When the SEC subpoenas a lawyer to testify about a former client's affairs, must the lawyer still protect that former client's confidences and secrets?

Plain-English summary

Texas Lawyer "A" had represented a foreign corporation on oil and gas matters in 1970 and 1971; he had no part in the client's SEC registrations, which other counsel handled. After the representation ended, the SEC subpoenaed A to appear at a fact-finding inquiry into the client's affairs and to produce his files. The former client insisted on the attorney-client privilege and warned that it would sue A for damages if he failed to protect it. An SEC investigator signaled that A might himself be named in an injunctive proceeding, and suggested A would have been spared had he not asserted the privilege. A asked the Committee whether he still owed the former client a duty of confidentiality and, if so, when he could be released from it.

The Committee answered the first question in the affirmative. It reasoned that DR 4-101 protects both "confidences" (privileged information) and "secrets" (other information whose disclosure would embarrass or harm the client), a duty broader than the evidentiary privilege codified in Article 38.10 of the Texas Code of Criminal Procedure and one that survives the end of the representation. The Committee said the question whether to testify should be decided by a court, not by the SEC, and that A should not have to sift question by question which matters the privilege or the ethical duty covered.

On release from the duty, the Committee pointed to the express avenues in DR 4-101(C): the client's express consent (subsection (C)(1)); disclosure permitted by the Disciplinary Rules or required by law or court order (C)(2); and disclosure to establish or collect a fee or to defend against an accusation of wrongful conduct (C)(4). It noted the difficulty of the waiver and "accusation" questions and observed that nothing in DR 4-101 clearly lets a lawyer disclose based on a client's waiver short of express consent; if a court orders the lawyer to testify, the lawyer as an officer of the court would be obligated to do so. The Committee also flagged DR 7-102(B), under which a lawyer who receives information clearly establishing that the client perpetrated a fraud must call on the client to rectify it and, failing that, reveal it, while cautioning that the rule turns on the fraud being "clearly" established. Its bottom line: the lawyer owes the former client a duty to preserve confidences and secrets in the SEC investigation unless released by DR 4-101(C) or DR 7-102(B).

Currency note

This opinion was issued in 1974, under the former Texas Code of Professional Responsibility, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. A lawyer's duty to protect client and former-client information is now governed by Texas Rules 1.05 and 1.09, whose ABA analogs are Model Rules 1.6 and 1.9(c); the lawyer's duties when a client has committed fraud now appear in Texas Rule 3.03 and Model Rule 3.3. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Does the duty of confidentiality continue after the representation ends?

A: Yes. The Committee concluded that the duty under DR 4-101 outlasts the employment and applied to Lawyer A's former client during the SEC investigation.

Q: Is the ethical duty the same as the evidentiary attorney-client privilege?

A: No. The Committee said DR 4-101 reaches both "confidences" and "secrets" and places a broader duty on the lawyer than Article 38.10 of the Texas Code of Criminal Procedure and the cases interpreting it.

Q: When may the lawyer be released from the duty?

A: The Committee identified the avenues in DR 4-101(C): the client's express consent, disclosure required by law or court order, and disclosure to collect a fee or defend against an accusation of wrongful conduct, plus the fraud-rectification path in DR 7-102(B).

Q: Could the lawyer decide for himself that the client had waived confidentiality?

A: The Committee was doubtful. It said nothing in DR 4-101 clearly permits disclosure based on a waiver short of express consent, and that if a court orders the lawyer to testify, the lawyer as an officer of the court would be obligated to comply.

Background and rules framework

The opinion interprets DR 4-101 of the former Texas Code of Professional Responsibility (the successor to former Canon 34), which barred a lawyer from revealing a client's confidences or secrets and carried the exceptions in DR 4-101(C), and DR 7-102(B), the fraud-rectification rule. The Committee read the ethical duty as broader than the evidentiary privilege codified at Article 38.10, Texas Code of Criminal Procedure. The modern analogs are Texas Rules 1.05 and 1.09 (ABA Model Rules 1.6 and 1.9(c)) and Texas Rule 3.03 (Model Rule 3.3).

Citations and references

Rules of Professional Conduct:

• MR 1.6, MR 1.9 (confidentiality; duties to former clients), as the modern analogs
• MR 3.3 (candor toward the tribunal; client fraud), as the modern analog of DR 7-102(B)
• DR 4-101, DR 7-102(B) (former Texas Code of Professional Responsibility); former Canon 34, Canon 4

Statutes:

• Article 38.10, Texas Code of Criminal Procedure (attorney testimony; codifying the evidentiary privilege)
• Securities Act of 1933; 15 U.S.C.A. 78u (SEC injunctive proceedings)

Cases:

• Sutton v. State, 16 C.R. 190, settled Texas rule against disclosure of client communications
• Cochran v. Cochran, 333 S.W.2d 635 (Tex. Civ. App. 1960, writ ref'd n.r.e.), privilege applies in civil and criminal cases
• Hurley v. McMillan, 268 S.W.2d 229 (Tex. Civ. App. 1954, writ ref'd n.r.e.); White v. Smith, 276 S.W.2d 359 (Tex. Civ. App. 1955, error dism'd), waiver of the evidentiary privilege
• Ellis-Foster Co. v. Union Carbide and Carbon Corp., 159 F. Supp. 917 (D.N.J. 1958), immunity of substantive lawyer-client dealings

Other opinions cited:

• Tex. Comm. on Professional Ethics, Op. 193 (loyalty to the client generally controls over other Canons in conflict); Op. 9 (waiver by client's prior testimony)
• ABA Opinions 250 (1943) and 202 (lawyer's self-defense testimony)

See also

• TX Ethics Op. 384: Attorney Disclosure to the IRS on a Former Client
• TX Ethics Op. 389: Disclosing a Former Joint Client's Confidences and Perjury
• TX Ethics Op. 387: Corporate Counsel's Duties When an Officer Reveals Wrongdoing

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-378/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_378.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

QUESTION PRESENTED

Does a lawyer owe a duty to his former client by virtue of the Texas Code of Professional Responsibility, to preserve that client's confidences and secrets when subpoenaed by the Securities and Exchange Commission (S.E.C.) to testify in an investigation into such client's affairs as to some of which the lawyer in question represented said client?
In the event the Committee answers question number 1 in the affirmative, will the Committee please advise under what circumstances or conditions may the lawyer be released from such responsibility?

STATEMENT OF FACTS

In 1970 and 1971, Texas Lawyer "A" was employed to represent a foreign corporation (not incorporated in Texas) to render advice and legal services as may be required by the client for oil and gas exploration. Lawyer "A" has a known background as an expert in the practice of oil and gas law in the State of Texas. It is known to A that the funds being expended had been raised from investors who reside principally in states other than the State of Texas; that the raising of such funds is a matter covered by the Securities Act of 1933, and therefore, regulated by the Securities and Exchange Commission; that required S.E.C. registrations have been or are being handled by the client through the services of attorneys other than A; that A is informed that he will have no responsibility insofar as the S.E.C. registrations are concerned, and that as to all legal matters other than oil and gas, the client would seek the guidance of other counsel. A's responsibility was to prepare oil and gas lease purchase agreements, turnkey contracts with oil and gas operators, to examine titles, to explain the method of operation to turnkey operators, to prepare non-recourse notes (notes secured only by and payable solely from production from the oil and gas properties in the event production is obtained), deeds of trust and production payments as security for such notes; to assist the client in obtaining local bank financing; further, the attorney generally had the responsibility to advise and direct the client as to oil and gas operations, i.e., to prepare and cause to be executed Joint Operating Agreements, Division Orders in some instances, Oil and Gas Leases and Assignments. In other words, the responsibilities of A as to his client can be generally stated to be the responsibility to advise and guide the client through and as to Texas Oil and Gas Law. In all instances, the business transactions between the client and others were made by the client or other agents and representatives of the client.

In the spring of 1972, the client obtained other oil and gas counsel and at that time, all of the files belonging to the client and all papers other than the work papers of Lawyer A, were delivered to the client and no representation of the client by A has occurred since such time.

In December of 1973, Lawyer A received a subpoena from the S.E.C. to appear in Washington at a "fact finding inquiry" and to bring "all documents, memoranda, correspondence, books, papers and records under your (Lawyer A) control or in your possession regarding or incident to services performed by you on behalf of (the client)." It was made known to A that the client had also been subpoenaed to appear at a different time and that such hearings were private and confidential. Prior to the designated time of appearance, A was advised by the client that the client definitely intended to claim the "attorney-client privilege which might attach to any confidential communication." A was again subpoenaed to appear at such a hearing in regard to the same "fact finding inquiry" in the summer of 1974. Also, prior to the appointed time for the hearings, A was advised by letter from an attorney for the client that the client would hold A fully responsible for protecting the client as to the attorney-client privilege, and in the event that A failed to honor such responsibility, that the client would file suit for damages against A and his law firm for any and all damages that the client might incur as a result of A's failure in such respect.

At each of the above mentioned fact finding hearings at which A appeared as a witness, A asserted the attorney-client privilege and his obligation under the Code of Professional Responsibility, and requested to be taken before a Federal District Judge for a ruling (which the S.E.C. refused to do). On each occasion, A advised the S.E.C. Investigator as to the position of the former client; however, the S.E.C. possessed full knowledge of the former client's position in that the client had advised the S.E.C. of his position as to the attorney-client privilege and as to the Code of Professional Responsibility.

At this time, an investigator of the S.E.C. has made known to A his intent to recommend that A be named as a Respondent in an application for an injunctive proceeding as permitted under 15 U.S.C.A. 78u. A has been led to believe that the S.E.C. Investigator would not include A in the injunctive proceeding if A had not asserted the attorney-client privilege and his ethical responsibility to the client.

The two principals involved as officers of the "client" are attorneys, one of whom is an expert in the field of Federal Taxation, and the other experience in S.E.C. matters. A dealt with both principals from time to time during the course of his representation of the "client."

The governing Texas Canon in effect before 1972 was Canon No. 34. Canon No. 34 referred only to "confidences of a client." This Canon placed a duty upon a lawyer to preserve his client's confidences and state, inter alia, that such duty outlasted the member's employment. Canon No. 34 is now covered by Canon No. 4, which stated "A lawyer should preserve the confidences and secrets of a client" (Emphasis Added). Disciplinary Rule (DR) 4-101 (A) states "'confidence' refers to information protected by the attorney-client privilege under applicable law," and "'secret' refers to other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client." It is noted that DR 4-101 (A) is broader than Canon No. 34 in that it not only includes confidences but also includes secrets, and further, covers matters that not only the client requested to be kept "confidential or secret" but also those matters which would be embarrassing or which would be likely to be detrimental to the client.

It has been a settled rule of law in the State of Texas, founded upon public policy, that communications made by a client to his attorney, in the course of their relations as such, and with respect to the business about which the attorney had been employed by the client, shall not be disclosed since 1884. Sutton v. State, 16 C.R. 190. "This Rule has been most rigidly, and with great unanimity, adhered to by the Courts, and the tendency has been to contract rather than relax it." This rule has now been codified as Article 38.10, Texas Code of Criminal Procedure (1925 Code, Article 713). Such Article reads:
All other persons, except those enumerated in Articles 38.06 and 38.11, whatever may be the relationship between the Defendant and witness, are competent to testify, except that an attorney at law shall not disclose a communication made to him by his client during the existence of that relationship, nor disclose any other fact which came to the knowledge of such attorney by reason of such relationship."
It seems, therefore, that not only is a Texas lawyer under the duty and responsibility imposed upon him by DR 4-101, but is also admonished as a matter of law that he, the attorney, shall not disclose any communication made to him by his client, or any fact which he learned by reason of the attorney-client relationship.

The prohibition against disclosure pronounced in Article 38.10 applies to both criminal and civil cases. Cochran v. Cochran, 333 S.W. 2d, 635 (Tex. Civ. App., 1960, writ ref., n.r.e.).

The cases interpreting the privilege as a "rule of evidence" provide that the privilege protects only communications which are made in confidence, and that unless it is clear that secrecy was desired, the reason for the privilege ceases. 1 Texas Law of Evidence (McCormack and Ray) 406. Such a requirement, however, does not seem to exist when the attorney-client relationship is considered in light of DR 4-101. There, the attorney is duty bound to preserve confidences and secrets of his client "that the client has requested be held inviolate, or the disclosure of which would be embarrassing, or would be likely to be detrimental to the client." (Emphasis Added). The Disciplinary Rules place on the lawyer a broader duty than does Article 38.10 and the cases interpreting same. See 23 Baylor Law Review 751.

The Texas Disciplinary Rules were adopted from the American Bar Association Disciplinary Rules. In the notes following a statement of DR 4-101 as contained in the American Bar Association Code of Professional Responsibility (copyright 1969 ABA), we find a statement that sets out the purposes and necessity of the Rules as follows:
"The purposes and necessities of the relation between a client and his attorney require, in many cases, on the part of the client, the fullest and freest disclosures to the attorney of the client=s objects, motives and acts. This disclosure is made in the strictest confidence, relying upon the attorney's honor and fidelity. To permit the attorney to reveal to others what is so disclosed, would be not only a gross violation of a sacred trust upon his part, but it would utterly destroy and prevent the usefulness and benefits to be derived from professional assistance. Based upon considerations of public policy, therefore, the law wisely declares that all confidential communications and disclosures, made by a client to his legal advisor for the purpose of obtaining his professional aid or advice, shall be strictly privileged;Χ that the attorney shall not be permitted, without the consent of his client,Χand much less will he be compelledΧto reveal or disclose communications made to him under such circumstances." (Emphasis Added). Citing ABA Opinion 250 (1943).
Ellis - Foster Co. v. Union Carbide and Carbon Corp., 159 F. Supp. 917 (DNJ 1958) states in part that if the dealings between lawyer and client involve more than mere technical matters, the communications between attorney and client "should be immune to discovery proceedings."

In 1959 this committee by Opinion No. 193 said:

"The loyalty owed by the attorney to his client generally controls over any duties under other Canons, in the event of conflict."

Parties registering securities with the S.E.C., and attorneys practicing before the S.E.C., are required by the Act and regulations to make and to insist upon a full and truthful disclosure of all facts pertaining to the registration. Such is a well-known part of the Act and regulations. Attorney A in this instance, however, did not participate in the registration of the drilling funds with the S.E.C. He was engaged by the client for his expertise in the oil and gas area of the law. Further, it may be argued or reasoned that the matters which Lawyer A was handling could not be in the nature of confidences or secrets because of the disclosure requirements of the Securities Act, or that there were, in fact, no confidences or secrets because of the necessity to deal with third parties in the process of the representation, and to replace certain of the documents prepared by A on record in the County Clerk's office.

It seems, however, that such arguments do not defeat the necessity of Lawyer A to preserve and protect the "confidences and secrets" of his former client, particularly in light of the fact that the former client has recognized the privilege and placed the burden squarely upon Lawyer A to preserve such in his behalf.

The determination of whether to disclose or testify or not should not be determined by the S.E.C., but by a court of law. In light of the various circumstances and highly-involved questions, A should not be required to pick and choose which questions are covered by the privilegeΧwhich questions may be covered by the ethical considerations, and which questions to which he should make full answer.

The method of approach exhibited by the S.E.C. in this instance, that is, to investigate a party by propounding questions to this attorney and then forcing the attorney to testify against his client, runs contra to the entire system of adversary jurisprudence known to the common law. Question Number 1 should be answered in the affirmative. (See "The Implications of the Revolution in Securities Regulation for Lawyers" - Business Lawyer, March, 1974.)

Under DR 4-101 (C) (1), "A" may freely testify as to his representation of the client provided the client gave express consent, or under (C) (2) "where otherwise permitted by the Disciplinary Rules, or required by law or Court order." This latter provision is not quite as easy to interpret as (C) (1). Nothing in DR 4-101 indicates that a lawyer would be permitted to disclose such confidences and secrets if it be determined that the client has waived (other than by express consent) the "privilege." There are a number of cases that hold that the evidentiary privilege as established by Article 38.10, Texas Code of Criminal Procedure, can be waived (See Hurley v. McMillan, 268 S. W. 2d 229 (Texas. Civ. App., 1954, writ ref., n.r.e.); White v. Smith, 276 S. W. 2d 359 (Tex. Civ. App., 1955, error dismissed) ).

These cases, however, do not necessarily answer the question insofar as A is concerned. In other words, the question before the Committee is: "Is a lawyer free to testify as to confidences and secrets of his client even though the client may be determined to have waived the statutory or common law privilege?" In a reading of the ABA Opinions, we find no instance where it has been determined by that Committee that a lawyer could be excused because of a "waiver" on the part of the client.

There is an expression of a waiver in Texas Opinion No. 9, which holds that the attorney would be justified in testifying about his relationship with the client in that the client had previously testified concerning same, and therefore, had waived the "privileged character of his communications." Here again, the word "privilege" is used and the ethical consideration is not referred to. If a waiver, other than an express consent by the client, is determined to have occurred, should the attorney make his own determination as to the waiver or await a judicial determination as to same. From a reading of DR 4-101, it appears that the attorneys lips are sealed even though the client may have been determined to have waived the confidentiality of the communications. If a Court orders the attorney to testify concerning such confidences and secrets, that the lawyer, being an officer of the Court, would be obligated not only to the Court but to himself to testify.

DR 4-101 (C) (4) permits a lawyer to testify as to such confidences and secrets where it is necessary to establish or collect his fee, or to defend himself -- against an accusation of wrongful conduct. At first reading, this Rule seems to be quite clear and explicit, but upon reflection, one begins to ask the following questions: Accusation by whom? What kind of accusation, i.e., A formal complaint or indictment? A mere accusation contained in pleadings in a civil suit? An oral assertion by some third party? Or by the client himself?

ABA Opinion No. 250 (1943) states that the lawyer may testify to defend himself in any litigation brought by the client against the lawyer arising out of the representation. ABA Opinion No. 202 states that the attorney may testify as to such confidences where such disclosure is necessary to protect the attorney's interest. Query: May Attorney A testify as to such confidences and secrets in the event that it is discovered that the former client has testified in this matter before the S.E.C.? In the event it should be determined that the client has so testified, is the attorney permitted to testify only in the event that such testimony is adverse to the attorney and the attorney must testify to protect his own interest?

It may be contended by the S.E.C. before the proceeding in question is terminated that the former client has perpetrated a fraud as such is defined in the Securities Exchange Act. DR 7-102 states:

"A lawyer who receives information clearly establishing that: (Emphasis Added) (1) his client has, in the course of the representation, perpetrated a fraud upon a person or tribunal shall promptly call upon his client to rectify the same, and if the client refuses or is unable to do so, he shall reveal the fraud to the affected person or tribunal."

It should be obvious to any lawyer that he cannot permit himself to become involved in a fraud upon a "person" or "tribunal", but DR 7-102 (B) indicates that the information received by the attorney must clearly establish such a fraud. What about the areas where the "fraud" is not clearly established? Must the lawyer resolve to protect his client and honor the confidentiality of the relationship at his own peril? What do the words "clearly establishing" mean? More specifically, must Lawyer A make his own determination that a fraud has occurred as to the S.E.C., and thereafter reveal the confidences and secrets and suffer the results of a suit for damages by the client in the event he is wrong; or on the other hand, honor the ethical consideration, refuse to testify and thereafter be involved in an S.E.C. fraud as an accomplice, as a party and in addition, be in violation of DR 7-102 (B) (1).

The posing of all of the questions hereinabove contained simply point up the impropriety of a tribunal calling a client's lawyer as a witness against the client. It places the lawyer in an impossible position. If such practice is permitted to continue, it could destroy the concept of attorney-client relations. Not only must the client feel free to divulge confidences and secrets to his attorney, but the attorney also should feel free to advise and consult with such client in a professional manner.

A lawyer owes a duty to his former client to preserve that client's confidence and secrets in an investigation by S.E.C. unless released by DR 4-101 (C) or DR 7-102 (B), Code of Professional Responsibility.

Tex. Comm. On Professional Ethics, Op. 378 (1974)