In NME, Baker & Botts had previously represented an employee of a company in connection with certain criminal investigations. The firm did not represent the company, but it did have a joint defense agreement with it. 924 S.W.2d at 125. Later, the firm sought to sue only the corporation. The employee intervened in the suit, claiming that Baker Botts' suit against the company would likely lead to discovery of facts that could land him in jail.
The district court denied the motions of both the employee and the corporation. As to the corporation, the district court held that the corporation had expressly disclaimed that Baker & Botts owed it any duty of loyalty, and so Baker & Botts had not been its fiduciary, and therefore, Baker & Botts was free to be adverse to it. 924 S.W.2d at 148. As to the employee's motion, the district court held that the suit was not adverse to him and was not likely to result in the misuse of any information he may have imparted to the firm. 924 S.W.2d at 143.
The Supreme Court reversed. It held that the suit was adverse to the employee. More pertinent here, it held that the co-defendant corporation's information was imputed to every lawyer in the firm even though the firm had never represented it as a client. 924 S.W.2d at 131-32.
Imputation of a conflict to all lawyers within a firm results from the use of presumptions that arise under the ethical rules, and in particular, Texas Rule 1.09(b). In NME, the court imputed ó irrebuttably ó the lawyerís knowledge of the co-defendant to all other lawyers within the law firm by presuming that the lawyer who had represented NME had shared its information with every lawyer in Baker & Botts ó a conclusion based upon the courtís assumption that the duties owed to a co-defendant are "the same as" those owed to a client. 924 S.W.2d at 132. In so reasoning, the court stated that it could "perceive no reason why the presumption should not apply." Id.
The Argument Against NME Court's Imputation of a Joint Defendant's Confidences to all Lawyers in a Firm.
There are several arguments to be made, as the dissent attempted to do, 924 S.W.2d at 137, that imputation was unwarranted. For the following reasons, NME will probably not be the last word on this issue.
If every lawyer in a firm is presumptively disqualified from litigating a matter where one lawyer in the firm possesses relevant information of a former co-defendant, then this will severely restrict choice of counsel. The courtís conclusion that imputation occurs severely restricts choice of counsel. Other courts have refused to use presumptions to disqualify even the lawyer actually litigating the case (let alone an entire firm) due to exposure to a co-defendantís information. For example, in Fred Webber, Inc. v. Shell Oil Co., 566 F.2d 602 (8th Cir. 1977), cert. denied, 436 U.S. 905 (1978), overruled on other grounds, 612 F.2d 377 (8th Cir. 1980), the Eighth Circuit affirmed denial of a motion to disqualify brought by a co-defendant of a former client. That court explained:
Would a member of the public, or of the bar, see an "impropriety" in the mere presentation of C against B by a lawyer who had represented B's co-defendant in a related prior suit? We think not . . . . To hold that every representation against a former client's co-defendant in a related matter raises an appearance of impropriety would unnecessarily restrict the choice of counsel available to litigants . . . .
566 F.2d at 609. Other courts that have addressed motions brought by co-defendants of former clients are in accord. E.g., International Paper Co. v. Lloyd Mfg. Co., 555 F. Supp. 125 (N.D. Ill. 1982);McFarland v. Fourth Judicial District, 718 P.2d 247, 250 (Colo. 1986).
The approach taken by the NME court far more drastically limits choice of counsel and in substance adopts an argument even more restrictive of the right to choose counsel than that rejected in Fred Webber: The NME court held that where one lawyer personally represented the co-defendant of the movant every lawyer in a firm is irrebuttably presumed to have knowledge of the movant's confidences. The basis for the courtís holding was that the presumption was necessary in order to "remov[e] undue suspicion that clientsí interests are not being fully protected." 924 S.W.2d at 131. Thus, where the Eighth Circuit refused to disqualify even one lawyer based upon presumptions or appearances, the NME court would disqualify an entire firm.
The NME court stated that firm-wide imputation due to an irrebuttable presumption arises "by law." 924 S.W.2d at 131. The court noted that the Texas Rules contain this presumption in order to protect clients, id., but then stated that it could "perceive no reason why the presumption should not apply" where the party which had disclosed the information was not a client, but rather was a co-defendant of a client and the disclosure was made under a joint defense agreement. Id. at 132.
The court cited no authority holding that a non-client's knowledge is presumptively imputed to ever lawyer within a firm under a joint defense agreement. The two Texas cases cited by the court both involved motions to disqualify brought where there had been previous attorney-client relationships with the movants, and hence imputation of knowledge was proper solely due to Texas Rule 1.09(b). (In one case, a lawyer within the disqualified law firm previously actually had an attorney-client relationship with the movant, Henderson v. Floyd,891 S.W.2d 252, 254 (Tex. 1995) (per curiam), and in the other, a non-lawyer in the disqualified firm had been employed by a firm in which a lawyer had an attorney client relationship with the movant, Phoenix Founders, Inc. v. Marshall, 887 S.W.2d 831, 834 (Tex. 1994).)
But Texas Rule 1.09(b) expressly imputes a conflict to other lawyers within a firm only where at least one lawyer in the firm "personally has formerly represented a client in a matter . . . ." Tex. R. 1.09(a). Thus, none of the authorities cited by the NME court supports imputation ìby lawî where there was never an attorney-client relationship between the law firm and the movant.
Apart from the wording of the rule, there are strong policy reasons why only clients are afforded the protection of imputation created by irrebuttable presumptions. The Rules grant powerful presumptions to clients who seek disqualification: courts do not apply presumptions to motions to disqualify brought by non-clients. A principal example is the case heavily relied upon by the NME court itself, Wilson P. Abraham Constr. Corp. v. Armco Steel Corp., 559 F.2d 250 (5th Cir. 1977) (per curiam), op. on remand, 1979-1 Trade Cas. (CCH) ¶ 62,569 (E.D. La. March 28, 1979). In that case, both the Fifth Circuit and the district court on remand refused to presume that the lawyer who had actually represented the movant's former co-defendant knew relevant confidential information. Indeed, the district court's ultimate denial of the disqualification motion was based upon its finding that confidential information had, in fact, not been imparted.
The general reason for refusing to allow non-clients access to these powerful presumptions was explained by the Fifth Circuit in a different context:
To allow an unauthorized surrogate to champion the rights of the former client would allow that surrogate to use the conflict rules for his own purposes where genuine conflict might not really exist. It would place in the hands of the unauthorized surrogate powerful presumptions which are inappropriate in his hands.
In re Yarn Processing Patent Validity Litig.,530 F.2d 83, 88 (5th Cir. 1976). The Fifth Circuit used the term ìunauthorizedî because the ethical code did not authorize non-clients to rely on its protections.
The result that the NME court reached, therefore, is arguably at odds with every other jurisdiction. Courts which have addressed this issue have held that a lawyer is not presumed to have knowledge of relevant confidential information, even in a substantially related case, and that no appearance of impropriety arises when the lawyer who had personally represented the former client litigates against the former clientís co-defendant in a related case. E.g., Fred Webber, supra; Wilson P. Abraham, supra; Nemours Found. v. Gilbane, Aetna, Fed. Ins. Co., 632 F. Supp. 418 (D. Del. 1986).
The courtís approach makes the use of unwritten joint defense agreements risky. Under unwritten joint defense arrangements, the parties and their counsel owe one another a duty of confidentiality, such that privileged information disclosed during the joint defense is not waived. Under NME, such lawyers owe fiduciary duties to the co-defendants of their opponents equal to that they owe to their clients.
May a lawyer to such an unwritten joint defense arrangement represent even his own client in a dispute that later arises among those co-defendants? More fundamentally, if a lawyer owes a ìfiduciary dutyî to a co-defendant which is the ìsame asî that he owes to his client, can the lawyer ever use any information gained from a co-defendant to the advantage of his client or disadvantage of the co-defendant? If, as the NME court has stated, the fiduciary duty that the lawyer owes to a co-defendant is the ìsame asî that he owes to a client, then a lawyer should never enter into a joint defense agreement, because if he learns any information from the co-defendant which he could use against that co-defendant or in favor of his client, he faces a conflict of interest.
The principle which NME arguably establishes is that a lawyer's agreement with a non-client includes the duties created solely by the disciplinary rules. That contradicts the principle that the rules do not create private causes of action nor any presumption that a legal duty to a client has been breached. Tex. R. Preamble, ¶ 15. Yet, the NME Court held that Texas Rule 1.09(b) establishes when a lawyer breaches an implied duty to a non-client.
As shown above, those courts that have specifically addressed whether non-clients may rely upon the rules relating to duties of loyalty and confidentiality, and their attendant presumptions, have recognized that such rules are inapplicable to the relationship of a lawyer to a co-defendant of a former client because there was no attorney-client relationship. Thus, the NME court's holding that the disciplinary rules can be used to determine a lawyer's duties to non-clients is unprecedented.
The irrebuttable presumption of shared confidences can only be justified by the close, fiduciary relationship of attorney and client. Indeed, prior to NME, the court had declined to apply the irrebuttable presumption in circumstances where no attorney-client relationship exists, even though confidential client information had been imparted. See, e.g., Phoenix Founders, 887 S.W.2d at 834-35 (declining to apply an irrebuttable presumption of shared confidences when a paralegal joined a new law firm); Grant, 888 S.W.2d at 467-68 (declining to apply an irrebuttable presumption of shared confidences when a secretary went to work for a new law firm). As the Court of Appeals in the Grant case explained:
The crux of the automatic disqualification under Rule 1.09(a) depends upon the original creation of a personal attorney-client relationship between the lawyer and his former client. See Rule 1.09 cmt. 2. From that attorney-client relationship, two presumptions arise: 1) that confidences have been shared with an attorney actively handling the client's case, and 2) that the attorney will in turn share those same confidences with other attorneys in any firm with which he or she practices.
Occidental Chemical Corp. v. Brown,877 S.W.2d 27, 30 (Tex. App.--Corpus Christi 1994) (emphasis added).