When I leave my firm, can I take a client I worked on there and switch the matter to a contingent fee, using what I learned while at the firm?

Plain-English summary

Client hired firm ABC on an hourly basis for a lawsuit. Lawyer D, an ABC employee, had primary responsibility for the case, did most of the work, and was an attorney of record. While working on it he learned the client had a strong case. After leaving ABC (but before withdrawing as attorney of record), Lawyer D offered to handle the case on a contingent fee; the client then fired ABC and hired Lawyer D on contingency. The Committee notes that fiduciary-duty-to-the-firm questions are outside its province; it addresses only the disciplinary rules.

Because Lawyer D had a lawyer-client relationship with Client (alongside ABC) before proposing the contingent fee, he must comply with Rules 1.03 (keeping the client informed enough to make decisions), 1.05 (confidentiality), 1.06 (conflicts), and 2.01 (independent judgment and candid advice), and the Committee adds Rules 1.04 (fees) and 7.02 (communications about services). The Committee ties this to fiduciary duty: under Archer v. Griffith, when a lawyer changes a fee arrangement on a matter where the lawyer already represents the client, there is a presumption of unfairness and the lawyer bears the burden of proving the new arrangement fair and reasonable.

Applying the rules to the facts, the information Lawyer D gained at ABC (paid for by the client on an hourly basis) was used to his advantage in deciding to seek a contingent fee, and could be used to the client's disadvantage if the client would have paid less on the hourly arrangement. Lawyer D may not use confidential information to the client's disadvantage or his own advantage without the client's consent after consultation. Because Lawyer D is better positioned than the client to judge whether the case is worth more under an hourly or contingent fee, the client is entitled to independent professional judgment and candid advice; Lawyer D must fully disclose and explain these matters so the client can make an informed decision before signing any contingent fee contract, and must advise the client to seek independent advice from another lawyer where the contingent arrangement may be financially disadvantageous compared to the hourly one.

In practice

Under this opinion, and under the Texas rules as they stood at the time, a departing lawyer can keep representing a firm client and move the matter to a contingent fee, but the move is governed by the lawyer's continuing duties to that client. The Committee requires compliance with Rules 1.03, 1.04, 1.05, 1.06, 2.01, and 7.02, bars using confidential information to the client's disadvantage or the lawyer's advantage without consent, and, citing Archer v. Griffith, treats a mid-representation fee change as presumptively unfair, so the lawyer must prove fairness and, where the contingent fee may cost the client more than the hourly arrangement, advise the client to get independent advice first.

Common questions

Q: When I leave my firm, can I take a client I was handling and switch to a contingent fee?

A: Per Opinion 563, yes, but you must comply with Rules 1.03, 1.04, 1.05, 1.06, 2.01, and 7.02, because the person was already your client; the fee change is presumptively unfair under Archer v. Griffith and you carry the burden of showing it is fair and reasonable.

Q: Can I use what I learned about the case's strength to decide to take it on contingency?

A: Only with the client's informed consent. The Committee says a lawyer may not use confidential information to the client's disadvantage or the lawyer's own advantage unless the client consents after consultation.

Q: Do I have to tell the client anything special about the fee switch?

A: Yes. The Committee says you must fully disclose and explain the matter so the client can make an informed decision, and where the contingent fee may be financially worse than the hourly arrangement, you must advise the client to seek independent advice from another lawyer before signing.

Background and rules framework

The opinion interprets several Texas Disciplinary Rules: Rule 1.03(b) (communication, ABA Model Rule 1.4), Rule 1.04 (fees, ABA Model Rule 1.5), Rule 1.05 (confidentiality, ABA Model Rule 1.6), Rule 1.06 (conflicts, ABA Model Rule 1.7), Rule 2.01 (advisor, ABA Model Rule 2.1), and Rule 7.02 (communications concerning a lawyer's services). It applies the fiduciary-duty presumption of unfairness for mid-representation fee changes from Archer v. Griffith.

Citations and references

Rules of Professional Conduct:

• MR 1.4 (communication)
• MR 1.5 (fees)
• MR 1.6 (confidentiality of information)
• MR 1.7 (conflict of interest, current clients)
• MR 2.1 (advisor)
• Texas Disciplinary Rule 1.03(b), 1.04, 1.05(b)(2) and (b)(4), 1.06(b)(2) and (c), 2.01, 7.02

Cases:

• Archer v. Griffith, 390 S.W.2d 735 (Tex. 1964), presumption of unfairness when a lawyer changes a fee arrangement on a matter where the lawyer already represents the client

See also

• TX Ethics Op. 568: Sharing a Contingent Fee With a Suspended or Disbarred Lawyer
• TX Ethics Op. 590: Restrictions on a Departing Lawyer's Right to Practice

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-563/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_563.pdf

Original opinion text

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

QUESTION PRESENTED

May a lawyer who leaves employment with a law firm solicit and accept employment on a contingent fee basis from a client of the law firm on a matter for which the lawyer had performed legal services while an employee of the law firm?

STATEMENT OF FACTS

Client employed law firm ABC on an hourly fee basis to represent Client in a lawsuit. Lawyer D, employed by ABC, had primary responsibility for handling Client’s case, had done most of the work on the case, and was listed as an attorney of record in the case. In the course of his work on the case, Lawyer D obtained information indicating Client had a strong case. After terminating his employment with ABC (and before withdrawing as an attorney of record in the case), Lawyer D offered to handle Client’s lawsuit on a contingent fee basis. Client subsequently terminated the employment of ABC on the lawsuit and employed Lawyer D to handle the lawsuit on a contingent fee basis.

DISCUSSION

The inquiry involves a number of legal issues not within the province of the Committee, such as whether a fiduciary duty is owed by a lawyer to his or her employer, the scope of any such duty, whether the action of Lawyer D would constitute a violation of any such duty, and whether a lawyer may use confidential and/or proprietary information obtained in the course of representing a client to evaluate the client’s claim before accepting employment on a contingent fee basis.

Although Client initially employed ABC, under the facts presented, Client had a lawyer- client relationship with Lawyer D and with ABC while Lawyer D was employed by ABC. Since Lawyer D had a lawyer-client relationship with Client with respect to the matter before entering into a contingent fee contract with Client on the matter, Lawyer D must comply in particular with Rules 1.03, 1.05, 1.06, and 2.01 of the Texas Disciplinary Rules of Professional Conduct in his continuing representation of Client.

Rule 1.03(b) provides:

“A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”

Rule 1.05(b) provides in pertinent part:
“ Except as permitted by paragraphs (c) and (d), or as required by paragraphs (e), and (f )
a lawyer shall not knowingly:
...
(2) Use confidential information of a client to the disadvantage of the client unless the client consents after consultations.
...
(4) Use privileged information of a client for the advantage of the lawyer or of a third person, unless the client consents after consultation.

Rule 1.06(b) and (c) provide in relevant part:
“(b) ... except to the extent permitted by paragraph (c), a lawyer shall not represent a person if the representation of that person: ...(2) reasonably appears to be or become adversely limited by the lawyer’s or law firm’s responsibilities to another client or to a third person or by the lawyer’s or law firm’s own interests.

(c) A lawyer may represent a client in the circumstances described in (b) if:(1) the lawyer reasonably believes the representation of each client will not be materially affected; and
(2) each affected or potentially affected client consents to such representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any.” Rule 2.01, entitled “Advisor,” provides:

“In advising or otherwise representing a client, a lawyer shall exercise independent professional judgment and render candid advice.”

In the circumstances presented, Lawyer D must comply with each of the above Rules because Client was his client when Lawyer D solicited employment and entered into the contingent fee contract with Client. In addition, Lawyer D must in these circumstances particularly ensure compliance with Rule 1.04 “Fees” and Rule 7.02 “Communications Concerning a Lawyer’s Services.”

These rules are consistent with a lawyer’s fiduciary duties to his or her client. When a lawyer participates in changing, with respect to a matter as to which the lawyer already represents a client, a legal fee arrangement with the client, Texas courts have held that there is a presumption of unfairness or invalidity with the new fee agreement and the burden of proof is upon the lawyer to prove that the new fee arrangement is fair and reasonable. See Archer v. Griffith, 390 S.W.2d 735 (Tex. 1964). This is part of the lawyer’s disclosure obligations under Rule 1.06(c)(2), as well as the lawyer’s obligations under Rule 1.05(b), concerning use of confidential information, and under Rule 2.01, concerning the lawyer’s role as advisor

Under the facts presented, Client’s fee arrangement with ABC was on an hourly fee basis. Services paid for by Client resulted in Lawyer D’s receiving information that was useful to Lawyer D in evaluating Client’s claim and determining to seek employment from Client on a contingent fee basis. Without question, such information was used for the advantage of Lawyer D. Potentially, it could have been used to the disadvantage of Client.

If Client would have paid a lesser fee on an hourly fee basis, the information was used to the disadvantage of Client. Lawyer D, being Client’s lawyer and having access to confidential information relevant to evaluation of the merits of Client’s claim and potential recovery, cannot use that information to the disadvantage of Client or to Lawyer D’s own advantage unless Client consents after consultation.

Whether it is advantageous for Client to continue to use ABC’s services on an hourly fee basis or retain Lawyer D and pay possibly a greater fee under the contingent fee contract are factors that must be considered by Client. Lawyer D is in a better position than is Client to evaluate Client’s claim and to form a judgment about whether the legal fees would be greater if computed on an hourly fee basis or pursuant to the proposed contingent fee contract. Client is entitled to the benefit of independent professional judgment and candid advice before entering into such a contract. Lawyer D must fully disclose and explain those matters to Client so Client can make an informed decision regarding the representation prior to entering into any contingent fee contract with Lawyer D.

CONCLUSION

A lawyer leaving employment with a law firm may solicit and accept employment from a client of the law firm for whom the lawyer has rendered legal services provided that the lawyer complies with Rules 1.03, 1.04, 1.05, 1.06, 2.01, and 7.02 of the Texas Disciplinary Rules of Professional Conduct. A lawyer is not permitted to use confidential information to the disadvantage of a client or to the lawyer’s own advantage vis-à-vis a client unless the client consents after consultation. A lawyer who proposes to continue the representation of a client upon terminating his employment at a law firm, but on the basis of a contingent fee arrangement that may be financially disadvantageous to the client as compared to an hourly fee arrangement, must advise the client to seek independent advice from another lawyer before entering into the proposed contingent fee arrangement.

Tex. Comm. On Professional Ethics, Op. 563 (2005)