facilitate the client s acquisition of legal advice during a communication between the client and the attorney. 3 1 Jan Soifer & Darren B. Moore, Ethical Issues for Lawyers Serving Nonprofit Organizations, in Univ. Tex. 26th Annual Nonprofit Organizations Institute 21 (2009). 2 Belt v. Oppenheimer, Blend, Harrison & Tate, Inc., 192 S.W.3d 780, 783 (Tex. 2006) (holding that because of lack of privity, an attorney does not owe a duty of care to a nonclient harmed by an attorney s malpractice). But cf. SMWNPF Holdings, Inc. v. Devore, 165 F.3d 360, 365 (5th Cir. 1999) (holding that Texas law allows an attorney to be held negligent where he fails to advise a party that he does not represent the party on a case where the circumstances lead the party to believe otherwise); McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 795 (Tex. 1999) (affirming court of appeals ruling that the tort of negligent misrepresentation is not equivalent to a legal malpractice claim and does not, therefore, require privity). 3 See Cameron County v. Hinojosa, 760 S.W.2d 742, (Tex. App. Corpus Christi 1988, orig. proceeding); Tex Att y Gen Op. No. JC-0506, at 4-5 (2002) (cautioning a commissioners court that the presence of the county auditor may indicate that the commissioners court did not intend for communications held during a closed meeting to be confidential). 1 One of the main reasons why avoiding a conflict of interest is important is to help an attorney avoid an ethics complaint or malpractice claims. While the Rules are not intended to serve as a basis for a private cause of action, 4 and compliance with the Rules does not guarantee that a disgruntled client will not file an ethics complaint, the Rules have been used to establish the standard of care in a malpractice case. 5 Avoiding conflicts of interest also aids attorneys during litigation. For example, even though it is improper to use the Rules as a technique of harassment or as a procedural weapon, 6 it is not unheard of for an attorney to attempt to disqualify opposing counsel based on a conflict of interest. 7 Such litigation tactics are harmful not only because they delay and disrupt the rhythm of a case but because they also have less discernible consequences, such as causing a client to question their attorney s competence. This paper explores how attorneys who sue or defend governmental entities may find it difficult to identify the client. In doing so, this paper takes both a theoretical and practical approach. First, Section II presents hypothetical scenarios as a basis for discussing the application of the Rules. Section III reviews rules 1.12, Organization as a Client, and 1.06, Conflict of Interest: General Rule while Section IV applies Rules 1.12 and 1.06, as well as other Rules pertinent to the scenarios described in Section II. Lastly, Section V provides practical advice to assist attorneys in their day-to-day interactions with their clients, other governmental entities, and the public. II. SEVEN SCENARIOS Consider the following scenarios: Scenario 1: You are an attorney at law firm X, Y, and Z, which represents various government entities on employment matters. The human resources manager of County B, one of the firm s clients, calls you because she is concerned that the County 4 TEX. DISCIPLINARY R. PROF L CONDUCT preamble 15, reprinted in TEX. GOV T CODE ANN., tit. 2, subtit. G app. A (Vernon Supp. 2008) (TEX. STATE BAR R. art. X, 9). 5 Two Thirty Nine Joint Venture v. Joe, 60 S.W.3d 896, 905 (Tex. App. Dallas 2001), rev d on other grounds by 145 S.W.3d 150 (Tex. 2004); Soifer & Moore, supra note 1, at TEX. DISCIPLINARY R. PROF L CONDUCT preamble 15, 1.06 & cmt See, e.g., Vines v. City of Dallas, 851 F. Supp. 254 (5th Cir. 1995); see also David K. Bissinger, Depositions of Attorneys in Texas, 64 TEX. B.J. 247, 248 (2001).

12 Administrator is acting inappropriately towards her. The human resources manager is fired for insubordination and sues the County for retaliation. She subsequently finds employment with City A, which happens to also be a client of firm X, Y, and Z. Scenario 2: You serve County X as its County Attorney. A transportation service department employee of County X is accused of collecting kickback fees on public works contracts. You attend a meeting with the County Administrator and the accused employee at which the County Administrator requests that the employee undergo a polygraph test. The accused employee reluctantly agrees to the polygraph but asks whether he should get an attorney. The County Administrator advises the employee that if he has any questions he should speak to you, the County Attorney. Scenario 3: You are a private attorney retained by an insurance carrier to defend City A in a claim involving injuries sustained in a high-speed car chase with City A s police department. The insurance company wants to settle with the claimant, but the city council wants to proceed with defending the civil action. Scenario 4: You serve City A as its City Attorney. The City Manager is accused of sexual harassment by a subordinate employee. You attend an initial EEOC hearing with the City Manager. After you update the risk pool regarding the hearing, the risk pool determines that it would like to settle the matter. The City wants to settle, as well, but the City Manager wishes to proceed to clear his name. Scenario 5: You serve as County Attorney for County X. The County Commissioners often tell you that you represent their interests. The County has an Ethics Board which oversees ethics complaints against all County employees. Several members of the Commissioners Court are accused of ethics violations. The Ethics Board wants to interview you about a presentation you gave to the Commissioners Court regarding personal financial disclosures. Scenario 6: You serve a school district and have just received notice that a member of the district s board of trustees has filed suit against six other members of the board of trustees. The board intends to hold an 2 executive session to discuss the litigation. The six board members would like to exclude the member of the board who filed suit during the upcoming executive session. Scenario 7: You are a private attorney that represents three cities, City A, City B and City C that wish to negotiate their future municipal boundaries. In each of these scenarios, it can be unclear who is the attorney s client and thus, it is unclear to whom the attorney owes a duty of loyalty. Although the Rules can be thought of as a symbolic cage that restricts an attorney s actions by proscribing conduct when a conflict of interest arises, the Rules can also be thought of as the key to unlock the cage by providing an attorney with guidance in resolving apparent conflicts. 8 III. RULES 1.12 AND 1.06 The Texas Disciplinary Rules of Professional Conduct, which are promulgated by the Texas Supreme Court, guide the professional decisions lawyers make. 9 While the Rules are obligatory, the Comments to the Rules are less stringent 10 because they defin[e] areas in which the lawyer has professional discretion. 11 No disciplinary action can be taken because of an attorney s failure to conform to the comments; however, attorneys should keep in mind that Professionalism requires more than merely avoiding the violation of laws and rules 12 and should strive to practice[e] in compliance with the spirit of the rules. 13 As noted earlier, the Rules and the comments to the Rules are an attorney s starting point for analyzing an apparent conflict of interest. For government attorneys and attorneys who work with government entities, Rule 1.12 Organization as a Client and Rule 1.06 Conflict of Interest: General Rule are particularly helpful in resolving an apparent conflict of interest. Rule 1.12 applies to attorneys employed by an organizational client while Rule 1.06 establishes three 8 TEX. DISCIPLINARY R. PROF L CONDUCT preamble 7. 9 State Bar Rules Art. X, 9 (The Rules are promulgated pursuant to the authority given the Texas Supreme Court in Texas Government Code section ). 10 See Soifer & Moore, supra note 1, at TEX. DISCIPLINARY R. PROF L CONDUCT preamble The Texas Lawyer s Creed: A Mandate for Professionalism preamble. 13 TEX. DISCIPLINARY R. PROF L CONDUCT preamble 10.

13 basic conflict situations and proscribes conduct for each. 14 A. Rule Organization as a Client In most instances, the application of Rule 1.12 is the same whether or not the organization is a corporation or a governmental entity. For instance, both a corporate counsel and a government attorney represent the organization as distinct from its governing body, officers, employees, members or other constituents. 15 An organization whether it is a corporation, a non-profit or a municipality speaks, deliberates or acts thought its agents or constituents. 16 While this reality requires the lawyer-client relationship to be maintained through an organization s constituents, an attorney for an organization, whether public or private, must make certain that the constituent is representing the organization s interests and not his own. 17 An organizational attorney must also be concerned with whether or not communications with a constituent are protected under attorney-client privilege. For instance, organizational attorneys are often called upon to investigate workplace situations, such as whether an employee was wrongfully terminated or has been the victim of sexual harassment. Such an investigation may require an organizational attorney to interview employees or officers of the organization. Interviews of the organization s constituents are a protected communication if the employee or officer is speaking in his organizational capacity. 18 In the event an organization s interests are adverse to a constituent s interests, however, the organizational attorney may need to explain to the constituent that: (1) an adversity of interests exists between the organization and the constituent; (2) the lawyer represents the organization, not the constituent; (3) the constituent should seek independent representation; and (4) the matters discussed between the constituent and lawyer will not be confidential and may not be privileged insofar as the constituent is concerned See Soifer & Moore, supra note 1, at 13, TEX. DISCIPLINARY R. PROF L CONDUCT 1.12 cmt. 1. As used in this paper, "constituent" means a government employee or officer, not a citizen of the government entity. 16 Id. 17 Id. 18 Id (c)(3), 1.12, cmt Id cmt. 4. While the concerns of private and governmental organization attorneys are similar in some respects, in others they are quite different. For instance, statutes and regulations may dictate a government attorney's duties and conduct. Thus, defining precisely the identity of the client and prescribing the resulting obligations of such lawyers may be more difficult in the government context. 20 An additional difference arises where official misconduct is alleged. Here, there are a separate set of expectations from private organization attorneys than from government attorneys. For government attorneys, the Rules acknowledge that a different balance may be appropriate between maintaining confidentiality and assuring that a wrongful official act is prevented or rectified. 21 The differences between private and government organizational attorneys are not all bad. For instance, an attorney for a governmental organization may have authority over decisions that would ordinarily be decided by the client-organization if it were a corporation or other private organization. Government lawyers may have authority to decide upon settlement offers or whether or not to appeal from an adverse judgment under the direction of a government officer, such as the Attorney General. Similarly, government attorneys may have latitude to represent several government agencies in a legal dispute whereas a private attorney would be unable to do so. 22 B. Rule Conflict of Interest: General Rule Rule 1.06 establishes three basic conflict of interest scenarios and proscribes conduct for each. 23 Rule 1.06 states that a conflict may exist if an attorney seeks to represent: (1) opposing parties to the same litigation; (2) two clients regarding a substantially related matter in which one of the client s interests are materially and directly adverse to other client s interests; or (3) a client who reasonably appears to be or become adversely limited by the attorney s duties to another client, a third party, or the attorney s selfinterest. 24 There is a possibility that an attorney may represent a client despite an apparent conflict of interest depending on the type of conflict. A 20 Id cmt Id. 22 TEX. DISCIPLINARY R. PROF L CONDUCT preamble See Soifer & Moore, supra note 1, at TEX. DISCIPLINARY R. PROF L CONDUCT

14 representation involving a category one conflict in which an attorney seeks to represent opposing parties to the same litigation in which a favorable judgment to one client constitutes an unfavorable judgment to the other client is never permissible. 25 The representation of opposing parties in litigation is prohibited because the attorney cannot be simultaneously loyal to both clients. 26 A representation involving a category two or a category three conflict is permissible with the client s fully informed consent if an attorney reasonably believes that the attorney s representation will be reasonably protective of the client s interests. 27 Informed consent requires an attorney to fully disclose the existence, nature, implications, and potential advantages and disadvantages of dual representation. 28 IV. SO, WHO IS YOUR CLIENT? A. Scenarios One and Two: Organization v. an Organization s Constituents As noted above, the answer to the who is the client question under these first scenarios is unequivocally answered by Rule 1.12 of the Texas Disciplinary Rules of Professional Conduct. Rule 1.12(a) provides that [a] lawyer employed or retained by an organization represents the entity. 29 The problem, also as noted above, is ascertaining when the governmental organization and employee or official constituent s interests diverge. In any event great care should be taken to ensure that employees and officials of the government entity understand the lawyer s role and the lawyer s paramount duty to the entity as opposed to an official s or employee s individual interests. In the first scenario, which involves the human resources manager s complaints, great care should be taken to make sure the manager understands that the lawyer s role is that of lawyer to the entity and not the employee personally, and that communications the employee makes to the government s lawyer would not be privileged as far as that individual is concerned Id cmt Id. 27 Id. 1.06(c) & cmt Id. 1.06(c). 29 Id. 1.12(a) & cmt. 1; see also Sutton v. Mankoff, 915 S.W.2d 152, 157 (Tex. App. Fort Worth 1996, writ denied) (holding that a lawyer hired by organization represents organization, not individual members). 30 TEX. DISCIPLINARY R. PROF L CONDUCT 1.12(e) & cmt. 4. Rule 1.12 expressly provides that in these situations, a lawyer shall explain the identity of the client when it is apparent that the organization s interests are adverse to those of the constituents with whom the lawyer is dealing or when explanation appears reasonably necessary to avoid misunderstanding on their part. 31 Clearly, the lawyer would be under a duty to provide any information to the organization s decision makers on this issue and take other remedial actions, 32 but would still be under a duty to take care that these allegations are not revealed to persons outside the organization. 33 While a lawyer might feel compelled to reveal information regarding these allegations from the manager to the lawyer s other client who is the manager s new employer, it is likely that this information is properly still considered confidential information as to the County and thus, cannot be revealed to the City without permission of the County. 34 In the second scenario, again, the lawyer would be under a duty to clarify the lawyer s role as representing the entity to both the County Administrator and employee. At this point, the interests of the employee and the County are almost certainly adverse. In addition to rule 1.12, rule 4.02 and rule 4.03 are relevant depending on whether or not the employee is represented by legal counsel. If the lawyer knows the employee is represented by another lawyer at that point, the lawyer must secure permission from that lawyer before communicating with the employee in the meeting described in Scenario If the employee is not represented by counsel, rule 4.03 provides, much like rule 1.12(e), that when a lawyer knows or reasonably should know that the unrepresented party misunderstands the lawyer s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding. 36 B. Scenarios Three and Four: The Insurer v. The Insured Many attorneys work with or are hired by insurance carriers. While many individuals or entities may have coverage through a third-party insurance carrier, most government entities are solely self- 31 Id. 1.12(e) (emphasis added). 32 Id. 1.12(b). 33 Id. 1.12(a) & cmts See generally id. 1.05(c). 35 Id. 4.02(a). 36 Id (emphasis added). 4

15 insured or are jointly self-insured, and mitigate or manage liability risk with an intergovernmental risk pool. 37 Attorneys are often directly hired by insurance carriers or risk pools to represent a covered government entity. In this situation, the lawyer is hired by a thirdparty insurance company or risk pool to represent the government entity but receives compensation from the insurance company or risk pool. When a lawyer receives compensation for legal services from someone other than the client: (1) the client must consent; (2) there must be no interference with the lawyer s professional judgment or the attorney-client relationship; and (3) confidential information must remain protected. 38 Once an attorney recognizes that a client s interests are adverse to the entity paying compensation, an attorney must advise the client of the circumstances. 39 For instance, the Stowers doctrine allows the insured to pursue a cause of action against an insurer for negligently refusing a settlement offer within policy limits. 40 Under the Rules, an attorney is 37 In contrast to a third-party insurance carrier, an intergovernmental risk pool is usually a government body governed by a board of directors that administers an interlocal cooperation agreement between a group of selfinsured governmental entities. These intergovernmental risk pools are funded by members and governed by the interlocal agreement. As such, they are not properly characterized as a third-party insurance carrier. See generally Texas Municipal League Intergovernmental Risk Pool v. Burns, 209 S.W.3d 806 (Tex. App. Fort Worth 2006, no pet.). Some examples of Texas intergovernmental risk pools include the Texas Association of Counties, Texas Association of Public Schools Property & Liability Fund, Texas Association of School Boards Risk Management Fund, Texas Council Risk Management Fund, Texas Municipal League Intergovernmental Risk Pool, Texas Schools Property Casualty Cooperative, and Texas Water Conservation Association Risk Management Fund. 38 TEX. DISCIPLINARY R. PROF L CONDUCT 1.08(e) & cmt Employers Cas. Co. v. Tilley, 496 S.W.2d 552, 558 (Tex. 1973); see also Tex. Prof l Ethics Op. No. 179 (1958) (applying old TEX. R. DISCIPLINE, Canon 6). 40 G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex. Comm n App. 1929, holding approved). Because the Stowers doctrine applies in the context of thirdparty insurers, it does not apply in the context of self-insured government entities, whether that entity is solely self-insured or participates in a risk pool by interlocal agreement. 5 obligated to inform an insured about the Stowers doctrine. 41 Regardless of the application of the Stowers doctrine, an attorney may find herself in murky waters if the constituent employee or official of a governmental body is accused of wrongdoing. Such representation should prompt an attorney to ask whether he owes a duty of loyalty to the constituent employee or official, as well as the governmental body. For instance, what actions should an attorney take if the governmental body wishes to settle a claim but an employee wants to continue the suit in order to clear her name? In this situation, the attorney should clarify her role, advise the employee that he may wish to seek independent counsel, and inform the employee that discussions between the attorney and the employee are not confidential even though they would be privileged from third parties. 42 In the third scenario, the attorney represents the government entity and is only compensated by the insurance company or risk pool. Although the city council does not want to settle, it may be acceptable to advise them of any obligations the entity might have under the insurance coverage agreement or interlocal cooperation agreement about acquiescing to the insurance company or risk pool about ultimate settlement decisions. If the lawyer is not the regular or in-house counsel for the entity, it is clearly better to involve that attorney to exclusively handle the differences between the entity and the risk pool or insurer. In the fourth scenario, the attorney is apparently solely employed by the city, and was not hired by the risk pool. The attorney should, as noted above, clarify their role as city attorney to the city manager, warn about the confidentiality issues and that the city manager is free to retain independent counsel. C. Scenarios Five and Six: Keeping Attorney- Client Communications Confidential Scenarios five and six raise concerns regarding the scope of attorney-client privilege. The attorneyclient privilege benefits the client, who generally has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client. 43 Additionally, rule 1.05 imposes a duty of 41 TEX. DISCIPLINARY R. PROF L CONDUCT 1.06(c) cmt. 12; see also Tex. Prof l Ethics Op. No. 179 (1958) (applying old TEX. R. DISCIPLINE, Canon 6). 42 TEX. DISCIPLINARY R. PROF L CONDUCT 1.12 cmt TEX. R. EVID. 503(b)(1). See Derek Lisk, When Does the Texas Attorney-Client Privilege Protect Communications

16 confidentiality on a lawyer. Specifically, rule 1.05 prohibits an attorney from knowingly revealing a client s confidential information to anyone other than the client, the client s representatives, or the attorney s associates or employees. 44 The rule is regarded as central to effective representation because it encourages individuals to seek legal advice for their legal problems by assuring the individual that their communications with their attorney will be kept strictly confidential and promotes the free exchange of information between the client and his attorney so that the attorney has the information needed for effective representation. 45 The attorney-client privilege, however, has its limits. 46 For instance, an attorney can be compelled to testify about conversations with third parties or actions taken while representing an organization. 47 Such conversations and actions are not confidential and are therefore subject to discovery. 48 In Borden, Inc. v. Valdez, the Corpus Christi Court of Appeals affirmed the district court s decision that a company had to produce their in-house counsel for a deposition. 49 The lawsuit involved an alleged wrongful discharge in violation of the Texas Worker s Compensation Act. Even though Borden filed an affidavit from their in-house counsel stating that he rendered advice to three employees who consulted him about the discharged employee s work performance, the court concluded that the attorney-client privilege is not a per se bar on the deposition of an attorney and instead only precludes those questions which may somehow invade upon attorney-client confidences. 50 The Court stated that a deposed attorney should object when questions are raised that involve privileged matters but with In-House Counsel?, 68 TEX. B.J. 386 (2005) for a discussion of the attorney-client privilege as applied to the private sector. 44 TEX. DISCIPLINARY R. PROF L CONDUCT 1.05(b)(1). 45 West v. Solito, 563 S.W.3d 240 (Tex. 1978); Soifer & Moore, supra note 1, at Steven F. Griffith et al., Confidentiality and Choice: Application of the Attorney-Client Privilege in the Corporate Context in the Fifth, Sixth and Eleventh Circuits, Baker Donelson Litigation News (2006). 47 Id. 48 Id S.W.2d 718 (Tex. App. Corpus Christi 1988, orig. proceeding). 50 Id. at could respond to questions such as the purpose for which an attorney has been engaged. 51 While recent decisions have persistently declined to impose an absolute bar on deposing counsel, courts have limited depositions of opposing counsel to circumstances where: (1) no other means exists to obtain the information; (2) the information sought is relevant and non-privileged; and (3) the information is crucial to the preparation of the case. 52 Additionally, an attorney may inadvertently waive a client s privilege by allowing constituents of an organization to be present during communications with the client or by sending copies of written communications to third parties. 53 In general, communications between an attorney and a client made in the presence of a third party are not privileged. 54 However, communications in the presence of a third party may fall within the attorney-client privilege if the party asserting the privilege can demonstrate that the third party is a representative of either the client or the attorney. 55 To establish that a third party is an attorney s representative, an attorney must demonstrate that the third party is subject to the attorney s control or facilitates the rendering of legal advice. 56 Similarly, to establish that a third party is a client s representative, an attorney must show that the third party (1) either (a) has the authority to obtain professional legal services on behalf of the client or (b) can act on advice rendered pursuant to a request made under such authority; or (2) facilitates the rendering of legal advice; or (3) holds a common legal interest with the client Id. 52 Shelton v. American Motors Corp., 805 F.2d 1323, 1327 (8th Cir. 1986). 53 See Cameron County v. Hinojosa, 760 S.W.2d 742, (Tex. App. Corpus Christi 1988, orig. proceeding); see also Tex Att y Gen Op. No. JC-0506, at 4-5 (2002) (cautioning the commissioners court that the presence of the county auditor may indicate that the commissioners court did not intend for communications held during a closed meeting to be confidential). 54 Ledisco Fin. Servs., Inc. v. Viracola, 533 S.W.2d 951, 959 (Tex. Civ. App. Texarkana 1976, no writ). 55 TEX. R. EVID. 503(b); TEX. R. CIV. P (a). 56 Nat l Tank Co. v. Brotherton, 851 S.W.2d 193, 197 (Tex. 1993). 57 Osborne v. Johnson, 954 S.W.2d 180 (Tex. App. Waco Waco 1997, orig. proceeding [mand. denied]). 6

17 Thus, to determine whether a constituent of an organization should be present during communications between an attorney and a client, an attorney should consider whether (1) the constituent s interests are adverse to the organization; (2) the constituent s presence is necessary to the issue to be discussed; and (3) whether the organization may waive the attorneyclient privilege by including the constituent. 58 An attorney would be remiss to disregard such issues because their careful consideration may prevent an unintentional waiver of attorney-client privilege. 59 Additionally, a governing body may be in danger of violating the Open Meetings Act by overlooking such issues. 60 D. Scenario Seven: Acting as Intermediary Between Clients Law firms that represent multiple government entities, especially when those entities share common jurisdictional boundaries, overlap each other (e.g., a school district and a city), or are located in the same metropolitan area, sometimes are presented with issues about whether the firm can represent multiple entities as an intermediary. The most common matters concern the negotiation of various kinds of interlocal agreements, where local governments contract with one another for the performance of any number of governmental functions in which the contracting parties are mutually interested. 61 Often clients are neighboring municipalities with contiguous or adjacent extraterritorial jurisdictions ( ETJ ) and might want to negotiate ultimate boundary agreements to assist with planning and avoid costly litigation over disputed annexations. 62 Under what circumstances can a lawyer represent both clients when negotiating and drafting 58 Tex. Att y Gen. Op. No. JC-0506, at 2 (2002). 59 E.g., Cameron County v. Hinojosa, 760 S.W.2d 742, (Tex. App. Corpus Christi 1988, orig. proceeding) (finding that because copies of correspondence containing legal advice were routinely sent to county auditor, county personnel s office, and the county judge s office, this action indicated either that the correspondence was not intended to be confidential or the privilege was waived due to disclosure to third parties). 60 Tex. Att y Gen. Op. No. JC-0506, at 2 (2002). 61 TEX. GOV T CODE ANN (3)(N),.011(a) (Vernon Supp. 2008). 62 See TEX. LOC. GOV T CODE ANN (Vernon 2008) (chapter concerning extraterritorial jurisdictions of municipalities). these agreements? What steps does a lawyer need to take to protect the lawyer and the lawyer s firm? 1. Conflicts of Interest: General Rule First, the general conflict of interest rule stated above, rule 1.06, should be consulted. These contract negotiation matters, of course, but do not involve a situation where the two clients are adversaries in litigation. 63 But the rule also provides that a lawyer cannot represent a client where the representation of that person: (1) involves a substantially related matter in which that person s interests are materially and directly adverse to the interests of another client of the lawyer or the lawyer s firm; or (2) reasonably appears to be or become adversely limited by the lawyer s or law firm s responsibilities to another client or to a third person or by the lawyer s or law firm s own interests. 64 Anytime there is a negotiation of an agreement between two clients their respective interests are, at least to some degree, potentially adverse. In the boundary agreement example, the more ETJ obtained by one city means the other will have less. In any situation, it might be prudent to assume that the representation of both entities will reasonably appear[] to adversely limit[] the responsibilities owed to one or both of those clients. 65 In this situation, a lawyer can only represent both clients if: 63 (1) the lawyer reasonably believes the representation of each client will not be materially affected; and (2) each affected or potentially affected client consents to such representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any. 66 TEX. DISCIPLINARY R. PROF L CONDUCT 1.06(a), reprinted in TEX. GOV T CODE ANN., tit. 2, subtit. G app. A (Vernon Supp. 2008) (TEX. STATE BAR R. art. X, 9). 64 Id. 1.06(b). 65 Id. 1.06(b)(2). 66 Id. 1.06(c)(1)-(2). 7

18 2. Conflict of Interest: Intermediary The rules of professional conduct permit a lawyer to act as an intermediary between clients if: (1) the lawyer obtains written consent from each of the clients after consultation about the implications, risks, advantages and potential waiver of attorney-client privilege; (2) the lawyer reasonably believes that the matter can be resolved without contested litigation; and (3) the lawyer reasonably believes the common representation can be undertaken impartially and without improper effect on responsibilities to the other clients. 67 a. Impartiality Acting as an intermediary prohibits the lawyer from being partial to one client or the other. 68 While a lawyer normally acts as a partisan and advocate for a single client in a matter, a lawyer acting as an intermediary cannot favor one client over the other. In deciding whether to undertake a matter as an intermediary between clients, a lawyer should consider whether there is any reason for the lawyer to favor one client over the other. What if one client is a relatively new one, while the other has been a client of the lawyer or the lawyer s firm for many years? What if one client generates a very small amount of business, while the other client does not? What if there is one client for which the firm handles infrequent matters and one client for which the firm handles a significant amount of legal work? Even when a lawyer actually believes the lawyer can be absolutely impartial when there is a disparity of this nature, consideration must be given to how the clients will perceive these facts for themselves. As a practical matter, great care should be given to avoid even the slightest appearance of impartiality. b. Confidentiality and the Attorney-Client Privilege With respect to client confidences, an attorney acting as an intermediary would still be obligated to maintain any confidences given to the attorney. As for the attorney-client privilege, the general rule is that it does not extend to commonly represented clients. The clients must be thoroughly cautioned that, in the event of a future dispute or litigation regarding the matter at issue, any communications with the lawyer or the lawyer s firm concerning the matter would not be protected by the privilege as to the other clients. 67 Id. 1.07(a)(1)-(3). 68 Id. 1.07(a)(3) & cmt. 7. Consider the hypothetical regarding the boundary or ETJ agreement. In this situation, each cities bargaining position will likely be shaped in part by the extent of their current, respective ETJs. What if the lawyer considering being an intermediary knows that certain annexations that created a portion of the relevant ETJ for one client are of questionable validity? While this information is likely confidential, it would not be subject to the attorney-client privilege in the event a dispute arose between the two clients. Maintaining this confidential information while also keeping the other client informed requires a very delicate balance. 69 c. Resolution Without Litigation A lawyer cannot act as an intermediary unless the lawyer reasonably believes that the matter can be negotiated or resolved without resort to litigation. 70 Just as important, a lawyer considering acting as an intermediary should try to anticipate whether the parties will be able to amicably and civilly resolve the matter. Considering the particular subject matter of the negotiation, the history of the clients dealings with one another, and the personalities of the officials or staff members that will be involved will help predict whether the negotiations on a matter will be antagonistic, unfriendly, or contentious. d. Benefits of Common Representation Concerning the benefits of common representation, it is likely that dual representation can be more efficient and cheaper with the legal expenses being divided between the clients. 71 Also, it can be said that a lawyer representing both clients might be in a better position than two, separate attorneys (that only have their client s interests in mind) to realize and develop the clients mutual interests, and thus help avoid future conflicts and litigation Informed, Written Consent; Withdraw Upon Request of Either Client Both rules 1.06 and 1.07 require that common representation can only be undertaken after both clients consent after being informed of the potential adverse consequences of the dual representation. Rule 1.06 provides that the client must consent[] to such 69 Id cmt Id. 1.07(a)(2) & cmt Id cmt Id cmt. 4. 8

19 representation after full disclosure. 73 Rule 1.07 similarly provides that the lawyer must consult with each client concerning the potential implications of common representation and obtains each client s written consent. 74 The relevant rules also mandate that a lawyer must withdraw from such representation under certain circumstances. Under rule 1.06, if a representation becomes improper under the rule, then the lawyer must promptly withdraw. Under rule 1.07, if a lawyer believes any of the conditions stated above are no longer satisfied, then the lawyer must withdraw. In addition, if any one of the clients request an attorney s withdrawal, then the lawyer must cease representation of all the clients on the matter that is the subject of the common representation. In our example, if at any time during the boundary negotiations one city requests that a lawyer withdraw, the lawyer would have to stop representing both clients in the matter and each city would have to obtain its own legal counsel for the purpose of negotiating and drafting the boundary agreement. V. WHAT YOU NEED TO KNOW: PRACTICAL TIPS A. Clarify Your Role to Constituents To create an attorney-client relationship, each must explicitly or implicitly by their conduct, manifest an intention to create the attorney-client relationship. 75 For an attorney who represents a government entity, it is easy to convey an impression that the attorney represents the entity s officers and employees, as well. Thus, an attorney must take steps to avoid creating the impression that the attorney intends to create an attorney-client relationship with a government entity's constituent. An attorney can do so by clarifying his role to a constituent and explaining that while communications may be withheld from a third party, they cannot be kept confidential from the client the governmental entity. 76 To avoid situations where the constituent may develop a selective memory about your admonitions, these statements of clarification should be reduced to writing (i.e., or 73 Id. 1.06(c)(2). 74 Id. 1.07(a)(1) & cmt Raymond G. Viada, III, Conflicts of Interest and Joint Representation, Texas Municipal League Intergovernmental Risk Pool Attorney Workshop, at 9 (Aug. 11, 2006) (quoting David J. Beck, Legal Malpractice in Texas, 50 BAYLOR L. REV. 551 (1998)). 76 Id. at 10. if possible certified mail) and if possible, signed by the constituent. 77 Should allegations of wrongdoing arise, an attorney should remind a constituent that he represents the entity. During the course of any investigation into alleged wrongdoing, an attorney may determine that the entity s interests are adverse to the officer or the employee. Should this occur, an attorney should: (1) clearly disclose his role as attorney for the entity; (2) inform a constituent that if he is concerned that he has violated a law or regulation, and he wishes to consult with an attorney, he should consult with another attorney; and (3) remind the constituent that divulged information will not be kept confidential from the governmental entity. 78 In addition, a government attorney should remain mindful of difference between an adverse party, a witness and a client. Overlooking these differences could destroy privilege. 79 During settlement negotiations, an attorney should determine whether the insured party is covered by third-party insurance or is self-insured. An attorney working with a third-party insurer must inform the insured regarding the insurer s obligations under the Stowers doctrine. In contrast, an attorney with a selfinsured client must still clarify his role to his client s constituents, advise the constituent that he may wish to seek independent counsel, and inform the constituent that discussions between the attorney and the employee are not confidential even though they would be privileged from third parties. 80 Again, it is advisable to give such statements of clarification to the constituent in writing via or other documentation and have the document signed by the constituent. B. Clarify Your Duties to All Clients Should a common representation fail, the lawyer has to completely withdraw from the matter and each client has to obtain new representation. This, of course, does nothing to help a lawyer s relationship with either client. As a practical matter, it is probably prudent to avoid these types of arrangements. An attorney should certainly avoid actively seeking this type of arrangement. But at times, a pair of clients might request common representation to avoid the 77 Id. (referring to such statements as a waiver of confidentiality ). 78 TEX. DISCIPLINARY R. PROF'L CONDUCT 1.12 cmt See Viada, supra note 80, at 10; Soifer & Moore, supra note 1, at TEX. DISCIPLINARY R. PROF L CONDUCT 1.12, cmt. 4. 9

20 hassle and additional cost of finding an attorney for a limited matter. If common representation is requested, the attorney should draft a detailed and client-specific letter to each client (avoid sending identical form letters to each) clearly stating and evaluating each of the factors set forth in Part IV.E from that client s perspective. The letter should be a completely candid, bad news discussion of all the things that could go wrong with common representation. The letter should note any privileged information that might be divulged if the matter results in litigation. It should make clear that the attorney must completely withdraw at any time either client requests. The letter should, if the client consents to the common representation, request a signature on the letter from an authorized representative of the client. 10