REPRESENTATION OF MULTIPLE PARTIES AND CONFLICTS OF INTEREST. Written by: JESS IRWIN

REPRESENTATION OF MULTIPLE PARTIES AND CONFLICTS OF INTEREST Written by: JESS IRWIN Presented by: JESS IRWIN Herring & Irwin, L.L.P. 701 Brazos Street, Suite 500 Austin, Texas 78701 JAMES McCORMACK Tomblin Carnes McCormack, L.L.P. 7004 Bee Caves Road, Building 1, Suite 205 Austin, Texas 78746 State Bar of Texas 23 RD ANNUAL ADVANCED ADMINISTRATIVE LAW COURSE June 30 July 1, 2011 Austin CHAPTER 14

Jess M. Irwin III Herring & Irwin, L.L.P. 701 Brazos, Suite 500 Austin, Texas 78701 512/320-0665 www.herring-irwin.com EMPLOYMENT & EXPERIENCE From September, 1997, to the present I have been a partner in Herring & Irwin, L.L.P. in Austin, Texas. Following graduation from law school in 1977, I served as briefing attorney for Justice Price Daniel of the Texas Supreme Court. From 1978 until 1983, I was an associate and later a shareholder in the San Antonio law firm of Sawtelle, Goode, Davidson & Troilo. In 1983, I returned to my native Austin and joined Small, Craig & Werkenthin. After fourteen years with Small, Craig & Werkenthin, I joined with Chuck Herring to form Herring & Irwin, L.L.P. in 1997. I currently represent clients in a wide variety of matters, including legal ethics, legal malpractice, Bar admission and attorney discipline issues. I have broad civil litigation experience. During my 33+ years of practice, I have handled personal injury cases on both sides of the docket, commercial litigation, contract claims, consumer litigation and contested administrative proceedings. LICENSURE Texas Supreme Court in November of 1977. Also licensed to practice in the United States District Courts for the Western, Southern, and Northern Districts of Texas, and in the United States Court of Appeals for the Fifth Circuit. EDUCATION BBA (Management) from the University of Texas in 1974. J.D. from the University of Texas School of Law in 1977; member of Phi Delta Phi Legal Fraternity. MISCELLANEOUS Fellow of the Texas Bar Foundation. AV rated by Martindale-Hubbell. Member of the Austin Bar Association. Member of the Texas Association of Defense Counsel.

JAMES M. McCORMACK Attorney and Counselor at Law 7004 Bee Caves Road, Building 1, Suite 205 Austin, Texas 78746 Office: 512-615-2408 Fax: 512-615-2420 Email: jmmccormack@austin.rr.com EMPHASIZING LEGAL ETHICS AND LEGAL MALPRACTICE CONSULTATION Mr. McCormack is the former General Counsel and Chief Disciplinary Counsel of the State Bar of Texas (1991-1996) and a former Managing Attorney of the Civil Litigation Section of the Travis County Attorney's Office in Austin, Texas. As the State Bar's Chief Disciplinary Counsel, he served as the chief legal ethics enforcement officer for the attorney discipline system in Texas. He is a graduate of the University of Texas at Austin: BBA with Honors, l981; Doctor of Jurisprudence, 1984. Mr. McCormack also served as an adjunct professor of law at the University of Texas School of Law in Austin where he taught professional responsibility. He is a regular lecturer on legal ethics and malpractice issues. His article in the American Bar Association's Law Practice Management magazine entitled "Good Ethics, Smart Tactics" was named by the magazine as one of the top five articles of 1995. From 1998 to 2004, Mr. McCormack served as a member of the State Bar's Texas Disciplinary Rules of Professional Conduct Committee, which is charged with recommending amendments to the Texas ethics rules. He served as the Chairman of the Board of Trustees of the Texas Center for Legal Ethics and Professionalism (Chair-Elect, 2006-2007; Chairman 2007-2008; Immediate Past Chairman 2008-2009). Mr. McCormack's Austin-based practice emphasizes legal ethics and legal malpractice consultation as well as practice management services for law firms across Texas. Past consultations include conflicts of interest analysis, mass tort settlements, disqualification motions, lawyer advertising and solicitation questions, organizational ethics reviews, expert testimony, representation before the Texas Board of Law Examiners, and other professional responsibility and malpractice-related counsel. Martindale-Hubbell national legal directory peer-based rating: AV since 1994.

TABLE OF CONTENTS I. INTRODUCTION... 1 II. THE RULES... 1 A. What rules apply?... 1 B. Disciplinary Rule 1.06- Conflict of Interest: General Rule.... 2 C. Disciplinary Rule 1.07- Conflict of Interest: Intermediary.... 4 D. Disciplinary Rule 1.08- Conflict of Interest: Prohibited Transactions.... 4 E. Disciplinary Rule 1.09- Conflict of Interest: Former Client.... 5 F. Disciplinary Rule 1.05- Confidentiality of Information.... 6 III. FIDUCIARY DUTY... 7 IV. POTENTIAL PROBLEM AREAS... 7 A. Adversity... 8 1. Strategy and Evidence... 8 2. Settlement... 8 B. Lies... 8 C. An Albatross Client... 9 D. Public Interest, Public Service; Politics... 9 E. The lawyer or law firm s interests... 9 V. THE UNINTENDED JOINT CLIENT... 9 VI. CONSEQUENCES... 10 A. Withdrawal... 10 B. Disqualification from continuing to represent any of the joint clients... 10 C. Professional discipline... 11 D. Breach of fiduciary duty claim... 11 VII. AVOIDANCE AND CURATIVE ACTION... 11 A. Avoidance... 11 B. Consent... 11 C. Warning... 12 D. Withdrawal... 12 VIII. CONCLUSION... 13 i

REPRESENTATION OF MULTIPLE PARTIES AND CONFLICTS OF INTEREST I. INTRODUCTION. The more the merrier. 1 Representing multiple parties in a single, contested matter can offer potentially significant benefits. Often the most important of those benefits is the cost savings that multiple representation frequently produces for the jointly represented clients, when compared to the cost that each client would incur if independently represented. Cost savings are accomplished by eliminating duplication of effort and by the clients sharing expenses for services that benefit them jointly (e.g., expert witness fees, document reproduction and organization costs, etc.). Multiple representation also may offer significant strategic benefits in some cases. Many times, clients (particularly sophisticated clients) are aware of those and possibly other perceived benefits and initiate the request that an attorney agree to represent multiple parties. Obviously, multiple representation also can benefit the attorney, particularly when the attorney s fee is contingent. While multiple representation can benefit the jointly represented clients and their attorney, it also entails risks for both. As we all know, a variety of conflict of interest issues can arise in the representation of a single client. Representing multiple clients in a matter creates opportunities for an even wider array of conflicts to arise. Identifying, analyzing and dealing with conflicts of interest generally are fact specific processes, and the issues can be complex. It goes without saying that when conflicts do arise in connection with a multiple representation, those conflicts can lead to significant problems for both the clients and their attorney. The goal of this paper is to provide an overview of the Texas conflict of interest rules, identify some of the general types of conflicts issues that lawyers may encounter in the course of representing multiple clients, describe some of the steps that attorneys may consider taking to help reduce the prospect of a possible conflict maturing into an actual conflict, or to deal with conflicts that arise, and describe some of the consequences to which conflicts of interest can expose the attorney. 1 The Yale Book of Quotations 616 (2006); Source: Pearl (circa 1380). II. THE RULES. Ignorance of the law is no excuse. 2 A. What rules apply? Obviously, the Texas Disciplinary Rules of Professional Conduct (the Disciplinary Rules ) apply generally to the conduct of lawyers licensed by the Supreme Court of Texas. In fact, Disciplinary Rule 8.05(a) provides that a Texas lawyer may be disciplined in Texas for conduct in another jurisdiction if that conduct is professional misconduct under Disciplinary Rule 3 8.04. The statement that the practice of law has become increasingly regional and, often, national in scope for Texas lawyers certainly will not come as a revelation. As a result of those phenomena, Texas lawyers frequently practice in courts or before government agencies or bodies that apply rules of attorney conduct or attorney discipline 2 The Yale Book of Quotations 614 (2006); Source: Christopher St. Germaine, Dialogues in English (1530). 3 Disciplinary Rule 8.04(a) provides the following list of 12 thou shalt nots : (1) violate these rules, knowingly assist or induce another to do so, or do so through the acts of another, whether or not such violation occurred in the course of a client-lawyer relationship; (2) commit a serious crime or commit any other criminal act that reflects adversely on the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects; (3) engage in conduct involving dishonesty, fraud, deceit or misrepresentation; (4) engage in conduct constituting obstruction of justice; (5) state or imply an ability to influence improperly a government agency or official; (6) knowingly assist a judge or judicial officer in conduct that is a violation of applicable rules of judicial conduct or other law; (7) violate any disciplinary or disability order or judgment; (8) fail to timely furnish to the Chief Disciplinary Counsel's office or a district grievance committee a response or other information as required by the Texas Rules of Disciplinary Procedure, unless he or she in good faith timely asserts a privilege or other legal ground for failure to do so; (9) engage in conduct that constitutes barratry as defined by the law of this state; (10) fail to comply with section 13.01 of the Texas Rules of Disciplinary Procedure relating to notification of an attorney's cessation of practice; (11) engage in the practice of law when the lawyer is on inactive status or when the lawyer's right to practice has been suspended or terminated including but not limited to situations where a lawyer's right to practice has been administratively suspended for failure to timely pay required fees or assessments or for failure to comply with Article XII of the State Bar Rules relating to Mandatory Continuing Legal Education; or (12) violate any other laws of this state relating to the professional conduct of lawyers and to the practice of law. 1

that differ--sometimes dramatically--from the Disciplinary Rules. While the Disciplinary Rules apply generally to Texas lawyers, they may not be the only rules of ethics or attorney discipline to which Texas lawyers are subject. A Texas lawyer who also is admitted to practice in another jurisdiction very well may be subject to discipline in that other jurisdiction for professional misconduct that occurs in Texas or elsewhere under a provision in that jurisdiction s rules of ethics that is similar to Disciplinary Rule 8.05(a). In addition, a Texas lawyer who is admitted pro hac vice in a matter pending in another jurisdiction typically is required to comply with the rules of ethics of that jurisdiction and to submit to professional discipline by that jurisdiction as a part of the pro hac vice admission process. Many federal courts have adopted rules of professional conduct and/or attorney discipline as part of their local rules. Unfortunately, the federal judicial system has not adopted a standard set of rules of professional conduct or attorney discipline. In fact, the rules adopted by the federal courts may vary substantially from district to district within a state, not to mention from state to state. Frequently, but not always, federal district courts adopt the rules of professional conduct of the states in which they sit. Even when they do so, however, federal courts sometimes also adopt other standards and/or rules that are to be applied or considered in conjunction with 4 the local state s rules. Obviously, lawyers should check the local rules of each federal court in which they practice to determine whether that court has adopted ethics rules and, if so, whether those rules differ in any significant respect from the Disciplinary Rules. 4 For example, Rule AT-2(a) of the Local Court Rules for the Eastern District of Texas provides: The standards of professional conduct adopted as part of the Rules Governing the State Bar of Texas shall serve as a guide g overnin g th e obligation s a n d responsibilities of all attorneys appearing in this court. It is recognized, however, that no set of rules may be framed which will particularize all the duties of the attorney in the varying phases of litigation or in all the relations of professional life. Therefore, the attorney practicing in this court should be familiar with the duties and obligations imposed upon members of this bar by the Texas Disciplinary Rules of Professional Conduct, court decisions, statutes, and the usages customs and practices of this bar. (Emphasis added.) Attorneys who appear before administrative agencies or bodies also should determine whether the entities before which they practice have adopted their own rules of professional conduct or attorney discipline. One example of the latter is found at 8 C.F.R. 1003.102. That provision establishes the bases upon which the Board of Immigration Appeals may discipline an immigration practitioner. Some, but not all, of the provisions in that rule are similar to provisions commonly found in state rules of professional conduct. The bottom line is that a Texas lawyer who practices in federal court, or who is licensed in multiple states, or who appears pro hac vice in another jurisdiction, or who practices before a state or federal governmental agency or body needs to make certain exactly what rules of professional conduct and/or attorney discipline apply. If more than one set of rules applies, the lawyer also must determine whether the rules conflict and, if they do, how to resolve the conflicting requirements or prohibitions. Not checking, or assuming that other applicable rules are the same as the Disciplinary Rules, or assuming that compliance with the Disciplinary Rules is sufficient, leaves the lawyer open to the consequences predicted by the old saying about what happens when one assumes. With that caveat, this paper focuses on the Disciplinary Rules and, specifically, the Texas conflict of interest rules. B. Disciplinary Rule 1.06 - Conflict of Interest: General Rule. Disciplinary Rule 1.06 is the first in the sequence of the Disciplinary Rules that governs conflicts of interest. It applies to and, unless otherwise permitted, prohibits lawyers from undertaking a representation that results in one or more of three categories of conflicts of interest. Disciplinary Rule 1.06(a) establishes the rule s only prohibition to which there is no possible exception: a lawyer cannot represent opposing parties in the same litigation. That prohibition seems obvious, but there have been instances in which lawyers from the same firm (usually a large, multi-city firm) have appeared, much to their chagrin, for opposing parties in one case. In addition, lawyers occasionally still attempt to represent both spouses in a contested divorce. Paragraph b of Disciplinary Rule 1.06 identifies two additional situations in which a lawyer is not permitted to represent a client. Those two categories of prohibited representations are: when the representation involves a substantially related matter in which that person s interests are materially and directly 2

5 adverse to the interest of another client of the lawyer or the lawyer s firm; and when the representation 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. Those two prohibitions, however, are subject to the consent exception that is found in paragraph c of the rule. Paragraph c establishes two specific requirements that must be satisfied to convert a representation that is otherwise prohibited by paragraph b to a permissible representation. First, the lawyer must reasonably believe that the representation of each client will not be materially affected. Comment 7 to the rule provides that when a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved should not ask for such agreement or provide representation on the basis of the client's consent. In other words, if the lawyer does not have or when a disinterested lawyer could not reasonably form the belief that a client will not be materially affected by consenting to the representation, then the representation is prohibited and the lawyer may not even ask the affected client(s) to consent. Stated differently, in that situation, the conflict of interest is non-consentable. If the lawyer reasonably believes that the representation of each client will not be materially affected, then the second requirement is that each affected or potentially affected client must consent to the representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any. Disciplinary Rule 1.06(c)(2). The Rule does not require that a client s consent be in writing. Comment 8 to Disciplinary Rule 1.06 advises, however, that it would be prudent for the lawyer to provide potential dual clients with at least a written 5 Comment 6 to Rule 1.06 instructs that a representation is directly adverse in this context if the lawyer's independent judgment on behalf of a client or the lawyer's ability or willingness to consider, recommend or carry out a course of action will be or is reasonably likely to be adversely affected by the lawyer's representation of, or responsibilities to, the other client. The dual representation also is directly adverse if the lawyer reasonably appears to be called upon to espouse adverse positions in the same matter or a related matter. summary of the considerations disclosed. Obviously, having a written consent signed by the client(s) in question or, at the very least, a written confirmation of the client s consent that the lawyer contemporaneously sends to the client could significantly reduce the potential for a swearing match concerning whether the client(s) consented if a conflict issue develops later. A multiple representation that begins without a conflict, later may develop into a conflict. If the lawyer advises her/his clients in a multiple representation of that possibility early, her/his job in dealing with a conflict situation may be somewhat less difficult. The best practice is to disclose to the client at or prior to the inception of the representation, in as much detail as is reasonably possible at that time, that there is a possibility that conflicts could arise in the future and to obtain each of the clients consent to the multiple representation with knowledge of that possibility. One logical way to make such a disclosure and document each client s consent is to include the disclosure and consent in the engagement agreement. Obviously, in many cases a lawyer will not be able to make a full disclosure with respect to future conflicts at the inception of the representation that will be sufficient to satisfy the requirements of Disciplinary Rule 1.06(c). That is because the lawyer probably will not be able to predict the nature of the specific conflict that ultimately arises, much less identify and disclose all of the implications, and possible adverse consequences of the common representation in light of the actual, future conflict. Accordingly, a general consent obtained at the inception of the representation probably will not be sufficient to satisfy Disciplinary Rule 1.06(c) in many cases. Therefore, if a conflict later arises, there is a substantial prospect that the lawyer will be required to obtain a new consent in light of the specifics of the actual conflict in order to continue the representation. Nonetheless, the lawyer can inform the clients at the inception of the representation of the terms of Disciplinary Rule 1.06(b) & (c); the then foreseeable, possible, adverse consequences of the joint representation (e.g., that a conflict might require the lawyer to withdraw from representing one or all of the clients, with potentially resulting delays and additional costs as new lawyers get up to speed); and the then foreseeable, possible advantages of the joint representation (e.g., anticipated 3

cost savings and, if applicable, strategic advantages of the joint representation). While Disciplinary Rule 1.06 arguably is the most significant of the Texas conflicts rules in terms of conflicts issues that arise or may arise in connection with a multiple representation, it certainly is far from the only relevant rule. C. Disciplinary Rule 1.07 - Conflict of Interest: Intermediary. Disciplinary Rule 1.07(a) generally prohibits lawyers from acting as an intermediary between clients. A lawyer acts as intermediary if she/he represents two or more 6 parties with potentially conflicting interests. The Texas Supreme Court Professional Ethics Committee further explained the meaning of acting as intermediary in its Opinion No. 500 (December 1995). In that opinion, the Committee wrote that to avoid an interpretation under which Rule 1.07 would supplant Rule 1.06 in all conflict situations, Rule 1.07 must be interpreted to mean that a lawyer is acting as an intermediary only when the lawyer is representing in the same matter two clients with potentially conflicting interests who seek to consummate a transaction or resolve a dispute between or among themselves. The prohibition of acting as intermediary applies 7 unless three conditions are satisfied. The first condition requires the lawyer to consult with each of the clients about the implications of the common representation, including the advantages and risks involved, and the effect on the attorney-client privileges, and obtain each client's 8 written consent to the common representation. Second, the lawyer must reasonably believe that the matter at issue can be resolved without the necessity of litigation and on terms compatible with the clients' best interests; that each client will be able to make adequately informed decisions in the matter; and that there is little risk of material prejudice to the interests of any of the clients if the 9 contemplated resolution is unsuccessful. Third, the 6 Disciplinary Rule 1.07(d). 7 Disciplinary Rule 1.07(a)(1-3). 8 Disciplinary Rule 1.07(a)(1). 9 Disciplinary Rule 1.07(a)(2). lawyer must reasonably believe that she/he can undertake the common representation impartially and without improper effect on her/his other responsibilities to any of 10 the clients. Assuming that those three conditions are satisfied and, therefore, the representation is permissible, Rule 1.07 imposes two additional requirements. First, the lawyer is required to consult with each of the clients concerning the decision(s) to be made and the considerations that are relevant to making them, so as to make certain that each client can make an adequately informed decision about the 11 matter. Second, if one of the clients requests that the lawyer withdraw, or if one of the three required conditions listed in paragraph a of the rule ceases to exist, then the lawyer must withdraw. After such withdrawal the lawyer may not continue to represent any of the clients in the matter that was the subject of the intermediation. 12 D. Disciplinary Rule 1.08 - Conflict of Interest: Prohibited Transactions. Disciplinary Rule 1.08 identifies eight types of dealings between a lawyer and a client that are prohibited, 13 subject to the exceptions stated in the rule. At least three, and perhaps more, of those types of dealings may be relevant from time to time to a given multiple representation. Paragraph a prohibits business transactions with a client, although paragraph j clarifies that the 10 Disciplinary Rule 1.07(a)(3). 11 Disciplinary Rule 1.07(b). 12 Disciplinary Rule 1.07(c). 13 Those eight categories of dealings are: (1) business transactions with a client, (2) preparing an instrument by which the client makes a substantial gift to the lawyer, (3) making or negotiating prior to the conclusion of the representation an agreement that gives the lawyer literary or media rights, (4) financial assistance to a client in pending or contemplated litigation or administrative proceedings, (5) accepting compensation for representing the client from someone other than the client, (6) an aggregate settlement or, in a criminal case, an aggregated agreement to plead guilty or nolo, (7) an agreement prospectively limiting the lawyer s liability for malpractice or settling a claim with a client who is not represented by another attorney, and (8) acquiring a proprietary interest in the cause of action or subject matter of litigation that the lawyer is handling for a client. 4

prohibition does not apply to transactions for products or services that the client generally markets to others. In order for an otherwise prohibited business transaction between lawyer and client to be proper (1) the transaction and terms on which the lawyer acquires the interest in question must be fair and reasonable to the client and disclosed to the client in a manner that the client can 14 reasonably understand; (2) the client must be given a reasonable opportunity prior to entering into the transaction to seek the advice of an independent 15 attorney; and (3) the client must consent in writing to 16 the transaction. Paragraph e provides that a lawyer shall not accept compensation for representing a client from anyone other than that client, unless three conditions are satisfied. Those three conditions are that: (1) the client consents, 17 (2) the payment arrangement does not interfere with the lawyer s exercise of independent professional judgment on behalf of the client or with the attorney client 18 relationship, and (3) the lawyer protects the client s confidential information as required by Disciplinary Rule 19 1.05. Although aggregate settlements probably are a much more relevant topic in civil litigation than in the administrative practice, Disciplinary Rule 1.08(f) deserves a mention. That rule prohibits a lawyer from making an aggregate settlement (and from making an aggregated agreement to plead guilty or nolo in a criminal case) of the claims asserted by or against multiple clients, unless each client consents after consultation. The Disciplinary Rules do not define what constitutes an aggregate settlement. The American Bar Association Model Rules of Professional Conduct (the ABA Model Rules ) also prohibit lawyers from making 20 aggregate settlements unless certain conditions are met. Like the Disciplinary Rules, the ABA Model Rules do not 14 Disciplinary Rule 1.08(a)(1). 15 Disciplinary Rule 1.08(a)(2). 16 Disciplinary Rule 1.08(a)(3). 17 Disciplinary Rule 1.08(e)(1). 18 Disciplinary Rule 1.08(e)(2). 19 Disciplinary Rule 1.08(e)(3). 20 ABA Model Rule 1.8(g). define an aggregate settlement. ABA Formal Ethics Opinion No. 06-438 (February 2006), however, explained the nature of an aggregate settlement in the following terms: An aggregate settlement or aggregated agreement occurs when two or more clients who are represented by the same lawyer together resolve their claims or defenses or pleas. It is not necessary that all of the lawyer's clients facing criminal charges, having claims against the same parties, or having defenses against the same claims, participate in the matter's resolution for it to be an aggregate settlement or aggregated agreement. The rule applies when any two or more clients consent to have their matters resolved together. The consultation required by Disciplinary Rule 1.08(f) in connection with an aggregate settlement must include the nature and existence of all of the claims involved and the nature and extent of each person s participation in the settlement. Violating the aggregate settlement rule can have calamitous consequences. One Texas court of appeals has held that a violation of Disciplinary Rule 1.08(f) can result in the aggregate settlement agreement being 21 voided. In addition, entering into an improper aggregate settlement exposes the lawyer to a breach of fiduciary duty claim, which can result, among other things, in fee forfeiture. 22 E. Disciplinary Rule 1.09 - Conflict of Interest: Former Client. In the absence of prior consent, Disciplinary Rule 1.09(a)(1-3) prohibit a lawyer who personally has formerly represented a client in a matter from later representing another person in a matter adverse to the former client: (1) in which the other person questions the validity of the lawyer's services or work product for the former client; (2) if the representation in reasonable 21 Quintero v. Jim Walter Homes, Inc., 709 S.W.2d 225 (Tex. App. Corpus Christi 1985, writ ref d n..r.e.). 22 See, e.g., Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999). 5

probability will involve a violation of the confidentiality requirements imposed by Disciplinary Rule 1.05; or (3) if it is the same or a substantially related matter. The rule does not define substantially related matter. Comment 4B to the rule, however, advises that the term primarily involves situations where a lawyer could have acquired confidential information concerning a prior client that could be used either to that prior client's disadvantage or for the advantage of the lawyer's current client or some other person. A representation otherwise prohibited by Disciplinary Rule 1.09 probably may be undertaken if the 23 client(s) and former client(s) give consent. The elements of effective consent in the context of a former client conflict are essentially the same as the elements of consent under Disciplinary Rule 1.06(c), although comment 10 states that the relevant circumstances that should be disclosed include the lawyer s past or intended role on behalf of each client, as appropriate. F. Disciplinary Rule 1.05 - Confidentiality of Information. Three may keep a secret if two of them are dead. 24 Disciplinary Rule 1.05 is not a conflict of interest rule, but as the foregoing discussion of the conflict rules demonstrates, it plays a significant role in those rules. In fact, as shown above, the reasonable probability that a representation will result in a violation of Disciplinary Rule 1.05 is one of the bases for a former client conflict. Disciplinary Rule 1.09(a)(2). Subject to certain permissive exceptions enumerated 23 As stated in Comment 10 to Disciplinary Rule 1.09: This Rule is primarily for the protection of clients and its protections can be waived by them. A waiver is effective only if there is consent after disclosure of the relevant circumstances, including the lawyer s past or intended role on behalf of each client, as appropriate. See Comments 7 and 8 to Rule 1.06. 24 The Yale Book of Quotations 620 (2006); Source: Benjamin Franklin, Poor Richard s Almanack, July 1735. 25 26 in paragraphs c and d and a mandatory exception 27 in paragraph e, Disciplinary Rule 1.05(b) prohibits lawyers from knowingly disclosing or using confidential information in four ways. Paragraph (b)(1) prohibits lawyers from disclosing confidential information to anyone the client has instructed is not to receive such information and to anyone else, other than the client, the client s representatives or the lawyers and employees of 25 Pursuant to paragraph c, a lawyer may reveal confidential information : when the lawyer has been expressly authorized to do so in order to carry out the representation; when the client consents after consultation; to the client, the client's representatives, or the members, associates, and employees of the lawyer's firm, except when otherwise instructed by the client; when the lawyer has reason to believe it is necessary to do so in order to comply with a court order, a Texas Disciplinary Rules of Professional Conduct, or other law; to the extent reasonably necessary to enforce a claim or establish a defense on behalf of the lawyer in a controversy between the lawyer and the client; to establish a defense to a criminal charge, civil claim or disciplinary complaint against the lawyer or the lawyer's associates based upon conduct involving the client or the representation of the client; when the lawyer has reason to believe it is necessary to do so in order to prevent the client from committing a criminal or fraudulent act; and to the extent revelation reasonably appears necessary to rectify the consequences of a client's criminal or fraudulent act in the commission of which the lawyer's services had been used. 26 Pursuant to paragraph d, a lawyer may reveal unprivileged client information : (1) when impliedly authorized to do so in order to carry out the representation.; and (2) when the lawyer has reason to believe it is necessary to do so in order to: (i) carry out the representation effectively; (ii) defend the lawyer or the lawyer's employees or associates against a claim of wrongful conduct; (iii) respond to allegations in any proceeding concerning the lawyer's representation of the client; or (iv) prove the services rendered to a client, or the reasonable value thereof, or both, in an action against another person or organization responsible for the payment of the fee for services rendered to the client. 27 Paragraph e, provides that [w]hen a lawyer has confidential information clearly establishing that a client is likely to commit a criminal or fraudulent act that is likely to result in death or substantial bodily harm to a person, the lawyer shall reveal confidential information to the extent revelation reasonably appears necessary to prevent the client from committing the criminal or fraudulent act. In those circumstance, a lawyer is required to reveal confidential information to the extent revelation reasonably appears necessary to prevent the client from committing the criminal or fraudulent act. 6

the lawyer s firm. Paragraph (b)(2) prohibits lawyers from using a client s confidential information to the disadvantage of the client, without the client s consent. Paragraph (b)(3) prohibits lawyers from using confidential information of a former client to the former client s disadvantage after the representation ends, unless the former client consents or the information has become generally known. Paragraph (b)(4) prohibits lawyers from using a client s privileged information for the lawyer s or a third party s advantage, unless the client consents. The rule recognizes two types of confidential information : privileged information and unprivileged client information. Privileged information consists of information and communications that are protected by the attorney-client privilege pursuant to Texas Rule of Evidence 503 or that privilege as developed pursuant to Federal Rule of Evidence 501. Unprivileged client information is all information relating to a client or furnished by the client, other than privileged information, acquired by the lawyer during the course of or by reason of the representation of the client. Obviously, in most representations there will be little, if any, information that an attorney will learn that will not at least constitute unprivileged client information. In fact, even the name of a lawyer s client can be confidential information that Disciplinary Rule 1.05(b) prohibits the lawyer from disclosing. See, Supreme Court of Texas Professional Ethics Committee Opinion No. 532 ( Even the name of a lawyer's client can be confidential information protected by Rule 1. 05. See Texas Professional Ethics Opinion No. 479 (August 1991). ); Supreme Court of Texas Professional Ethics Committee Opinion No. 479 (March 1993). The name of another client may be confidential information and the details of another client s case almost certainly are confidential information. Under those circumstances, how does a lawyer make the full disclosure required in order to obtain a client s or prospective client s informed consent to a joint representation without violating Disciplinary Rule 1.05(b)(1)? The answer is that the lawyer must be careful and obtain the consent of the other client(s)/prospective client(s) to the lawyer disclosing to the other client(s)/prospective client(s) information that is sufficient to satisfy Disciplinary Rule 1.06(c). In fact, comment 7 to Disciplinary Rule 1.06 advises that when the lawyer represents different clients in related matters and one of the clients refuses to consent to the disclosure necessary to permit the other client to make an informed decision, the lawyer cannot properly ask the latter to consent. III. FIDUCIARY DUTY. Virtue is its own reward. 28 It is very well established that lawyers owe their clients certain fiduciary duties and that, as a fiduciary, an attorney is obligated to render a full and fair disclosure of facts material to a client s representation. Willis v. Maverick, 760 S.W.2d 642, 645 (Tex 1988). In Hoover Slovacek, LLP v. Walton, 206 S.W.3d 557, 560-61 (Tex. 2006), the Texas Supreme Court described lawyers fiduciary duties to their clients as follows: In Texas, we hold attorneys to the highest standards of ethical conduct in their dealings with their clients. The duty is highest when the attorney contracts with his or her client or otherwise takes a position adverse to his or her client's interests. As Justice Cardozo observed, [a fiduciary] is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. Accordingly, a lawyer must conduct his or her business with inveterate honesty and loyalty, always keeping the client's best interest in mind. Obviously, the fiduciary duties that lawyers owe their clients are stringent. Those fiduciary duties are relevant to the consideration of conflict of interest issues that can arise in the course of representing multiple parties. Undertaking a representation that is prohibited by the conflict of interest rules or continuing a representation after a conflict develops without obtaining, if permissible, the affected clients informed consent, can form the basis for a breach of fiduciary duty claim. IV. POTENTIAL PROBLEM AREAS. There s many a slip twixt the cup and the lip. 29 28 The Yale Book of Quotations 621 (2006); Source: Thomas Browne, Religio Medici (1642). 29 The Yale Book of Quotations 616 (2006); Source: R.H. Barham, Ingoldsby Legends (1840). 7

It is not possible to compile a finite list of the types and sources of conflicts of interest that can arise when a lawyer represents multiple clients in a matter. The relationships, facts and circumstances that may give rise to a conflict in that context are as varied as the universe of clients and the legal issues that concern them. There are, however, several types of situations and circumstances that result in conflicts with some frequency. A. Adversity Joint clients may start out on the same page, with the same goals. Due to changes of heart, changes in an entity client s management, changes in an entity client s ownership or changes in any number of other circumstances or factors, a client s goals may change during the course of a representation. If that happens, the once aligned joint clients may become adverse, with the result that the lawyer is confronted by a conflict. As noted previously, being directly adverse in the conflict of interest context does not mean that the joint clients must be in the posture of asserting claims against 30 one another. Comment 3 to Disciplinary Rule 1.06 advises that [a]n impermissible conflict may exist or develop by reason of substantial discrepancy in the parties' testimony, incompatibility in positions in relation to an opposing party or the fact that there are substantially different possibilities of settlement of the claims or liabilities in question. 1. Strategy and Evidence. Clients may strongly differ in complete good faith with respect to case strategy, witnesses to use at trial, how to respond to discovery or any number of other issues. There also are occasions when joint clients will disagree in their respective testimony with respect to a particular critical fact(s). As recognized in comment 3 to Disciplinary Rule 1.06, disagreements of these sorts can develop into a conflict. 2. Settlement. Joint clients can and often do disagree concerning whether to settle a dispute, the terms on which settlement would be acceptable, and/or the way in which the benefits obtained (or burdens assumed) pursuant to a settlement should be allocated among them. The Texas Supreme Court Professional Ethics Committee considered in its Opinion No. 500 (April 1995), among other issues, whether a lawyer could represent two people injured in a vehicle accident if it becomes clear that the defendant has a limited amount of funds available to pay a settlement or an adverse judgment. The Committee noted that while coplaintiffs, technically, are not opposing parties, Comment 2 to Disciplinary Rule 1.06 states that the term opposing parties' as used in this Rule contemplates a situation where a judgment favorable to one of the parties will directly impact unfavorably upon the other party. Based on that proposition, the Committee concluded that under the facts at issue, the more funds one party would receive from a limited amount of available funds, the less the other party would receive. Therefore, there was a prospect that the representation of each client would be materially affected. The Committee further concluded that if a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved should not ask for such an agreement or provide representation on the basis of the client's consent. That is, the conflict would be non-consentable. The Committee s conclusion was that under the limited scope of the question posed it would be a violation of Rule 1.06 to represent two or more persons injured in a single accident caused by a third person, when it becomes clear that the third person has a limited amount of funds to pay a possible judgment or settlement (e.g. insurance policy limits substantially less than the likely verdict range). While Professional Ethics Committee Opinion 500 may not translate directly to the majority of the matters that lawyers handle in the administrative law practice, its logic certainly could apply. B. Lies. Unfortunately, a joint client may lie to further her/his own interests or to protect or assist another joint client. If the attorney learns of the lie (whether on his/her own, or because one of the clients volunteers that information to the lawyer), the lawyer obviously will be placed in a difficult position. The lawyer cannot present testimony that she/he knows to be false; that, of course, is expressly forbidden by Disciplinary Rule 3.03(a)(5). If the lawyer learns of the lie from another client the lawyer represents separately, then the issues can become even more complicated. In that situation, the lawyer owes a duty of confidentiality to the client who has told the lawyer about the lie. As discussed previously, the lawyer cannot present testimony that she/he knows to be false and will have a duty to urge the client for whose benefit the false information would be presented not to use the false evidence and not to testify falsely. See, Comment 5 to 30 See footnote 5, above. 8

31 Disciplinary Rule 3.03. Further, a lawyer who learns that she/he has presented false, material evidence has certain responsibilities to take curative action pursuant to Disciplinary Rule 3.03(b). That curative action may include disclosure to the tribunal. The disclosure of the lie could and probably would have a significant, adverse impact, of course, on the client telling the lie and any other client who is in a position to benefit from the lie. This situation creates issues concerning consulting with the clients, and doing so without violating the attorney s obligations to maintain the confidentiality of all confidential information, as that term is defined in Disciplinary Rule 1.05. C. An Albatross client. Sometimes a client in a joint representation turns out to be an albatross. She/he may have a criminal conviction that will be admissible for impeachment purposes pursuant to Texas Rule of Evidence 609 or some other problematic personal baggage that is or may be admissible. Or, a client may get caught in a lie in her/his deposition. Or, a client may have an uncanny knack for making mistakes in testimony or saying just the wrong thing at just the wrong time. As we all know, those sorts of problems/blunders can have a significant, adverse effect on a case. If those adverse effects damage the overall prospects for success, disputes can arise among the joint clients or it simply may be the case that the lawyer recognizes that the other clients have a significantly better prospect for success if their case is not tainted by a joint representation that includes the problem client. D. Public Interest; Public Service; Politics. A joint client may engage in public interest, public service or political activities that are problematic for 31 Comment 5 reads: On occasion a lawyer may be asked to place into evidence testimony or other material that the lawyer knows to be false. Initially in such situations, a lawyer should urge the client or other person involved to not offer false or fabricated evidence. However, whether such evidence is provided by the client or by another person, the lawyer must refuse to offer it, regardless of the client's wishes. As to a lawyer's right to refuse to offer testimony or other evidence that the lawyer believes is false, see paragraph 15 of this Comment. another joint client or that the other client believes somehow harm the prospects for obtaining a successful resolution of the matter. Although it involved a claim against an attorney and the attorney s firm rather than a dispute among joint clients, the facts in Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150 (Tex. 2004) help to illustrate this type of potential conflict problem. Mr. Joe was a lawyer with Jenkens & Gilchrist and also was a member of the Irving City Council. In his capacity as a member of the city council, Mr. Joe voted in favor of an ordinance that adversely affected a Jenkens & Gilchrist client. The client, in turn, filed suit against Mr. Joe and Jenkens & Gilchrist alleging causes of action based on, among other things, breach of fiduciary duty. Mr. Joe and the firm prevailed, but not until they reached the Texas Supreme Court. The Supreme Court based its decision, in part, on the conclusion that, even if presumed to be an impermissible conflict, Mr. Joe s actions as a member of the city council were legitimate legislative functions for which he and the firm were immune. Similar to the situation in Joe, one joint client may engage in public interest or political activities that another joint client(s) believes are harmful to the joint clients ability to accomplish the goal of the representation. That type of situation could lead to a strong disagreement among the jointly represented clients and place the lawyer in a conflict position. E. The lawyer or law firm s interests. The interests of the lawyer or the lawyer s firm also can cause a real or perceived conflict problem when those interests diverge from the client s(s ) interests. That type of conflict issue can arise, for example, if one of the joint clients is a particularly significant client for the lawyer or firm and the other jointly represented clients perceive that the lawyer or firm is favoring that client in the way in which the case is being prepared, presented or the terms on which a possible resolution is being negotiated. V. THE UNINTENDED JOINT CLIENT. Things are not always what they seem. 32 It is more than a mild understatement to say that not knowing who you represent is a source of potential problems. Obviously, when you sign-up a client or clients, you know who those clients are. But, it isn t always as simple as looking at the engagement agreement 32 The Yale Book of Quotations 620 (2006), Source: Saturday Evening Post, 19 Feb. 1876. 9

to see who you represent. One type of representation in which the issue can become murky is when lawyers represent entities. Obviously, organizations can act only through people their constituents. Disciplinary Rule 1.12(a) makes clear that [a] lawyer employed or retained by an organization represents the entity. Despite that seemingly bright-line statement, an attorney-client relationship can arise with an organizational client s constituents without a formal agreement. An agreement to form an attorney-client relationship, in fact, may be implied from the parties conduct. Perez v. Kirk & Carrigan, 822 S.W.2d 261, 265 (Tex. App. - - Corpus Christi 1991, writ den.). The attorney-client relationship does not depend upon the payment of a fee, but may exist as a result of rendering services gratuitously. Id. Moreover, unintentional attorney-client relationships are not confined to situations involving a constituent of an entity client. For example, an attorneyclient relationship may arise by implication if the lawyer knows a person reasonably expects him to provide legal services but does nothing to correct that misapprehension. Valls v. Johanson & Fairless, L.L.P., th 314 S.W.3d 624, 634 (Tex. App. Houston [14 ] 2010, no petition). VI. CONSEQUENCES. A fool and his money are soon parted. 33 There are a variety of consequences that a conflict of interest in a joint representation can produce. Most are, in one way or another, not pleasant for the lawyer and, if applicable, the lawyers with whom the conflicted lawyer practices. 34 A. Withdrawal. If a lawyer undertakes a multiple representation when there is either a non-consentable conflict or a conflict to which the affected clients have not effectively consented, then the lawyer is required to promptly withdraw to the extent that doing so is necessary for any remaining representation not to be in violation of the rules. Disciplinary Rule 1.06(e). Likewise, if a lawyer 33 The Yale Book of Quotations 612 (2006); Source: John Bridges, Defence of the Government (1587). 34 Disciplinary Rules 1.06(f), 1.07(e), 1.08(i) and 1.09(b) & (c) deal with the imputation to lawyers associated with the conflicted lawyer of the conflicts governed by the respective rules. A detailed discussion of the imputation of conflicts is beyond the scope of this paper. properly accepts a multiple representation, but a conflict develops and that conflict is non-consentable or one or more of the clients refuses to consent, then the lawyer is required to promptly withdraw to the extent that doing so is necessary for any remaining representation not to be in violation of the rules. Id. Withdrawal, of course, means that at least one, and maybe more, of the formerly, jointly represented clients will be required to hire new lawyers, may have to pay fees charged by the new lawyer to get up to speed on the matter, and may incur a (perhaps significant) delay in the resolution of their matter that they deem to be materially harmful. Those impacts can lead to fee disputes and claims for damages. B. Disqualification from continuing to represent any of the joint clients. If conflicts arise, they may be such that the lawyer concludes that she/he has no alternative to withdrawing from the representation of all of the jointly represented clients. Even if a lawyer concludes that she/he is not precluded from continuing the representation as to some subset of the original clients, however, if the lawyer does not obtain consent from all of the formerly, jointly represented clients to continue the representation, she/he may face a motion to disqualify. The Texas Supreme Court has established exacting standards for disqualifying attorneys from participating in civil litigation. The Court has recognized that disqualification is a severe remedy that can result in immediate and palpable harm, disrupt trial court proceedings, and deprive a party of the right to have counsel of choice. In re Nitla S.A. de C.V., 92 S.W.3d 419, 422 (Tex. 2002); Spears v. Fourth Court of Appeals, 797 S.W.2d 654, 656 (Tex. 1990). Thus, a trial court considering a motion to disqualify must strictly adhere to an exacting standard to discourage a party from using the motion as a dilatory trial tactic. In re Nitla, 92 S.W.3d at 422; see Spears, 797 S.W.2d at 656. While the standards applicable to a motion to disqualify counsel are exacting, they certainly can be satisfied. A lawyer who attempts to continue to represent one or more former joint clients after being terminated by or withdrawing from the representation of another joint client(s) may well be the subject of a motion to disqualify pursuant to Disciplinary Rule 1.09 filed by the former joint client. Motions to disqualify are similar in many ways to a non-jury trial, and the costs and delay incurred in litigating the disqualification issue can be substantial. 10