E thics Jeopardy Keeping a Proper Ethical “Lookout”

Ethics JeopardyKeeping a Proper Ethical “Lookout” Claude Ducloux Austin, Texas Presented at: Association of Corporate Counsel Houston, Texas - March 1, 2016

1. Transferring Files after Disqualification: Paul Plaintiff is suing Biggus Corporation using the Able law firm. Defendant, Biggus is represented by the Baker firm. Early into the litigation Biggus finds out that the attorneys representing the Plaintiff were formerly attorneys at Biggus’ previous law firm, and they had actually worked on the matters for Biggus that will be subject to scrutiny in this lawsuit. Thus, Biggus and the Baker firm files a Motion to Disqualify the Plaintiff’s firm and the Plaintiff’s firm, Able, locates NewFirm, LLP, which is willing to take over the case. But Biggus asserts, “You can’t give NewFirm your file: It’s tainted with confidential information you got while you represented us!”

Paul Plaintiff Biggus Defendant ABLE FIRM BAKER FIRM NEW FIRM

How much of the file may Able send to Newfirm? • Nothing. In Texas, there is an irrebuttable presumption that the file is tainted under these circumstances. New firm will have to reconstruct the file with publicly available pleadings. • Some of it. Although the pleadings and correspondence file may be transferred to new firm, the attorney notes and other work product are tainted by an irrebuttable presumption of conflict.

How much of the file (cont’d)? • The burden of proof is on the Movant, Biggus Corporation, to prove what the nature of the conflicts are which they assert and obtain an order forbidding it’s transfer. Able firm may respond that none of those matters are contained in their proposed file transfer. • Pleadings and correspondence may be transferred, but the withdrawing firm must overcome a rebuttable presumption that their work product is tainted, by providing descriptions of each file or work product sought to be transferred to NewFirm.

Assuming that there is a presumption of tainted material, how much of the file is Able permitted to send to NewFirm under Texas Law? • Nothing • Pleadings & Corresp. • Biggus’ burden • Able’s burden

Answer: D The case in point is In Re: Kenneth George, 28 S.W.3d 511 (Tex. 2000) – Texas adopts the rebuttable presumption test putting the burden on the withdrawing attorneys to make a complete inventory of work product and make that available for inspection. Texas rejects the irrebuttable presumption test because it deprives the party of the value of its hard earned dollars spent on creating the work product. Texas likewise rejects placing the burden on the Movant as that may require disclosure of secrets just to confirm that the other side doesn’t know about them. Texas likewise rejects a fourth standard called “the balancing act” whereby the Court actually has knowledge of the confidential information, but decides that it is not significant enough to deprive the substituting law firm from the advantage of having the work product. Thus, the transferring firm may rebut the presumption of taint by providing a list of files and their general contents, and the court may review in camera.

2. Referrals from Businesses Paul Planner is an attorney board-certified estate planning and tax. He has done business with Grand Financial Planners, a reputable service selling annuities, insurance, and other securities to its customers. Paul drafts documents for GFP, and does not otherwise do work for GFP’s customers.

Referrals from Businesses (Cont’d) GFP thinks Paul is a good, ethical attorney, and wants to recommend him to GFP’s customers who may need legal services. QUESTION: Can GFP refer its customers to Paul, and may Paul do estate planning work for those Customers?

Answers: A. No, because customers are dealing with GFP, and Paul must be free to advise them whether their investment advice is in that client’s best interest. B. No, because Paul’s own interest in maintaining GFP as his client interfere with duties to GFP’s customers.

Answers (cont’d): C. Yes, If so long as Paul honestly believes that his representation of both GFP and its customers will NOT be materially affected (per DRPC 1.06(c); D. Yes, so long as the matter handled by Paul for the Customer does NOT relate to services and advice received from GFP.

What duties do you have under the conflict of interest rules? • No, inherent conflict • No, per Paul’s own interests • Yes, good faith • Yes, if service unrelated

Answer: D SEE ETHICS OPINION 641, May 2014: The Prof. Ethics Committee says, Paul can, but needs to stay away from GFP work. It is nearly impossible for Paul to come to good faith conclusion that representation would NOT be affected. TEXAS rules generally prohibit Paul from accepting work for service which benefits GFP.

3. Law Firm Officing in Differing Jurisdictions The law firm of “Tex, Jane & Juan” consists of the three partners: Tex resides in, and offices in Texas. Jane resides in, and offices in New Mexico. Juan resides/offices in the country of Mexico.

All three primarily do their work in their appropriately licensed jurisdiction, but occasionally cross over into another partner’s office for short periods of time and practice before those courts, but always according to the applicable Local Rules, including those requiring temporary permission under the Pro Hac Vice rules. The work of one partner in another jurisdiction is usually fairly short, but may continue for a period of several months in unusual cases. At the end of the year, they divide up the proceeds of all three practices without reference to origination.

Under the Texas Rules, may Texas attorney “Tex” participate in such a partnership with Jane and Juan and share fees without regard to which partner generated the same?

Yes, with limitation: Tex may share revenue with Jane because it is a U.S. partnership, but he may not be in partnership with Juan, who is only licensed in another country. Yes, without limitation so long as Tex does not improperly assist in the unauthorized practice of law for his partners not licensed in Texas. No, because Rule 5.04(b) strictly prohibits a Texas lawyer from practicing law in a law partnership with a non-lawyer who owns any interest in the law partnership, corporation, or association. No, because Rule 5.05 of the Texas Disciplinary Rules prohibit a lawyer who is not admitted in Texas from establishing “an office or other systematic or continuous presence” in a jurisdiction where he is not licensed to practice law.

Under the Texas Rules, may Texas attorney Tex participate in such a partnership with Jane and Juan and share fees without regard to which partner generated the same? • Yes, w/limits • Yes, w/out limits • Not, with non-lawyer • No, UPL

Answer: B The answer is “B” (see Texas Ethics Opinion No. 597 issued May 2010). A Texas lawyer may practice law as a member of a law firm with lawyers who are licensed only in jurisdictions other than in Texas and who practice law in offices of the law firm located outside of Texas. However, the following restrictions are imposed: The letterhead has to be clear about where the lawyers are licensed. The Texas lawyer may not improperly assist the unauthorized practice of law for the other lawyers. When practicing in Texas the non-licensed lawyers must comply with any applicable Local Rules and without establishing a systematic and continuous presence supplying legal services in Texas. Note: Rule 5.04(b) doesn’t apply because the word “non-lawyer” means a lawyer not licensed anywhere and under any jurisdiction rather than a lawyer who is not licensed in the State of Texas.

4. Public Information Max, a local businessman, hires Karen the lawyer to represent him in two new cases involving real property. During the course of the representation, Karen learns that Max has a long and storied history in litigation and has been found in earlier litigation in other states to have committed a number of fraudulent conveyances and other acts of fraud. After Karen successfully defends this lawsuit and gets the case settled, Max refuses to pay Karen.

Public Info (cont’d) Karen decides she must sue Max for all the unpaid fees, and wants to know whether she can use all of the findings for fraud that she learned during the course of representation in appropriate relevant situations during litigation, which Karen believes may get nasty. First, however, Karen goes to those other jurisdictions and verifies that the matters concerning the fraud are actually matters of public record.

Can Karen use Max’s history of fraud against Max? A. Yes, because they are matters of public record readily available to the public for verification. B. Yes, but only if those matters become relevant and are not used in pretrial publicity or simply to embarrass, injury or harass her former client, Max. C. No, because under the Texas Rules a lawyer is prohibited from using, to the disadvantage of a former client, information concerning the former client that was acquired during representation that is not generally known to the public, even if it is a matter of public information. D. Yes, assuming Karen understands the concept: “Counterclaim.”

Can Karen use Max’s history of fraud against Max? • Yes, it’s public record • Yes, if relevant • No, it’s not “generally known” • Yes, but she will be countersued.

Answer: C (see Ethics Opinion No. 595, February 2010). Under the Texas Disciplinary Rules Rule 1.05(b)(3), a lawyer is generally prohibited from using, to the disadvantage of a former client, information of public record concerning the former client that was acquired during the representation. Thus Karen may use it only to the extent reasonably necessary to enforce a claim or establish a defense for the lawyer in the controversy itself. Note: Under the (failed)proposed Disciplinary Rules, the existing Rule 1.05(b)(3) would be deleted, and under proposed Rule 1.05(a)(1), she may use “information that is or becomes generally known or is readily obtainable from sources generally available to the public.” Real Question: how does Karen find a creative way to make it relevant?

5. Turning Over Lawyer’s Notes Laurie Law represents Bill Bear in complex litigation involving many issues of law and the nuanced application of various statutes. Laurie has a atty-client agreement with Bill allowing her to withdraw if they become at odds over the direction the case should take. After six months, Bill insists on a course of action which Laurie does not think is appropriate. He believes he is entitled to more relief and more causes of action. Laurie indicates her desire to withdraw. Bill hires new counsel and Laurie sends all the files over to the new counsel except for her personal notes made in the course of the representation. Bill is definitely unhappy with Laurie, but Bill has paid Laurie’s fees, and Laurie claims no lien. Bill makes a demand for all of the file, including all of her personal notes. Laurie refuses.

Is Bill Entitled To See The Personal Notes That Laurie Makes To File? • Of course he is, he has paid her fees and she is not asserting a lien. • No, because personal notes are an exception to TDRPC Rule 1.14(b) from the type of files a client is entitled to receive. • No, because Laurie anticipates some sort of claim of misconduct, Laurie’s right to keep her notes is protected

Entitlement to Attorney Notes (cont’d)? • No, under the A.L.I. Restatement of the Law Governing Lawyers, Section 46 allows a lawyer to refuse to disclose law firm documents reasonably intended only for internal review and recognizes “the need for lawyers to be able to set down their thoughts privately in order to assure effective and appropriate representation. . .” • Yes, unless the notes contain privileged information representing the lawyer’s duty to preserve the secrets and confidences of other clients or third parties.

Is Bill entitled to see the personal notes that Laurie makes to file? • Yes • No, personal notes exception • No, claim of misconduct • No, Restatement • Yes, unless includes privileged information

Answer: E (Professional Ethics Committee Opinion No. 570, May 2006). First, Texas does not recognize that comment C to Section 46 of the Restatement of the Law Governing Lawyers. Further, in Hebison v. Texas, 615 S.W.2d 866 (Tex. App. - - Houston [1st Dist.] 1981, no writ), the Court includes the attorney’s notes as the property of the client. The Court also rejected arguments that files don’t have to be turned over when there were allegations of misconduct by the lawyer. Texas, at least for the time being, does not recognize any exception, except if those notes contain confidential information relating to other clients or third parties. The only exceptions involves notes that contain information obtained in discovery subject to a Court’s protective order forbidding disclosure of the information to the client, or notes where the disclosure would violate the duty to another person, and notes containing information that could reasonably be expected to cause serious harm to a mentally ill client. But, all of those are based upon the lawyer’s duty to others.

6. Whaddaya Do With all These dang Files? Our friend Alvin Attorney has worked for the Elliott Firm for five years. He’s handled many clients, some of whom are no longer clients of Alvin or his Firm. Alvin gets a job offer from Finch Firm, and moves there. Alvin’s clients instruct Elliott to send over their “active” files to Alvin’s new firm. But Elliott firm now has those old clients’ closed files in Elliott’s storage, as well as files of Alvin’s clients the firm no longer represents.

Files, (Continued p. 2) Elliott notifies Alvin Attorney that the firm intends to destroy the old files. Alvin says “fine. I don’t want them, and don’t want to store them.” Elliott, as a caution, notifies the actual clients that the files shall be shredded. A number of clients tell Elliott to “review and tell us if there is anything important in those files.” Elliott tells them “Nope. Not gonna do it. Too expensive and time consuming.”

What Does Elliott Need to Do? Consider: Rule 1.05 requires the firm protect confidential information Rule 1.15 requires firm to retain valuable papers to protect client. Assume: Client does NOT want to pay a fee for the review, as the matters covered have been concluded.

Question: What Are Elliott’s ethical duties? A. Elliott may destroy the file if Client refuses to come pick up but only after adequate notice and opportunity. No duty to review. B. Elliott may require Alvin to assist in a cursory review since the clients were Alvin’s. But cursory review necessary prior to destruction. C. Elliott has a duty to ensure that valuable items, like cash, bonds, stock certificates are not in files, whether or not client is willing to pay. D. Same as C, but only upon notice and agreement of Client to pay for such services. Otherwise, only make available for reasonable time. Burden on Client.

What are Elliott’s Ethical Duties? • Destroy! • Make Alvin Help • Must Make Inspection • Only duty to inspect if client pays

Answer: C (Professional Ethics Opinion 627, April 2013) Under Rules 1.09 and 1.10, Elliott may not act adversely to a former client. This includes the duty under 1.15 to safeguard valuable property of a client or former client. Thus before shredding files, Elliott must have “AN ADEQUATE BASIS” to believe that destroying client’s files would not result in harm to the client. Elliott need NOT do extensive review without agreement to pay, but must do at least a cursory review: meaning looking through until Elliott has that “adequate basis” to make a good faith judgment that destroying the client file would result in no harm to the client.

WHAT IS OUR “TAKEAWAY?” • Institute a policy to review files prior to storage, and • Modify your atty-client contracts to include a destruction clause: • a. Advise client all important documents/properties should be retained by client, and • b. Your firm has a policy of destroying files safely anytime after “x” years.

7. LAW OFFICE MANAGEMENT and STAFFING The law firm of ROSETTI & RYAN is a large, full-service firm with all the appropriate internal staffing and committees. They have luxurious, thick rugs. Like many firms, R &R’s Firm Manager, Ms. Jones, is not a lawyer, but a CPA with tons of experience in corporate operations, budgeting, and general management, and tax.

Law Office Management (con’td) The firm rewards Ms. Jones for her fine work at the Annual Partners Meeting with the following: • She is awarded the title “Chief Accounting Officer;” and • Her new employment contract contains the inducement guaranteeing her a bonus of $15,000 if the firm revenues in the next fiscal year exceed a stated sum. DOES THE FIRM HAVE ANY ISSUES DOING EITHER “A” or “B”?

Can the Firm award the Title and Bonus? • Yes to title, as long as it is made clear to all that she cannot direct any of the firm’s practice of law. • Yes to the bonus if it is not guaranteed. • No, to the bonus because she is a non-lawyer employee and it constitutes an improper “guaranteed” sharing of fees. • No, neither action may ethically be implemented. • YES to Title, but NO to Bonus (A and C above).

Can the Firm give Ms. Jones her Title as well as the bonus formula? • Yes, to Title • Yes to Bonus, if not guaranteed • No to Bonus • No to Both • Yes to Title, No to Bonus (A & C)

Answer: E (yes to title, no to bonus) See RECENTLY REVISED Professional Ethics Committee Opinion 642 (May 2014, revised November 2015). Under Rule 5.04 prohibits lawyers from practicing in an organization in which a “non-lawyer” is a director or officer thereof. HOWEVER, if the firm makes clear to all concerned that she cannot direct law practice. (earlier opinion said such a disclaimer was “misleading to public.” PEC changed its mind after big-firm hissy fits.) Finally, the PEC re-confirmed that guaranteeing a specific bonus violates rules intended to prevent non-lawyers from sharing fees. However, it is perfectly okay, once the revenue is earned, from considering that revenue in bonuses.

9. Website Public Contact Emails Big Firm has a successful website which allows prospective clients to send emails directly to various firm lawyers. HOWEVER, the website visitor, as a condition of sending it, MUST CLICK and agree on a warning against confidentiality as a condition of sending the email message.

Website Emails (cont’d) “Warning: DO NOT SEND or include any information…if you consider the information confidential. By sending this email you agree that the information does not create a lawyer-client relationship,….and that any information is not confidential and not privileged.” But is such a warning required to protect the lawyers? Consider the following Questions: • Without the warning, may the law firm use any information sent in against the sender? • With the warning, may the lawfirm use the information for the benefit of other clients and against the sender?

Does the Warning Make a Difference? A. Even with the warning, the firm is generally obligated to return information to potential clients who do not engage the firm, but will not be disqualified by such contacts. • Yes, but even without the warning, there is no reasonable expectation of privacy. So, although the firm should keep the information private, the sender may not use it to disqualify the Firm.

Does the Warning Make a Difference? (cont’d) C. The Firm is protected only with the warning and is free to use any information gained for the benefit of another client, assuming the firm is not hired. D. Without the warning, firms may ignore emails, and delete attachments and thereby avoid application of the conflict of interest rules. E. C and D above are both correct.

Does the Active Warning make a difference? • Yes, but return stuff • Yes, no reasonable expectation privacy • Yes, and free to use info sent. • Yes, if emails and attach’d info deleted • C and D are right.

Answer: C only • Prof. Ethics Opinion No. 651, November 2015: • Although there is no legal/ethical requirement to engage the warning tab, it is the ONLY WAY to protect yourself from the conflict of interest, fiduciary duty obligations with reference to prospective confidential information for prospective clients. • You can’t merely delete; No presumption that you should not expect reasonable privacy. • Thus, without the warning, your acquisition and use of information from prospective clients for yourself or another client is judged under the Disciplinary Rules.

9. Am I Advertising? Under Part 7 of the Texas Rules of Disciplinary Conduct anything that falls under the definition of “advertisement” must be filed with the State Bar Advertising Review Committee. Bob and Mary are smart young lawyers, with a good knowledge of social media, and plan to do the following publicity when forming their new firm. They include all of the following activities:

Here’s The Publicity Plan: 1. Setting up a website about the firm. 2. E-mailing an announcement of the services they will be rendering to friends and other non-clients who may be in the business area of their new practice. 3. Upload a "YouTube" video of the services that will be rendered by the firm. 4. Buying a full-page ad all about the firm, their practice concentrations in the Texas Lawyer. 5. Taking out an ad in the Texas Legal Directory. 6. Produce a brochure and promotional materials provided to potential clients who request them.

What Must they contact the State Bar to Approve? • QUESTION: How many of the above are required to be reviewed by the Advertising Review Committee of the State Bar? • A. 1 and 3 only (website, and YouTube.) • B. 1, 2, and 3. (Webs., E-mail & YouTube) • C. All but #5, the Ad in Legal Directory. • D. All of this.

E thics Jeopardy Keeping a Proper Ethical “Lookout”