ETHICAL ISSUES SURROUNDING CLIENT REPRESENTATION

Written by:

GARY FRISCHLING and

JAMIE LUND Irell & Manella LLP

Los Angeles, California

JERRY SELINGER Morgan, Lewis & Bockius LLP

Dallas, Texas

Presented by:

GARY FRISCHLING

JERRY SELINGER

DOUGLAS A. CAWLEY McCool Smith, P.C.

Dallas

State Bar of Texas 4th Annual Advanced Patent Litigation Course

July 31-August 1, 2008 San Diego, California

Chapter 7

GARY FRISCHLING

Background

Gary Frischling is a partner in the Los Angeles office of Irell & Manella LLP. Mr. Frischling has served as co-chair of the firm’s intellectual property department and as a member of the firm’s executive committee. Mr. Frischling received his J.D. from the UCLA School of Law and a B.S. in Electrical Engineering and Computer Sciences from the University of California at Berkeley. He is also a registered patent attorney.

The majority of Mr. Frischling’s practice involves complex, high-stakes patent and technology litigation involving a wide variety of technologies from microprocessors and computer software to new drugs, medical devices, and biotechnology. His clients are also quite diverse, ranging from Fortune 10 companies to start-ups. Representative clients include Texas Instruments, St. Jude Medical, Elan Pharmaceutical, Santarus, Inc., and Stamps.com.

Professional Recognition Mr. Frischling has been selected for inclusion in The Best Lawyers in America for both 2007 and 2008 in the specialty area of intellectual property law and named to the Southern California "Super Lawyers" list by Los Angeles Magazine in 2006, 2007, and 2008. Mr. Frischling has also been recognized by Legal 500 in its 2007 Legal 500 US Volume III - Patent Litigation: Hi-Tech/Electronics. In 2008, the Los Angeles and San Francisco Daily Journal named Mr. Frischling one of "Fifty Leading IP Litigators in California."

Mr. Frischling also speaks and writes frequently on topics related to intellectual property law and practice.

Representative Matters

The following is a list of selected litigation matters for which Mr. Frischling has had primary responsibility:

• Microprocessor Enhancement Corp. v. Texas Instruments, Inc. – Mr. Frischling represented Texas Instruments in this case in the Central District of California. Microprocessor Enhancement Corporation is a subsidiary of patent holding and enforcement company Acacia Research. Acacia is one of the country's largest and most aggressive serial files of patent litigation, claiming to control some 60 separate patent portfolios. Acacia sued Texas Instruments for patent infringement, asserting that the architecture of TI's high-performance C6000 line of digital signal processing chips infringed Acacia's patent. Acacia sought over $94 million in damages and a permanent injunction against future sales of these products. Mr. Frischling and his colleagues obtained a complete victory for TI. Following the close of discovery, Chief Judge Alicemarie H. Stotler ruled in TI's favor on summary judgment, finding

that TI did not infringe the Acacia patent, that all claims of the patent are invalid, and that TI should recover its litigation costs. MEC appealed this decision and Mr. Frischling argued the case before the United States Court of Appeals for the Federal Circuit. On April 1, 2008, the Federal Circuit affirmed the judgment of non-infringement in favor TI, in a published decision.

• Cardiac Pacemakers, Inc. v. St. Jude Medical, Inc./Guidant Corp. v. St. Jude Medical, Inc. – Mr. Frischling represented Pacesetter, Inc., and St. Jude Medical in this patent infringement case in Delaware. Pacesetter is a subsidiary of St. Jude that designs, develops, and manufactures Implantable Cardioverter Defibrillators (ICDs) and other devices for treating heart problems such as life-threatening ventricular arrhythmias and congestive heart failure. ICDs continually monitor the rhythms of the heart and, when necessary, can deliver a life-saving electrical jolt. Following a hearing on summary judgment and claim construction issues in March 2007, the case was settled successfully.

• Santarus, Inc. v. TAP Pharmaceuticals – Mr. Frischling represented Santarus, Inc., a startup pharmaceutical company, in an arbitration against TAP (Takeda Abbott Pharmaceuticals) in a license agreement involving its blockbuster drug lansoprazole (marketed as Prevacid, with over $2.5 billion in sales in 2004). After a two-day trial the arbitrator awarded Santarus the entire relief it sought, plus attorneys fees and interest.

• Intergraph Hardware Technologies Co., Inc. v. Hewlett-Packard Co. – Mr. Frischling represented Hewlett-Packard in this case in the Eastern District of Texas involving patents relating to multi-processor computer server systems. The plaintiff alleged that HP’s high-end server systems, representing $2 billion a year in revenues, infringed the patents. Following a very favorable claim construction ruling, the case was successfully settled before trial.

• Townshend Intellectual Property, L.L.C. v. Cisco Systems, Inc. – Mr. Frischling served as lead counsel for Cisco in this complex multi-party lawsuit involving eight patents that allegedly cover substantially all dial-up modems in use today. After several years of litigation, the case was favorably settled at the close of discovery.

• Pitney Bowes Inc. v. Stamps.com Inc./Stamps.com Inc. v. Pitney Bowes Inc. – Mr. Frischling was lead counsel representing Stamps.com in this multi-faceted litigation against Pitney Bowes involving technology for delivering postage, or other evidence of value, over the internet. The case involved over a dozen patents asserted in four lawsuits, pending at various times before three different courts. Following favorable Markman and summary judgment rulings in the two lead cases, a successful global settlement was reached.

• Novartis Consumer Health, Inc. v. Elan Transdermal Technologies, Inc. – Mr. Frischling represented Elan in connection with litigation involving transdermal nicotine patches. The matter was successfully settled before trial.

• Bayer AG v. Elan Pharmaceutical Research Corp. – Mr. Frischling obtained a summary judgment in favor of our client, Elan, in a lawsuit involving the first

generic alternative to Bayer’s $400 million per year blood pressure drug Adalat CC. The decision was affirmed by the Court of Appeals for the Federal Circuit.

• Sonus Pharmaceuticals, Inc. v. Molecular Biosystems, Inc. – Mr. Frischling was lead counsel for Sonus in this multi-patent suit involving a novel injectable ultrasound contrast agent. Following highly favorable rulings on claim construction and summary judgment motions, the case was successfully settled.

• Centillion Data Systems, Inc. v. AT&T Corp. – Mr. Frischling represented AT&T Corp. in a patent infringement case involving telecommunications billing software. The matter was settled successfully before trial.

JERRY R. SELINGER Partner Morgan, Lewis & Bockius, LLP 1717 Main Street, Suite 3200 Dallas, Texas 75201 214.466.4109 PRACTICE CONCENTRATION AND EXPERIENCE SUMMARY Mr. Selinger’s practice focuses on litigation of intellectual property and related matters at the trial and appellate levels. He has a wide range of trial and appellate experience in both federal and state courts throughout the United States. EDUCATION George Washington University (J.D. with highest honors, 1975) Columbia University (M.S., 1971) S.U.N.Y. at Buffalo (B.S. cum laude, in Egn. Sci. 1969) HONORS AND AWARDS - Listed in, among other publications, The Best Lawyers in America, Chambers USA, Who’s Who

in American Law and Who’s Who in America. - Chair Award, State Bar of Texas, Intellectual Property Law Section (1999) - President’s Award, Texas Young Lawyers Association (1986) - Board Certified, Civil Appellate Law, Texas Board of Legal Specialization - Fellow, American Intellectual Property Law Association - Sustaining Life Fellow, Texas Bar Foundation - Sustaining Life Fellow, Dallas Bar Foundation - Fellow, American Bar Foundation PROFESSIONAL ACTIVITIES - American Intellectual Property Law Association: Board of Directors (2002-2005) (currently vice-

chair Membership Committee, member amicus committee) - State Bar of Texas, Chair, Intellectual Property Law Section (1996-97) - State Bar of Texas, Board of Directors (1998-2001) - American Bar Association (Founding Editor, IP Committee Newsletter for the Litigation Section) - Dallas Bar Association: Secretary-Treasurer (1995); Board of Directors (1996); Advisory Director (1998-2001) - Trustee, Dallas Bar Foundation (2001 - ) -Chair, Dallas Bar Fellows (2007) - Texas Young Lawyers Association: Board of Directors (1984-86) - Trustee, Kilby Foundation International (1998-2000) Mr. Selinger has written numerous articles in the areas of intellectual property and litigation, some of which have been cited by federal and state appellate and district courts. He is admitted to practice in all courts in Texas and before the Courts of Appeal for the Third, Fifth, and Federal Circuits; the United States Supreme Court; and the United States Patent and Trademark Office.

MCKOOL SMITH, P.C., DOUGLAS A. CAWLEY, SHAREHOLDER For over thirty years engaged in litigation and counseling in the technology and intellectual property fields. Mr. Cawley has handled matters involving semiconductor design and fabrication, computer and telephone networks, transistor design, coding and communications, optical transmission, pharmacology and liquid crystal technology. Mr. Cawley holds Bachelor’s and J.D. Degrees from the University of Texas at Austin.

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TABLE OF CONTENTS

I. Resolving Conflicts................................................................................................................................................. 1 A. Lawyer's Ethical Duties and Potential for Conflicts ....................................................................................... 1

1. Federal courts in Texas require lawyers to abide by the Texas State Bar ethics standards as well as the ABA model rules and other general ethics standards............................................................................... 1

2. Conflicts of interest arise where there is an increased likelihood that a lawyer could violate one of his professional duties.................................................................................................................................... 1

B. Waivers for Concurrent Conflicts, Former Clients, and Joint Representation ............................................... 1 1. Waivers in a concurrent conflict of interest situation require full disclosure and informed consent from

both clients. .............................................................................................................................................. 2 2. Conflict rules regarding former clients are primarily intended to protect former clients, and thus are

readily waivable. ...................................................................................................................................... 2 3. Law firms should seek conflicts waivers before jointly representing two clients.................................... 2

C. Requirements for Valid Waivers .................................................................................................................... 3 1. Valid waivers require full disclosure and informed consent. ................................................................... 3 2. Consent must be voluntary. ...................................................................................................................... 3 3. Consent should be in writing.................................................................................................................... 3 4. The conflict must be "waivable." ............................................................................................................. 3

D. Future Waivers................................................................................................................................................ 4 1. Although not addressed by the Texas Rules, courts relying on the ABA Rules would likely uphold a

properly constructed future waiver........................................................................................................... 4 2. Constructing a future waiver. ................................................................................................................... 4 3. When circumstances materially change, additional disclosure and consent may be required for the

future waiver to remain valid. .................................................................................................................. 5 E. Withdrawal and Disqualification .................................................................................................................... 5 II. Recent Cases In Ethics............................................................................................................................................ 6 A. Concurrent Conflicts And "Substantially Related" Matters--Rembrandt ....................................................... 6

1. Facts of Rembrandt. ................................................................................................................................. 6 2. Rembrandt rejects Texas's unique "substantially related" test for concurrent conflicts and adopts the

ABA majority position. ............................................................................................................................ 6 3. Practical implications of Rembrandt—more communication. ................................................................. 8

B. Hot Potato Rule—Microsoft Corp. ................................................................................................................. 8 III. Contacting Current And Former Employees Of An Adversary ............................................................................ 10 A. Texas State Proceedings ............................................................................................................................... 10

1. Present Employees ................................................................................................................................. 10 2. Former Employees ................................................................................................................................. 11

B. Federal Court Proceedings In Texas ............................................................................................................. 13 IV. The Use Of Ethical Walls In Texas................................................................................................................... 13 A. Ethical Walls and Attorneys ......................................................................................................................... 13 B. Ethical Walls and Non-lawyers .................................................................................................................... 15 C. The "Substantially Related" Test .................................................................................................................. 16 APPENDIX A............................................................................................................................................................... 17

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ETHICAL ISSUES SURROUNDING CLIENT REPRESENTATION I. RESOLVING CONFLICTS

Firms are frequently confronted with the problem of resolving conflicts of interest. A typical scenario involves a firm having taken on a small matter for a new client, often in the distant past, only to find itself conflicted out of a new representation adverse to that client years later. This section addresses likely conflict scenarios and how to resolve them through the use of waivers. A. Lawyer's Ethical Duties and Potential for

Conflicts Lawyers owe various duties to clients, whether

they are current clients, former clients, or even potential clients. When a lawyer's duty to one client conflicts with his duty to another client, he may be unable to continue representing either client.

1. Federal courts in Texas require lawyers to abide

by the Texas State Bar ethics standards as well as the ABA model rules and other general ethics standards.

Texas district courts use the Texas Disciplinary Rules of Professional Conduct ("Texas Rules"). See Eastern District of Texas Local Rules, Section III Local Rule at-2(a); Southern District of Texas Local Rule 83.1(L) and Appendix A; Western District of Texas Local Rule at-7(a); Northern District of Texas Local Rule 83.8. Texas district courts will also consult the ABA Model Rules of Professional Conduct ("ABA Rules") inasmuch as the Texas Rules and ABA Rules differ. Id.; see also Rembrandt Techs., LP v. Comcast Corp., 2007 U.S. Dist. LEXIS 9027 *6 (E.D. Tex. Feb. 8, 2007) ("This court is not limited to the state's ethical rules but may also consider national norms of professional conduct, including the ABA Model Rules and the Model Code."). Consequently, this paper will use the Texas Rules as a guide and reference the ABA Model Rules inasmuch as they differ from the Texas Rules.

2. Conflicts of interest arise where there is an

increased likelihood that a lawyer could violate one of his professional duties.

Under the Texas Rules, lawyers owe certain duties to their clients:

In all professional functions, a lawyer should zealously pursue clients' interests within the bounds of the law. In doing so, a lawyer should be competent, prompt and diligent. A lawyer should maintain communication with a client concerning the representation. A lawyer should keep in confidence

information relating to representation of a client except so far as disclosure is required or permitted by the Texas Disciplinary Rules of Professional Conduct or other law.

Texas Rules preamble at ¶ 3; see also Texas Rules 1.01 (diligence and competence) and 1.03 (communications). The ABA Rules and California Rules of Professional Conduct impose similar duties.1 The lawyer's responsibilities to clients and personal or professional interests can create conflicts of interest. Id. at ¶ 7 ("Virtually all difficult ethical problems arise from apparent conflict between a lawyer's responsibilities to clients, to the legal system and to the lawyer's own interests."); Texas Rule 1.06, comment 4 ("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 Texas Rules prescribe terms for resolving such tensions. Texas Rules preamble at ¶ 7. Although ethics rules will sometimes require a lawyer to withdraw from the representation, many conflicts can be resolved with the consent of affected clients. Lawyers may even be able to obtain future waivers of conflicts if the waiver involves full disclosure and informed client consent.

B. Waivers for Concurrent Conflicts, Former

Clients, and Joint Representation Requirements for resolving conflicts depend on

the nature of the representation. Conflicts involving current clients are more serious and difficult to resolve than conflicts involving former clients. Special conflict considerations are involved when lawyers deal with joint representations.

1 The ABA Model Rules impose a duty of competence (Rule

1,1), diligence (Rule 1.3), communication (Rule 1.4), and confidentiality (Rule 1.6).

Under California Rule of Professional Conduct Rule 3-110(A), a lawyer has a duty to "perform legal services with competence." Rule 3-110(B) defines "competence" in rendering legal services as "to apply (1) diligence, (2) learning and skill, and (3) mental, emotional and physical ability reasonably necessary for the performance of such service." A lawyer's competent performance of legal services includes the duty to represent a client with undivided loyalty and to exercise independent judgment on the client's behalf. Commercial Standard Title Co., v. Superior Court, 92 Cal. App. 3d 934, 945 (1979); LACBA Formal Opinion No., 471 (1993). A lawyer also has duties to maintain client confidences and secrets, pursuant to California Business and Professions Code § 6068(e) and to keep a client reasonably informed about significant developments relating to the representation pursuant to Rule 3-500 of the California Rules of Professional Conduct and Business and Professions Code Section 6068(m).

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1. Waivers in a concurrent conflict of interest situation require full disclosure and informed consent from both clients.

Some concurrent representation conflicts can be waived, while others cannot. Typical concurrent representation conflicts scenarios include:

• Representing opposing parties in the same

lawsuit, e.g., one lawyer in the firm represents one side of the conflict; another lawyer in the same firm represents the other side. Texas Rule 1.06(a).

• Representing another party in a different suit against an existing client. Texas Rule 1.06(b).2

• Simultaneous representation of clients in different suits over related matters. Id.

Lawyers may not continue the representation in the first conflict situation, even with client consent. Texas Rule 1.06(c). A lawyer may represent a client in the second and third conflict situations provided that:

(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.

Id.; see also ABA Rule 1.7. Thus a proper waiver for concurrent conflicts of interest under the Texas Rules requires full disclosure and informed consent. What qualifies as full disclosure and informed consent is discussed below. 2. Conflict rules regarding former clients are

primarily intended to protect former clients, and thus are readily waivable.

Under Texas Rule 1.9, a former client can consent to a prior counsel's adverse representation of a new client if there is full disclosure of the circumstances, including the lawyer's intended role on behalf of the new client. The general restrictions regarding former clients are:

2 In Texas state courts, the suits must be related matters to

create a conflict. Texas Rule 1.06(b). In Texas district courts, and most other jurisdictions, a concurrent conflict of interest can arise even in matters that are not substantially related. See Rembrandt Techs., 2007 U.S. Dist. LEXIS 9027 *6.

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 [duty of confidentiality]; or (3) if it is the same or a substantially related matter.

Texas Rule 1.09(a). The Texas Rules specifically state: "This Rule is primarily for the protection of clients and its protections can be waived by them." Texas Rule 1.09, comment 10.

Some Texas courts relying on Rule 1.09 have disqualified firms if the matters were "substantially related." See Texas Rule 1.09, comment 8 (courts disqualifying "when the subject matter of the present representation is so closely related to the subject matter of the prior representation that confidences obtained from the former client might be useful in the representation of the present client").3 Rule 1.09 does not explicitly require this result. Id. The comments to the Rules warn, however, that a firm in such a situation should disclose to the client the possibility that a court may disqualify the firm so the client may choose whether or not to obtain new counsel. Texas Rule 1.09, comment 9.

An effective waiver of former client conflicts is similar to that for current clients: there must be client consent after disclosure of the relevant circumstances, "including the lawyer's past or intended role on behalf of each client, as appropriate." Texas Rule 1.09, comment 10. 3. Law firms should seek conflicts waivers before

jointly representing two clients. When a law firm proposes to jointly represent two

distinct clients who are co-defendants in a lawsuit with potentially conflicting interests, the law firm may seek advance consent to later represent one client against the other client in litigation arising out of the same transaction, provided: (1) the lawyer can jointly represent both clients competently, and (2) both clients give their informed consent after full disclosure of the "existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any." Texas Rule 1.06(c), comment 3 ("common representation of persons having similar interests is proper if the risk of adverse effect is

3 See discussion of ethical walls in section IV below.

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minimal and the requirements of paragraph (b) are met").4 C. Requirements for Valid Waivers 1. Valid waivers require full disclosure and informed

consent. To obtain a valid conflict waiver, the lawyer must

disclose enough information regarding the conflict that the client can give an informed consent. Texas Rule 1.06, comment 7. According to the ALI Restatement, "informed consent" to a conflict waiver requires "that the client or former client have reasonably adequate information about the material risks of such representation to that client or former client."5 Restatement 3d of the Law Governing Lawyers ("Restatement"), § 122. Disclosure sufficient for sophisticated clients may not be sufficient for less sophisticated clients.6 Id.

Clients must understand the significance of the facts the lawyer discloses and the conflict's potential adverse consequences. If either client is unable to do so, informed consent is not possible and the law firm may not proceed with the representation. This can happen when a lawyer represents different clients in related matters and one of the clients refuses to consent to the disclosure necessary to permit the other client to make an informed decision. Texas Rule 1.06, comment 7. In such a situation, the lawyer cannot properly ask the latter client to consent. Id.

4 California Rule 3-310(c) states in pertinent part:

(c) A member shall not, without the informed consent of each client:

(1) accept representation of more than one client in a matter in which the interests of the clients potentially conflict or (2) accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict. 5 California Rule 3-310(a) sets forth the basic requirement of

informed consent as follows:

(1) "Disclosure" means informing the client or former client of the relevant circumstances and of the actual or reasonably foreseeable adverse consequences to the client or former client;

(2) "Informed written consent" means the client's or former client's written agreement to the representation following written disclosure. 6 The Los Angeles County Bar Association noted that what is

adequate disclosure in one case may not be adequate in another.

The overall objectives are: (1) to assure that both clients are apprised of significant facts and possible adverse consequences in a manner the clients can understand and appreciate, and (2) to provide a structure for the representation that will allow the law firm to represent competently both clients.

LACBA Ethics Opinion 471-1993 at 6.

One important caveat is that a firm's own conduct in seeking a waiver may serve as evidence of an actual conflict in a hearing on a motion to disqualify. For example, the court may consider a lawyer's disclosures to a client and stated opinions regarding a potential conflict as evidence that there was in fact a conflict. International Business Machines v. Levin, 579 F.2d 271, 280-81 (3rd Cir. 1978).

2. Consent must be voluntary.

Consent should be voluntary and cannot be coerced by threat that the attorney would cease representation if the client does not sign the consent. Picker Int'l., Inc. v. Varian Associates, 869 F.2d 578 (Fed. Cir. 1989); see also Microsoft Corp. v. Commonwealth Sci. & Indus. Research Org., 2007 U.S. Dist. LEXIS 91550 (E.D. Tex. Dec. 13, 2007) (noting that generally firms cannot "jettison" a client to represent another). A client should not be presented with a situation where it is forced to choose between providing consent or finding new counsel. See Picker, 869 F.2d at 584 ("such an agreement, signed under such conditions of duress, does not constitute voluntary waiver of or consent"). In contrast, a client may give a partial or conditional consent. For instance, a client may condition waiver on the law firm imposing an ethical wall to shield client confidences. Restatement, The Law Governing Lawyers § 202 at Comment e.

3. Consent should be in writing.

Although disclosure and consent need not be written in Texas, many other jurisdictions require written consent, including California. See California Rule of Professional Conduct Rule 3-310(c). Additionally, the Texas Rules warn: "it would be prudent for the lawyer to provide potential dual clients with at least a written summary of the considerations disclosed." Texas Rule 1.06, comment 7. Moreover, written consent and disclosure is better evidence of the existence and substance of the waiver, should the waiver be challenged.

4. The conflict must be "waivable."

A waiver is not valid unless an attorney can adequately represent the interest of each client.7 Texas Rule 1.06, comment 4 ("[T]he client's consent to the

7 A client cannot waive a conflict in a situation where the lawyer could not represent the client competently. LACBA Ethics Opinion 471-1993 at 3. Nor can the lawyer represent a client where to do would adversely affect another client's interests. Id., citing Klemm v. Superior Court, 75 Cal. App. 3d 893, 898 (1977) (noting in a concurrent representation of a husband and wife in a divorce that "it would be unthinkable to permit an attorney to assume a position at a trial or hearing where he could not advocate the interests of one client without adversely injuring those of the other").

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representation by the lawyer of another whose interests are directly adverse is insufficient unless the lawyer also believes that there will be no materially adverse effect upon the interests of either client."). The test is whether a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances. Texas Rule 1.06, comment 7. Relevant factors for determining the adequacy of the representation include the nature of the litigation, the type of information to which a lawyer is exposed, the ability of a client to protect his interest or to understand how he may be disadvantaged as a result of the conflict, the legal and factual issues in dispute, and whether special conflicts rules apply because the government is a party. Unified Sewerage Agency v. Jelco, Inc., 646 F.2d 1339, 1346-51 (9th Cir. 1981).8

D. Future Waivers

Future waivers purport to allow the client to waive a conflict before the conflict has actually arisen. With clients increasingly going to multiple firms for their legal needs and changing firms mid-litigation, future waivers have become increasingly popular. Future waivers remain largely untested in courts.

1. Although not addressed by the Texas Rules,

courts relying on the ABA Rules would likely uphold a properly constructed future waiver. Texas lawyers may have an easier time having

future waivers upheld in federal court than in state court. Although the Texas Rules do not address the validity of future waivers, recent modifications to the ABA Rules give lawyers more latitude to seek future conflicts waivers from clients.

ABA Model Rule 1.7 provides guidance on when a client may waive objections to future conflicts. ABA Formal Opinion 05-436 (2005). A client must give "informed consent, confirmed in writing" to a conflict of interest. ABA Rule. 1.7. Consent is more likely considered "informed" when the client is an experienced user of the legal services involved, is reasonably informed regarding the risk that a conflict may arise, is independently represented by other counsel in giving consent, and gives consent only to future conflicts unrelated to the subject of the representation. Id., comment 22.9 Matters are

8 The Ninth Circuit used the substantial relationship test to

determine the adequacy of representation in Unified Sewerage Agency v. Jelco, Inc., 646 F.2d 1339, 1346-51 (9th Cir. 1981). In that case, the court held that when clients have consented, a lawyer could adequately represent both clients in different litigations where there was no substantial relationship between the two matters.

9 Concat LP v. Unilever, PLC 350 F. Supp. 2d 796 (N.D. Cal.) enunciated factors relevant to whether a future waiver is

substantially related if they involve "the same transaction or legal dispute" or if there is "a substantial risk" that confidential client information would be disclosed. Id.; ABA Formal Opinion 05-436. Where a firm is engaged by a large corporate client in a specific area, a waiver by the client of all conflicts except in substantially related matters should be valid. Id. 10

The Restatement notes that a client may "give informed consent in advance to types of conflicts that are familiar to the client." Restatement, § 112, comment d. Although the Restatement acknowledges the possibility of valid future waivers, it warns:

Client consent to conflicts that might arise in the future is subject to special scrutiny, particularly if the consent is general. A client's open-ended agreement to consent to all conflicts normally should be ineffective unless the client possesses sophistication in the matter in question and has had the opportunity to receive independent legal advice about the consent. Id.

2. Constructing a future waiver. The basic principle applicable to future waivers is

as follows: the more specific the waiver, the more likely it is to be enforceable. The effectiveness of a future waiver is "generally determined by the extent to which the client reasonably understands the material risks that the waiver entails." ABA Rule 1.7, comment 22. Waivers should include comprehensive and detailed explanations of possible conflicts, as well as possible harms to the client from those conflicts. Id. General and open-ended future waivers will ordinarily be ineffective. Id.

Counsel might consider the following language as a starting point in drafting their own waivers:

It is understood and agreed that our client for purposes of this representation is [CLIENT] only, and none of its parent, brother-sister, subsidiary, or affiliated corporations or

effective: breadth, including temporal scope, i.e., whether it applied to "all conflicts in the future"; the quality of the lawyer's disclosure and subsequent discussion with the client; the specificity of the waiver; the nature of the actual conflict; the sophistication of the client; and the interest of justice. Id. at 820.

10 The California State Bar has suggested that future waivers may be valid in California. California State Bar Formal Opinion 1989-115, citing Maxwell v. Superior Court, 30 Cal. 3d 606, 621-22 (Cal. 1982). If the client is informed of the potential risks that are foreseeable at the time of the consent, no ethics rule is violated. Id.

NYC Ethics Opinion 2006-1 permits future waivers in circumstances where firm can ensure that confidences are not shared.

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entities, and none of their respective officers, directors, or employees (these entities and persons whom we are not representing are hereinafter collectively referred to as "affiliates"). It is agreed that this firm reserves the right to continue to represent or to undertake to represent existing or new clients in any matter that is not substantially related to our work for [CLIENT] even if the interests of such clients are directly adverse to [CLIENT] (whether or not [CLIENT] is then a current client of our office), or any of its affiliates, including litigations in which [CLIENT], or any of its affiliates, are parties. We agree, however, that this prospective consent and waiver with respect to conflicting representation shall not apply in any instance where, as a result of our representation of [CLIENT], we have obtained confidential information concerning [CLIENT] that, if known to any such other client of ours, could be used in any such other matter by such client to the material disadvantage of [CLIENT]. This consent and waiver applies to any matter whatever which is encompassed by the preceding paragraph, including but not limited to [more specific information].11

Adding one or more specific paragraphs would strengthen the waiver, especially to the extent that particular clients, and even particular matters, as to which the future waiver specifically applies, can be identified. A future waiver that includes both the specific party and specific type of case would be very strong, e.g. waivers for any claims related to The New York Times for copyright matters.

It is worthwhile to include in retainer agreements language pertaining to when the engagement terminates, since firms are freer to be adverse to a former client than a present client. An example could be:

Our representation of you hereunder will be considered terminated at the earlier of (i) our withdrawal, (ii) your termination of our representation, or (iii) the substantial completion of our substantive work in

11 Additional examples of possible retainer language are

included in the appendix. Given the client relations issues raised, and the variety of contexts in which ethics issues can arise, careful thought should be given before this language is inserted in a retainer agreement.

connection with the [subject litigation or transaction].

It is also helpful to send a letter of termination at the conclusion of the representation, in order to confirm with your client that the representation has ended. The letter should convey to your client that it has changed from being a current client to a former one. The following is an example of such a letter:

Dear [name of former client]: It has been a pleasure to have been able to be of service to you. Although our representation has now come to an end, we hope that you will consider retaining us for future matters as the need may arise. Needless to say, should we be able to accept such representation, we will bring to it the same high degree of care and professional service which you have come to expect of us. Unless we hear from you to the contrary, we intend to keep you on our mailing list so that we can let you know of future legal developments which may be of interest to you. We will send you these updates simply as a friend. Should you wish to retain us with respect to matters of which we apprise you, or otherwise, we shall be happy to consider such possible new retention.

3. When circumstances materially change, additional disclosure and consent may be required for the future waiver to remain valid. If the circumstances that formed the basis of the

client's consent materially change, the lawyer must bring the new conditions to the attention of the client and the client must give new consent. Restatement § 122, comment d. If the new conflict cannot be consented to, the lawyer must withdraw. Restatement § 122, comment g; see also Texas Rule 1.06(e).

E. Withdrawal and Disqualification

It is well established that an attorney cannot fire a client to take on a better client. E.g., Microsoft Corp. v. Commonwealth Sci. & Indus. Research Org., 2007 U.S. Dist. LEXIS 91550 *18 (E.D. Tex. Dec. 13, 2007). However, there are situations where it may be proper or necessary to withdraw because of a conflict of interest. Texas Rule 1.06(e). Even upon withdrawal, the lawyer owes certain duties to its clients. The Texas rules provide:

Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any

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advance payments of fees that have not been earned.

Texas Rule 1.15(d).12 Proper steps may include providing information to new counsel or even continuing to represent the client for a limited time to meet impending deadlines. Microsoft Corp., 2007 U.S. Dist. LEXIS 91550 at *23-24 fn. 11; see also Texas Rule 1.15, comment 9 ("In every instance of withdrawal and even if the lawyer has been unfairly discharged by the client, a lawyer must take all reasonable steps to mitigate the consequences to the client.").

One of the goals of the conflicts rules is to protect the confidences of former or current clients. Thus, if counsel is disqualified, Texas courts prohibit counsel from transferring its files or communicating its work product to new counsel if it is likely to contain such confidences. See In re George, 28 S.W.3d 511, 512 (Tex. 2000) ("a successor's access to a disqualified attorney's work product should be restricted or denied to the extent that such a remedy furthers the purposes underlying the disqualification").

II. RECENT CASES IN ETHICS

Although Texas traditionally has taken the minority position that lawyers can represent clients in a matter adverse to a current client as long as the two matters are not substantially related, the Eastern District of Texas recently adopted the majority rule in Rembrandt Techs., LP v. Comcast Corp. 2007 U.S. Dist. LEXIS 9027 (E.D. Tex. Feb. 8, 2007).13 Under Rembrandt, Texas lawyers cannot represent clients adverse to current clients even in matters that are not substantially related.

12 Attorney withdrawal in California is governed by Rule 3-

700 of the California Rules of Professional Conduct. This rule provides that, before withdrawing, the attorney may take "reasonable steps" to avoid foreseeable prejudice to the client's rights. The rule says that these steps include giving "due notice" to the client, allowing time for employment of other counsel, returning the client's files and papers (insofar as that is possible in light of any protective order) and refunding unearned fees. Attorneys must preserve client confidences even when seeking to be relieved as counsel. See California Rule of Court 376(b) (attorney's declaration in support of withdrawal must not compromise attorney-client confidentiality). So-called noisy withdrawal, where an attorney tries to send a message through his or her withdrawal, would therefore appear to be prohibited.

13 In California, absent informed written consent lawyers must not accept or continue with any matter adverse to any current client regardless of whether the matters are unrelated. Flatt v. Superior Court, 9 Cal. 4th 275, 284-85 (1994).

A. Concurrent conflicts and "substantially related" matters--Rembrandt

1. Facts of Rembrandt. Rembrandt Techs. filed three separate

infringement suits on the same patent, against Comcast, Time Warner, and Charter. The Rembrandt decision addresses Time Warner's motion to disqualify Fish and Richardson ("F&R") based on a concurrent conflict of interest in the Rembrandt litigation.

Timeline of the Rembrandt facts:

• 9/15/2005: F&R, representing Rembrandt, files suit against Comcast .

• 9/25/2005: F&R makes a "pitch" for Time Warner's business to defend Time Warner against Digital Packet Licensing Inc.

• Time Warner hires F&R for the Digital Packet Licensing case. The case involves confidential information about Time Warner's legal strategy and its systems and technology, including information about claim construction and non-infringement positions. Time Warner's engineers also provide F&R with information about Time Warner's voice and data networks.

• April 2006: Time Warner and Digital Packet reach a settlement.

• June 2006: Rembrandt files two infringement suits based on the same patent as in the Rembrandt litigation against Time Warner and Charter Communications.

• F&R represents Rembrandt Techs. in Charter but not in Time Warner.

• Time Warner challenges the propriety of F&R's representation in both Rembrandt and Charter.

• F&R withdraws from Charter but not Rembrandt.

• Time Warner moves to intervene in Rembrandt for the limited purpose of filing a motion to disqualify F&R.

The court allowed Time Warner's intervention and addressed the motion to disqualify. 2. Rembrandt rejects Texas's unique "substantially

related" test for concurrent conflicts and adopts the ABA majority position. Relying on Fifth Circuit precedent in In re

Dresser Ind., Inc., 972 F.2d 540 (5th Cir. 1992), the Rembrandt court first noted that it would consider both the Texas Rules and the ABA Rules. Rembrandt, 2007 U.S. Dist. LEXIS 9027 at *8, (noting that the Dresser court looked "to the current national standards of legal

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ethics to first consider whether this dual representation amounts to impropriety.") (internal quotations omitted), citing Dresser, 972 F.2d at 544. The Texas concurrent conflict of interest rule requires that:

a lawyer shall not represent a person if the representation of that person . . . involves a substantially related matter in which that person's interests are materially and directly adverse to the interest of another client of the lawyer or the lawyer's firm.

Texas Rule 1.06(1) (emphasis added). Texas is the only state that allows an attorney to be adverse to a current client so long as the matters are not substantially related. In contrast, ABA Model Rule 1.7 provides that:

a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if . . . the representation of one client will be directly adverse to another client;

ABA Rule 1.7(a). The Rembrandt court adopted the ABA rule and found that it consequently was "unnecessary to consider the question" of whether F&R's representation of Time Warner in Digital Packet was "substantially related" to F&R's representation of Rembrandt Techs. in Rembrandt to determine whether F&R had a concurrent conflict of interest. Time Warner only had to establish that: "(1) it is a current client of F&R; and (2) F&R's representation of Rembrandt [was] directly adverse to it." Rembrandt Techs., 2007 U.S. Dist. LEXIS 9027 at *9. The court held that Time Warner had established both and disqualified F&R.

In reaching that result, the court distinguished Rembrandt from a factually similar case from Connecticut, Enzo Biochem, Inc. v. Applera Corp., 468 F. Supp. 2d 359 (D. Conn. 2007). Enzo also involved a patent holder, Enzo, who was suing under the same patents in multiple suits using different legal counsel for the different cases.

Timeline of the Enzo facts:

• October 2002: Enzo sues Amersham for patent infringement in the Southern District of New York.

• October 2003: GE announces its acquisition of Amersham. GE is a longtime client of Hunton & Williams LLP ("Hunton").

• October 2003: Plaintiff Enzo retains Hunton.

• June 2004: Hunton sues Applera on Enzo's behalf in the District of Connecticut claiming patent infringement regarding the same patents as Amersham.

• June 2004: GE's acquisition of Amersham is finalized.

• Mid-2004: Enzo retains Greenberg Traurig LLP ("Greenberg") in Amersham.

• Greenberg and Hunton interact and share information in furtherance of their mutual representation of Enzo.

The Enzo court framed the issue as follows: "whether Hunton can represent a plaintiff in one case where the subject matter has significant overlap with that in another case in which that same plaintiff (represented by different counsel) is suing a client of Hunton's." The court found that disqualification was not warranted. Id. at 360. The Enzo court noted that although there was evidence that the law firms shared information regarding claim constructions and that there would be Markman hearing overlap, there would be no other overlap. Id. at *7. The application of the claim constructions to the alleged infringers would be wholly different. Id. See also Rembrandt Techs., 2007 U.S. Dist. LEXIS 9027 at *11-12 ("The court agrees with Enzo that the mere possibility of overlapping Markman proceedings is insufficient to show direct adversity, particularly when the trials of how the constructions apply to accused products or conduct varies from defendant to defendant.").

The Rembrandt court held that in contrast to Enzo, F&R was doing much more than simply advocating claim construction positions that might later adversely impact Time Warner: Rembrandt Techs. was attacking industry standards. If Rembrandt Techs. was successful in Rembrandt, all major cable companies who followed the industry standards would be liable for patent infringement, including Time Warner: "A finding of infringement and an injunction issued by this court against a cable company for compliance with industry standards would have a significant practical effect on Time Warner." Id. at *13.

Rembrandt occupies a gray area in conflicts law. Generally lawyers are able to assert legal positions contrary to the interests of their client: "A lawyer may represent parties having antagonistic positions on a legal question that has arisen in different cases, unless representation of either client would be adversely affected." ABA Rule 1.06, comment 10. To distinguish Rembrandt from this general rule, the court relied heavily on Rembrandt Techs. attacking industry standards. It emphasized: "F&R also advocates that Comcast infringes the patents-in-suit because it adheres to two industry standards." Rembrandt Techs., 2007 U.S. Dist. LEXIS 9027 at *4 (emphasis in

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the original). The court, in distinguishing Enzo, reasoned:

F&R is not simply advocating claim construction positions that might, at some later date, adversely impact Time Warner. F&R advocates that the Comcast defendants infringe the patents because the defendants comply with industry standards. . . . The practical significance of Rembrandt's infringement theory is to indict for patent infringement all major cable companies who follow the industry standards.

Id. at *4, *12 (emphasis added). The court also seemed skeptical that F&R was unaware of the potential conflict, and even suggested that F&R may have actively hidden the conflict from Time Warner. It first noted that: "Rembrandt references the ATSC and DOCSIS standards at length in its infringement contentions." It then noted:

F&R made a "pitch" to Time Warner using a slide presentation. The presentation detailed F&R's experience handling cases in this district. F&R omitted [the Rembrandt litigation] from its pitch materials, despite the fact that it had filed this case on behalf of Rembrandt only thirteen days before the presentation to Time Warner.

Id. at *4. The Rembrandt court suggested that to the extent F&R did not know that Time Warner was a probable defendant, that was something it should have known. Once F&R discovered that Rembrandt Techs. was attacking an industry standard, the Rembrandt court expected F&R to discover who the other players in the industry were and take the necessary steps to avoid potential conflicts.

Another unique factor in Rembrandt is that both Rembrandt and Time Warner were scheduled in the same court in front of the same judge. The ABA rules note that while "it is ordinarily not improper to assert [legally antagonistic] positions in cases pending in different trial courts," it may be improper to do so in cases pending at the same time in the same court. Texas Rule 1.06, comment 10. The Rembrandt court acknowledged that the claim construction rulings in the Rembrandt litigation would not be binding on Time Warner, but found that there was a likelihood that the positions taken by F&R in the Rembrandt litigation could prejudice Time Warner in subsequent proceedings. Rembrandt Techs., 2007 U.S. Dist. LEXIS 9027 at *13. Consequently, it held that F&R's representation of Rembrandt was impermissibly adverse to Time Warner.

3. Practical implications of Rembrandt—more communication. Although Rembrandt shows a clear rejection of

Texas's minority rule, the outcome of Rembrandt would not be surprising in most jurisdictions. Even the Texas Bar warns: "Ordinarily, it is not advisable for a lawyer to act as advocate against a client the lawyer represents in some other matter, even if the other matter is wholly unrelated." Rule 1.06, comment 11.

Moreover, the holding merely reinforces what should be good practice. Practitioners may complain that to avoid the effects of Rembrandt, conflicts checks will need to be much more thorough and revisited throughout the representation. This may be true. But good client communication should include asking the client, who else do you plan to sue? Especially when representing a plaintiff in patent litigation, lawyers need to ascertain the identities of other potential infringers.

Although future waivers are generally a good avenue when available, it is not clear that a future waiver could be obtained under the facts of Rembrandt. In order for F&R to have obtained a future waiver from Time Warner, F&R would have had to reveal to Time Warner that Rembrandt might sue it. At the time that F&R began its representation of Time Warner, any information regarding whether Rembrandt intended to sue Time Warner would likely have been confidential, such that F&R would not be able to disclose this information without Rembrandt Techs.' permission. Without this permission, F&R probably could not give sufficient disclosure such that Time Warner's consent could be said to be informed. See Texas Rule 1.06, comment 7. Consequently, F&R probably could not have avoided this conflict through the use of a future waiver.

B. Hot Potato Rule—Microsoft Corp.

Although Rembrandt sets a high standard of vigilance for lawyers to discover possible future conflicts, the Eastern District recently acknowledged that some conflicts can surprise even the most careful lawyers. In Microsoft Corp. v. Commonwealth Scientific & Industrial Research Org., the Eastern District adopted the "thrust upon" exception to the "hot potato" rule. 2007 U.S. Dist. LEXIS 91550 (E.D. Tex. Dec. 13, 2007).

The hot potato rule holds that normally a firm cannot drop one client in order to represent a "better" client. Id. at *18. Under the "thrust upon" exception to this rule, generally courts have allowed a law firm to drop one client in order to continue on behalf of another where the conflict did not exist when the firm took on the disputed matter and the firm did not create the conflict. In Microsoft, the conflict existed at the time of the representation, but the court held that the firm was excusably unaware of it.

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The facts of Microsoft are similar to the facts of Rembrandt. In Microsoft, Plaintiff Commonwealth Scientific and Industrial Research Organisation ("Commonwealth") asserted that a wireless LAN industry standard violated one of its patents. Marvell Semiconductor, Inc.'s, Marvell Asia PTE, Ltd.'s, and Marvell Intl., Ltd.'s (collectively "Marvell"), a component manufacturer, moved to intervene to disqualify Commonwealth's counsel, Townsend & Townsend & Crew ("Townsend").

Timeline of the Microsoft facts: • 2002: Commonwealth approaches Townsend

regarding a licensing strategy for the patent at issue.

• 2003-2004: Townsend represents Commonwealth in negotiations to license the patent.

• 2003-2004: Marvell and potential infringers participate in a joint defense group.

• January 2005: Marvell agrees to indemnify Customer A regarding the patent, and later another customer.

• February 2005: Commonwealth files its first patent infringement suit.

• May 2005: Customer A joins the joint plaintiffs in the Microsoft litigation seeking declaratory judgment against the patent.

• June 2005: Marvell's outside counsel contacts Townsend to inquire about a license for the patent. Townsend indicates that no license is required because Commonwealth does not intend to sue component manufacturers.

• Late 2005: Marvell sends patent application work to Townsend.

• February 2006: Marvell contacts Townsend again regarding a license, Townsend gives the same reply.

• June 2006: Marvell fires Townsend for unacceptable work.

• September 2006: Commonwealth files its answer and counterclaims for infringement in Microsoft.

• October 2006: Marvell rehires Townsend for patent work. Customer A makes a tender of the indemnity agreement to Marvel.

• March 2007: Marvell contacts Townsend for a third time about a license. Townsend asks for a written conflict waiver in order for it to negotiate the license between Marvell and Commonwealth. Marvell agrees to waive prospective conflicts but not past conflicts.

• March 2007: Marvell informs Townsend of the indemnity agreements with customers in Microsoft and a similar case, Toshiba, and

states that it believes Townsend has violated ethical rules and its duty to Marvell.

• May 2007: Marvell files a declaratory judgment action against Commonwealth ("Marvell") in the Eastern District of Texas. Marvell moves to enjoin Townsend from representing Commonwealth in the Marvell and Toshiba actions.

• July 2007: Marvell attempts to intervene in Microsoft and moves to disqualify Townsend.

Marvell claimed that when Townsend asked it to sign conflicts waivers mid representation, Townsend was trying to "jettison" it as a client. Marvell argued that under the "hot potato" rule, Townsend could not jettison one client to represent another. Id. at *18. Townsend countered that under the "thrust upon" exception to the hot potato rule, when unforeseeable developments cause two current clients to become directly adverse, a firm may withdraw from one representation and continue the other. Townsend argued that Marvell created the conflict; consequently, under the thrust upon exception, Townsend could terminate the representation as soon as it was apprised of the conflict. In adopting Townsend's position, the court cited ABA Rule 1.7 that when unforeseeable developments create conflicts, "[d]epending on the circumstances, the lawyer may have the option to withdraw from one of the representations in order to avoid the conflict." Id. at *20, citing ABA Rule 1.7, comment 5.

The court noted that neither party alleged that Townsend had any knowledge of the indemnity agreements between Marvell and its customers. Even though Marvell never notified Townsend of the indemnity agreements, it asserted that Townsend should have known of the possibility of such indemnity agreements because they were standard in the industry. The court rejected this argument: "Although attorneys have the affirmative duty to seek out and discover possible conflicts, clients should not actively conceal potential conflicts from their counsel." Id. at 21. The court acknowledged that Marvell may have had a legitimate business reason for not disclosing its indemnity agreements, but noted that "[w]hile Marvell is free to choose which facts it does and does not disclose to counsel, Marvell cannot subsequently assert those purposefully withheld facts as a means to disqualify." Id. at *22. The secret indemnity agreements constituted "unforeseeable developments" to Townsend. The court held: "As the conflict was thrust upon Townsend, Townsend was justified in dropping Marvell as a client. Therefore, the former representation rules apply." The court subsequently found that the former matter (patent prosecution for Marvell) was not substantially related to the current

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matter at issue in Microsoft (declaratory judgment claims regarding Commonwealth's patents), and that disqualification was therefore not warranted.

The court found that the facts at issue not only triggered the thrust upon exception to the hot potato rule, but that Marvell had waived its right to move to disqualify Townsend:

It is undisputed that Marvell knew of the Microsoft Action back in 2005. It is also undisputed that Marvell knew Townsend represented [Commonwealth] from the onset of that action, which was before Marvell sent Townsend the patent work that Marvell now claims was substantially related. When Microsoft filed its declaratory judgment action, Marvell should have been aware that [Commonwealth] would bring its compulsory counterclaims of infringement, yet Marvell stood on the sidelines and waited two years before moving to intervene. In fact, Marvell concealed the conflict from [Commonwealth] and Townsend until March 13, 2007, nearly six months after Marvell claims the conflict arose

Id. at *29. In Rembrandt the court implied that Fish & Richardson knew or should have known that Rembrandt Technologies would bring a claim against Time Warner. In Microsoft the court suggested that Marvell knew or should have known that Commonwealth would counterclaim for infringement against participants in the joint defense group. Rembrandt and Microsoft together seem to stand for the proposition that in the conflicts arena, it is not enough for either lawyers or clients to bury their heads in the sand and ignore the reasonable conflicts implications of lawsuits in which they participate.

III. CONTACTING CURRENT AND FORMER

EMPLOYEES OF AN ADVERSARY This section discusses the requirements in Texas

state court proceedings for interviewing current and former employees of an adversary. It also discusses the applicable rules in Texas federal court litigation. The latter includes, but is not limited to the rules applicable in state court. A. Texas State Proceedings

1. Present Employees

a. What the Rules Prohibit The Texas Disciplinary Rules of

Professional Conduct obviously apply to members of the Texas bar. They also apply to out-of-state counsel specially admitted by a Texas court for a particular proceeding.

Tex. Disc. R. 805(a). Rule 4.02 controls communications by counsel with an opposing party.

In particular, Rule 4.02(a) prohibits a lawyer, in representing a client, from communicating with directly, or causing or encouraging another to communicate "about the subject of the representation with a person, organization or entity of government the lawyer knows to be represented by another lawyer regarding that subject" (unless the lawyer has the consent of the other lawyer or is authorized by law to do so).14 Tex. Disc. R. 4.02(a). In turn, an "organization or entity of government is defined as: "(1) those persons presently having a managerial responsibility with an organization or entity of government that relates to the subject of the representation, or (2) those persons presently employed by such organization or entity and whose act or omission in connection with the subject of representation may make the organization or entity of government vicariously liable for such act or omission." Tex. Disc. R. 4.02(c).

Rule 4.02(b) is directed to expert witnesses. "In representing a client, a lawyer shall not communicate or cause or encourage another to communicate about the subject of the representation with a person or

14 In re Users System Services, Inc., 22 S.W.3d 331 (Tex.

1999) presented the issue of whether a lawyer should be disqualified from continuing to represent a litigant in a civil matter for meeting with an opposing party, at the party's request, where prior to the meeting the party stated he was no longer represented by counsel, but his former attorney had not moved to withdraw from the case (and the party had not told his lawyer he was terminated). The Court held that Rule 4.02 does not require an attorney to contact a person's former attorney to confirm that representation has been terminated before communicating substantively with the party, although that may be a "sensible course" and The comments to Rule 4.02 are instructive. For instance, comment 2 explains that paragraph (a) of the Rule does not prohibit communications between a lawyer's client and persons, organizations or entities of government represented by counsel, so long as the lawyer does not cause or encourage the communication (without the consent of the lawyer for the other side). Significantly, paragraph (a) does not impose a duty on a lawyer to affirmatively discourage communication between the lawyer's client and other represented persons, organizations or entities of government. Comment 3 notes that despite the prohibition against contacting the other side's experts, "certain governmental agents or employees such as police may be contacted due to their obligations to the public at large." Finally, Comment 4 states that Rule 4.02 does not prohibit a lawyer from contacting a person presently employed by a represented organization or entity of government "whose conduct is not a matter at issue but who might possess knowledge concerning the matter at issue." required under some circumstances. Id. at 334-35.

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organization a lawyer knows to be employed or retained for the purpose of conferring with or advising another lawyer about the subject of the representation unless the lawyer has the consent of the other lawyer or is authorized by law to do so." Cf. Cramer v. Sabine Transportation Co., 141 F. Supp.2d 727, 731-33 (S.D. Tex. 2001) (holding defendant's counsel would not be disqualified for ex parte contacts with plaintiff's expert under the unusual circumstances presented).

The comments to Rule 4.02 are instructive. For instance, comment 2 explains that paragraph (a) of the Rule does not prohibit communications between a lawyer's client and persons, organizations or entities of government represented by counsel, so long as the lawyer does not cause or encourage the communication (without the consent of the lawyer for the other side). Significantly, paragraph (a) does not impose a duty on a lawyer to affirmatively discourage communication between the lawyer's client and other represented persons, organizations or entities of government. Comment 3 notes that despite the prohibition against contacting the other side's experts, "certain governmental agents or employees such as police may be contacted due to their obligations to the public at large." Finally, Comment 4 states that Rule 4.02 does not prohibit a lawyer from contacting a person presently employed by a represented organization or entity of government "whose conduct is not a matter at issue but who might possess knowledge concerning the matter at issue." Id.

b. Evolution of the Texas Prohibitions on

Employee Contacts Rule 4.02 prohibits a lawyer, in

connection with his or her representation of a client, from contacting only current employees having managerial responsibility or who might be the linchpin for a finding of vicarious liability. It also prohibits a lawyer from contacting the other side's experts. That was not always the rule in Texas.

Texas Ethics Opinion 17 (1948) announced by unanimous vote (7-0) that Texas Canon 9, which barred a "member from communicating upon the subject of controversy with a party represented by Counsel," did not preclude a member of the State Bar from interviewing a potential witness, "even though such witness may be an employee of a party to the suit, where

such attorney makes full disclosure of his connection with litigation and explains the purpose of the interview." Id. The rule announced in Opinion 17 remained in effect for 20 years. In 1968, in Texas Ethics Opinion 342 (1968), by a 6-2 vote, Opinion 17 was approved with the following modifications: (1) if the employee being interviewed is the person for whose acts or omissions the defendant is sought to be held liable, such employee should be considered a party and (2) if the employee being interviewed is an officer or managing employee with authority to bind the corporate defendant he should likewise be considered a party. Id. The two dissenting members would have held that an interview with any current employee should be prohibited. Twenty years later, Texas Ethics Opinion 461 (1988) clarified that prior Opinion 342 prohibits communication by a lawyer with the employee of a corporate defendant if the employee being interviewed is the person for whose acts or omissions the defendant is sought to be held liable, such employee should be considered a party or if the employee being interviewed is an officer or managing employee with authority to bind the corporate defendant he should likewise be considered a party.15 Id. at 1.

2. Former Employees

Comment 4 to Rule 4.02 also is the linchpin of Texas practice regarding former employees. It states that Rule 4.02 "does not prohibit a lawyer from contacting a former employee of a represented organization or entity of a government." Of course, this assumes that the former employee is not represented by counsel, in which case counsel would need to comply with Rule 4.02(a).

It also is noteworthy that the Texas Rules impose several constraints on how a lawyer communicates with a former, unrepresented employee. This paper

15 Texas Ethics Opinion 474 (1991) held that where a

municipality is represented by counsel, opposing counsel may not communicate directly with city council members. By contrast, in Texas Ethics Opinion 233 (1959), the committee was equally divided on the question of whether an attorney may negotiate directly with the City Council or City Manager rather than the attorney representing the city in the particular controversy.

Barham v. Turner Construction Co., 803 S.W.2d 731 (Tex. Cir. App. – Dallas 1991) held that even if photographic evidence had been obtained in violation of the prior rules barring communications by counsel with the opposing party, the photographs could still be used to impeach the other party. Id. at 740.

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discusses eight of them. First, in the course of representing a client a lawyer shall not knowingly "(a) make a false statement of material fact or law to a third party; or (b) fail to disclose a material fact to a third person when disclosure is necessary to avoid making the lawyer a party to a criminal act or knowingly assisting a fraudulent act perpetrated by a client." Tex. Disc. Rule 4.01. Stated differently, the lawyer must be truthful when dealing with any third party, including a former employee.

Second, when dealing on behalf of a client with a person who is not represented by counsel, "a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer's role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding." Tex. Disc. Rule 4.03. The lawyer should make full disclosure of the lawyer's connection with the lawsuit and the purpose of the interview.

Third, "the lawyer should not give advice to an unrepresented person other than the advice to obtain counsel." See Comment to Rule 4.03. That language does not impose an affirmative duty on the lawyer to advise the unrepresented person to obtain counsel; it merely limits the nature and scope of advice that the lawyer can give to the unrepresented person.

Fourth, in representing a client, "a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person." Tex Disc. Rule 4.04 (a).

Fifth, and somewhat related to no. 4, a lawyer shall not present, participate in presenting, or threaten to present "criminal or disciplinary charges solely to gain an advantage in a civil matter . . . ." Tex Disc. Rule 4.04 (b).

Sixth, with respect to the issue of whether a lawyer may secretly record a telephone conversation, Texas has come full circle during the past 50 years. In 1953, the ethics committee unanimously agreed (by a 10-0 vote) that "an attorney may record a telephone conversation without advising the person conversing with him that a record is being made." Texas Ethics Opinion 84 (1953). That opinion survived for 25 years, until Opinion 84 was overruled in 1978 in Texas Ethics Opinion 392 (1978). There, the opinion announced that even though it was not a violation of then-existing law for one party to a conversation (either by telephone or in person) to record a conversation, attorneys are held to a higher standard. "Normally, therefore, no attorney should electronically record a conversation with another party, without first informing that party that the conversation is being recorded. This particularly applies to conversations between attorneys when candor and confidentiality should be strictly observed." Id. The opinion does

note there may be "extraordinary circumstances," involving law enforcement attorneys or officers acting under the direction of principal prosecuting attorneys where secret recordings might be made ethically "within strict statutory limitations conforming to constitutional requirements." Id.

Texas Ethics Opinion 514 (1996) revisited this subject after the disciplinary rules upon which Opinion 392 was based were incorporated into the new Texas Disciplinary Rules of Professional Conduct. The limitation imposed against secret recording by counsel was reaffirmed. However, with respect to clients, an attorney may advice his or her client that both Texas and federal law permit the client to electronically record conversations without first informing the other parties involved, where the equities of the situation merit such advice. An attorney, however, may not circumvent his or her ethical obligations by requesting that clients secret record conversations to which the attorney is a party." Opinion 514 at 2.

In 2006, however, the ethics committee revisited the issue. See Texas Ethics Opinion 575 (2006). It announced that "there are legitimate reasons a lawyer would electronically record conversations with a client or third party." Id. at 1. And the committee observed that applicable law does not generally prohibit such recording in Texas. Consequently, a Texas lawyer is not prohibited "from making an undisclosed recording of the lawyer's telephone conversations provided that (1) recordings of conversations involving a client are made to further a legitimate purpose of the lawyer or the client, (2) confidential client information contained in any recording is appropriately protected by the lawyer . . . (3) the undisclosed recording does not constitute a serious criminal violation under the laws of any jurisdiction applicable to the telephone conversation recorded, and (4) the recording is not contrary to a representation made by the lawyer to any person." Id. at 2.

Seventh, a lawyer may not "request a person other than a client to refrain from voluntarily giving relevant information to another party unless: (1) the person is a relative or employee or other agent of a client; and (2) the lawyer reasonably believes that the person's interests will not be adversely affected by refraining from giving such information." Texas Rule 3.04 (e).

Finally, a lawyer may "advance, guarantee, or acquiesce in the payment of: (1) expenses reasonably incurred by a witness in attending or testifying; [and] (2) reasonable compensation to a witness for his loss of time in attending or testifying", so long as payment is not offered or made "contingent upon the content of the testimony of the witness or the outcome of the case." Texas Rule 3.04(b).

One major caveat to all of the above rules: Counsel need to be sensitive to and deal with inconsistent rules when a lawyer lives and works in

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another state, is specially admitted to practice by a court of this state for a particular proceeding, and (perhaps) communicates with a witness in yet another state. Texas Rule 8.05 (a). It is beyond the scope of this paper to deal with the permutations and combinations resulting from conflict of laws rules. Suffice it to be aware that such issues may arise.

B. Federal Court Proceedings in Texas

Attorneys who practice in the United States District Court for the Southern District of Texas are governed by the Rules of Discipline set forth in Appendix A of that District's Local Rules. LR 83.1L. In turn, Rule 1 of the Rules of Discipline in Appendix A states that lawyers who practice in the Southern District of Texas are "required to act as mature and responsible professionals and the minimum standard of conduct shall be the Texas Disciplinary Rules of Professional Conduct." Rule 1A. In like fashion, the Local Civil Rules of Practice of the United States District Court for the Northern District of Texas define "unethical behavior" as conduct "that violates the Texas Disciplinary Rules of Professional Conduct." LR 83.8e. Similarly, members of the bar of the United States District Court for the Western District of Texas and any other attorney permitted to practice before that Court "must comply with the standards of professional conduct set out in the Texas Disciplinary Rules of Professional Conduct . . . which are hereby adopted as the standards of professional conduct of this Court." This specification is not exhaustive of the standards of professional conduct. For matters not covered by the Texas rules, the American Bar Association's Model Rules of Professional Conduct should be consulted." Local Rule AT-7.

Finally, turning to the Eastern District of Texas, [t]he standards of professional conduct adopted as part of the Rules Governing the State Bar of Texas shall serve as a guide governing the obligations and responsibilities of all attorneys appearing in this Court. It is recognized, however, that no set of rules may be framed which will particularize all the duties of the attorney in the varying phases of litigation or in all the relations of professional life. Therefore, the attorney . . . should be familiar with the duties and obligations imposed upon members of this Bar by the Texas Disciplinary Rules of Professional Conduct, court decisions, statutes, and the usages, customs and practices of this Bar.

Local Rule AT-2 (a). It has long been the rule in the Fifth Circuit that the Texas Disciplinary Rules of Professional Conduct are not the sole authority governing a motion to disqualify,

even if a District has adopted those Rules. In re Dresser Industries, 972 F.2d 540, 543 (5th Cir. 1992). This is so because "[m]otions to disqualify are substantive motions affecting the rights of the parties and are determined by applying standards developed under federal law." Id. These include the ABA Model Rules of Professional Conduct. In re American Airlines, Inc., 972 F.2d 605, 610 (5th Cir. 1992).

IV. The Use of Ethical Walls in Texas

Texas has not made ethical walls extinct. But that screening technique has only limited utility in the absence of agreement. By way of overview, attorneys cannot rely on an ethical wall to shield them from conflicts, except perhaps in very unusual circumstances. This follows from the adoption in Texas of two conclusive presumptions. In contrast, ethical walls may be used in some circumstances to allow non-lawyers to move from one law firm to another law firm, because only one of the two presumptions is conclusive as to non-lawyers.

A. Ethical Walls and Attorneys

An attorney is disqualified from undertaking representation of a new client that will be adverse to a former client, if the matters embraced in the former lawsuit are "substantially related" to the factual matters involved in the pending lawsuit. NCNB Texas Nat'l Bank v. Coker, 765 S.W.2d 398, 399-400 (Tex. 1989) (orig. proceeding); Phoenix Founders, Inc. v. Marshall, 887 S.W.2d 831, 833 (Tex. 1994) (orig. proceeding). This essentially-absolute rule is based on a conclusive presumption that confidences were imparted to the attorney during the prior representation.16 Coker, 765

16 "While we agree with [Plaintiff] that Rule 1.09 cannot be

an absolute test for disqualification of counsel in litigation, we see no reason not to apply it in this case." Henderson v. Floyd, 891 S.W.2d 252, 254 (Texas 1995) (orig. proceeding). In Henderson, an associate in the firm engaged to represent plaintiff shortly before trial was previously employed in the firm representing defendant during the pendency of the underlying lawsuit. While at the firm representing defendant, the associate never met the defendant and never served as his attorney of record. But the associate saw files and was unable to deny that he had some involvement with the case. He also attended file-review meetings at which attorneys discussed strategy and exchanged ideas. The associate could not recall whether the underlying lawsuit was discussed at such meetings in his presence. The associate was not aware that his new firm had been retained to represent the plaintiff until he heard a partner talk about the case. Since then, the associate has been screened from any information. Nevertheless, "absent changed circumstances," the district court was conditionally ordered to disqualify the law firm from representing plaintiff. Id. at 255.

In contrast, Texas Ethics Opinion 453 (1988) concluded that if an associate in firm A has done no work for X and has no knowledge of matters affecting X, it is not unethical for the associate to discuss employment with law firm B which represents Y in litigation with X. It would be unethical for the associate to

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S.W.2d at 400; Phoenix Founders, 887 S.W.2d at 833. The purpose of the conclusive presumption is to prevent the party seeking disqualification from being forced to reveal the very confidences sought to be protected. In re American Home Prods. Corp., 985 S.W.2d 68, 74 (Tex. 1998) (orig. proceeding). This conclusive presumption has also been applied to legal secretaries, paralegals, legal assistants and freelance consultants who have worked on a case. Id.

Generally, there is a second conclusive presumption that is triggered when an attorney moves from one law firm to another; viz., that an attorney who obtained confidential information from a prior firm shares it with the members of his new firm. Phoenix Founders, 887 S.W.2d at 834. And "the erection of a Chinese wall will not rebut the presumption of shared confidences when an attorney in private practice has actual knowledge of a former client's confidences in relation to a particular suit and he thereafter undertakes employment with a firm representing an adversary of the former client in that same suit." Petroleum Wholesale, Inc. v. Marshall, 751 S.W.2d 295, 299 (Tex. App. – Dallas 1988, orig. proceeding). Petroleum Wholesale was cited with approval by the Texas Supreme Court in Phoenix Founders, 887 S.W.2d at 834.

There are a few cases that have not disqualified a law firm, although they should be taken with a dose of caution. For example, in Lamaire v. Texaco, 496 F. Supp. 1308 (E.D. Tex. 1980), a member of a Beaumont firm did some initial work for Tennaco in a lawsuit. He left the firm to join the firm adverse to Tennaco. Before switching firms, the attorney "went to great lengths" to isolate himself from the lawsuit. He recognized he would be disqualified from participating in the litigation and "made certain that he would receive no part of any attorneys' fees collected in this case and, conversely, would not share in its expenses." Id. at 1309. According to the district court, the lawsuit was extremely complex, "involving novel theories of jurisdiction and liability. It has also been very expensive to prepare. The testimony . . .shows there is no other firm in the . . . area that is qualified or even willing to take on litigation of this magnitude for the Plaintiffs." Id. Consequently, if "the Court were to disqualify the [law firm] from appearing in this case, the Plaintiffs would be forced to secure counsel from another city to prosecute their suit." Id. The district

represent Y, but it would not be unethical for other members of law firm B to continue representing Y in pending litigation against X. Opinion 453 at 2.

In Texaco v. Garcia, 891 S.W.2d 255, 256 (Tex. 1995), the Texas Supreme Court disqualified a law firm from prosecuting claims against Texaco because one of the name partners had represented Texaco while at a prior firm.

court declined to apply an irrebuttable presumption of sharing, relying on its view of a 1979 Fifth Circuit case, Brennan's, Inc. v. Brennan's Restaurants, Inc., 590 F.2d 168, 174 (5th Cir. 1979).17

Carbo Ceramics, Inc. v. Norton-Alcoa Proppants, 155 F.R.D. 158 (N.D. Tex. 1994) also declined to apply the second irrebuttable presumption to disqualify a law firm. Here, an associate billed 216.5 hours for work performed for Carbo while at firm A in 1990 and 1991. The associate then went to firm B. Two years later, he was contacted about going to work for firm C, the firm that was adverse to firm A in the Carbo litigation. He was asked about the work he had done at firm A, "did not disclose the specifics of the work he performed on the present case [at firm A] and that the [firm C] attorneys were left with the impression that his work product at [firm A] was on 'generic' matters, rather than on substantive issues." Id. at 160. The associate joined firm C and Carbo's motion to disqualify firm C followed promptly. Firm C initially isolated the associate through, among other things, an ethical wall. Following consultation with outside counsel, firm C terminated the associate.

The Magistrate Judge focused on the second presumption, that counsel transmitted confidences he had received while employed at firm A to the members of firm C. The court distinguished In re American Airlines, supra, on the ground it dealt with a "client-switching" situation rather than a migrating attorney whose confidential knowledge is imputed to the members of the second firm, id. at 161, as well as noting that American Airlines expressly stated the second presumption was not at issue in that case. The magistrate judge also distinguished American Airlines as an antitrust case, while the underlying action involved a patent infringement lawsuit. Id. This distinction was relevant because the Federal Circuit had held that imputed shared confidences may be rebutted, relying on a 1971 Fifth Circuit decision. Id., citing Panduit Corp. v. All States Plastic Mfg Co., 744 F.2 1564, 1578-79 (Fed. Cir. 1984). Under the circumstances present, and in view of the significant and uncontroverted prejudice firm C's client would suffer if the firm was disqualified, the motion to disqualify was denied.18

17 Cf. In re Dresser Industries, Inc., 972 F.2d 540, 545 n.12

(5th Cir. 1992) ("Although we do not now reach the matter, our consideration of social benefit to offset the appearance of impropriety might allow [some concurrent representation] if the balance clearly and unequivocally favored allowing such representation to further the ends of justice.")

18 See also EZ Paintr Corp. v. Padco, Inc., 746 F.2d 1459, 1461 (Fed. Cir. 1984) (applying the law of the regional circuit to disqualify a law firm). The Federal Circuit, although applying a rebuttal presumption, rejected the efforts by the law firm to erect an

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Patent infringement cases sometimes involve multiple defendants and a joint defense group. National Medical Enterprises, Inc. v. Godbey, 924 S.W.2d 123 (Tex. 1996) (orig. proceeding) presented the issue of disqualification of a law firm where one of its attorneys had obtained confidential information pursuant to a joint defense agreement from one of the co-defendants. In the first suit, counsel represented his own clients and also received confidential information from another defendant. The joint defense agreement clearly stated that each client was represented only by her or his own lawyer. Some time after the first suit settled, other lawyers in the law firm filed a lawsuit against the co-defendant, based on allegations substantially similar to those asserted against counsel's clients in the first suit. The attorney sought to honor his pledge to preserve confidences of co-defenses disclosed to him under the joint defense agreement by using, among other things, an ethical wall, to isolate the lawyers in his firm handling the second suit from the confidences co-defendants had given him in the first lawsuit.

The Court easily concluded that the pending action was substantially related to the first suit. 924 S.W.2d at 120. After paying lip service to the efficacy of counsel's efforts to erect an ethical wall, id. at 131, the Court held those efforts to be legally ineffective. It concluded that the second conclusive presumption applied, despite the absence of an attorney-client relationship, when the attorney was required to preserve the other's confidences, "just as if the other had been a client." Id. at 132.

B. Ethical Walls and Non-lawyers

Texas Ethics Opinion 472 (1991) considered whether, when during the pendency of a lawsuit, an attorney in a small law firm fires his "right hand" secretary or legal assistant and that person then becomes employed with the opposing law firm (also small), the new law firm should be disqualified from further representation of a party adverse to the former employer's client. The Opinion explained that while old Disciplinary Rule 9-101 required attorneys to avoid even the appearance of impropriety and old Disciplinary Rule 4-101 encouraged lawyers to avoid any likelihood of public suspicion of the legal profession, and the case law generally required disqualification, the new Rules do not require an automatic suspension. Instead, new Rule 5.03 specifically requires a non-lawyer's supervising attorney to make reasonable efforts to ensure that the non-lawyer conduct is compatible with the professional

ethical wall only after the Magistrate Judge had issued a report recommending disqualification. Id. at 1462.

obligations of the lawyer, including compliance by the legal assistant or secretary with Rule 1.05 concerning client confidences, Rule 1.06 concerning conflicts of interest and Rule 1.09 concerning former client conflicts of interest. Subject to fulfilling those obligations, the new law firm is not ethically required to be disqualified from representation of a party adverse to the former employer's client. Id. at 2.

Phoenix Founders cited Opinion 472 with approval. 887 S.W.2d at 834. In this case, the Texas Supreme Court considered whether a law firm must be disqualified from ongoing litigation because it rehired a legal assistant who had worked for opposing counsel for three weeks. During those three weeks, the legal assistant billed 0.6 hours for locating a pleading and discussed the case generally with lead counsel. Three weeks after she returned to the first firm, opposing counsel demanded that firm withdraw from the lawsuit. The legal assistant resigned from the firm (having been given the option of resigning with severance pay or being fired), but the law firm would not withdraw.

The Court agreed that a paralegal who has actually worked on a case must be subject to the conclusive presumption that confidences and secrets were imparted during the paralegal's work on the case. Id. But the Court did not accept the argument that paralegals should be conclusively presumed to share confidential information with members of their new firm, citing Opinion 472 and ABA Op. 1526. The second presumption exists, but is not conclusively applied to paralegals and other non-lawyers. Id. at 834-35. In particular, the new firm can rebut application of the second presumption if (1) it strictly adheres to a screening process (the "ethical wall") and (2) the non-lawyer does not reveal any information relating to the former employer's clients to any person in the new firm. The screening process requires the following steps: (a) the newly hired non-lawyer must be cautioned not to disclose any information relating to the representation of a client of the former employer, (b) the non-lawyer must be instructed not to work on any matter on which he/she worked during the prior employment, or regarding which she has information relating to the former employer's representation, and (c) the new firm takes other reasonable steps to ensure that the non-lawyer does not work in connection with matters on which she/he worked during the prior employment, absent client consent after consultation. Id. at 835.

To determine whether screening has been effective, the Court instructed district courts to consider: the substantiality of the relationship between the former and current matters; the time elapsed between the matters; the size of the firm; the number of individuals presumed to have confidential information; the nature of their involvement in the former matter; and the timing and features of any measures taken to

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reduce the danger of disclosure. Id. at 836. If the old firm and the new firm represent adverse parties in the same proceeding, rather than in different proceedings, the danger of improper disclosure by the non-lawyer is increased. Id. Moreover, even if the new employer uses the screening process, disqualification will always be required – absent the former client's consent – when, for example, information relating to the representation of an adverse client has in fact been disclosed, when screening would be ineffective, or when the non-lawyer necessarily would be required to work on the other side of a matter that is the same as or substantially related to a matter on which he/she previously worked. Id. at 835.

In re Mitcham, 133 S.W.3d 274 (Tex. 2004) presented an interesting factual situation. Here, a legal assistant had worked at a defense firm on asbestos cases brought against companies including TXU. She earned her law degree and sought employment with a firm prosecuting asbestos cases. Two law firms entered into an agreement that the latter firm would not participate in any asbestos suits against TXU, and the new lawyer went to work for the plaintiff's firm. Four years later, she left that firm, and it promptly filed suit against TXU. The Texas Supreme Court declined to consider whether the second presumption would be conclusively applied against the new law firm, which had erected a suitable ethical wall. Instead, it held under "the peculiar facts of this case" that the law firm was disqualified because the agreement entered into years earlier contained no time limit and "at least as to confidentiality none can be implied." Id. at 277.

C. The "Substantially Related" Test

To show that a substantial relationship requiring disqualification exists, the party seeking disqualification must prove that the facts and issues involved in both the former and present litigation are so similar that there is a genuine threat that confidences revealed to the party's former counsel will be divulged to his present adversary. See, e.g., In re Epic Holdings, 985 S.W.2d 41, 51 (Tex. 1998) (orig. proceeding); NCNB Tex. Nat'l Bank v. Coker, 765 S.W.2d 398, 399-400 (Tex. 1989) (orig. proceeding). Movant must provide evidence of specific similarities capable of being recited in the disqualification order. Coker, 765 S.W.2d at 400. If this burden is met, the movant is entitled to a conclusive presumption that confidences and secrets were imparted to the former attorney. The actual disclosure of confidences need not be proven. Id.

In re Bell Helicopter Textron, 87 S.W.3d 139 (Tex. App. – Ft. Worth 2002) (orig. proceeding) involved a motion to disqualify counsel because they had employed as a consulting expert a former Bell employee who knew a great deal of Bell's confidential information about the issues in the underlying suit.

The appellate court found there was "ample evidence" the consulting expert ("Vale") had been privy to confidential information about matters substantially similar to the matters involved in the underlying suit. Id. at 147. This was sufficient to impose on Vale the conclusive presumption that confidences and secrets about Bell's cases were imparted to her and were specific enough to be capable of being recited in the disqualification order. However, because Vale was not a lawyer, the appellate court then considered whether counsel could effectively screen Vale's work so there was no threat that the consultant might reveal any of Bell's confidential information to counsel. Id. This determination focused on the similarity of the matters in issue rather than on Vale's credibility. Id., citing Epic Holdings, 985 S.W.2d at 51. Disqualification was required despite efforts to screen Vale because she necessarily would be required to work on the other side of the same or a substantially related matter. Id. at 148, citing Phoenix Founders, 887 S.W.2d at 835. Indeed, the appellate court concluded that screening would not be effective even though nearly fourteen years had elapsed since Vale had worked for Bell. Id.

By contrast, in In re American Home Products Corp., 985 S.W.2d 68 (Tex. 1998), a law firm was not disqualified even though it hired an expert who had consulted for the other side. The Court explained that the expert could not have "confidential information from the other side because all communications with the expert were discoverable under Texas procedural rules.19

19 Islander East Rental Program v. Ferguson, 917 F. Supp.

504 (S.D. Tex. 1996) presents an interesting situation. The court held that a law firm was disqualified in a dispute involving ownership of trademarks and service marks where the firm had previously represented one of the adverse parties in a divorce. The district court explained that disqualification is mandated if the movant either established a substantial relationship between the subject matter of the former relationship and its current representation or if the firm, through its former representation of the adverse party, possess relevant confidential information that may be used to the individual's disadvantage. Confidences were disclosed to the law firm about financial issues that were relevant to many of the claims in suit. Id. at 511. Defendants sought discovery that included certain financial information.

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APPENDIX A

Sample Retainer Letter with Future Waiver

This agreement is entered into this _____ day of ____, 200__, between _______________ ("Client") and [Law Firm] "Firm," with respect to the retention by Client of Firm.

1. Client is retaining Firm to furnish to Client certain limited advice with respect to __________________________________________________________________(this representation, and any future representation encompassed by Paragraph 9, below, are referred to herein as the "Representation"). Client agrees that the Representation is intended to be limited in scope and time.

2. Firm is representing only Client with respect to the Representation and, unless otherwise agreed in writing, is not representing any related or affiliated person or entity, nor any parent, brother-sister, subsidiary, or affiliated corporation or entity, nor any of their officers, directors, agents, or employees.

3. The hourly rates of Firm's professional staff range (typically on the basis of seniority) from $___ to $____ per hour in the case of partners, from $____ to $____ per hour in the case of associates, and from $____ to $____ per hour in the case of legal and clerical assistants.

4. From time-to-time matters may arise in which others seek representation by Firm adverse to Client. The Texas Disciplinary Rules of Professional Conduct forbid Firm from accepting such representations during Firm's representation of Client in matters substantially related to matters Firm handles for Client absent informed written consent by client. Client hereby agrees that, even while Client is a present client of Firm, and at all times thereafter, Firm may continue to represent, or undertake to represent, existing or new clients in any matter directly or indirectly adverse to Client which does not involve the specific facts of the Representation and the specific advice provided by Firm in the course of the Representation. Notwithstanding this consent, Firm shall hold confidential all information provided to it by Client in the course of the representation and will not use such information for any purpose except for the benefit of, and on behalf of, Client.

5. Client, in giving the consent provided for at Paragraph 4, above, recognizes the potential adverse consequences which may result from Firm representing parties adverse to Client. These include the perception, which may undermine Client's trust in Firm, that Firm's loyalty and independence of judgment with respect to Client are impaired. Firm's representation of parties adverse to Client may come at a time when it would harm Client's interests to terminate the service of Firm, or after significant expenditures of fees and costs to Firm which might have to be replicated by new counsel.

6. Client has been advised to seek the advice of independent counsel with respect to the advisability of the consent provided for at Paragraph 4, above.

7. Firm's representation of Client will be considered terminated at the earlier of (i) Client's termination of Firm's representation, (ii) Firm's withdrawal in accordance with law from its representation of Client, or (iii) the substantial completion of Firm's substantive work for Client.

8. The agreement reflected herein, including the consent provided for at Paragraph 4 hereof, apply to the current representation of Client by Firm as well as any subsequent matters which Firm agrees to undertake on Client's behalf.

Firm

________________

Client By: ______________ Its: ______________