Introduction
This paper discusses current issues in ethics. It includes a discussion regarding ethical issues confronted by attorneys working as in-house counsel. It also addresses the areas of wrongful disclosure, duty to disclose controlling authority, spoilation, ex parte temporary restraining orders, and attorney disqualification.
- Ethical Issues for In-House Counsel
As in-house legal departments continue to grow, the number of ethical concerns surrounding this area of practice also increases. In-house lawyers face unique legal concerns as lawyers who are full-time employees of corporations.
- Attorneys’ Fees
In Tesoro Petroleum Corp. v. Coastal Refining & Marketing, Inc.,754 S.W.2d 764 (Tex.App.—Houston [1st Dist.] 1988, writ denied), the court of appeals held the award of attorneys fees for the work of in-house counsel did not violate public policy or the code of professional responsibility. In Campbell, Athey & Zukowski v. Thomasson, 863 F.2d 398 (5th Cir. 1989), the Fifth Circuit accepted the reasoning in Tesoro, and held the same applied to a law firm represented by one of its own attorneys.
- Insurance Staff Attorneys
In Am. Home Assur. Co., Inc. v. Unauthorized Practice of Law Committee, 121 S.W.3d 831 (Tex.App.—Eastland 2003, pet. granted), liability insurers sought a declaratory judgment against the state’s unauthorized practice of law committee to determine that the use of staff attorneys to represent insured was not the unauthorized practice of law. The trial court entered a judgment in favor of the committee and insurers appealed.
On appeal the committee contended the use of staff attorneys violated the Texas rules of professional responsibility for three reasons: “(1) no attorney can serve two masters; (2) the insurance companies’ right to control and direct staff counsel violates the lawyer’s professional code of ethics because he cannot exercise his independent judgment; and (3) therefore, the use of staff counsel should be prohibited because the employee-lawyer is subject to an irreconcilable conflict between his employer and the insured.” Id. at 835-36.
The court of appeals reversed, holding the staff attorney’s status as an employee did not create an irreconcilable conflict. It determined the question of whether the staff attorneys served one or two masters spoke only to ethical conflicts, not to whether the corporation was engaged in the unauthorized practice of law (the issue in the case).
It further held the insurance companies were not engaged in the unauthorized practice of law. It reached this conclusion although corporations may not practice law in the state of Texas, and the staff attorneys as agents of the insurance corporations practicing law on behalf of the insured.
See also, Unauthorized Practice of Law Committee v. Nationwide Mut. Ins. Co., 155 S.W.3d 590 (Tex.App.—San Antonio 2004, reh’g overr.).
- Attorney-Client Privilege
In re Valero Energy Corp., involved an action for breach of fiduciary duty involving a joint venture. Valero claimed the trial court abused its discretion by ordering the company to produce documents prepared by in house counsel that were protected by attorney-client privilege. The Court explained Valero and its fellow joint venturer were not joint clients. Therefore, Valero was “entitled to seek confidential legal advice from its in-house attorneys concerning its duties as pipeline operator, even though it owed a fiduciary duty to the joint venture.” Id. at 459.
III. Wrongful Disclosure
Texas Rule of Civil Procedure 193.3 provides that a party may withhold privileged material or information which is otherwise responsive to discovery requests provided it follows the steps for withholding laid out by subsection (a) of the rule. Subsection (d) of the rule, also known as the “snap-back provision,” applies when a party inadvertently produces privileged documents to an opposing party. Tex. R. Civ. P. 193.3(d); Warrantech Corp. v. Computer Adapters Servs., 134 S.W.3d 516, 525 (Tex.App.—Fort Worth 2004, no pet.). It allows a party to snap-back materials inadvertently produced within ten days after the producing party discovers the production was made. Comments on the rule explain that the rule focuses on the intent to waive the privilege rather than the intent to produce the material or information. Tex. R. Civ. P. 193.3(d) cmt. 4.
- Disclosure to Testifying Experts
In re Christus Spohn Hosp. Kleberg, 222 S.W.3d 434 (Tex. 2007), involved a medical malpractice action where the defendant hospital sought to recover privileged documents mistakenly provided to their designated testifying expert witness. Thus, the court was required to examine the interrelation between the snap-back provision and Texas Rule of Civil Procedure 192.3(e)(6), which provides that all material provided to a testifying expert must be produced. The court concluded: “Rules 192.3(e)(6) and 192.5(c)(1) prevail over Rule 193.3(d)’s snap-back provision so long as the expert intends to testify at trial despite the inadvertent document production.” Accordingly, once a testifying expert receives privileged documents, those documents may not be retrieved if the party who designated the expert continues to rely upon that designation for trial.
- Attorney Disqualification
In In re Parnham, —S.W.3.d—, 2006 WL 2690306 (Tex.App.—Houston [1st Dist.] Sept. 21, 2006, no pet.), a client sought a writ of mandamus to vacate the trial court’s order sanctioning his attorneys with disqualification for attempting to copy and examined privileged documents inadvertently disclosed by opposing counsel. Specifically, counsel for the defendant in the underlying action arrived to review documents responsive to a limited set of discovery requests. Staff for the producing party inadvertently left the entire litigation file in the room where the review took place. After reviewing the file and taking notes, counsel for the defendant notified the producing party’s staff of the copies they wished to order as was previously arranged. When the documents came back from the copy company the next day, counsel for the producing party realized opposing counsel had ordered his entire attorney-client correspondence file, as well as other privileged material, copied. He did not forward the documents to opposing counsel and immediately invoked privilege.
The parties attempted to reach an agreement regarding the use of the privileged information, but were unsuccessful. As a result, the producing party sought disqualification, which the trial court granted. The Court explained Rule 193.3 does not specifically restrict the use of the information, but acknowledged the information is privileged from use once the privilege is asserted. It held that “rule 193.3 does not provide authority for disqualification of counsel who review inadvertently disclosed materials during the course of discovery.”
- Waiver
In re JDN Real Estate-McKinney L.P., 211 S.W.3d 907 (Tex.App.—Dallas 2006, mandamus denied) involved a city-initiated condemnation action to acquire property through eminent domain. During the course of discovery the producing party disclosed over a hundred documents, including correspondence with attorneys handling a related matter. After receiving the documents, the requesting party discussed them with the attorneys in the related matter and producing counsel, as well as, referred to some of the documents in a hearing where the producing party was present.
The producing party only attempted to snap-back the materials when the receiving party attached one as evidence in support of its motion to dismiss four months later. The trial court allowed the producing party to snap back the documents. The receiving party moved for mandamus on grounds of waiver by undue delay, disclosure to a third party, the offensive use doctrine, and the crime-fraud exception.
Waiver via undue delay
The court of appeals recognized that the producing party did a poor job of screening documents. It noted rule 193.3 focuses on the intent to waive privilege, and that a party who fails to diligently screen documents before producing them does not waive privilege. It then refused to find waiver based on undue delay explaining the moving party’s evidence only established poor screening and did not evidence an intent to waive privilege.
Waiver via disclosure to third-parties
The court of appeals further held disclosure to the third party attorneys in the related matter did not waive privilege. It explained the attorney-client privilege is not waived if the communication is shared with a third person who has a common legal interest with respect to the subject of the communication. See In re Auclair, 961 F.2d 65, 69 (5th Cir. 1992).
Waiver via offensive-use doctrine
The offensive-use doctrine waives privilege when the party requesting discovery establishes: (1) the party asserting the privilege seeks affirmative relief; (2) the privileged material is such that, if believed by the trier of fact, in all probability would be outcome determinative; and (3) disclosure of the material is the only way the requesting party may obtain the evidence. Republic Ins. Co. v. Davis, 856 S.W.2d 158, 163 (Tex. 1993) (orig. proceeding); see also, Alford v. Bryant, 137 S.W.3d 916, 921 (Tex.App.—Dallas 2004, pet. denied). This method of waiver applies to confidential, attorney-client communications. Republic Ins., 856 S.W.2d at 164; see Alford, 137 S.W.3d at 921.
In JDN the reviewing court found the requesting party failed to produce any evidence the information could not be obtained from another source. 211 S.W.3d at 923. Consequently, it held the trial court did not abuse discretion by determining the producing party did not waive the ability to assert privilege pursuant to the offensive-use doctrine. Id.
Crime-Fraud Exception
Once a party establishes the applicability of a privilege, the burden shifts to the requesting party to establish an exception to privilege. Marathon Oil Co. v. Moye, 893 S.W.2d 585 (Tex.App.—Dallas 1994, no writ). Texas Rule of Evidence 503 provides there is not a privilege if the services of the attorney were sought or obtained to enable or aid a person to commit or plan to commit what the client knew or reasonably should have known to be a crime or fraud. Tex. R. Evid. 503(d)(1). In order to apply the exception, the moving party must establish a prima facie case of contemplated fraud, and that there is a relationship between the requested document and the prima facie proof offered. Granada Corp. v. First Court of Appeals, 844 S.W.2d 223, 227 (Tex. 1992).
The requesting party in JDN only offered general assertions alleging the elements of the crime-fraud exception were satisfied. 211 S.W.3d at 924-25. The court of appeals disagreed and held the trial court did not abuse its discretion on those grounds.
- Disclosure of Controlling Authority
Texas Disciplinary Rule of Professional Conduct 3.03(a)(4), governing candor to the tribunal provides that a lawyer shall not knowingly “fail to disclose to the tribunal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel.” Tex. Disciplinary R. Prof’l Conduct 3.03(a)(4). “Legal argument based on a knowingly false representation of law constitutes dishonesty to the tribunal.” In re Colonial Pipeline Co., Texaco Inc., 960 S.W.2d 272, 273 (Tex.App.—Corpus Christi 1997, no writ).
