Can a law firm keep representing a bank in all its matters while suing another bank, once a single holding company comes to own both banks?

Plain-English summary

A law firm represented Bank A on virtually all matters while also representing a client suing Bank B. During both engagements, a bank holding company that already owned Bank B acquired the stock of Bank A. The inquiry asked whether the firm could continue representing Bank A while prosecuting the suit against Bank B, assuming the DR 5-105(C) exceptions did not apply, and whether the answer changed if some of Bank A's directors also sat on the holding company's board.

The Committee analyzed the situation under DR 5-105(B), which bars continuing multiple employment where the lawyer's independent professional judgment for one client is or is likely to be adversely affected by representation of another. It reasoned that, with the holding company owning controlling interests in both banks, the holding company was effectively the real party defendant in the suit against Bank B and the real party client in the continuing representation of Bank A. In practical effect the firm was representing the holding company on a continuing basis while suing it at the same time, and the firm's continued representation of Bank A could be ended at any time at the holding company's will. On those facts, the Committee concluded the firm's independent judgment for the client suing Bank B was likely to be adversely affected.

The Committee concluded that the firm could not properly continue both engagements; representing Bank A in matters unrelated to the Bank B suit might be possible, but both could not continue together. Whichever engagement the firm kept had to comply strictly with DR 4-101 on the preservation of client confidences and secrets, on the assumption that the retained engagement would not be substantially related to the other. The Committee added that Bank A's directors also serving on the holding company's board made the conflict more obvious but was not necessary to its conclusion. The vote was 9-0.

Currency note

This opinion was issued in 1984, under the former Texas Code of Professional Responsibility, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. The Disciplinary Rules have since been amended, and Texas never adopted the ABA's Ethics 2000 framework. The current Texas rules on conflicts of interest are in Rules 1.06-1.09, and on confidentiality in Rule 1.05, with closest ABA analogs Model Rules 1.7, 1.9, and 1.13 and Model Rule 1.6. Subsequent rule changes 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: Could the firm keep representing Bank A while suing Bank B after one holding company owned both?

A: Per the opinion, no. The Committee concluded the firm could not continue both engagements, because in practical effect it was representing and suing the same holding company, and its independent professional judgment for the client suing Bank B was likely to be adversely affected under DR 5-105(B).

Q: Could the firm keep one of the two engagements?

A: The Committee concluded the firm could keep only one. It could continue representing Bank A in matters not involving the Bank B suit, or continue the suit against Bank B, but not both; whichever it retained had to comply strictly with DR 4-101 on client confidences.

Q: Did it matter that Bank A's directors also sat on the holding company's board?

A: The Committee concluded that overlap made the conflict more obvious but was not necessary to its conclusion; it reached the same result on the ownership facts alone.

Background and rules framework

The opinion interprets DR 5-105(B) of the former Texas Code of Professional Responsibility (barring continued multiple employment where the lawyer's independent professional judgment for one client is or is likely to be adversely affected), DR 5-105(C) (the consent-and-disclosure exception, assumed inapplicable here), and DR 4-101 (preservation of client confidences and secrets), informed by Canon 5 and EC 5-15 and EC 5-16. The closest current concepts are Texas Rules 1.06-1.09 and 1.05 and Model Rules 1.7, 1.9, 1.13, and 1.6. The analysis turns on treating the common holding company as the effective client and adverse party.

Citations and references

Rules of Professional Conduct:

• MR 1.7 (conflict of interest, current clients)
• MR 1.9 (duties to former clients)
• MR 1.13 (organization as client)
• DR 5-105(B), DR 5-105(C), DR 4-101, Canon 5, EC 5-15, EC 5-16, Texas Code of Professional Responsibility

Other opinions cited:

• Texas Professional Ethics Committee Opinions 59, 65, 105, 123, 197, 219, 288: prior conflict-of-interest opinions distinguished or compared

See also

• TX Ethics Op. 448: Representing Both Seller and Buyer in a Real-Estate Transaction
• TX Ethics Op. 447: Firm Representing Co-Defendants When a Member Is a Known Witness
• TX Ethics Op. 445: Of-Counsel Lawyer Representing a Client Against the Firm's Partners

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-423/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_423.pdf

Original opinion text

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

QUESTION PRESENTED

The inquiry concerns CONFLICT OF INTEREST .
Can the law firm continue its representation of Bank A while prosecuting the cause of action against Bank B without violating the Disciplinary Rules?; and
Would the answer to question 1 be different if some of the corporate directors of Bank A sit on the Board of Directors of the Bank Holding Company?
As respects both inquiries, we are asked to assume that the exceptions provided for in DR 5-105(C) do not exist, and we make such assumption.

STATEMENT OF FACTS

Law firm is representing Bank A on virtually all matters. The same law firm is representing a client who is suing Bank B. While the representation of Bank A is continuing, and while the suit against Bank B is continuing, a Bank Holding Company, which already owns Bank B, acquires the stock of Bank A.

DISCUSSION

The Code of Professional Responsibility in Disciplinary Rule 5-105(B) states: "A lawyer shall not continue multiple employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, except to the extent permitted under DR 5-105(C)."

Canon 5 states: "A lawyer should exercise independent professional judgment on behalf of a client."

EC 5-15 states: "If a lawyer is requested to undertake or to continue representation of multiple clients having potentially differing interests, he must weigh carefully the possibility that his judgment may be impaired or his loyalty divided if he accepts or continues the employment. He should resolve all doubts against the propriety of the representation. A lawyer should never represent in litigation multiple clients with differing interest; and there are few situations in which he would be justified in representing in litigation multiple clients with potentially differing interests. If a lawyer accepted such employment and the interests did become actually differing, he would have to withdraw from employment with likelihood of resulting hardship on the clients; and for this reason it is preferable that he refuse the employment initially. On the other hand, there are many instances in which a lawyer may properly serve multiple clients having potentially differing interests in matters not involving litigation. If the interests vary only slightly, it is generally likely that the lawyer will not be subjected to an adverse influence and that he can retain his independent judgment on behalf of each client; and if the interests become differing, withdrawal is less likely to have a disruptive effect upon the causes of his clients."

EC 5-16 states: "In those instances in which a lawyer is justified in representing two or more clients having differing interests, it is nevertheless essential that each client be given the opportunity to evaluate his need for representation free of any potential conflict and to obtain other counsel if he so desires. Thus, before a lawyer may represent multiple clients, he should explain fully to each client the implications of the common representation and should accept or continue employment only if the clients consent. If there are present other circumstances that might cause any of the multiple clients to question the undivided loyalty of the lawyer, he should also advise all of the clients of those circumstances."

This committee has written several prior opinions on conflict of interest questions, although the situation presented here has not been previously addressed.

The fact situations in Opinions 59, 65, 105, 197, 219, and 288 are instances where individual attorneys or members of the same law firm are involved in representing clients who have conflicting interests with respect to one specific matter, i.e., the settlement of an estate, a personal injury suit, a divorce proceeding, a claim before a governing body, and a partnership dispute.

In a fact situation more comparable to this inquiry, the Committee in Opinion 123 found "a very close question," and could not reach consensus for the same reasons, although concluded that it would look with misgivings upon the action of an attorney in trying to represent a client in one case and sue him in another.

In this inquiry, the facts differ from those considered in Opinion 123 in that the law firm represents Bank A in virtually all matters and, therefore, maintains a continuing and constant relationship with Bank A, and is also representing a client who is suing Bank B. The question of conflict of interest arises when the Holding Company which owns Bank B acquires Bank A. The question is whether the law firm's continuing representation of Bank A, now owned by the Holding Company, will, or is likely to, adversely affect the exercise by the lawyers of the law firm of independent professional judgment in behalf of the client who is suing Bank B, which is also owned by the same Bank Holding Company.

We assume, as is generally the case, that the Bank Holding Company owns all, or a controlling interest in, the stock of Bank B, and all, or a controlling interest in, the stock of Bank A. The Holding Company which effectively owns Bank B appears to be the real party Defendant in the suit by the law firm's client against Bank B, and recovery against Bank B would obviously affect the owner of Bank B, to-wit, the Holding Company. The Holding Company which now effectively owns Bank A is the real party client of the law firm in its continued representation of Bank A in virtually all matters. In effect and practicality, the law firm is representing the Holding Company on a continuing or repetitive basis and suing it at the same time. It appears that continued representation by the law firm of Bank A be effectively ended at any time at the will of the owner of Bank A, the Holding Company.

We believe that the situation is such that the exercise of independent professional judgment on behalf of the client suing Bank B is likely to be adversely affected by the continuing representation of Bank A by the law firm.

Continued representation of Bank A in matters not involving the suit against Bank B, may possibly be proper, but both are not proper. Ethical problems may arise should the law firm choose which it shall desire to continue to represent, and such decision should not be made on personal or selfish grounds, but in consideration of maintaining and improving the legal system.

We further believe that, even if the law firm withdraws, as may be required and permitted by the Disciplinary Rules from representation of the client in the suit against Bank B, its continued representation of Bank A in virtually all matters must be in strict compliance with DR 4-101 respecting preservation of confidences and secrets of a client, and must be conditioned upon the taking of no part whatsoever, directly or indirectly, by the law firm on behalf of any party in the suit against Bank B, or any matter connected therewith. In reaching this conclusion, we have assumed that the continuing representation by the law firm of Bank A in virtually all matters will not in the future be substantially related in any way to the suit against Bank B brought by the client.

We further believe that if the law firm ceases to represent Bank A, its continued representation of the client in the suit against Bank B must be in strict compliance with DR 4-101. In reaching this conclusion, we have assumed that the continued representation of client in the suit against Bank B will in the future not be substantially related in any way to its prior representation of Bank A.

The matter of Bank A's Directors being also on the Board of Directors of the Holding Company makes even more obvious the conflict of interest, but we have reached our decision without such fact being necessary or pertinent to our conclusion.

The law firm should not continue its representation of both Bank A and a client in a suit against Bank B where both Bank A and Bank B are owned by the same Holding Company. To do so under the facts presented would contravene DR 5- 105(B).

If the law firm ceases to represent the client in the suit against Bank B, but continues its representation of Bank A, it must be in strict compliance with DR 4-101 and the Ethical Considerations of the Code of Professional Responsibility.

If the law firm ceases to represent Bank A, and continues its representation of the client against Bank B, it likewise must be in strict compliance with DR 4-101 and the Ethics Considerations of the Code of Professional Responsibility. (9-0)

CONCLUSION

The law firm should not continue its representation of both Bank A and a client in a suit against Bank B where both Bank A and Bank B are owned by the same Holding Company. To do so under the facts presented would contravene DR 5- 105(B).

If the law firm ceases to represent the client in the suit against Bank B, but continues its representation of Bank A, it must be in strict compliance with DR 4-101 and the Ethical Considerations of the Code of Professional Responsibility.

If the law firm ceases to represent Bank A, and continues its representation of the client against Bank B, it likewise must be in strict compliance with DR 4-101 and the Ethics Considerations of the Code of Professional Responsibility. (9-0)

Tex. Comm. On Professional Ethics, Op. 423 (1984)