Is it proper for a law firm to represent an employer and employee, both of whom are named as defendants in a suit, deliver to the employer and employee confidential information adversely affecting the employee that leads to a conflict of interest between the employer and employee, and continue representing the employer but not the employee in the suit, pursuant to a written agreement executed by the employer and employee?
A former employee sues Company X and Supervisor Y in an employment-related matter. Company X wants to pay for Y's defense. Law firm has been representing Company X for several years in its labor and employment matters. Thus, Company X enlists law firm in the representation of both X and Y. Prior to entering into representation of X and Y, law firm consults with Y and discusses the implications of this dual representation. After a similar Discussion with X, both X and Y sign the following agreement:
There are no known or suspected conflicts of interest between X and Y at this time. X, Y and law firm reasonably believe that none will arise. Both X and Y declare that they have revealed to each other all information they are aware of that may indicate a conflict of interest or a potential conflict of interest between them. In this suit, X and Y are generally aligned in interest. The expense of separate representation and unlikelihood of a conflict, indicate that it would be a prudent use of X's resources for law firm to represent both X and Y in this common lawsuit.
It is understood that the remote possibility of a future conflict of interest does exist. Law firm may discover confidential information about either X or Y that may damage X's relationship with Y, thereby causing a conflict of interest. In the event such information is discovered, such information is to be revealed to both X and Y as soon as the conflict is recognized. Both X and Y understand the revelation of such information may result in Y's termination or a cause of action by X against Y. Law firm will not subsequently represent either X or Y in any suit against the other unless and until consent is obtained from both parties. Law firm may continue to represent X in the present litigation even though that representation may adversely affect Y.
In the course of law firm's investigation for the defense of former employee's suit, it discovers that while Y is innocent of the former employee's charge in the suit, he is not a suitable supervisor. Y has committed no criminal or fraudulent acts. X and Y are informed of law firm's discovery and Y is fired by X. Law firm withdraws from Y's representation and continues to represent only X in the present litigation.
Questions1. Does the agreement between X and Y violate any Disciplinary Rule?
2. Is it proper for the law firm to reveal to the employer confidential information about the employee obtained by the law firm's interview of the employee?
3. Is it proper for the law firm to withdraw from representing the employee and
continue representing the employer in the present litigation after discovery of the
information about the employee that led to termination of employment?
Answers to the questions presented are governed by Rules 1.05 and 1.06, Texas Disciplinary Rules of Professional Conduct.
Rule 1.05 provides that a lawyer shall not knowingly reveal confidential information of a client or a former client to anyone else, other than the client, the client's representatives, or the members, associates, or employees of the lawyer's law firm, except as permitted by paragraphs (c) and (d), or as required by paragraphs (e) and (h) of Rule 1.05.
Paragraph (c) provides that a lawyer may reveal confidential information: when the lawyer has been expressly authorized to do so in order to carry out the representation or when the client consents after consultation.
Implicitly, the first exception under subparagraph (c) means that the lawyer may reveal confidential information about a client when the lawyer has been expressly authorized to do so in order to carry out the representation of the client. Therefore, this exception does not allow disclosure of confidential information in order to carry out the representation of another party. The second exception under paragraph (c), authorizing a lawyer to reveal confidential information when the client consents after consultation, does not require, on its face, that the client's consent be obtained after the confidential information is obtained by the lawyer.
Requiring a lawyer to obtain consent after consultation would aid in insuring that a client is fully informed of the consequences or potential adverse effect of the disclosure of confidential information so that the client can give (or withhold) informed consent to the disclosure of that information. It may be difficult to fully inform a client of all potential consequences of the disclosure of confidential information before knowing the substance of that information. That difficulty does not, however, require a determination that consultation about and consent to the disclosure of confidential information occur after knowledge of the details of that confidential information is obtained by a lawyer.
The other provisions of paragraph (c) and the provisions of paragraphs (d), (e), and (h) provide no guidance to the answer of the question presented and are inapplicable under the facts of this inquiry.
Rule 1.06 provides that a lawyer shall not represent opposing parties to the same litigation. The employer and employee are not opposing parties in the lawsuit in which the law firm was employed. Their interest in that suit is stated to be common and free from conflict. The conflict that exists between the employee and employer relates to the employee's termination, and not the subject of the suit under the facts stated. Therefore, Rule 1.06 did not prohibit the law firm from representing the employer and employee initially.
It is not improper for the law firm to continue representing the employer if all implications of the dual representation of the employer and employee, including the potential consequences to the employee of the disclosure to the employer of confidential information about the employee were fully discussed with the employee by the lawyer and the employee was fully and competently informed as to the consequences prior to the execution of the agreement.
If the law firm fully advised the employer and employee of the implications, any potential disadvantage or adverse consequences to the dual representation, and the consequences of the disclosure of confidential information before the agreement was executed, then: