Can a lawyer who owns a law-related consulting business represent a client in a matter against someone who is a customer of that business?
Texas Ethics Opinion 569: Representing a Client Against a Customer of the Lawyer's Law-Related Business
Short answer: Per the Committee, a lawyer who owns a law-related consulting business may represent a client against a customer of that business if the lawyer satisfies Rule 1.06(b)(2), and where necessary Rule 1.06(c), as to the personal-interest conflict the business relationship creates.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the Texas Disciplinary Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.
Plain-English summary
A lawyer owns and is active in a law-related consulting business separate from the law practice. The business receives confidential information from its customers, agrees not to share it, and tells customers they have no client-lawyer relationship for the consulting services. The lawyer is then asked to represent a client in a matter adverse to one of the business's customers, who was never the lawyer's legal client.
The Committee starts from the premise that the rules do not bar a lawyer from running another lawful business as long as the law practice complies with the rules. The issue is conflict of interest. The lawyer is presumed to have an interest in the success of the business and in the goodwill of past and prospective customers, and that interest would normally create a conflict under Rule 1.06(b)(2), which bars representation that reasonably appears to be or become adversely limited by the lawyer's own interests. A conflict is more likely if the new representation relates to the services the business provided to that customer. The Committee stresses that the lawyer's representation of the client must be unfettered in using all information, however obtained (regardless of the lawyer's confidentiality obligations to the business customer), and free of the lawyer's personal interest in the business.
If the lawyer determines under Rule 1.06(b)(2) that there is no adverse limitation (normally only where the lawsuit is unrelated to the services provided to the customer and there is no possibility of using the customer's confidential information), the lawyer may proceed. If Rule 1.06(b)(2) does not permit it, the lawyer must then apply Rule 1.06(c): the lawyer may proceed only if the lawyer reasonably believes the representation will not be materially affected (Comment 7 bars seeking consent a disinterested lawyer would advise against) and the client consents after full disclosure suited to the client's sophistication (Comment 8). The Committee adds that if a conflict precludes the lawyer, no other lawyer in the firm may take the matter under Rule 1.06(f), because screening is not allowed outside Rules 1.10 and 1.11, citing Phoenix Founders v. Marshall and the conclusive presumption that confidences are shared within a firm.
In practice
Under this opinion, and under the Texas rules as they stood at the time, a lawyer who owns a law-related business can take a matter against one of the business's customers, but only after working through Rule 1.06(b)(2). The Committee treats the lawyer's stake in the business and its customer goodwill as a personal interest that ordinarily creates a conflict, clearable only where the matter is unrelated to the services the customer received and no confidential information from the business would be used, or where Rule 1.06(c)'s reasonable-belief and informed-consent conditions are met. If the conflict cannot be cleared, the Committee says it is imputed to the whole firm under Rule 1.06(f), and screening does not help.
Common questions
Q: I run a consulting business on the side; can I sue one of its customers for a law-practice client?
A: Possibly. Under Opinion 569, your interest in the business and its customers normally creates a Rule 1.06(b)(2) conflict, so you may proceed only if the representation is not adversely limited by that interest, or if you satisfy Rule 1.06(c).
Q: When is there no conflict at all?
A: The Committee says that conclusion is normally possible only where the lawsuit has no relation to the services provided to the business customer and there is no possibility of using the customer's confidential information in the representation.
Q: If I am conflicted, can another lawyer in my firm take the case behind a screen?
A: No. The Committee says under Rule 1.06(f) the whole firm is barred, and screening is not permitted outside Rules 1.10 and 1.11, citing Phoenix Founders v. Marshall and the conclusive presumption that firm lawyers share confidences.
Background and rules framework
The opinion interprets Texas Disciplinary Rule 1.06, corresponding to ABA Model Rule 1.7 (conflicts of interest): Rule 1.06(b)(2) (representation adversely limited by the lawyer's own interests), Rule 1.06(c) (the reasonable-belief and informed-consent cure), and Rule 1.06(f) (imputation within a firm), which relates to ABA Model Rule 1.10. The Committee relies on Comments 1, 4, 7, and 8 to Rule 1.06.
Citations and references
Rules of Professional Conduct:
- MR 1.7 (conflict of interest, current clients)
- MR 1.10 (imputation of conflicts within a firm)
- Texas Disciplinary Rule 1.06(b)(2), 1.06(c)(1)-(2), 1.06(f), Comments 1, 4, 7, 8
- Texas Disciplinary Rules 1.10 and 1.11 (screening, noted as inapplicable)
Cases:
- Phoenix Founders, Inc. v. Marshall, 887 S.W.2d 831 (Tex. 1994), conclusive presumption that confidential information is shared among all lawyers in a firm; rejection of screening to allow firm representation
See also
- TX Ethics Op. 567: A City Attorney Advising an Ethics Board That Is Investigating the City Council
- TX Ethics Op. 578: Suing a Former-Client Municipality, and Whether Screening Helps
Source
- Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-569/
- Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_569.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
QUESTION PRESENTED
Do the Texas Disciplinary Rules of Professional Conduct permit a lawyer to provide legal representation to a client in a matter against a third party who was a customer of a law-related business owned by the lawyer?
STATEMENT OF FACTS
A lawyer is an owner of and active in a business that is separate and independent from the lawyer's law practice and that provides law-related consulting services. These services are in conjunction with and in substance related to the lawyer's law practice. The law-related consulting service (the "law-related business") is not prohibited by any provision of the Texas Disciplinary Rules of Professional Conduct.
The law-related business normally receives confidential information furnished to it by the customers to whom consulting services are provided. The law-related business agrees with customers not to share customers' confidential information with third parties. Business customers are advised that they do not have a client-lawyer relationship regarding the consulting services provided.
The lawyer is asked to provide legal representation to a person (the "client") in a matter adverse to a customer of the law-related business. The customer of the law-related business was never a client of the lawyer for the provision of legal services.
DISCUSSION
The Texas Disciplinary Rules of Professional Conduct do not prohibit a lawyer from engaging in other lawful businesses provided the lawyer's law practice complies with all applicable provisions of the Texas Disciplinary Rules. It is presumed that, in the fact situation here, the customer of the law-related business is explicitly advised that legal services are not being provided to the customer and that there is no client-lawyer relationship between the customer and the law-related business.
In the circumstances presented, the lawyer must determine whether or not a conflict of interest exists in the legal representation of the client against the customer of the law-related business. The lawyer must be presumed to have an interest in the continuing success of his law-related business and in the goodwill of past and prospective customers of the business. Such an interest would normally create a conflict of interest for the lawyer in a proposed legal representation of a client against a customer of the law-related business. A conflict of interest would be much more likely if the proposed representation of the client against the customer of the law-related business was in some way related to the services that had been provided to the customer of the law-related business. Rule 1.06(b)(2) and Rule 1.06(c) provide:
"(b) In other situations and 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." These Rules require that the lawyer determine whether his representation of the client will reasonably appear to be or become adversely limited by the lawyer's interest in the success of the law-related business or his interest in relationships with actual or potential customers of the law-related business. Comment 1 to Rule 1.06 states that "[l]oyalty is an essential element in the lawyer's relationship to a client." Comment 4 to Rule 1.06 provides in pertinent part:
"Loyalty to a client is impaired not only by the representation of opposing parties in situations within paragraphs (a) and (b)(1) but also in any situation when a lawyer may not be able to consider, recommend or carry out an appropriate course of action for one client because of the lawyer's own interests or responsibilities to others. The conflict in effect forecloses alternatives that would otherwise be available to the client. Paragraph (b)(2) addresses such situations. A potential possible conflict does not itself necessarily preclude the representation. The critical questions are the likelihood that a conflict exists or will eventuate and, if it does, whether it will materially and adversely affect the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client. It is for the client to decide whether the client wishes to accommodate the other interest involved ....."
Loyalty to a client is a cornerstone of the legal profession. In this fact situation, the lawyer's representation of the client must be unfettered in the use of all information, however obtained (and without regard to any contractual or other confidentiality obligations of the lawyer to the customer of the law-related business), and free of the lawyer's personal interest in the success of the law-related business. If the lawyer determines under Rule 1.06(b)(2) that the representation of the client is permitted because in the circumstances there is no adverse limitation on the representation of the client from the fact that the representation is against the customer of the law-related business, then the lawyer may proceed with the representation. This conclusion would normally be possible only where the subject matter of the lawsuit has no relation to the services that had been provided to the customer of the law-related business and there is no possibility of use of confidential information from the business customer in the legal representation of the client.
If Rule 1.06(b)(2) does not permit the representation of the client, then the lawyer must consider under Rule 1.06(c) (1) whether the lawyer reasonably believes that the representation of the client will not be materially affected. The guideline in making this determination is set forth in Comment 7 to Rule 1.06 as follows: "... when a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved should not ask for such agreement or provide representation on the basis of the client's consent."
If the lawyer has the belief described in Rule 1.06(c)(1), the lawyer's representation of the client may proceed if, under Rule 1.06(c)(2), the client consents to the representation after full disclosure of the existence, nature, implications and possible adverse consequences of the lawyer's relationship with the law-related consulting business and the customer of that business. The disclosure and consent must take into account the level of sophistication of the client. See Comment 8 to Rule 1.06. It should be noted that these requirements apply to disclosure and consent with respect to the client of the lawyer's law practice and not to the law-related business and the customer of that business.
If a conflict of interest precludes the lawyer from representing the client in this fact situation, no other lawyer in the lawyer's law firm may accept the representation. Rule 1.06(f). It is not permitted under the Texas Disciplinary Rules to screen a conflicted lawyer except as provided in Rules 1.10 and 1.11, which are not applicable to the fact situation here addressed. The Supreme Court of Texas refused to accept the concept of a screening of a conflicted lawyer from other lawyers in a law firm (sometimes referred to as a "Chinese Wall") in order to allow representation by the law firm. That refusal is based upon the conclusive presumption that confidential information is shared among all lawyers in a firm. See Phoenix Founders, Inc. v. Marshall, 887 S.W.2d 831 (Tex. 1994).
CONCLUSION
The Texas Disciplinary Rules of Professional Conduct permit a lawyer to provide legal representation to a client in a matter against a third party who was a customer of a law-related business owned by the lawyer provided that the lawyer fully complies with Rule 1.06(b)(2) and if necessary Rule 1.06(c) as to any possible conflict of interest that arises with respect to the interests of the client.
Tex. Comm. On Professional Ethics, Op. 569 (2006)