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End-of-life notice: American Legal Ethics Library

As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.

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Texas Legal Ethics

1.8   Rule 1.8 Conflict of Interest: Prohibited Transactions

1.8:100   Comparative Analysis of Texas Rule

• Primary Texas References: TX Rule 1.08
• Background References: ABA Model Rule 1.8, Other Jurisdictions
• Commentary: ABA/BNA Lawyers' Manual on Professional Conduct 01:121-01:123

1.8:101      Model Rule Comparison

Texas Rule 1.08 and Model Rule 1.8 share a common title, "Conflict of Interest: Prohibited Transactions." The respective rules are similar in a number of ways. Paragraphs (c), (d), (f), (g), (h), and (j) of the Model Rules correspond to generally analogous provisions in Texas Rule 1.08, but the paragraph lettering differs between the two rules.

The Model Rule 1.8 provisions in paragraph (i), which deal with potential conflicts of interest caused by "parent, child, sibling, or spouse" relationships, are not found in Texas Rule 1.08.

Paragraph (i) of the Texas Rule, which provides that "[i]f a lawyer would be prohibited by this Rule from engaging in particular conduct, no other lawyer while a member of or associated with that lawyer's firm may engage in that conduct," is not directly paralleled in Model Rule 1.8 itself. Model Rule 1.10, dealing with imputed disqualification, does include this provision: "While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rules 1.7, 1.8(c), 1.9, or 2.2." Model Rules Rule 1.10(a) (emphasis added).

Paragraph (b) of Model Rule 1.8, discussing a lawyer's use of information relating to representation of a client to the disadvantage of the client, is not directly paralleled in Texas Rule 1.08 itself. However, Texas Rule 1.05, the rule governing confidentiality of client information, addresses much of the subject matter covered in Model Rule 1.8(b).

Paragraph (a) of Model Rule 1.8 is similar, but not identical, to paragraph (a) of Texas Rule 1.08. Both rules recognize that "[a] lawyer shall not enter into a business transaction with a client" in the absence of appropriate consent. Subparagraph (a) of the Model Rule, unlike the analogous paragraph of the Texas Rule, further states that a lawyer shall not enter into a business transaction with a client "or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client" in the absence of appropriate consent. Model Rules Rule 1.8(a) (emphasis added). The Model Rule also differs from the Texas Rule with respect to paragraph (a) in this way: the Model Rule appears to require that the terms of the transaction with the client be "transmitted in writing to the client," and the Texas Rule does not include this requirement. Both rules, however, do contemplate that the client's consent shall be in writing, and that the client must be given a reasonable opportunity to seek the advice of independent counsel in the transaction.

Both Texas Rule 1.08 and Model Rule 1.8 address circumstances under which a lawyer can and cannot provide financial assistance to a client in connection with pending or contemplated litigation. The Model Rule recognizes that "a lawyer may advance court costs" and expenses of litigation[.]" Model Rules Rule 1.8(e)(1). The corresponding Texas provision permits a lawyer under those circumstances to "advance or guarantee" such costs. See Texas Rules Rule 1.08(d)(1). The Texas Rule further provides that a lawyer may advance or guarantee "reasonably necessary medical and living expenses, the repayment of which may be contingent on the outcome of the matter[.]"

The text of Model Rule 1.8 itself does not appear to include the definition of "business transactions" in Texas Rule 1.08, which excludes "standard commercial transactions between the lawyer and the client for products or services that the client generally markets to others." Texas Rules Rule 1.08(j). Paragraph (i) of the Texas Rule, dealing with imputed disqualification, is not directly paralleled in Model Rule 1.8 itself. However, Model Rule 1.10 addresses imputed disqualification with specific respect to Model Rule 1.8(c) (regarding lawyer preparation of instruments giving gifts to the lawyer or relatives of the lawyer).

1.8:102      Model Code Comparison

The general subject matter of Texas Rule 1.08(a), dealing with lawyer business transactions with clients, was addressed in DR 5-104(A) of the Model Code:

A lawyer shall not enter into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise his professional judgment therein for the protection of the client, unless the client has consented after full disclosure.

Model Code DR 5-104(A); see also EC 5-3 ("A lawyer should not seek to persuade his client to permit him to invest in an undertaking of his client nor make improper use of his professional relationship to influence his client to invest in an enterprise in which the lawyer is interested.")

With respect to lawyer preparation of instruments providing a lawyer or a relative of the lawyer with a gift—the subject matter addressed in paragraph (b) of Texas Rule 1.08—EC 5-5 of the Model Code observed:

A lawyer should not suggest to his client that a gift be made to himself or for his benefit. If a lawyer accepts a gift from his client, he is peculiarly susceptible to the charge that he unduly influenced or overreached the client. If a client voluntarily offers to make a gift to his lawyer, the lawyer may accept the gift, but before doing so, he should urge that his client secure disinterested advice from an independent, competent person who is cognizant of all the circumstances. Other than in exceptional circumstances, a lawyer should insist that an instrument in which his client desires to name him beneficially be prepared by another lawyer selected by the client.

Model Code EC 5-5. As noted elsewhere, ethical considerations, such as EC 5-5, were not contemplated by the Model Code to serve as bases for professional discipline. Disciplinary rules, or "DR's," were intended by the Model Code to provide substantive standards for professional discipline. Ethical considerations were considered aspirational in their character.

Texas Rule 1.08(c), dealing with lawyer acquisition of "literary or media rights to a portrayal or account based in substantial part on information relating to the representation" of a client, is substantially similar to DR 5-104(B) of the Model Code. The Model Code provision spoke in terms of "publication rights," and did not use the language "information relating to the representation" found in the Texas rule, but otherwise is generally similar to the Texas provision.

Subparagraph (d)(2) of Texas Rule 1.08, permitting a lawyer representing an indigent client to pay court costs and expenses of litigation on behalf of the client, does not appear to have a direct analogue in the Model Code. DR 5-103(B) of the Model Code addressed the general subject matter of Texas Rule 1.08(d)(1). An important distinction between the Model Code provision and the Texas Rule provision is that, under the Model Code, the client was to remain ultimately reliable for expenses advanced:

While representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to his client, except that a lawyer may advance or guarantee the expenses of litigation, including court costs, expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence, provided the client remains ultimately reliable for such expenses.

Model Code DR 5-103(B).

Texas Rule 1.08(e) deals with lawyer compensation (i.e., for representing a client) provided by one other than the client. DR 5-107 of the Model Code, "Avoiding Influence by Others Than the Client," addressed this general subject. There are certain differences between the respective provisions, including these. DR 5-107 spoke in terms of "compensation" and "anything of value related to his representation or employment," while the Texas rule specifically refers only to "compensation" in paragraph (e). Both the Model Code provision and the Texas provision contemplate that a lawyer will not accept compensation for representation of a client paid by a third party in the absence of client consent. The Texas rule goes on to explicitly require, in addition to client consent, that the compensation in question not be such as to "interfere with the lawyer's independence of professional judgment or with the lawyer-client relationship," and the Texas rule further explicitly notes that the lawyer cannot accept such third-party compensation unless "information in relating to the representation of a client is protected as required by Rule 1.05," the Texas rule dealing with confidentiality of client information. Texas Rules Rule 1.08(e)(1)-(3).

Texas Rule 1.08(f), dealing with aggregate settlements, is very similar to DR 5-106 of the Model Code. DR 5-106 speaks of aggregate settlements generally. The Texas provision explicitly addresses "aggregate settlement of the claims of or against the clients, or in a criminal case, an aggregated agreement to guilty or nolo contendere pleas[.]" Texas Rules Rule 1.08(f) (emphasis added).

Texas Rule 1.08(g), addressing agreements prospectively limiting potential malpractice liability, finds a general analogue in DR 6-102(A), which provided in full as follows: "A lawyer shall not attempt to exonerate himself from or limit his liability to his client for his personal malpractice." Model Code DR 6-102. The Texas rule, by contrast, would permit such an agreement to the extent "permitted by law" and "if the client is independently represented in making the arrangement[.]" Texas Rules Rule 1.08(g). The Texas rule goes on to provide that a lawyer shall not "settle a claim for such liability with an unrepresented client or former client without first advising that person in writing that independent representation is appropriate in connection therewith." Texas Rules Rule 1.08(g).

Texas Rule 1.08(h) deals with circumstances under which a lawyer can and cannot "acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client[.]" Texas Rules Rule 1.08(h). The Texas provision is very similar to DR 5-103 of the Model Code.

For a comparison of the Model Code with the Model Rules as relevant, in turn, to Texas Rule 1.08, see the ABA/BNA Lawyers' Manual on Professional Conduct 01:121-01:123.

1.8:200   Lawyer's Personal Interest Affecting Relationship

• Primary Texas References: TX Rule 1.08
• Background References: ABA Model Rule 1.8(a), Other Jurisdictions
• Commentary: ABA/BNA § 51:501 et seq., ALI-LGL § 207, Wolfram §§ 7.6, 8.11

For discussion of this subject matter, see 1.7:500 and 1.8:200.

1.8:210      Sexual Relations with Clients

The current version of the Texas Rules appears to be silent with respect to the matter of sexual relations with clients.

1.8:220      Business Transactions with Clients

The Texas Rules generally prohibit a lawyer from entering into a business transaction with a client unless:

•   the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed in a manner which can be reasonably understood by the client;

•   the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and

•   the client consents in writing thereto.

Texas Rules Rule 1.08(a).

This prohibition does not, however, apply to standard commercial transactions between the lawyer and the client for products or services that the client generally markets to others such as banking or brokerage services, medical services, products manufactured or distributed by the client, and utilities services. Texas Rules Rule 1.08 cmt.

1.8:300   Lawyer's Use of Client Information

• Primary Texas References: TX Rule 1.05
• Background References: ABA Model Rule 1.8(b), Other Jurisdictions
• Commentary: ABA/BNA §§ 55:501-55:2001 , ALI-LGL §§ 113-117A, Wolfram § 6.7

Unlike Model Rule 1.8, Texas Rule 1.08 does not specifically address the use of confidential client information, other than to the extent that this subject is addressed regarding literary or media rights relating to representation. See 1.8:500. A lawyer's general duty to maintain client confidences, and to not misuse confidential client information, is set forth in detail in Texas Rules Rule 1.05. For discussion of this rule, please see 1.6:100 and following sections.

1.8:400   Client Gifts to Lawyer

• Primary Texas References: TX Rule 1.08(b)
• Background References: ABA Model Rule 1.8(c), Other Jurisdictions
• Commentary: ABA/BNA § 51:601, ALI-LGL § 208, Wolfram § 8.12

The Texas Rules do not prohibit a client from giving a gift to a lawyer. Subparagraph (b) of Rule 1.08 explicitly provides, however, that a "lawyer shall not prepare an instrument giving the lawyer or a person related to the lawyer, as a parent, child, sibling or spouse any substantial gift from a client, including a testamentary gift, except where the client is related to the donee." Texas Rules Rule 1.08(b). "A lawyer may accept a gift from a client, if the transaction meets general standards of fairness. For example, a simple gift such as a present given at a holiday or as a token of appreciation is permitted." Texas Rules Rule 1.08 cmt. 3.

1.8:500   Literary or Media Rights Relating to Representation

• Primary Texas References: TX Rule 1.08(c)
• Background References: ABA Model Rule 1.8(d), Other Jurisdictions
• Commentary: ABA/BNA § 51:701, ALI-LGL § 48, Wolfram § 9.3.3

Before the conclusion of all aspects of the matter giving rise to a lawyer's employment, a lawyer "shall not make or negotiate an agreement with a client, prospective client, or former client giving the lawyer literary or media rights to a portrayal or account based in substantial part on information relating to the representation." Texas Rules Rule 1.08(c). This rule is premised on the idea that an agreement between lawyer and client giving the lawyer media rights concerning the conduct of the representation "creates a conflict between the interests of the client and the personal interests of the lawyer." Texas Rules Rule 1.08 cmt. 4. "Measures suitable in the representation of the client may detract from the publication value of an account of the representation." Id. The rule does not, however, prohibit a lawyer representing the client in a transaction concerning literary property from agreeing that the lawyer's fee shall consist "of a share in ownership in the property," if the arrangement conforms with other Texas Rules regarding fees and acquisition of proprietary interests in a cause of action or subject matter of litigation.

1.8:600   Financing Litigation

• Primary Texas References: TX Rule 1.08(d)
• Background References: ABA Model Rule 1.8(e), Other Jurisdictions
• Commentary: ABA/BNA § 51:801, ALI-LGL § 48, Wolfram § 9.2.3

Under the Texas Rules, a lawyer generally is not permitted to provide financial assistance to a client in connection with pending or planned litigation, subject to these exceptions:

•   a lawyer can advance or guarantee court costs, expenses of litigation or administrative proceedings and reasonably necessary medical and living expenses, and the repayment of them can be made contingent on the outcome of the matter; further,

•   a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.

Texas Rules Rule 1.08(d); see also Texas Ethics Opinion 465.

1.8:610      Litigation Expenses

For a discussion of a lawyer's ability to assist a client with payment of litigation expenses, see 1.8:600.

1.8:620      Living and Medical Expenses

For discussion of a lawyer's ability to assist a client with living and medical expenses, see 1.8:600.

1.8:700   Payment of Lawyer's Fee by Third Person

• Primary Texas References: TX Rule 1.08(e)
• Background References: ABA Model Rule 1.8(f), Other Jurisdictions
• Commentary: ABA/BNA § 51:901, ALI-LGL §§ 215, 216, Wolfram § 8.8

Under the Texas Rules, a lawyer generally is not permitted to accept compensation for representing a client from one other than the client unless each of the following conditions applies:

•   the client consents;

•   there is no interference with the lawyer's independence of professional judgment or with the lawyer-client relationship; and

•   information relating to the representation of the client is protected as required by Texas Rule 1.05.

Texas Rules Rule 1.08(e).

The official comment to Rule 1.08 offers the following observations regarding this issue:

Paragraph (e) [of Rule 1.08] requires disclosure to the client of the fact that the lawyer's services are being paid for by a third party. Such an arrangement must also conform to the requirements of Rule 1.05 concerning confidentiality and Rule 1.06 concerning conflict of interest. Where the client is a class, consent may be obtained on behalf of the class by court-supervised procedure. When an insurance company pays the lawyer's fee for representing an insured, normally the insured has consented to the arrangement by the terms of the insurance contract.

Texas Rules Rule 1.08 cmt. 5.

1.8:710      Compensation and Direction by Third Person

Under the Texas Rules, a lawyer shall not accept compensation for representing a client from one other than the client unless:

•   the client consents;

•   there is no interference with the lawyer's independence of professional judgment or with the lawyer-client relationship; and

•   information relating to the representation of the client is protected as required by Texas Rule 1.05, the rule dealing with protection of client confidential information.

Texas Rules Rule 1.08(e).

Common situations presenting this issue include insurers paying for the legal defense of insureds (often agreed to by insureds in the insurance contract) and class actions. See Texas Rules Rule 1.08 cmt. 5.

1.8:720      Insured-Insurer Conflicts [see also 1.7:315]

In Employers Casualty Co. v. Tilley, 496 S.W.2d 552, 558 (Tex. 1973), the Texas Supreme Court observed: "Under the policy . . . the insurance company's obligation to defend the [insured] provides that the attorney to represent the insured is to be selected, employed and paid by the insurance company. Nevertheless, such attorney becomes the attorney of record and legal representative of the insured, and as such he owes the insured the same type of unqualified loyalty as if he had been originally employed by the insured." Comment 12 to Texas Rule 1.06 also touches on this issue noting that, "[f]or example, when an insurer and its insured have conflicting interests in a matter arising from a liability insurance agreement, and the insurer is required to provide special counsel for the insured, the arrangement should assure the special counsel's professional independence." Texas Rules Rule 1.06 cmt. 12. See generally Charles F. Herring, Jr., Texas Legal Malpractice & Lawyer Discipline: A Guide to the Liability and Discipline of Texas Lawyers and Judges, 137 (1991). In State Farm Mut. Automobile Ins. Co. v. Traver, No. 96-1201, 1998 WL 531685 (Tex. Aug. 25, 1998), the Texas Supreme Court concluded that a liability insurer is not responsible for malpractice by an independent attorney selected by the insurer to represent the insured; the court largely based its decision on its proposition that ethics rules prohibit the attorney from allowing the insurer to interfere with the lawyer's exercise of independence of professional judgment on behalf of the insured. Compare Texas Rule 1.02 cmt. 3 (noting that "in insurance defense cases a lawyer's ability to implement an insured client's wishes with respect to settlement may be qualified by the contractual rights of the insurer under its policy").

1.8:730      Lawyer with Fiduciary Obligation to Third Persons [see 1.13:520]

For a general discussion of conflicts with a client's interests that can arise from a lawyer's responsibilities to others, see 1.7:210.

1.8:800   Aggregate Settlements

• Primary Texas References: TX Rule 1.08(f)
• Background References: ABA Model Rule 1.8(g), Other Jurisdictions
• Commentary: ABA/BNA § 51:375, ALI-LGL § 209, Wolfram § 8.15

Subparagraph (f) of Texas Rule 1.08 provides in full as follows:

A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients, or in a criminal case an aggregate agreement to guilty or nolo contendere pleas, unless each client has consented after consultation, including disclosure of the existence and nature of all the claims or pleas involved and of the nature and extent of the participation of each person in the settlement.

Texas Rules Rule 1.08(f).

The official Comment to Texas Rule 1.08 does not discuss this provision. The rationale for the provision appears to be the concern that a lawyer asked to pursue such an aggregate settlement arguably may be confronted with a conflict of interest. If, for instance, the lawyer represents two plaintiffs in a case, and each individual plaintiff's damages exceed the fixed and limited fund available from the defendant, every dollar given to one plaintiff-client is a dollar that the other plaintiff-client does not receive. In one controversial case, a Texas intermediate appellate court vitiated a settlement agreement based upon the prohibition regarding aggregate settlements contained in the then-effective Texas Code. See Quintero v. Jim Walter Homes, 709 S.W.2d 225 (Tex. App.—Corpus Christi 1995, writ ref'd n.r.e.). Other Texas cases have suggested that an agreement which technically fails to comply with Texas disciplinary rules governing lawyers does not necessarily render the contract in question unenforceable. Cf. Shebay v. Davis, 717 S.W.2d 678 (Tex. App.—El Paso 1986, no writ) (holding that clause in settlement agreement, prohibiting law firm from thereafter representing additional sellers of crude oil in similar suit, did not invalidate entire agreement).

1.8:900   Agreements Involving Lawyer's Malpractice Liability

• Primary Texas References: TX Rule 1.08(g)
• Background References: ABA Model Rule 1.8(h), Other Jurisdictions
• Commentary: ABA/BNA § 51:110l, ALI-LGL § 76, Wolfram § 5.6.7

Under the Texas Rules, a lawyer can not properly make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement. Texas Rules Rule 1.08(g). Nor can a lawyer properly settle a claim for such liability with an unrepresented client or former client without first advising that person in writing that independent representation is appropriate in connection therewith. Id.

1.8:910      Prospective Limitation of Malpractice Liability

For discussion of this subject, see 1.8:900.

1.8:920      Settlement of Legal Malpractice Claim

For discussion of this subject, see 1.8:900.

1.8:1000   Opposing a Lawyer Relative

• Primary Texas References: TX Rule 1.08
• Background References: ABA Model Rule 1.8(i), Other Jurisdictions
• Commentary: ABA/BNA § 51:1301, ALI-LGL § 203, Wolfram § 7.6.6

Unlike Model Rule 1.8, Texas Rule 1.08 does not contain a specific provision regarding the situation in which a lawyer may be adverse to another lawyer related by blood, marriage or otherwise. As Professors Schuwerk and Sutton observe with respect to the rationale followed by the Committee that prepared the Texas Rules, "[l]awyers on intimate terms, like all other lawyers, are expected to be aware of and adhere to accepted professional standards in all aspects of their lives. Consequently, the representation of opposing parties by persons related by blood, marriage, or otherwise on intimate terms is, standing alone, entirely proper, and neither disclosure to or consent by either the lawyers or the firms clients is required unless necessitated by some other Rule." Robert P. Schuwerk & John F. Sutton, Jr., A Guide to the Texas Disciplinary Rules of Professional Conduct, 27A. Hou. L. Rev. 1, 142-43 (1990). More recently, at least one Texas intermediate appellate court held that counsel for a criminal defendant was required to withdraw on conflict of interest grounds because one of his law partners was married to the prosecuting attorney assigned to the case. Haley v. Boles, 824 S.W.2d 796 (Tex. App.—Tyler 1992, orig. proceeding).

1.8:1100   Lawyer's Proprietary Interest in Subject Matter of Representation

• Primary Texas References: TX Rule 1.08(h)
• Background References: ABA Model Rule 1.8(j), Other Jurisdictions
• Commentary: ABA/BNA § , ALI-LGL §§ 47, 53, 55, Wolfram §§ 8.13, 9.6.3

Under the Texas Rules, a lawyer generally "shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for the client," except that the lawyer may:

•   acquire a lien granted by law to secure the lawyer's fee or expenses; and

•   contract in a civil case with a client for a contingent fee that is permissible under Rule 1.04, the rule governing attorneys' fees.

The official comment to Texas Rule 1.08 offers this rationale for this aspect of the Rule:

This Rule embodies the traditional general precept that lawyers are prohibited from acquiring a proprietary interest in the subject matter of litigation. This general precept, which has its basis in common law champerty and maintenance, is subject to specific exceptions developed in decisional law and continued in these Rules, such as the exception for contingent fee set forth in Rule 1.04 and the exception for certain advances of the costs of litigation set forth in paragraph (d). A special instance arises when a lawyer proposes to incur litigation or other expenses with an entity in which the lawyer has a pecuniary interest. A lawyer should not incur such expenses unless the client has entered into a written agreement complying with paragraph (a) that contains a full disclosure of the nature and amount of the possible expenses and the relationship between the lawyer and the other entity involved.

Texas Rules Rule 1.08 cmt. 7; see also Texas Ethics Opinion 465.

1.8:1110      Acquiring an Interest in Subject Matter of Representation

For discussion of this subject matter, see 1.8:1100.

1.8:1120      Contingent Fees [see also 1.5:600]

For discussion of this subject matter, see 1.8:1100. For further discussion of contingent fees generally, see 1.4:100 and following sections.

1.8:1130      Lawyer Liens

For discussion of this subject, please see 1.8:1100. For discussion of whether a lawyer can retain client files to collect fees, see 1.8:1140.

1.8:1140      Retention of Files to Collect Fees

Comment 9 to Texas Rules Rule 1.15—the rule dealing with declining or terminating representation—provides that "[i]n every instance of withdrawal and even if the lawyer has been unfairly discharged by the client, a lawyer must take all reasonable steps to mitigate the consequences to the client . . . . The lawyer may retain papers as security for a fee only to the extent permitted by law." In Griffith v. Geffen & Jacobsen, P.C., 693 S.W.2d 724 (Tex. App.—Dallas 1985, no writ), the court held, among other things, that an attorney may withhold a client's papers if he is claiming a lien against them for amounts due from the client for professional services or expenses. In Burnett v. State, 642 S.W.2d 765 (Tex. Crim. App. 1982), the court held that, while in the lawyer's possession, a practicing lawyer has a passive common-law lien on papers and other property of the client, but he may not sell to foreclose his lien since it extends only to the right to retain property of the client until the debt is paid. See also Texas Ethics Opinion 395 (discussing, among other things, potential prejudice to a client if lawyer attempts to retain papers after withdrawing from representation).

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