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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
1.13:100 Comparative Analysis of Texas Rule
Both rules share the basic concept that a lawyer employed or retained by an organization or entity represents the organization, rather than the employees or constituents of the organization (unless the lawyer has, in fact, undertaken to represent such constituents). Both the Texas Rule and the Model Rule instruct the lawyer, though in somewhat different terms, to make the lawyer's role clear (i.e., that he or she represents the entity, and the entity only, when dealing with the organization's directors, officers, and employees, as well as other constituents (e.g., shareholders)). The Model Rule speaks of this clarification being important "when it is apparent that the organization's interests are adverse to those of the constituents with whom the lawyer is dealing." Model Rules Rule 1.13(d). The Texas Rule uses similar language, and goes on to note that the lawyer should clarify his or her role to corporate constituents "when explanation appears reasonably necessary to avoid misunderstanding on their part." Texas Rules Rule 1.12(e).
Both rules contemplate that there may be situations in which a lawyer discovers potential misconduct by a corporate employee. Texas Rule 1.12 explicitly states that a lawyer representing an organization "must take reasonable remedial actions" whenever the lawyer learns or knows that:
• an officer, employee, or other person associated with the organization is committed or intends to commit a violation of a legal obligation to the organization or a violation of law which reasonably might be imputed to the organization;
• the violation is likely to result in substantial injury to the organization; and
• the violation is related to a matter within the scope of the lawyer's representation of the organization.
The two rules share a nonexclusive list of measures designed to address such situations without involving unreasonable risks of (1) disruption to the organization and (2) disclosure of information relating to the representation to persons outside the organization. These procedures essentially involve running the matter up the corporate ladder, including: (1) asking reconsideration of the matter; (2) advising that a separate legal opinion should be sought for presentation to the appropriate authority in the organization; and (3) referring the matter to higher authority in the organization, including, if warranted by the seriousness of the matter, referral to the highest authority that can act in behalf of the organization as determined by applicable law. Model Rules Rule 1.13(d)(1)-(3); Texas Rules Rule 1.12(c)(1)-(3).
Model Rule 1.13 provides in paragraph (c) that, if despite the lawyer's efforts to resolve the matter within the corporation, the highest authority that can act on behalf of the organization insists upon action or a refusal to act that is clearly a violation of law and is likely to result in substantial injury to the organization, the lawyer may resign in accordance with Rule 1.16. Model Rules Rule 1.13(c). Paragraph (d) of Texas Rule 1.12 provides that "[u]pon a lawyer's resignation or termination of the relationship in compliance with Rule 1.15," the Texas Rule dealing with withdrawal, "[a] lawyer is excused from further proceeding as required by paragraphs (a), (b), and (c)" of Texas Rule 1.12, "and any further obligations of the lawyer are determined by Rule 1.05," the Texas Rule dealing with confidentiality of information and disclosure.
Texas Rule 1.12 does not contain a direct counterpart to paragraph (e) of Model Rule 1.13; paragraph (e) deals with situations in which a lawyer may be representing an organization while simultaneously representing one or more constituents of the organization.
[A] lawyer employed or retained by a corporation or similar entity owes his allegiance to the entity and not to a stockholder, director, officer, employee, representative, or other person connected with the entity. In advising the entity, a lawyer should keep paramount its interests and his professional judgment should not be influenced by the personal desires of any person or organization. Occasionally, a lawyer for an entity is requested by a stockholder, director, officer, employee, representative, or other person connected with the entity to represent him in an individual capacity; in such case the lawyer may serve the individual only if the lawyer is convinced that differing interests are not present.
Model Code EC 5-18.
1.13:200 Entity as Client
"A lawyer employed or retained to represent an organization represents the organization as distinct from its directors, officers, employees, members, shareholders or other constituents." Texas Rules Rule 1.12 cmt. 1. "Unlike individual clients who can speak and decide finally and authoritatively for themselves, an organization can speak and decide only through its agents or constituents such as its officers or employees." Id. "In effect, the lawyer-client relationship must be maintained through a constituent who acts as an intermediary between the organizational client and the lawyer." Texas Rules Rule 1.12 cmt. 1.
For a general discussion of conflicts involving clients that can arise by virtue of a lawyer's obligations to others, see 1.7:210.
[The discussion of this topic has not yet been written.]
An important concept embodied in Texas Rule 1.12—that a lawyer retained by an organization represents the entity as opposed to its constituents—applies to a wide variety of organizations (e.g., not just corporations). "A lawyer employed or retained to represent an organization represents the organization as distinct from its directors, officers, employees, members, shareholders or other constituents." Texas Rules Rule 1.12 cmt. 1. "This Rule applies not only to lawyers representing corporations but to those representing an organization, such as an unincorporated association, union, or other entity." Texas Rules Rule 1.12 cmt. 2; see also cmt. 9 (discussing applicability of rule to government agencies).
1.13:300 Preventing Injury to an Entity Client
Under the Texas Rules, a lawyer representing an organizational client generally is obligated to "proceed as reasonably necessary in the best interest of the organization without involving unreasonable risks of disrupting the organization and of revealing information relating to the representation to persons outside the organization." Texas Rules Rule 1.12(a). When a lawyer determines, for instance, that an officer, employee, or other person associated with the organization has committed or intends to commit conduct "likely to result in substantial injury to the organization," the lawyer is called for under Texas Rule 1.12(b) to take reasonable remedial actions if the misconduct in question is related to a matter within the scope of the lawyer's representation of the organization. Texas Rules Rule 1.12(b). Subparagraph (c) of Texas Rule 1.12, in turn, helps clarify the types of remedial measures that the lawyer may need to take, including running the issue up the corporate ladder.
Subparagraph (d) of Texas Rule 1.12 provides that, when a lawyer has resigned or terminated his or her relationship with the organizational client in compliance with Rule 1.15, any further obligations of the lawyer regarding disclosure outside the organization of potential misconduct are determined by Rule 1.05. The lawyer's duty of confidentiality under Rule 1.05 is discussed at 1.6:100 through 1.6:700.
The reported cases dealing with alleged corporate misconduct—as it relates to in-house counsel's disclosure and withdrawal obligations—often arise in the context of wrongful termination (i.e., cases in which a former in-house counsel claims that he or she was fired for refusing to go along with illegal corporate conduct). Willy v. Coastal Corp., 647 F. Supp. 116 (S.D. Tex. 1986), rev'd on other grounds, 855 F.2d 1160 (5th Cir. 1988), is illustrative. In Willy, a former in-house lawyer for Coastal in Houston alleged that he was terminated because he required the company to comply with its obligations under the environmental laws. The federal district judge reasoned that since Mr. Willy did not claim to have actually blown the whistle, Mr. Willy could not rely on any statutes protecting whistle-blowers. The court also concluded that Mr. Willy could not sue for wrongful termination. In reaching this conclusion, the court largely focused on his view of the in-house lawyer's ethical duties:
Plaintiff has asked this Court to expand the Texas exception to employment-at-will to an attorney who believes he has been asked to violate the law. Indeed, the narrow public policy exception to employment-at-will adopted in Hauck [v. Sabine Pilot Services, Inc., 687 S.W.2d 733 (Tex. 1985)] encourages law enforcement. An attorney, as officer of the Court, often is placed in a dilemma of serving either his client's wishes or the law's demands. As legal practitioners are no doubt aware, the line is often not clear. Under these circumstances, however, the Texas Canons of Ethics and the Disciplinary Rules are the standard for an attorney's professional conduct. If an attorney believes that his client is intent upon pursuing an illegal act, the attorney's option is to voluntarily withdraw from employment. DR 2-110(C)(1)(c). When an attorney elects not to withdraw and not to follow the client's wishes, he should not be surprised that his client no longer desires his services. Once the client does elect to terminate the relationship, however, the attorney is required mandatorily to withdraw from any further representation of that client. DR 2-110(B)(4). The standard is the same for an in-house attorney.
647 F. Supp. at 117-18 (emphasis added; footnotes omitted).
The federal court thus concluded:
There is a well-established standard for professional conduct when an attorney finds himself in a situation as described by the plaintiff. Therefore, this Court does not believe that it is necessary or proper to extend the Hauck public policy exception and does not find a cause of action for termination of an attorney's services to be within the exception to employment-at-will adopted by the Texas Supreme Court.
647 F. Supp. at 118 (footnote omitted) (further noting that the public policy exception articulated in Hauck governs only the discharge of an employee for the sole reason that the employee refused to perform an illegal act.)
In an interesting and potentially significant postscript to the federal court litigation, Mr. Willy next pursued his lawsuit in Texas state court. A Texas jury found that Mr. Willy's former employer wrongfully terminated him, and awarded Mr. Willy actual and punitive damages. As of the date of this writing, the case is currently on appeal in Texas. A Texas intermediate court of appeals held in October 1996 that the attorney's former status as an in-house counsel did not necessarily preclude him from maintaining a claim for wrongful termination, but the lawyer's claims were barred in the case at hand because the attorney could not prove the allegations against his employer without breaching his ethical obligations to the former employer (i.e., of maintaining the former employer's confidences). On this basis, the intermediate court of appeals reversed the jury verdict in favor of Mr. Willy and rendered judgment in favor of his employer. Willy v. Coastal States Mgmt. Co., 1996 WL 606549 (Tex. App.—Houston [1st Dist.] Oct. 24, 1996). The Texas Supreme Court originally granted a petition to review the case, but ultimately decided that the petition had been improvidently granted (i.e., the Texas Supreme Court ultimately declined to review the case).
In concurring in the denial of review, Justices Owen and Hecht observed in part:
In its briefing in this Court, Coastal has retreated from its position that Sabine Pilot should not apply to in-house counsel and instead contends that the court of appeals struck the appropriate balance. Willy, of course, contends that he is authorized under the circumstances of this case to reveal confidential or privileged information to the extent necessary to press his claim. The legal issue of whether Sabine Pilot should even apply has not been fully briefed or tested by advocacy in our Court. This weighs heavily against our consideration of that question.
Further, the Court cannot address the limited points of error raised by Willy without assuming that a common-law cause of action should be recognized for in-house counsel under Sabine Pilot as formulated by the court of appeals. Rather than write an opinion on the nuances of a cause of action that may not exist in Texas, we should await the case in which issue is fully joined on the threshold question of whether in-house counsel fall within the exception we carved out in Sabine Pilot.
Willy v. Coastal States Management Co., Inc., 977 S.W.2d 566, 567 (Tex. 1998).
As to the broader general question whether a lawyer has a duty of disclosure after his or her attorney-client relationship with a client has terminated, reference is made to Texas Rule 1.05, which requires—rather than permits—disclosure only when (1) the client's conduct or contemplated conduct threatens to cause death or bodily injury to a person, (2) the lawyer's silence would violate candor to the tribunal provisions from Texas Rule 3.03 referenced in Texas Rule 1.05, or (3) the lawyer's silence under the circumstances would violate Texas Rule 4.01(b).
1.13:400 Fairness to Non-Client Constituents Within an Entity Client
Subparagraph (e) of Texas Rule 1.12 provides that, "[i]n dealing with an organization's directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when it is apparent that the organization's interests are adverse to those of the constituents with whom the lawyer is dealing or when the explanation appears reasonably necessary to avoid misunderstanding on their part." Texas Rules Rule 1.12(e).
This is, among other things, a matter of fairness to the individual involved. It is also a practical safety check for the lawyer. This is so because, for among other reasons, a corporate constituent might later attempt to disqualify the lawyer from representing the interests of the corporation against the wrongfully acting employee or former employee. Such an employee or former employee might claim that he believed the challenged lawyer was representing him individually, rather than the corporation, and thus argue that the lawyer should be precluded from representing the corporation against him. See, e.g., Brown v. E.F. Hutton & Co., 305 F. Supp. 371 (S.D. Tex. 1969) (involving such a scenario).
1.13:500 Joint Representation of Entity and Individual Constituents
The text of Texas Rule 1.12 itself does not explicitly discuss joint representation of an entity and an individual constituent; the Texas Rules address concepts that may be generally relevant to this issue in certain instances in Texas Rules 1.06 and 1.07. Derivative actions are touched on in section 1.13:510.
Comments 10 and 11 to Texas Rule 1.12 touch on corporate counsel's role in shareholder derivative actions. Comment 10 provides in full as follows:
Under generally prevailing law, the shareholders or members of a corporation may bring suit to compel the directors to perform their legal obligations in the supervision of the organization. Members of unincorporated associations have essentially the same right. Such an action may be brought nominally by the organization, but usually is, in fact, a legal controversy over management of the organization.
Comment 11 in turn provides in full:
The question can arise whether counsel for the organization may defend such an action. The proposition that the organization is the lawyer's client does not alone resolve the issue. Most derivative actions are a normal incident of an organization's affairs, to be defended by the organization's lawyer like any other suit. However, if the claim involves serious charges of wrongdoing by those in control of the organization, a conflict may arise between the lawyer's duty to the organization and the lawyer's relationship with those managing or controlling its affairs.
[The discussion of this topic has not yet been written.]
Comment 9 to Texas Rule 1.12 states that the duty defined in the rule "applies to governmental organizations." Texas Rules Rule 1.12 cmt. 9. The comment goes on to note, however, that the lawyer representing a governmental entity may have unique concerns:
When the client is a governmental organization, a different balance may be appropriate between maintaining confidentiality and assuring that the wrongful official act is prevented or rectified, for public business is involved. In addition, duties of lawyers employed by the government or lawyers in military service may be defined by statutes and regulations. Therefore, defining precisely the identity of the client and prescribing the resulting obligations of such lawyers may be more difficult in the government context.
Comment 9 continues:
Although in some circumstances the client may be a specific agency, it is generally the government as a whole. For example, if the action or failure to act involves the head of a bureau, either the department of which the bureau is a part or the government as a whole may be the client for purpose of this Rule. Moreover, in a matter involving the conduct of governmental officials, a government lawyer may have authority to question such conduct more extensively than that of a lawyer for a private organization in similar circumstances.