A lawyer’s duty to disclose potential conflicts was tested in a couple recent cases. These cases involved lawyer-judge relationships that could impact the lawyer’s ability to zealously represent her client. This article explores the duty to disclose from the lawyer’s perspective and highlights the potential grievance and malpractice consequences when that duty is breached.
Two years ago, a federal court ordered a fee forfeiture of $21,230.61 due to a lawyer’s “clear and serious breach of duty to his client.” But that $21,000 forfeiture pales compared to the $1,200,000 malpractice judgment entered against the same lawyer.
In an even more recent and ongoing case, one of the nation’s busiest and most esteemed bankruptcy judges resigned because of events involving the failure to disclose a personal relationship that has ensnared one of Texas’ biggest law firms along with another large national law firm. Tens or hundreds of corporate bankruptcies lie in the balance.
What were the (alleged) transgressions leading to these monumental judgments and events? One lawyer and one judge, in each case, who failed to disclose a close relationship with each other–one business and one romantic.
The forfeiture case began as a divorce, but some companies intervened to protect interests they believed they had. One of those companies hired a lawyer who had a partnership with the presiding judge–they had formed an entity together for the practice of law. The lawyer never disclosed that fact to his client, and the judge never disclosed that fact to the litigants. Both claimed that the partnership was only on paper and that they had not in fact practiced law together so no disclosure was required. Other litigants disagreed and successfully moved for the judge’s disqualification. That wasn’t the end of the matter, however. The new presiding judge vacated all the rulings of the conflicted judge, which wiped out years of prior litigation, costing the lawyer’s client substantial funds.
The bankruptcy matter arose from a romantic relationship between the judge and one of the lawyers who routinely appeared before him. The allegations claim that they were not married but were living together, and had been for years while the lawyer worked for a major Texas firm with frequent appearances before the judge and then later in her own solo practice. Neither disclosed the relationship, reportedly believing that because they were not married, no disclosure was required. Nevertheless, the judge has resigned and the major Texas law firm, a national law firm which often partnered with the Texas firm on cases, scores of clients, and other bankruptcy judges are scrambling to figure out how this affects both already decided and pending cases.
By displaying the expensive consequences attending a failure to disclose, these high profile cases raise important questions regarding lawyers’ duty to disclose. Some disclosures are obvious under the TDRCP, but others, like those in the cases discussed above, aren’t quite so obvious yet still resulted in substantial lost time and money.
To Disclose–the Obvious
The TDRPC sets out some obvious disclosure rules arising from our duty of loyalty to our clients. If we are seeking a client’s informed consent to a representation despite an apparent conflict, Rule 1.06(c)(2) and comment 8 require “full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any.” Importantly, the client’s sophistication will dictate the extent of the disclosure required: “Disclosure sufficient for sophisticated clients may not be sufficient to permit less sophisticated clients to provide fully informed consent.” One client’s unwillingness to allow the disclosure necessary to obtain the other client’s consent could jeopardize an attorney’s ability to represent one or both parties in the matter.
Under Rule 1.09, a disclosure issue also arises when a current client’s matter is substantially related to the representation of a former client, especially when the former client’s confidential information could be used to that client’s disadvantage or to the advantage of others. Comments 8 and 9 note that some courts will disqualify lawyers where there is the possibility confidences obtained in a prior representation could be useful in the representation of a current client. The comments notes that the risk of disqualification “is a matter that could be of substantial importance to the present client in deciding whether or not to retain or continue to employ a particular lawyer or law firm as its counsel. Consequently, a lawyer should disclose those possibilities, as well as their potential consequences for the representation, to the present client as soon as the lawyer becomes aware of them; and the client then should be allowed to decide whether or not to obtain new counsel.” Notably, a client can consent to the representation but “only if there is consent after disclosure of the relevant circumstances, including the lawyer’s past or intended role on behalf of each client, as appropriate.”
To Disclose–the Not-so Obvious
The previous examples are relatively clear, but when might disclosure be required yet not expressly spelled out in the TDRPC?
What if spouses work for different law firms and each firm represents clients who are adverse in litigation? Opinion 666 identifies a potential conflict but acknowledges that its effect on the representation is heavily fact dependent. But for this article, the question is whether the lawyers should disclose this issue to their clients. Under Rule 1.06(b)(2), a conflict arises when a lawyer’s own interests (like spousal harmony at home) adversely limit his ability to represent his client. The Committee advises in Opinion 666 that disclosure may be the better course of valor even if no conflict exists. This makes sense, especially if you put yourself in your client’s shoes–how does the client know with certainty that you’re zealously representing her interests when she also knows that you have to go home at night to someone working on the other side?
So what about the two cases introduced above? Must a lawyer disclose a business partner or romantic partner (but not spousal) relationship with the judge presiding over that lawyer’s case? Does the lawyer who has formed a legal entity (partnership) with the judge have to disclose that relationship? Does the lawyer who is romantically involved have to disclose?
The judge-as-business-partner case ended in a $1.2 million dollar malpractice jury verdict against the lawyer (he appealed but later dismissed). It also resulted in a fee forfeiture upon the court’s finding that the lawyer’s conflict of interest resulting in the disqualification was a clear and serious breach of his duty to his client.
The judge-as-romantic-partner case is ongoing. It has, thus far, resulted in the judge stepping down from the bench. His partner and her former law firm, along with many other firms, have spent countless hours and money trying to sort through all the potential consequences. The final tally on the firms and the justice system could be enormous in time wasted and money spent.
All of the obvious and not-so-obvious cases demonstrate that lawyers must err on the side of disclosure. If there’s even a remote possibility that the lawyer’s own judgment could be skewed because of a relationship, that lawyer’s client deserves to have the opportunity to decide if the representation should begin, or continue, so long as the TDRCP doesn’t otherwise require the lawyer to withdraw. Failing to disclose can result in both a grievance and a civil malpractice lawsuit.