TX 2014-09-01

Can a Texas lawyer represent a bankruptcy debtor when one of the creditors is a current (or former) client of the lawyer in other, unrelated matters?

Short answer: Per the Committee, the representation does not violate Texas Rule 1.06 when the matters are not substantially related and the lawyer's judgment is not adversely limited, but the Fifth Circuit's current-client rule (which federal courts in Texas apply) bars suing a current client absent both clients' consent, so a lawyer who proceeds against a current-client creditor violates Rule 3.04(d); a former-client creditor is analyzed under Rule 1.09 and is generally permissible on these facts.

Disclaimer: Advisory only. Not binding precedent.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ethics opinion (PDF)

Texas Ethics Opinion 645: Representing a Debtor When a Creditor Is the Lawyer's Client in Other Matters

Short answer: Per the Committee, representing a bankruptcy debtor when a creditor is the lawyer's current client in unrelated matters does not violate Texas Rule 1.06 (the matters are not substantially related and judgment is not adversely limited), but the Fifth Circuit's current-client conflict rule, which federal courts in Texas apply, bars the representation absent both clients' consent, so proceeding violates Rule 3.04(d); where the creditor is a former client, Rule 1.09 governs and the representation is generally permissible on these facts.

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.

View original opinion

Plain-English summary

The opinion considers a lawyer asked to represent an individual debtor in a Texas bankruptcy where one of the debtor's creditors is a client the lawyer represents in other bankruptcy and non-bankruptcy matters, all unrelated to the debtor. On the stated facts, the lawyer has determined that the matters are not substantially related, the debtor's interests are not materially and directly adverse to the creditor's interests in a substantially related matter, and the representation will not be adversely limited by the lawyer's responsibilities to the creditor; the creditor has not consented.

Applying Texas Rule 1.06, the opinion concludes the representation would not violate the rule: 1.06(a) is not implicated because the lawyer is not representing the creditor in the debtor's case, and 1.06(b) is not implicated on these facts. But the opinion holds that compliance with Rule 1.06 is not the end of the analysis, because bankruptcy is within the exclusive jurisdiction of the federal courts and the conflict standards applied by federal courts in Texas (those of the Fifth Circuit) must also be considered. Under the Fifth Circuit rule, absent exceptional circumstances, a lawyer may not be adverse to a current client, even in an unrelated matter, without both clients' consent (citing In re Dresser Industries, Inc. and Hill v. Hunt). A Texas lawyer who knowingly violated that federal-court rule would violate Rule 3.04(d), which bars knowingly disobeying an obligation under the standing rules of, or a ruling by, a tribunal.

The opinion then addresses the variant where the creditor is a former, not current, client. There the Fifth Circuit current-client rule does not apply, and Rule 1.09 governs. On the stated facts the matters are not substantially related, the new representation will not question the validity of the lawyer's prior work, and there is no reasonable probability of a Rule 1.05 confidentiality violation, so Rule 1.09 is not violated. The opinion notes the Fifth Circuit's former-client standards are generally similar to the Texas rules (citing In re American Airlines, Inc.), so the representation against a former-client creditor would not violate either the Texas rules or the federal-court rules.

In practice

Under this opinion, and under the Texas rules as they stood in 2014, the distinction that controls is whether the creditor is a current client or a former client. The opinion holds that for a current-client creditor, even though Texas Rule 1.06 is not violated on these facts, the Fifth Circuit's current-client rule (applied by federal courts in Texas and enforced through Rule 3.04(d)) bars the representation without both clients' consent. For a former-client creditor, the opinion holds the analysis runs through Rule 1.09 and, where the matters are not substantially related and no confidentiality or work-validity concern arises, the representation is permissible.

Common questions

Q: Does Texas Rule 1.06 bar representing a debtor against a creditor who is the lawyer's client in unrelated matters?

A: Per Opinion 645, no, where the matters are not substantially related and the representation is not adversely limited by the lawyer's responsibilities to the creditor; Rule 1.06(a) and (b) are not implicated on those facts.

Q: So why can't the lawyer take the case anyway?

A: The opinion concludes that bankruptcy courts in Texas apply the Fifth Circuit rule, which bars adversity to a current client even in unrelated matters absent both clients' consent; knowingly violating that court rule would violate Rule 3.04(d).

Q: What if the creditor is a former client rather than a current one?

A: The opinion concludes the Fifth Circuit current-client rule does not apply and Rule 1.09 governs; on the stated facts (no substantially related matter, no work-validity challenge, no likely Rule 1.05 violation), the representation is permissible.

Background and rules framework

The opinion interprets Texas Disciplinary Rule of Professional Conduct 1.06 (current-client conflicts), Rule 1.09 (former-client conflicts), Rule 1.05 (confidential client information), and Rule 3.04(d) (knowingly disobeying an obligation under the standing rules of, or a ruling by, a tribunal). It also applies federal-court conflict standards from the Fifth Circuit. In the ABA Model Rules, the current-client conflict standard corresponds to Model Rule 1.7, the former-client standard to Model Rule 1.9, and the obligation to obey tribunal rules to Model Rule 3.4.

Citations and references

Rules of Professional Conduct:

MR 1.7 (concurrent conflicts of interest)
MR 1.9 (duties to former clients)
MR 3.4 (fairness to opposing party and counsel; obeying tribunal obligations)
Texas Disciplinary Rules 1.06(a), 1.06(b), 1.06(c), 1.09(a), 3.04(d), 1.05

Cases:

In re Dresser Industries, Inc., 972 F.2d 540 (5th Cir. 1992), current-client conflict standard
Hill v. Hunt, No. 3:07-CV-02020-O, 2008 WL 4108120 (N.D. Tex. Sept. 4, 2008), applying the current-client rule
In re American Airlines, Inc., 972 F.2d 605 (5th Cir. 1992), former-client conflict standard

Source

Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-645/
Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_645.pdf

Original opinion text

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

QUESTION PRESENTED

Is it a violation of the Texas Disciplinary Rules of Professional Conduct for a lawyer to represent an individual debtor in a bankruptcy proceeding in Texas in which one of the creditors in the proceeding is a client the lawyer currently represents in other bankruptcy and non-bankruptcy matters that do not involve the individual debtor? Would the answer be different if the lawyer represented the creditor in the past in other unrelated matters but does not currently represent the creditor?

STATEMENT OF FACTS

A lawyer is asked to represent an individual debtor in a bankruptcy filing in Texas in which one of the debtor's creditors is a client the lawyer represents as a creditor in other bankruptcy and non-bankruptcy matters, all unrelated to the debtor. The lawyer has examined the debtor's bankruptcy case and the matters in which he represents the creditor and has determined (1) that the debtor's bankruptcy case and the creditor's matters do not involve substantially related matters in which the debtor's interests are materially and directly adverse to the interests of the creditor and (2) that the lawyer's representation of the debtor will not be adversely limited by the lawyer's or his law firm's responsibilities to the creditor or to a third person or by the lawyer's or his firm's own interests. The creditor has not given consent to the lawyer's representation of the debtor in the bankruptcy case.

DISCUSSION

Rule 1.06 of the Texas Disciplinary Rules of Professional Conduct, provides in pertinent part 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:

(1) involves a substantially related matter in which that person's interests are materially and directly adverse to the interests of another client of the lawyer or the lawyer's firm; or

(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."

Rule 1.06(a) is not implicated because the lawyer will not be representing the creditor in the debtor's bankruptcy case. Rule 1.06(b) is not implicated because, in the facts presented, (1) the debtor's bankruptcy case and the bankruptcy and other matters in which the lawyer represents the creditor do not involve substantially related matters in which the debtor's interests are materially and directly adverse to the interests of the creditor and (2) the lawyer's representation of the debtor will not be adversely limited by the lawyer's or his firm's responsibilities to the creditor or to a third person or by the lawyer's or his firm's own interests. Therefore, under the facts presented, a lawyer representing the debtor in a bankruptcy case in which one of the debtor's creditors is a current client of the lawyer in other matters would not violate Rule 1.06.

The fact that a conflict of interest under Rule 1.06 of the Texas Disciplinary Rules of Professional Conduct is not presented in a bankruptcy case cannot be the end of a lawyer's considerations with respect to conflict of interest issues. Since bankruptcy cases are the exclusive jurisdiction of the federal courts, the standards concerning conflicts of interest used in federal courts in Texas, particularly with respect to disqualification, must also be considered. For bankruptcy cases in Texas, standards adopted by the United States Court of Appeals for the Fifth Circuit will apply even when these standards differ from the Texas Disciplinary Rules of Professional Conduct. For courts in the Fifth Circuit, including bankruptcy and other federal courts in Texas, the standard used in the case of conflicts of interest concerning a lawyer's current clients differs from that set forth in Rule 1.06 of the Texas Disciplinary Rules. The rule in the Fifth Circuit is that, in the absence of exceptional circumstances (which are not present in the facts considered in this opinion), a lawyer may not be adverse to a current client, except with the consent of both clients, regardless of whether the matters are substantially related and regardless of whether the representation could be expected to be adversely limited in any way by the representation of the adverse party in other matters. See In re Dresser Industries, Inc., 972 F.2d 540 (5th Cir. 1992); Hill, III, v. Hunt, No. 3:07-CV-02020-O, 2008 WL 4108120 (N.D. Tex. Sept. 4, 2008). Thus, in a bankruptcy case, a lawyer is not permitted, except with consent of both clients, to represent a debtor if one of the creditors in the case is a client that the lawyer represents in other unrelated matters even when the representation would not violate Texas Disciplinary Rule 1.06. A Texas lawyer in a bankruptcy case who knowingly violated the rule of the federal courts in Texas against representation adverse to another existing client would be violating Texas Disciplinary Rule 3.04(d), which provides, with exceptions not applicable here, that a lawyer shall not "knowingly disobey . . . an obligation under the standing rules of or a ruling by a tribunal . . . ."

In the situation here considered, if the lawyer had in the past represented the creditor, but did not currently represent the creditor in any matter, the rule of the Fifth Circuit on conflicts of interest involving current clients discussed above would not apply and Rule 1.09, rather than Rule 1.06, of the Texas Disciplinary Rules of Professional Conduct would have to be considered. Rule 1.09 provides in pertinent part as follows:

"(a) Without prior consent, a lawyer who personally has formerly represented a client in a matter shall not thereafter represent another person in a matter adverse to the former client:

(1) in which such other person questions the validity of the lawyer's services or work product for the former client;

(2) if the representation in reasonable probability will involve a violation of Rule 1.05; or

(3) if it is the same or a substantially related matter."

Under the facts considered in this opinion, the matters are not substantially related and it does not appear the bankruptcy case representation will involve either questioning the validity of the lawyer's services or work product for the former client or a reasonable probability of a violation of Rule 1.05 concerning protection of confidential client information. Therefore, in this factual situation, representing the debtor when one of the creditors is a former client would not violate Rule 1.09. The rules applied in the Fifth Circuit with respect to a lawyer's representation adverse to a former client are generally similar to the standards of the Texas Disciplinary Rules. See In re American Airlines, Inc., 972 F.2d 605 (5th Cir. 1992). Thus, under both Rule 1.09 of the Texas Disciplinary Rules and the rules applied in federal courts in the Fifth Circuit, the lawyer, in the circumstances considered, would not be prohibited from representing the debtor in a bankruptcy proceeding involving a creditor that is a former client of the lawyer.

CONCLUSION

A lawyer's representation of a debtor in a bankruptcy case in which one of the creditors is also represented by the lawyer in other unrelated matters would not violate specific provisions of the Texas Disciplinary Rules of Professional Conduct on conflicts of interest if (1) the matters do not involve substantially related matters in which the debtor's interests are materially and directly adverse to the interests of the creditor and (2) the lawyer's representation of the debtor will not be adversely limited by the lawyer's or his firm's responsibilities to the creditor or to a third person or by the lawyer's or his firm's own interests. However, absent consent of both the debtor and the creditor, the lawyer will be prohibited from the representation under the conflict of interest rule concerning representation adverse to a current client applicable to bankruptcy courts and other federal courts in the Fifth Circuit. In contrast, in a case where the creditor is a former client, if the matters involved are not substantially related and the bankruptcy case representation will not involve either questioning the validity of the lawyer's work for the former client or a likely violation of obligations concerning confidential client information, the lawyer's representation of the debtor will not violate either the Texas Disciplinary Rules of Professional Conduct or the rules generally applicable to bankruptcy courts in Texas concerning representation of a current client against a former client.

Tex. Comm. On Professional Ethics, Op. 645 (2014)