Can the general counsel of an entity jointly owned by two cities be an employee of one of those cities, which pays and can fire the lawyer?

Plain-English summary

The opinion considers Entity Z, jointly owned by City A and City B and governed by a board the two cities appoint. Entity Z's general counsel is an employee of City A, which pays his salary and benefits and is reimbursed in full by Entity Z; City A may hire and fire the general counsel and applies its employment policies to him. The general counsel works full-time and exclusively for Entity Z at its headquarters, and City A does not direct his work. Sometimes what Entity Z views as best for itself differs from what City A views as best for City A, and the current practice is for the general counsel to recuse himself from such conflicts.

The Committee first addresses whether the general counsel may be paid by someone other than his client. Rule 1.08(e) permits compensation from a third party if the client consents, there is no interference with the lawyer's independent professional judgment or the client-lawyer relationship, and client information is protected under Rule 1.05; Rule 5.04(c) bars a payer from directing the lawyer's professional judgment. Because Entity Z is fully aware of the arrangement, the representation does not by itself violate the rules as long as independence is preserved and confidences maintained.

On conflicts, the Committee holds the general counsel has only one client, Entity Z, and the fact that City A pays and may fire him does not by itself create an impermissible conflict. It analogizes to its Opinion 533 recognizing that a lawyer may be employed by an insurer to represent insureds if the lawyer has no conflict, exercises independent judgment, and the client knows who employs the lawyer. When a significant divergence of interest arises between Entity Z and City A, Rule 1.06(b)(2) asks whether the representation reasonably appears adversely limited by the employment relationship; if so, Rule 1.06(c) permits continued representation only if the lawyer reasonably believes the representation will not be materially affected and the entity consents after full disclosure. Quoting Comment 7, the Committee adds that where a disinterested lawyer would conclude the client should not agree, the lawyer should not seek consent.

In practice

Under this opinion, and under the Texas rules as they stood at the time, an entity's general counsel may be employed, paid, and terminable by one of the entity's two city owners without that fact alone creating an impermissible conflict, provided the requirements of Rule 1.08(e) are met: the client entity consents, the lawyer's independent professional judgment and the client relationship are not impaired, and client information is protected under Rule 1.05, with Rule 5.04(c) barring the payer from directing the lawyer's judgment. The opinion holds that when the entity's interests and the employing city's interests diverge on a matter so that the representation reasonably appears adversely limited under Rule 1.06(b)(2), the lawyer may represent the entity in that matter only if he reasonably believes the representation will not be materially affected and the entity consents after full disclosure under Rule 1.06(c), and per Comment 7 should not seek consent where a disinterested lawyer would advise against it.

Common questions

Q: Can a jointly-owned entity's lawyer be on one owner's payroll?

A: Per Opinion 633, yes. The Committee concludes that being paid by City A (and reimbursed by Entity Z) does not by itself create an impermissible conflict, provided the Rule 1.08(e) conditions are met: the entity consents, independent judgment and the relationship are not impaired, and confidences are protected.

Q: Who is the lawyer's client, the entity or the city that pays him?

A: The Committee holds the general counsel has only one client, Entity Z. The source of payment does not change that, so long as the lawyer's independent judgment is not compromised and the client knows who employs and pays the lawyer.

Q: What happens when the entity's interests conflict with the employing city's?

A: The opinion applies Rule 1.06(b)(2) and (c): if the representation reasonably appears adversely limited by the employment relationship, the lawyer may continue only if he reasonably believes the representation will not be materially affected and the entity consents after full disclosure. Comment 7 says he should not seek consent where a disinterested lawyer would advise against agreeing.

Q: Can the employing city direct the lawyer's legal work for the entity?

A: No. Rule 5.04(c) bars a person who employs or pays the lawyer to serve another from directing or regulating the lawyer's professional judgment; the opinion notes City A does not direct the general counsel's work.

Background and rules framework

The opinion interprets Texas Disciplinary Rule 1.08(e) (a lawyer may accept compensation from a third party only with client consent, no interference with independent judgment, and protection of client information; ABA Model Rule 1.8(f)) and Rule 5.04(c) (a payer may not direct the lawyer's professional judgment; ABA Model Rule 5.4(c)), together with Rule 1.06 (conflicts of interest; ABA Model Rule 1.7) and its Comment 7, and references Rules 1.01(b) and 1.05.

Citations and references

Rules of Professional Conduct:

• MR 1.8(f) (compensation from a third party); MR 5.4(c) (payer not directing judgment); MR 1.7 (conflicts)
• Texas Disciplinary Rules 1.08(e), 5.04(c), 1.06, 1.01(b), 1.05

Other opinions cited:

• Texas Professional Ethics Committee Opinion 533 (November 2008): a lawyer employed by an insurer may represent insureds if there is no conflict, the lawyer exercises independent judgment, and the client knows who employs the lawyer

See also

• TX Ethics Op. 687: Insurance Staff Counsel Compliance With Litigation Guidelines
• TX Ethics Op. 668: Insurance Staff Attorney and a Co-Insured's Statement
• TX Ethics Op. 659: Lawyer for the Insured, Then the Insurer Against Another Insured

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-633/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_633.pdf

Original opinion text

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

QUESTION PRESENTED

Is it permissible under the Texas Disciplinary Rules of Professional Conduct for the general counsel of an entity jointly owned by two cities to be an employee of one of the cities?

STATEMENT OF FACTS

City A and City B jointly own Entity Z, which operates a facility of interest to both cities and which is governed by a board consisting of members appointed by the governing bodies of the two cities. The general counsel of Entity Z is an employee of City A, which pays the salary and benefits of the general counsel and is reimbursed in full by Entity Z after approval by the Entity Z board. Under the agreement between the cities, City A has the right to hire and fire the general counsel of Entity Z, and the general counsel, as an employee of City A, is subject to City A's policies on employment matters, including leave and vacation time. Similarly, City B employs a lawyer to serve as assistant general counsel of Entity Z and pays the salary and benefits of the assistant general counsel, which are reimbursed in full by Entity Z after approval by the Entity Z board. Under the agreement between the cities, when outside counsel is hired, City A must approve the budget for the outside counsel and City A has the right to veto the choice of outside counsel. The general counsel has his office at Entity Z's headquarters and provides full-time legal services exclusively for Entity Z. City A does not direct the work of the general counsel. In some situations, what Entity Z believes to be best for Entity Z is contrary to what City A believes to be best for City A. The present solution for these conflicts is for the general counsel to recuse himself from situations that involve a conflict between City A and Entity Z.

DISCUSSION

The first issue raised is whether Entity Z's general counsel can accept compensation from someone other than Entity Z. This question is addressed by Rule 1.08(e) of the Texas Disciplinary Rules of Professional Conduct, which provides as follows:

"A lawyer shall not accept compensation for representing a client from one other than the client unless:

(1) the client consents;

(2) there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and

(3) information relating to representation of a client is protected as required by Rule 1.05."

In addition, Rule 5.04(c) provides that "[a] lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services."

Under the facts presented, Entity Z is fully aware of how the general counsel is employed and compensated. Provided that there is no interference with the general counsel's independence of professional judgment or with the client-lawyer relationship between the general counsel and Entity Z and provided that the confidentiality of the information relating to the representation is maintained, the general counsel's representation of Entity Z does not in and of itself violate the Texas Disciplinary Rules of Professional Conduct.

In these circumstances, when there arises a significant difference of interest between Entity Z and City A on a matter, the difference may create a conflict of interest for the general counsel. Rule 1.06 specifies how a lawyer is required to handle a conflict of interest. As relevant to the circumstances here considered, Rule 1.06 provides as follows:

"(a) A lawyer shall not represent opposing parties to the same litigation.

(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."

In the factual situation considered, the general counsel has only one client, Entity Z. The Committee is of the opinion that the fact that the general counsel is paid, and may be fired, by City A does not in and of itself create an impermissible conflict of interest with respect to the general counsel's representation of Entity Z. This Committee has recognized that the source of payment of a lawyer's fees does not result in an impermissible conflict of interest so long as the lawyer's exercise of independent judgment is not compromised and the client is aware of the source of the lawyer's fees. For example, in Professional Ethics Committee Opinion 533 (Nov. 2008), this Committee, relying in part on Rules 1.01(b), 1.06, 1.08(e) and 5.04(c) of the Texas Disciplinary Rules, recognized long-standing Texas precedent that a lawyer may be employed by an insurance company to represent the company's insureds provided that the lawyer does not have a conflict of interest with regard to the particular insured or matter, that the lawyer is able to exercise independent judgment, that the client is aware of who employs the lawyer and that the lawyer carries out the obligations the lawyer owes to the client. Similarly here, the fact that City A pays the salary and benefits of the general counsel and is reimbursed by Entity Z for the cost of the general counsel's salary and benefits does not in and of itself create an impermissible conflict of interest.

In assessing the application of Rule 1.06 to the situation here considered, the initial issue here is whether under Rule 1.06(b)(2) the general counsel's representation of Entity Z in a matter reasonably appears to be adversely limited by the general counsel's employment relationship with City A. If the general counsel's representation in a matter appears to be so limited, then the exception provided by Rule 1.06(c) must be considered. In these circumstances, Rule 1.06(c) will permit the general counsel to represent Entity Z in the matter only if each of two requirements is met: (1) the general counsel reasonably believes that the representation of Entity Z will not be materially affected by the fact that City A is the general counsel's employer and (2) Entity Z consents to the representation in the matter after full disclosure of the "existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any." Thus the general counsel should seek the consent of Entity Z under Rule 1.06(c)(2) only if he reasonably believes that representation of Entity Z will not be materially affected by the general counsel's relationship to City A. Comment 7 to Rule 1.06 makes clear that "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."

CONCLUSION

Under the Texas Disciplinary Rules of Professional Conduct, the general counsel for an entity jointly owned by two cities may be an employee of one of the cities provided that the client entity consents, there is no interference with the lawyer's independence of professional judgment or with the lawyer's relationship with the entity, and information relating to representation of the entity is protected as required by the Texas Disciplinary Rules. When matters arise where the interests of the entity and the city employing the general counsel are divergent and the general counsel's representation of the entity in the matter appears to be adversely limited by the general counsel's interest as an employee of the city, the general counsel is permitted to represent the entity in the matter only if the general counsel reasonably believes that the representation will not be materially affected and the entity consents after full disclosure.

Tex. Comm. On Professional Ethics, Op. 633 (2013)