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Ethics Question of the Month

Ethics Question of the Month - May 2019

Lawyer A represents 33 homeowners in a suit against Company X, which does seismic testing for oil and gas.  The company uses underground dynamite blasts to generate seismic waves.  The homeowners have claimed structural damage to their foundations, walls, driveways, and sidewalks resulting from the seismic waves generated by Company X.  The damage experienced by individual homeowners varies according to the value of their property, the extent of the damage, and the cost of repairs.   

Lawyer A sent individual settlement demands to Company X for all 33 clients.  After initial negotiations, 11 of the clients agreed to accept Company X’s settlement offers.  The remaining 22 clients refused to accept Company X’s original individual offers.   Lawyer A and Company X’s lawyers go to mediation to resolve the remaining 22 claims.  At the end of the mediation, Company X offers a single gross settlement amount to resolve the remaining 22 claims and tells Lawyer A that, in return, it requires 22 releases or the overall offer will be withdrawn.  

Lawyer A decides to apportion the gross amount among her clients, but holds back 10% of the gross amount in case any clients don’t agree to their individual offers.  Two clients refuse their individual settlement offers.  Lawyer A uses most of the 10% that she held back to increase the offers to the two holdout clients, and they agree to the increased offer.  Lawyer A then redistributes what is left of the 10% to the remaining 20 clients involved in the mediation on a pro rata basis so that all of the gross settlement amount offered by Company X is now distributed to the 22 clients involved in the mediation.

Which of these statements is most accurate? 

A.    Lawyer A has done an admirable job of settling all of her clients’ claims in a complicated case and a difficult situation.  Although imperfect in some ways, the settlement method complies with the Texas disciplinary rules.

B.    We don’t know enough detail about the settlement method to judge whether Lawyer A has fully complied with applicable disciplinary rules.

C.    Lawyer A’s solution is permissible, except for holding back 10% of the gross settlement amount to disproportionately reward uncooperative clients.

D.    Lawyer A should not have reached a settlement on behalf of the first 11 clients until the claims of the remaining 22 were also resolved.  Therefore, none of the settlements are permissible under the Texas disciplinary rules.  

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Posted: 4/28/2019 12:00:00 AM by TCLE Editor | with 0 comments

Ethics Question of the Month - April 2019

Scenario 1: Lawyer A represents a long-time client, Client B, in various real estate transactions.  After several years, Lawyer A asks to invest in an upcoming real estate development project for which Client B needs investors.  Lawyer A also perceives that her interests are aligned with the client’s interests because both want the project to succeed.  Client B welcomes Lawyer A’s investment.  They agree that Lawyer A will invest $50,000, and contribute her legal services, in exchange for a 10% equity share in the development. As part of her contribution of legal services, the lawyer prepares the paperwork documenting the investment agreement.

Scenario 2:  A few months later, Client B decides to start a company to create and sell real estate development software.  Client B has enough investors and capital to start the company, but is concerned about managing the start-up’s legal costs and other expenses.  Client B offers the lawyer shares of stock in the new company in exchange for legal services.  Client B proposes a formula that awards two shares of stock for every hour of services spent by Lawyer A.  Lawyer A’s hourly rate is $250.  There is a risk that the start-up may fail and Lawyer A’s stock will be worthless; there is also the possibility that the start-up could be successful and that Lawyer A’s shares could be worth significantly more than the value of her legal services at her usual hourly rate.

Which statement most accurately addresses whether these Scenarios are acceptable?

A.    Both Scenarios 1 and 2 are acceptable, and are commonplace.
B.    Scenario 2 is acceptable, but Scenario 1 is not.
C.    Scenario 1 is acceptable, but Scenario 2 is not.
D.    Both Scenarios are per se unacceptable.
E.    We don’t have sufficient facts to know whether either Scenario is acceptable.

View the Answer
 

Posted: 3/28/2019 12:00:00 AM by TCLE Editor | with 0 comments

Ethics Question of the Month - March 2019

Lawyer A represents Client B in a partnership dispute against Partner C.  After extensive discovery, the court orders the parties to mediation two months before the trial setting.   

At the mediation session, Partner C makes a credible settlement offer to Client B.  Lawyer A recommends that Client B accept that offer.  Client B refuses and demands to go to trial unless Partner C makes a substantially higher offer.

Lawyer A is concerned that Partner C came across much better in his deposition than Client B, and the documents seem to support Partner C’s position. Lawyer A thinks there is a good chance that Partner C will prevail at trial, or, even if Client B prevails, his damage model is weak, and the jury is very likely to award damages significantly less than Partner C’s current settlement offer. Of course, a modest recovery by Client B means a modest contingent fee for Lawyer A.  Accordingly, Lawyer A tells Client B that he will withdraw his representation unless Client B accepts the settlement offer.  

Lawyer A tells Client B that he can hire a new lawyer and take this case to trial if he wishes. He also tells the client that the court will grant a continuance of the current trial setting because this is only the second trial setting.   The likely continuance should provide Client B plenty of time to hire new counsel.

Which statement most accurately addresses whether Lawyer A can withdraw? 

A.    Lawyer A can withdraw, but only after he secures a continuance of the current trial setting.
B.    Lawyer A can withdraw unconditionally because his client is making the representation unreasonably difficult by not accepting a recommended settlement offer.
C.    Lawyer A cannot withdraw because, under these circumstances, withdrawal would have a materially adverse effect on the client.
D.    Lawyer A cannot withdraw because he cannot guarantee that he will be able to persuade the court to grant a continuance.
E.    We don’t have enough facts to know whether Lawyer A can withdraw.

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Posted: 2/27/2019 12:00:00 AM by TCLE Editor | with 0 comments

Ethics Question of the Month - February 2019

Lawyer A worked at Firm XYZ.   Firm XYZ represented Company Z in numerous litigation and transactional matters.  While at Firm XYZ, Lawyer A worked on several of Company Z’s employment litigation cases.  

Lawyer A then left Firm XYZ and moved to Firm JKL.  Firm JKL represents clients who are adverse to Company Z in breach-of-contract cases.  Firm JKL wants Lawyer A to be available to represent clients against Company Z, but, for the moment, it is content to have Lawyer A doing other litigation.  

Firm XYZ knows that Firm JKL is adverse to its client, Company Z, and that Lawyer A has joined Firm JKL.  Firm XYZ asserts a conflict and objects to Firm JKL being adverse to Company Z because Lawyer A is has joined Firm JKL.

Which of these statements is the most accurate?

A.    Firm JKL has a conflict in being adverse to Company Z because Lawyer A is a member of Firm JKL and is Company Z’s former attorney.

B.    Firm JKL would have a conflict in being adverse to Company Z, but Firm XYZ didn’t timely object when it learned that Lawyer A was joining Firm JKL.

C.    Firm JKL has a potential conflict, which can be cured by screening Lawyer A from any representation adverse to Company XYZ.

D.    Screening Lawyer A from Company Z won’t cure the conflict because the screen was not in place before Lawyer A arrived at Firm JKL; otherwise it would have worked.

E.    Firm JKL has no conflict arising from Lawyer A being adverse to Company Z in breach of contract cases because they are not substantially related to the employment litigation cases where Lawyer A represented Company Z while at Firm XYZ.  

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Posted: 1/30/2019 8:00:00 AM by TCLE Editor | with 0 comments

Ethics Question of the Month - January 2019

A lawyer represents Client A.  During the representation, the lawyer has access to Client A’s files, including documents regarding lawsuits in which the lawyer did not represent Client A.  Some of these documents are filings from lawsuits in which Client A was sued for fraud.  The lawyer’s representation of Client A terminates.  

The lawyer subsequently is asked to represent a new client, Client B, who is adverse to Client A.  This new representation would be factually unrelated to any of the matters in which the lawyer represented Client A. However, Client B has fraud claims against Client A that are similar to prior fraud claims that the lawyer learned of in reviewing Client A’s files during the prior representation.

The lawyer believes that the information that he learned about these prior fraud allegations against Client A could be relevant to Client B’s claims against Client A.  The lawyer wonders whether he could share information about Client A’s other lawsuits, find those filed pleadings at the courthouse, and potentially use that information to show that Client A has a pattern of committing fraud in the same way that Client B now claims.

The lawyer is aware that Rule 1.05(b)(3) of the Texas Disciplinary Rules of Professional Conduct states that a lawyer shall not knowingly “[u]se confidential information of a former client to the disadvantage of the former client after the representation is concluded unless . . . the confidential information has become generally known.”  

The lawyer thinks he can tell potential Client B about these other lawsuits because (1) the lawyer did not represent his Client A in those matters, and (2) the information that he knows is available to anyone who looks for it in the court’s files.  Which is most accurate?  

A.    The lawyer can share the information because he did not represent Client A in those matters, and Client A’s other suits are “generally known” because they were public filings.
B.    The lawyer can disclose to Client B what he remembers about Client A’s documents because he did not represent Client A in those matters. However, the prior fraud lawsuits are not “generally known” under the Rule 105(b)(3) exception.
C.    The lawyer cannot disclose to Client B what he remembers about Client A’s documents, even though he didn’t represent Client A in those matters. But he can direct Client B to the courthouse and suggest looking for other lawsuits against Client A.  
D.    The lawyer cannot reveal what he remembers from Client A’s files, nor can he direct Client B to the courthouse to search for other lawsuits.
E.    The lawyer should not represent Client B at all.  

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Posted: 12/29/2018 8:00:00 AM by TCLE Editor | with 0 comments

Ethics Question of the Month - December 2018

Lawyer A represents Client X in a family law case.  Client X has told Lawyer A he has struggled with substance abuse and continues to use cocaine occasionally.  

 Client X’s wife had similar substance abuse issues, but she appears to be in sustained recovery. Client X wants primary custody and appears reconciled to admitting his occasional cocaine use and seeking treatment.  

The wife’s lawyer takes Client X’s deposition and asks him if he still uses cocaine.  Client X denies any cocaine use since the couple separated.  Lawyer A asks no questions at the deposition, but later confronts his client about his denial of current drug use.  Client X promises not to lie about his cocaine use again.  Lawyer A does nothing further, and Client X does not correct his deposition testimony.

At trial, Lawyer A doesn’t raise cocaine use, but does ask Client X to generally tell the jury why he believes that he is a fit parent.  Lawyer A assumes that Client X will avoid talking about drug use, but Client X again says he has not used anything since the couple’s break-up.   Hoping that his client won’t continue to perjure himself, Lawyer A drops the subject and quickly wraps up his direct examination.

On cross-examination, opposing counsel is ready to pounce but doesn’t have any impeachment evidence that Client X is lying.  He can’t shake Client X’s repeated denials of drug use since the couple’s separation.  

The jury awards primary custody to Client X at the end of the first week of trial.  The trial will continue the following week with the property division tried to the Court without a jury.  Over the weekend, Lawyer A confronts his client and insists that he not further perjure himself during the second week.  

Which is Lawyer A’s best course of action?  

A.    Lawyer A has acted appropriately in preserving what he learned from privileged conversations with Client X and should do nothing to undermine the attorney-client relationship.
B.    Lawyer A should withdraw before the second week of trial so that he can avoid disclosing his client’s perjury when court resumes.
C.    Lawyer A cannot withdraw, but does not need to take further action as long as he doesn’t affirmatively encourage Client X to lie.
D.    Lawyer A cannot withdraw and must take steps to address his client’s lies, including disclosure to the court of the true facts.  
 

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Posted: 11/29/2018 7:00:00 AM by TCLE Editor | with 0 comments

Ethics Question of the Month - November 2018

Scenario 1.  Criminal defense lawyer X agrees to represent Client A in a DWI.  The fee agreement requires a $5,000 nonrefundable retainer that covers all legal services up to trial.  If a trial is required, the agreement provides for a nonrefundable “trial fee” of $10,000.  Client A pays the first $5,000 fee but is unable to pay the $10,000 when it becomes clear that a trial will be necessary.   Lawyer X withdraws from the representation.

Scenario 2.  Criminal defense lawyer Y agrees to represent Client B on an assault charge.  The fee agreement provides for a nonrefundable flat fee of $20,000 for the entire representation, including trial.  Client B becomes dissatisfied and terminates Lawyer Y just before trial.   Client demands a partial refund in order to hire another lawyer for trial.  Lawyer Y refuses any refund because the $20,000 flat fee was expressly “nonrefundable.”

Scenario 3.  Criminal defense lawyer Z agrees to represent Client C on a felony theft charge.  The fee agreement provides for multiple fees: $2500 nonrefundable retainer upfront; $5000 flat fee for services before trial; and then an hourly fee of $350 during and after trial, up to final judgment.

Which fee arrangements are ethical?

A.    All three fee arrangements are ethical.  
B.    Lawyer X’s fee agreement is ethical, but the other two are not.
C.      Lawyer X’s and Lawyer Y’s fee agreements are ethical, but Lawyer Z’s is not.  
D.    Lawyer Z’s fee agreement is ethical, but the other two are not.
 

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Posted: 10/29/2018 12:00:00 AM by TCLE Editor | with 0 comments

Ethics Question of the Month - October 2018

A law firm’s website advertises the services of a commercial litigator in the firm. The website touts the lawyer’s past successes, including:

1.    “Won a $2.1 million jury verdict for the plaintiff in a case involving a partnership dispute.”
2.    “Obtained an $8 million settlement in a case between two companies in which the plaintiff company made fraud claims.”
3.    “Negotiated a $450,000 net recovery in a contract dispute in arbitration.”
4.    “Obtained a permanent injunction against a former employee under a non-compete agreement.”
5.    “Served as local counsel in an appeal in which a $5 million tortious interference judgment was affirmed.”
6.    “Obtained a defense jury verdict of no liability in a case alleging $15 million in damages.”

Which of these descriptions of past successes is proper under the Texas lawyer advertising rules?

A.    #1, #5 and #6 are proper, but the rest are improper.
B.    #3 and #4 are proper, but the rest are improper 
C.    #4 is proper, but the rest are improper.
D.    #2 and #4 are proper, but the rest are improper.
 

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Posted: 9/29/2018 12:00:00 AM by TCLE Editor | with 0 comments

Ethics Question of the Month - September 2018

Law firm Abel, Baker, Caldwell & Dodd (“ABC&D”) has four name partners.  Partner Abel decides to retire from practicing law and leaves the firm.  Baker decides to leave the firm to open a solo practice under his own name. 

The remaining partners wish to continue to practice under the same firm name because it is well known in the community.  Abel and Baker both agree to allow ABC&D to continue to use their names in exchange for payment. 

Three years later, Abel decides he’s tired of retirement and opens a solo practice under his own name.  Under the current Ethics Opinions issued by the Professional Ethics Committee for the State Bar of Texas, which of the following is accurate?

  1. ABC&D may continue with the same name even though Abel and Baker are practicing elsewhere and no longer have any association with the firm
  2. ABC&D may continue to use Abel’s name, but not Baker’s
  3. ABC&D may continue to use Baker’s name, but not Abel’s 
  4. ABC&D may not use either Abel’s name or Baker’s name 

 

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Posted: 8/30/2018 2:25:14 PM by TCLE Editor | with 0 comments

About Ethics Question of the Month

Ethics Question of the Month is a regular feature of the Texas Bar Journal created and sponsored by the Texas Center for Legal Ethics.

DISCLAIMER: The information contained in Ethics Question of the Month is intended to illustrate an ethics issue of general interest in the Texas legal community; it is not intended to provide ethics advice that applies regardless of particular facts.  For specific legal ethics advice, readers are urged to consult the Texas Disciplinary Rules of Professional Conduct (including their official comments) and other authorities and/or a qualified legal ethics advisor.

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