THE TEXAS DISCIPLINARY RULES OF PROFESSIONAL … · THE TEXAS DISCIPLINARY RULES OF PROFESSIONAL...

THE TEXAS DISCIPLINARY RULES OF PROFESSIONAL CONDUCT…

The Rules Referendum…

How Did We Get Here? Where We Are? Where Are We Going? Does The Legislature Still Care? (Yes) Barratry Is Now A Cause Of Action!

Moderator GUY D. CHOATE

Webb, Stokes & Sparks, L.L.P. 314 W. Harris Ave

San Angelo, Texas 76903 325-653-6866

Panelists PROF. LINDA EADS, Dallas Southern Methodist University

Dedman School of Law

HARRY GRANT POTTER III, Houston William Kherkher Hart Boundas

RICHARD C. “DICKIE” HILE, Austin

Dies & Hile

State Bar of Texas ADVANCED PERSONAL INJURY COURSE 2011

Dallas – July 6-8 San Antonio – August 10-12 Houston – September 14-16

Houston – November 2-4

CHAPTER 9

GUY D. CHOATE 314 W. Harris Avenue

San Angelo, Texas 76903 325-653-6866

[email protected] Personal: Born: Fort Worth, Texas Wife, Eva Moutos-Choate 2 children:

Michael, 26 (University of Texas, Grad,2006) (Texas Tech Law School,2010) Anne Marie, 22 (Texas Tech University,2010)

Education: BA, Cum Laude; Angelo State University, 1975 Alpha Chi (Honors fraternity) Legal education; University of Houston, Bates College of Law

Order of the Barons 1978

Professional: Webb Stokes & Sparks, L.L.P. Partner P.O. Box 1271 314 W. Harris Avenue San Angelo, Texas 76902-1271 Webbstokessparks.com

Licensed, Supreme Court of Texas, 1979 Board Certified, Personal Injury Trial Law,

Texas Board of Legal Specialization, 1985 Admitted to Practice: State Bar of Texas, Northern, Western and Eastern Federal Districts, Fifth Circuit Court of Appeals

Membership and Awards: Texas Trial Lawyers Association (President 2005) State Bar of Texas, Director District 15 (2007-2010) John Howie Spirit of Mentorship Award (2007) State Bar of Texas, Executive Committee (2008-2009) State Bar of Texas, Presidential Citation (2008)

American Board of Trial Advocates (ABOTA)(Chapter President 2005) Tom Green County Bar Association (President, 1994-1995) Texas Monthly “Super Lawyer” 2003,2004,2006,2007,2008,2009,2010

American Association of Justice (Formerly ATLA) (Sustaining Member) Texas Bar Foundation (Life Member)

College of the State Bar of Texas Texas Pattern Jury Charge Committee, Volume 1 (1995-2004) Chairman, (2000-2004) Texas Pattern Jury Charge Oversight Committee Personal Injury Section: Board of Legal Specialization (Advisory Board 1993- 2000)

Chairman of District 15A Grievance Committee, 1989 Committee on Court Rules (State Bar of Texas (1994-2001)

Frequent Speaker at State Bar and Continuing Legal Education nationwide Course Director: Advanced Personal Injury Seminar/State Bar of Texas 2009

LINDA S. EADS Professor Eads has taught at the Southern Methodist University School of Law since January 1986. She teaches and writes in the areas of evidence, legal ethics, constitutional law and women and the law. At Southern Methodist University she has received the University Scholar/Teacher of the Year Award, the University Golden Mustang Teaching Award, and the Law School’s Don Smart Teaching Award (4 times). In 2009, Professor Eads received the Lola Wright Foundation Award given by the Texas Bar Foundation to one lawyer each year for outstanding public service in advancing and enhancing legal ethics in Texas. She was recently named one of 30 Extraordinary Women in Texas Law by the Texas Lawyer. From January 1999 to August 2000, Professor Eads was on leave from the Law School in order to assume the post of Deputy Attorney General for Litigation for the State of Texas under Attorney General John Cornyn. In this position she directed all the State’s civil litigation. Prior to joining the Law School faculty, Professor Eads served as a trial attorney with the United States Department of Justice, Tax Division. Starting on July 1, 2011, Professor Eads became Associate Provost for Southern Methodist University. In this capacity she will assist Provost Paul Ludden in directing and coordinating the academic programs for the University.

RICHARD C. HILE Dies & Hile, L.L.P.

1601 Rio Grande, Suite 330 Austin, Texas 78701

Telephone: (512) 476-4394

BIOGRAPHICAL INFORMATION

EDUCATION Lamar University, B.S. Government - 1971 Texas Tech University School of Law – J.D. 1974

PROFESSIONAL ACTIVITIES Partner, Dies & Hile, L.L.P., Austin, Texas Law Clerk to Judge Joe J. Fisher, Chief Judge United States District Court, Eastern District of Texas, 1974-1975 Sustaining Life Fellow Texas Bar Foundation Chairman, Tort & Compensation Section, State Bar of Texas, 1982-1983 Chairman, Board of Directors, State Bar of Texas, 1990-1991 Chairman, Advertising Review Committee, State Bar of Texas, 1995-1996 Chairman, Referral Fee Task Force, State Bar of Texas, 2004 President, American Board of Trial Advocates (ABOTA), Austin Chapter, 1995-1997 President, Tex-ABOTA 2000-2001 President, First Judicial District Bar Association, 1983-1985 Member: State Bar of Texas American Bar Association Texas Trial Lawyer Association Fellow, International Academy of Trial Lawyers Fellow, International Society of Barristers Board of Directors, Texas Center for Legal Ethics, 1998- 2008 Board of Directors, Texas Lawyers Insurance Exchange, 2006 - 2011 Listed in Best Lawyers in America, 1995-20011 Listed in Texas Monthly’s Super Lawyers, 2003-2011

ACADEMIC APPOINTMENTS AND HONORS: Regent, Stephen F. Austin State University, 1982-1991 Trustee, St. Stephen’s Episcopal School, 1998-2004 Distinguished Alumnus Award, Texas Tech University School of Law, 1996 Presidents’ Award, State Bar of Texas, 2004 Lola Wright Foundation Award – Outstanding Public Service in the Enhancement of Legal Ethics in Texas - 2006

STATE AGENCY APPOINTMENTS: Member, Texas Department of Housing and Community Affairs, 1991-1995

Harry G. Potter III, of counselHarry has been with Williams Kherkher since 1999 and currently serves as the firm's General Counsel.

Education

Bachelor of Arts degree from the University of Texas at Austin in 1985

Law degree from the University of Texas School of Law in 1987

Memberships

State Bar of Texas

Travis County Bar Association

American Bar Association

Honors and distinctions

Appointed by the Texas Supreme Court in 2005 to serve on the 9-member Texas Professional Ethics Committee, which issues advisory opinions on compliance with the Texas Disciplinary Rules of Professional Conduct

Founding Life Fellow of the Travis County Bar Foundation

Served on the State Bar Grievance Committee for District 9A for six years

Twice elected Chairman of the State Bar Grievance Committee for District 9A

Licensed to practice

All Texas state courts

U.S. District Courts for the Northern, Southern, Eastern and Western Districts of Texas

U.S. Court of Appeals for the Fifth Circuit

United States Supreme Court

Past experience

Harry spent 10 years as a lawyer in the Texas Attorney General's Office where he served as Deputy Division Chief of the General Litigation Division and later as a Special Assistant Attorney General

After leaving the Attorney General's Office, Harry taught full-time as a Visiting Professor at the University of Texas School of Law, where he taught Professional Responsibility

The Texas Disciplinary Rules of Professional Conduct… Chapter 9

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TABLE OF CONTENTS

I. INTRODUCTION ................................................................................................................................................... 1 II. PROCESS OF ADOPTING PROPOSED CHANGES TO DISCIPLINARY RULES .......................................... 1 III. SUMMARY OF PROPOSED DISCIPLINARY RULES CHANGES ................................................................... 1 IV. OUTCOME OF THE REFERENDUM RESULTS ................................................................................................ 2

A. Why opponents believe the referendum failed ................................................................................................... 2 B. Why proponents believe it failed ........................................................................................................................ 2

V. WHAT HAPPENS NEXT? ..................................................................................................................................... 3

A. Query: ................................................................................................................................................................. 3 VI. WHAT DO WE DO NOW? .................................................................................................................................... 3

A. Is the Legislature interested in what we do? You might say! ............................................................................ 3 B. According to the Bill Analysis relating to the new barratry fee disgorgement statute: ...................................... 3

VII. THIS IS THE BILL ................................................................................................................................................. 3 VIII. LET’S BREAK IT DOWN .................................................................................................................................... 4

A. §82.065(b) ........................................................................................................................................................... 4 B. Sec. 82.0651 ........................................................................................................................................................ 5

IX. CONTINUATION OF EMPLOYMENT PROCURED THROUGH BARRATRY THERE IS ALREADY A RULE ............................................................................................................................ 5

A. 7.06 Prohibited Employment (Disciplinary Rules of Professional Conduct) .................................................... 5 X. NO SAFE HARBOR FOR THE CONTINGENT FEE CONTRACT .................................................................... 5

A. The “innocent referral” attorney and Reporting Professional Misconduct: ........................................................ 5 B. When does the reporting obligation to obtain quantum meruit arise? ................................................................ 6 C. Review this section of the DR’s. ......................................................................................................................... 6 D. Indemnity for the handling attorney ................................................................................................................... 6

XI. ATTEMPTED BARRATRY .................................................................................................................................. 6 XII. WHAT IS BARRATRY UNDER TEXAS ............................................................................................................. 6 A. Penal Code provisions dealing with barratry Sec. 38.12. BARRATRY AND SOLICITATION OF

PROFESSIONAL EMPLOYMENT ....................................................................................................................... 6 B. Under the Disciplinary RuleS: Rule 7.03 Prohibited Solicitations & Payments .................................................... 7 XIII. 8.04 MISCONDUCT (TEXAS DISCIPLINARY RULES OF PROFESSIONAL CONDUCT) .......................... 8 XIV. POTENTIAL PROBLEMS .................................................................................................................................... 9 XV. STATE BAR OF TEXAS AND DISTRICT ATTORNEY ENFORCEMENT: ..................................................... 9 XVI. LIMITATIONS ...................................................................................................................................................... 9


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THE TEXAS DISCIPLINARY RULES OF PROFESSIONAL CONDUCT Texas Disciplinary Rules of Professional Conduct http://www.texasbar.com/AM/Template.cfm?Section=Grievance_Info_and_Ethics_Helpline&Template=/CM/ContentDisplay.cfm&ContentFileID=96 ABA Model Rules of Professional Conduct (2004) http://www.law.cornell.edu/ethics/aba/current/ABA_CODE.HTM TIMELINE OF THE REFERENDUM: AN OVERVIEW OF REFERENDUM 2011 I. INTRODUCTION

On January 18, 2011 the membership of the State Bar of Texas (SBOT) began voting on proposed changes to the Texas Disciplinary Rules of Professional Conduct (Disciplinary Rules). Referendum 2011 was the culmination of a process that began in 2003 with the Supreme Court of Texas’s appointment of a Task Force to review the Disciplinary Rules. The proposed changes were the product of the Supreme Court’s Task Force and the SBOT’s Disciplinary Rules Committee. This was the first comprehensive revision to the rules since the 1990 amendments. It went down to resounding defeat. A look back might be in order.

II. PROCESS OF ADOPTING PROPOSED

CHANGES TO DISCIPLINARY RULES Below is a timeline showing pertinent dates in the

process that resulted in the Referendum 2011. 2003 – American Bar Association completes

comprehensive review of Model Rules resulting in the adoption of proposed amendments.

2003 – Chief Justice Phillips appoints Supreme Court Task Force to review Disciplinary Rules in light of ABA Model Rules changes.

2006 – SBOT Disciplinary Rules Committee, considering 2003 ABA Model Rules, completes comprehensive review of Disciplinary Rules

October 20, 2010 – Supreme Court proposes amendments to Disciplinary Rules and invites comments through December 31, 2009.

April 14, 2010 – Supreme Court sends revised version of proposed Disciplinary Rules to SBOT Board of Directors (SBOT Board) requesting that Board, by October 6, 2009, provide the Court with recommendations or comments.

July 7, 2010 – The Court sends revised version of proposed rules and interpretive comments to SBOT Board requesting feedback by October 6, 2010.

August 30 through September 10, 2010 – Public hearings regarding proposed rules and comments held across state.

October 1 and November 5, 2010 – SBOT Board approves modified version of proposed rules and comments. SBOT Board petitions the Court to submit proposed rules to members via referendum between January 15 and February 14, 2011.

November 16, 2010 – The Court orders referendum between January 18 and February 17, 2011.

III. SUMMARY OF PROPOSED DISCIPLINARY

RULES CHANGES Below is a list of proposed rules that have

substantive revisions. There are numerous changes in other rules which are primarily technical, adding reference to terminology and consistency in format. These changes are not identified. A. Rule 1.00. Terminology includes new terms and

revised definitions that apply to disciplinary rules. B. Rule 1.01. Competent and Diligent

Representation, revisions to existing rule. C. Rule 1.02. Scope of Representation and Allocation

of Authority, revisions to existing rule. D. Rule 1.03. Communication, revisions to existing

rule. E. Rule 1.04. Fees, revisions to existing rule. F. Rule 1.05. Confidentiality, revisions to existing

rule. G. Rule 1.06. Conflicts of Interest, revisions to

existing rule. H. Rule 1.07. Conflicts of Interest: Multiple Clients

in the Same Matter, revisions to existing rule. I. Rule 1.08. Conflicts of Interest: Prohibited

Transactions, revisions to existing rule. J. Rule 1.09. Conflicts of Interest: Former Client,

revisions to existing rule. K. Rule 1.10. Special Conflicts of Interest: Former

and Current Government Officers and Employees, revisions to existing rule.

L. Rule 1.11. Special Conflicts of Interest: Adjudicatory Officials, Third-Party Neutrals, and Court Lawyers, revisions to existing rules.

M. Rule 1.12. Organization as a Client, revisions to existing rule.

N. Rule 1.13. Prohibited Sexual Relations, old rule deleted in its entirety and new rule regarding sex with clients proposed.

O. Rule 1.14. Diminished Capacity, old rule re-numbered to Rule 1.15 and new rule regarding diminished capacity proposed.

P. Rule 1.15. Safekeeping Property, revision to prior Rule 1.14.


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Q. Rule 1.16. Declining or Terminating Representation, revision to prior Rule 1.15.

R. Rule 1.17, Prospective Clients, new rule in its entirety.

S. Rule 3.03. Candor Toward a Tribunal, revision to existing rule.

T. Rule 5.01, Responsibilities of a Managerial or Supervisory Lawyer, revisions to existing rule.

U. Rule 5.07, Prohibited Discriminatory Activities, previously Rule 5.08 and renumbered.

V. Rule 6.01. Appointments by a Tribunal, revisions to existing rule.

W. Rule 6.02. Membership in Legal Services Organization, current Rule 1.13 with minor revisions.

X. Rule 6.03. Law Reform Activities Affecting Client Interests, new rule in its entirety.

IV. OUTCOME OF THE REFERENDUM

RESULTS It is important to review the outcome of the

referendum results. Question A Terminology, Competent and Diligent Representation, Scope of Representation and Allocation of Authority, Communication, Fees, Confidentiality, Safekeeping Property, and Declining or Terminating Representation: • Yes 7,688 20.00% • No 30,748 80.00% Question B Conflicts of Interest: Multiple Clients in the Same Matter: • Yes 7,312 19.02% • No 31,128 80.98% Question C Other Conflicts of Interest: • Yes 7,153 18.68% • No 31,138 81.32%

Question D Prohibited Sexual Relations, Diminished Capacity, and Prospective Clients: • Yes 10,617 27.69% • No 27,731 72.31%

Question E Advocate, Law Firms and Associations, Public Service, and Maintaining the Integrity of the Profession: • Yes 8,563 22.33% • No 29,787 77.67%

Question F Counselor, Non-Client Relationship, Information About Legal Services, and Severability of Rules: • Yes 8,788 22.90% • No 29,582 77.10%

A. Why opponents believe the referendum failed

No clear articulation of any problem that was being fixed.

Lack of uniformity for national firms

Lack of trust in the Supreme Court

Lack of uniformity for federal court practice

Supreme Ct refused Bar request for 90 days to work on conflicts rules

Plaintiffs’ lawyers concerned about Safekeeping rules 1.15

All the big firms uniformly opposed the conflicts sections

Sex-with-clients/found something offensive to everyone

Criminal lawyers concerned that flat fees were outlawed

Public Interest groups

R 1.04 on fees and expenses

R 1.05 confidentiality

R 1.17 on prospective clients

R 3.05 ex parte contacts

Bar campaign tactics

Perceived as one-sided

Use of Bar dues money to campaign for one side

Refused to permit opponents “equal time” on webcasts, emails, etc.

B. Why proponents believe it failed

Misinformation campaign

Very effective negative email campaign

Self interested Bar unwilling or unable to police itself.

Ignorance of attorneys finding it easier to “just say no”.

There was something for everyone to hate.

Criminal defense lawyers felt there was a law change relating to depositing unearned fees though the rule only made present law more clear.

Plaintiff lawyers and large law firms did not like amendments to 1.07 that made clear fiduciary obligations already in place.

Government lawyers got no help with problems peculiar to their practices.


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The State Bar nor Supreme Court advocated effectively for passage of the rules.

V. WHAT HAPPENS NEXT? § 81.024 Tex. Gov’t Code

(e) The Supreme Court shall promulgate each rule and amendment that receives a majority of the votes cast in an election. …

* * * (g) A rule may not be promulgated unless it has been

approved by the members of the state bar in the manner provided by this section.

A. Query:

Does the court have the authority to promulgate the rules under its inherent authority to regulate the practice of law in Texas? ABA Commission on Ethics 20/20 • Appointed August 2009 • Anticipates ABA House of Delegates vote next

year – August 2012 • To perform “a thorough review of the ABA

Model Rules … and the U.S. system of lawyer regulation in the context of advances in technology”

VI. WHAT DO WE DO NOW? A. Is the Legislature interested in what we do?

You might say! The Texas Legislature has passed what is arguably the most comprehensive anti-barratry bill in the United States. Case running has long been considered rampant in parts of Texas. The charge is made the local District Attorneys won’t enforce §38.12 Texas Penal Code because it is either viewed as a victimless crime or the people committing the crime tend to be the biggest contributors to their campaigns. In all honesty, in speaking with DA’s and County Attorneys around the state, the most common thing you hear is, “Which murder case do you want me to put on the back burner while I am prosecuting this case running matter?” A number of Plaintiff attorneys, in concert with Texans for Lawsuit Reform (TLR), TTLA, TADC and other civil justice groups, have joined together in an effort for the last few sessions to pass a “fee disgorgement” statute. That effort came to fruition in 2011 and effective September 1, 2011, any case procured through barratry will be subject to fee disgorgement. Since this statute has elements that are sui generis to Texas, it is important for Texas practitioners to see this coming and understand what is involved.

B. According to the Bill Analysis relating to the new barratry fee disgorgement statute:

“Barratry is commonly known as vexatious incitement to litigation, typically by soliciting potential legal clients. Many refer to the practice as "case running." Under Section 38.12, Penal Code, "barratry" is generally defined as the illegal solicitation of professional employment. The Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas prohibit these solicitations as well. Adding a civil enforcement option would help curtail this practice.”

This statute will most seriously impact: 1. Attorneys committing barratry. 2. Attorneys whose practice includes large

number of referrals cases. 3. Everyone else.

If the lawyer does not know about the barratry, there is no reporting requirement. It is only when he/she learns of the barratry that the reporting requirement arises, subject to the exceptions in the statute when no report is required even if the lawyer has knowledge of the barratry. As a matter of fact, Disciplinary Rule 7.06(c) already requires a lawyer “shall not continue employment in a matter once the lawyer knows or reasonably should know that the person procuring the lawyer’s employment in the matter” was procured through, among other things, barratry [Rule 8.04(9)]. It may well be that the bill gives the truly innocent lawyer a better shot at his/her fees than present law!

The effective date of the statue is September 1, 2011 and it only applies to contracts entered into on or after that date. VII. THIS IS THE BILL

By: Duncan S.B. No. 1716 (Fletcher)

A BILL TO BE ENTITLED AN ACT relating to voidability of contracts procured through and liability arising from conduct constituting barratry; providing a civil penalty. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: SECTION 1. Section 82.065, Government Code, is amended to read as follows: Sec. 82.065. [CONTINGENT FEE] CONTRACT FOR LEGAL SERVICES. (a) A contingent fee contract for legal services must be in writing and signed by the attorney and client. (b) Any [A contingent fee] contract for legal services is voidable by the client if it is procured as a result of conduct violating the


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laws of this state or the Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas regarding barratry by attorneys or other persons. (c) An attorney who was paid or owed fees or expenses under a contract that is voided under this section may recover fees and expenses based on a quantum meruit theory if the client does not prove that the attorney committed barratry or had actual knowledge, before undertaking the representation, that the contract was procured as a result of barratry by another person. To recover fees or expenses under this subsection, the attorney must have reported the misconduct as required by the Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas, unless: (1) another person has already reported the misconduct; or (2) the attorney reasonably believed that reporting the misconduct would substantially prejudice the client's interests. SECTION 2. Subchapter C, Chapter 82, Government Code, is amended by adding Section 82.0651 to read as follows: Sec. 82.0651. CIVIL LIABILITY FOR PROHIBITED BARRATRY. (a) A client may bring an action to void a contract for legal services that was procured as a result of conduct violating the laws of this state or the Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas regarding barratry by attorneys or other persons. (b) A client who prevails in an action under Subsection (a) shall recover from any person who committed barratry: (1) all fees and expenses paid to that person under the contract; (2) the balance of any fees and expenses paid to any other person under the contract, after deducting fees and expenses awarded based on a quantum meruit theory as provided by Section 82.065(c); (3) actual damages caused by the prohibited conduct; and (4) reasonable and necessary attorney's fees. (c) A person who was solicited by conduct violating the laws of this state or the Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas regarding barratry by attorneys or other persons, but who did not enter into a contract as a result of that conduct, may file a civil action against any person who committed barratry.

(d) A person who prevails in an action under Subsection (c) shall recover from each person who engaged in barratry: (1) a penalty in the amount of $10,000; (2) actual damages caused by the prohibited conduct; and (3) reasonable and necessary attorney's fees.

(e) This section shall be liberally construed and applied to promote its underlying purposes, which are to protect those in need of legal services against unethical, unlawful solicitation and to provide efficient and economical procedures to secure that protection.

(f) The provisions of this subchapter are not exclusive. The remedies provided in this subchapter are in addition to any other procedures or remedies provided by any other law, except that a person may not recover damages and penalties under both this subchapter and another law for the same act or practice. SECTION 3.

(a) Section 82.065, Government Code, as amended by this Act, applies only to a contract entered into on or after the effective date of this Act. A contract entered into before the effective date of this Act is governed by the law in effect immediately before the effective date of this Act, and that law is continued in effect for that purpose.

(b) Section 82.0651, Government Code, as added by this Act, does not apply to prohibited conduct that occurred before the effective date of this Act. Prohibited conduct that occurred before the effective date of this Act is governed by the law that applied to the conduct immediately before the effective date of this Act, and that law is continued in effect for that purpose. SECTION 4. This Act takes effect September 1, 2011.

VIII. LET’S BREAK IT DOWN Effective September 1, 2011, all fees for legal

services will be controlled by an Amendment to Government Code §82.065 et seq that deals with the voidability of contracts for legal services. Though that is the language of the amendment to the act, it might better be read as the voidability of the obligation to pay for legal services. A. §82.065(b) “§82.065(b Any [A contingent fee] contract for legal services is voidable by the client if it is procured


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as a result of conduct violating the laws of this state or the Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas regarding barratry by attorneys or other persons.”

§82.065(b) expands the law to any contract for legal services, specifically excluding the language relating to “contingent fee” contract. What is the effect of this change and what loophole was attempting to be addressed? Was it anticipated that attorneys would simply sign hourly fee contracts in an effort to circumvent the law? Was there a feeling that all attorneys, not just Plaintiff attorneys, should be dealt with in the same manner? My sense is that this section is going to be one that will cause a considerable amount of paperwork at the large law firms in Texas. What is the effect of introducing yourself to someone at the Country Club, buying him a drink and suddenly you are handling a major patent lawsuit? I would be willing to bet we are about to find out. B. Sec. 82.0651

Disgorgement is the real meat of this statute and the real stick that it is hoped will prevent or at least slow barratry.

Sec. 82.0651. CIVIL LIABILITY FOR PROHIBITED BARRATRY. (a) A client may bring an action to void a contract for legal services that was procured as a result of conduct violating the laws of this state or the Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas regarding barratry by attorneys or other persons. (b) A client who prevails in an action under Subsection (a) shall recover from any person who committed barratry:

(1) all fees and expenses paid to that person under the contract; (2) the balance of any fees and expenses paid to any other person under the contract, after deducting fees and expenses awarded based on a quantum meruit theory as provided by Section 82.065(c); (3) actual damages caused by the prohibited conduct; and (4) reasonable and necessary attorney's fees.

IX. CONTINUATION OF EMPLOYMENT

PROCURED THROUGH BARRATRY THERE IS ALREADY A RULE It should be noted that any attorneys who

represent clients that they know or should know were procured through barratry are already required to discontinue employment. Obviously, in most instances this provision is honored most diligently in its breach as it was those lawyers who committed the act, which is a crime, in the first place.

A. 7.06 Prohibited Employment (Disciplinary Rules of Professional Conduct)

1. A lawyer shall not accept or continue employment in a matter when that employment was procured by conduct prohibited by any of Rules 7.01 through 7.05, 8.04(a)(2), or 8.04(a)(9), engaged in by that lawyer personally or by any other person whom the lawyer ordered, encouraged, or knowingly permitted to engage in such conduct.

2. A lawyer shall not accept or continue employment in a matter when the lawyer knows or reasonably should know that employment was procured by conduct prohibited by any of Rules 7.01 through 7.05, 8.04(a)(2), or 8.04(a)(9), engaged in by any other person or entity that is a shareholder, partner, or member of, an associate in, or of counsel to that lawyer's firm; or by any other person whom any of the foregoing persons or entities ordered, encouraged, or knowingly permitted to engage in such conduct. (emphasis added)

3. A lawyer who has not violated paragraph (a) or (b) in accepting employment in a matter shall not continue employment in that matter once the lawyer knows or reasonably should know that the person procuring the lawyer's employment in the matter engaged in, or ordered, encouraged, or knowingly permitted another to engage in, conduct prohibited by any of Rules 7.01 through 7.05, 8.04(a)(2), or 8.04(a)(9) in connection with the matter unless nothing of value is given thereafter in return for that employment.

X. NO SAFE HARBOR FOR THE

CONTINGENT FEE CONTRACT There is no safe harbor for the attorney who

committed barratry or the arguably “innocent” attorney. The innocent attorney is entitled to collect attorney fees and expenses on a quantum meruit basis, but the contingent fee component of the contract is simply voided. The contingent fee arrangement is never again reinstated. Also, the right to enforce a quantum meruit recovery is contingent upon the innocent attorney reporting the barratry as required by the Texas Rules of Disciplinary Conduct.

A. The “innocent referral” attorney and

Reporting Professional Misconduct: To obtain quantum meruit recovery, the innocent

attorney must report the violation: (c) An attorney who was paid or owed fees or expenses under a contract that is voided under this section may recover fees and expenses based on a quantum meruit theory if the client does not prove that the attorney committed barratry or had actual knowledge, before undertaking the representation, that the contract was procured as a result of barratry by


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another person. To recover fees or expenses under this subsection, the attorney must have reported the misconduct as required by the Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas, unless:

(1) another person has already reported the misconduct; or (2) the attorney reasonably believed that reporting the misconduct would substantially prejudice the client's interests.

B. When does the reporting obligation to obtain

quantum meruit arise? I would suggest that in reading the Texas

Disciplinary Rules of Professional Conduct, the answer would be that the reporting must be as soon as the attorney becomes aware of the violation that it must be done as soon as reasonably possible. It will probably be a fact question as to whether this was done timely or whether the attorney was relieved of the obligation by Sections (c) (1) or (2).

C. Review this section of the DR’s.

8.03 Reporting Professional Misconduct (Disciplinary Rules of Professional Conduct) (a) Except as permitted in paragraphs (c) or (d), a lawyer having knowledge that another lawyer has committed a violation of applicable rules of professional conduct that raises a substantial question as to that lawyers honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate disciplinary authority. (b) Except as permitted in paragraphs (c) or (d), a lawyer having knowledge that a judge has committed a violation of applicable rules of judicial conduct that raises a substantial question as to the judges fitness for office shall inform the appropriate authority. (c) A lawyer having knowledge or suspecting that another lawyer or judge whose conduct the lawyer is required to report pursuant to paragraphs (a) or (b) of this Rule is impaired by chemical dependency on alcohol or drugs or by mental illness may report that person to an approved peer assistance program rather than to an appropriate disciplinary authority. If a lawyer elects that option, the lawyers report to the approved peer assistance program shall disclose any disciplinary violations that the reporting lawyer would otherwise have to disclose to the authorities referred to in paragraphs (a) and (b). (d) This rule does not require disclosure of knowledge or information otherwise protected as confidential information: (1) by Rule 1.05 or (2) by any statutory or regulatory provisions applicable to the counseling activities of the approved peer assistance program.

D. Indemnity for the handling attorney Can the handling attorney put an indemnity

provision into the referral agreement to protect the contingent fee, at least as it relates to the referring attorney? Maybe not a handling attorney who wants to get a lot of referrals.

Civil Penalties create a private cause of action for attempted barratry.

XI. ATTEMPTED BARRATRY

It is widely understood in the criminal law context that “attempt statutes” are an important deterrent to criminal conduct. That has been adapted to the world of barratry where the testimony was fairly graphic concerning the numbers of unsuccessful suitors likely to show up following a tragic event. The new statute has a Ten thousand dollar ($10,000.00) civil penalty for attempting unsuccessfully to solicit a case through barratry. Attorney fees are also available for anyone who enforces this remedy. (d) A person who prevails in an action under Subsection (c) shall recover from each person who engaged in barratry:

(1) a penalty in the amount of $10,000; (2) actual damages caused by the prohibited

conduct; and (3) reasonable and necessary attorney's fees.

This section of the statute appears to me to be truly sui generis. If there is another statute like it in the country I have not seen it. This is a pure penalty statute designed essentially to deputize accident victims as private attorneys generally for the purpose of enforcing the barratry statutes. XII. WHAT IS BARRATRY UNDER TEXAS A. Penal Code provisions dealing with barratry Sec. 38.12. BARRATRY AND SOLICITATION OF PROFESSIONAL EMPLOYMENT (a) A person commits an offense if, with intent to obtain an economic benefit the person:

(1) knowingly institutes a suit or claim that the person has not been authorized to pursue;

(2) solicits employment, either in person or by telephone, for himself or for another;

(3) pays, gives, or advances or offers to pay, give, or advance to a prospective client money or anything of value to obtain employment as a professional from the prospective client;

(4) pays or gives or offers to pay or give a person money or anything of value to solicit employment;

(5) pays or gives or offers to pay or give a family member of a prospective client money or anything of value to solicit employment; or


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(6) accepts or agrees to accept money or anything of value to solicit employment.

(b) A person commits an offense if the person: (1) knowingly finances the commission of

an offense under Subsection (a); (2) invests funds the person knows or

believes are intended to further the commission of an offense under Subsection (a); or

(3) is a professional who knowingly accepts employment within the scope of the person's license, registration, or certification that results from the solicitation of employment in violation of Subsection (a).

(c) It is an exception to prosecution under Subsection (a) or (b) that the person's conduct is authorized by the Texas Disciplinary Rules of Professional Conduct or any rule of court.

(d) A person commits an offense if the person: (1) is an attorney, chiropractor, physician, surgeon, or

private investigator licensed to practice in this state or any person licensed, certified, or registered by a health care regulatory agency of this state; and

(2) with the intent to obtain professional employment for the person or for another, provides or knowingly permits to be provided to an individual who has not sought the person's employment, legal representation, advice, or care a written communication or a solicitation, including a solicitation in person or by telephone, that: (A) concerns an action for personal injury or

wrongful death or otherwise relates to an accident or disaster involving the person to whom the communication or solicitation is provided or a relative of that person and that was provided before the 31st day after the date on which the accident or disaster occurred;

(B) concerns a specific matter and relates to legal representation and the person knows or reasonably should know that the person to whom the communication or solicitation is directed is represented by a lawyer in the matter;

(C) concerns an arrest of or issuance of a summons to the person to whom the communication or solicitation is provided or a relative of that person and that was provided before the 31st day after the date on which the arrest or issuance of the summons occurred;

(D) concerns a lawsuit of any kind, including an action for divorce, in which the person to whom the communication or solicitation is

provided is a defendant or a relative of that person, unless the lawsuit in which the person is named as a defendant has been on file for more than 31 days before the date on which the communication or solicitation was provided;

(E) is provided or permitted to be provided by a person who knows or reasonably should know that the injured person or relative of the injured person has indicated a desire not to be contacted by or receive communications or solicitations concerning employment;

(F) involves coercion, duress, fraud, overreaching, harassment, intimidation, or undue influence; or

(G) contains a false, fraudulent, misleading, deceptive, or unfair statement or claim.

(e) For purposes of Subsection (d)(2)(E), a desire not to be contacted is presumed if an accident report reflects that such an indication has been made by an injured person or that person's relative.

(f) An offense under Subsection (a) or (b) is a felony of the third degree.

(g) Except as provided by Subsection (h), an offense under Subsection (d) is a Class A misdemeanor.

(h) An offense under Subsection (d) is a felony of the third degree if it is shown on the trial of the offense that the defendant has previously been convicted under Subsection (d).

(i) Final conviction of felony barratry is a serious crime for all purposes and acts, specifically including the State Bar Rules and the Texas Rules of Disciplinary Procedure.

Acts 1973, 63rd Leg., p. 883, ch. 399, Sec. 1, eff. Jan. 1, 1974. Amended by Acts 1989, 71st Leg., ch. 866, Sec. 2, eff. Sept. 1, 1989; Acts 1993, 73rd Leg., ch. 723, Sec. 2, eff. Sept. 1, 1993; Acts 1993, 73rd Leg., ch. 900, Sec. 1.01, eff. Sept. 1, 1994; Acts 1997, 75th Leg., ch. 750, Sec. 2, eff. Sept. 1, 1997. Amended by: Acts 2009, 81st Leg., R.S., Ch. 1252, Sec. 1, eff. September 1, 2009. B. Under the Disciplinary Rules:

Rule 7.03 Prohibited Solicitations & Payments (a) A lawyer shall not by in-person contact, or by regulated telephone or other electronic contact as defined in paragraph (f), seek professional employment concerning a matter arising out of a particular occurrence or event, or series of occurrences or events, from a prospective client or non-client who has not sought the lawyer’s advice regarding employment or with whom the lawyer has no family or past or present attorney-client relationship when a significant motive


8

for the lawyer’s doing so is the lawyer’s pecuniary gain. Notwithstanding the provisions of this paragraph, a lawyer for a qualified nonprofit organization may communicate with the organization’s members for the purpose of educating the members to understand the law, to recognize legal problems, to make intelligent selection of counsel, or to use legal services. In those situations where in-person or telephone or other electronic contact is permitted by this paragraph, a lawyer shall not have such a contact with a prospective client if: (1) the communication involves coercion, duress,

fraud, overreaching, intimidation, undue influence, or harassment;

(2) the communication contains information prohibited by Rule 7.02(a); or

(3) the communication contains a false, fraudulent, misleading, deceptive, or unfair statement or claim. (b) A lawyer shall not pay, give, or offer to pay or give anything of value to a person not licensed to practice law for soliciting prospective clients for, or referring clients or prospective clients to, any lawyer or firm, except that a lawyer may pay reasonable fees for advertising and public relations services rendered in accordance with this Rule and may pay the usual charges of a lawyer referral service that meets the requirements of Occupational Code Title 5, Subtitle B, Chapter 952. (c) A lawyer, in order to solicit professional

employment, shall not pay, give, advance, or offer to pay, give, or advance anything of value, other than actual litigation expenses and other financial assistance as permitted by Rule 1.08(d), to a prospective client or any other person; provided however, this provision does not prohibit the payment of legitimate referral fees as permitted by 97 Rule 1.04(f) or by paragraph (b) of this Rule.

(d) A lawyer shall not enter into an agreement for, charge for, or collect a fee for professional employment obtained in violation of Rule 7.03(a), (b), or (c).

(e) A lawyer shall not participate with or accept referrals from a lawyer referral service unless the lawyer knows or reasonably believes that the lawyer referral service meets the requirements of Occupational Code Title 5, Subtitle B, Chapter 952.

(f) As used in paragraph (a), “regulated telephone or other electronic contact” means any electronic communication initiated by a lawyer or by any person acting on behalf of a lawyer or law firm that will result in the person contacted communicating in a live, interactive manner with any other person by

telephone or other electronic means. For purposes of this Rule a website for a lawyer or law firm is not considered a communication initiated by or on behalf of that lawyer or firm.

XIII. 8.04 MISCONDUCT

(TEXAS DISCIPLINARY RULES OF PROFESSIONAL CONDUCT)

(a) A lawyer shall not: (1) violate these rules, knowingly assist or induce

another to do so, or do so through the acts of another, whether or not such violation occurred in the course of a client-lawyer relationship;

(2) commit a serious crime or commit any other criminal act that reflects adversely on the lawyers honesty, trustworthiness or fitness as a lawyer in other respects;

(3) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;

(4) engage in conduct constituting obstruction of justice;

(5) state or imply an ability to influence improperly a government agency or official;

(6) knowingly assist a judge or judicial officer in conduct that is a violation of applicable rules of judicial conduct or other law;

(7) violate any disciplinary or disability order or judgment;

(8) fail to timely furnish to the Chief Disciplinary Counsels office or a district grievance committee a response or other information as required by the Texas Rules of Disciplinary Procedure, unless he or she in good faith timely asserts a privilege or other legal ground for failure to do so;

(9) engage in conduct that constitutes barratry as defined by the law of this state; (emphasis added)

(10) fail to comply with section 13.01 of the Texas Rules of Disciplinary Procedure relating to notification of an attorneys cessation of practice;

(11) engage in the practice of law when the lawyer is on inactive status or when the lawyers right to practice has been suspended or terminated, including but not limited to situations where a lawyers right to practice has been administratively suspended for failure to timely pay required fees or assessments or for failure to comply with Article XII of the State Bar Rules relating to Mandatory Continuing Legal Education; or

(12) violate any other laws of this state relating to the professional conduct of lawyers and to the practice of law. (b) As used in subsection (a)(2) of this Rule,

serious crime means barratry; any felony involving moral turpitude; any misdemeanor involving theft, embezzlement, or fraudulent


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or reckless misappropriation of money or other property; or any attempt, conspiracy, or solicitation of another to commit any of the foregoing crimes.

XIV. POTENTIAL PROBLEMS

A. Two weeks from trial. Attorney has $100,000.00 in the case and getting ready to put another $50,000.00 in to try the case. Client either becomes unhappy and raises it or it just comes up that, “My case was obtained by barratry.” What does an attorney do at that point?

B. Client tells attorney, “Cut your fee by half or I will bring a barratry action against you. “ You are in mediation, close to a very good settlement of the claim. What do you do then?

C. Partner at the Big Law Firm introduces himself to a guy on the golf course, buys him lots of whiskey and convinces him that he is the best lawyer since they started slicing the bread and putting it in a bag. Law firm ends up handling great big lawsuit, sending lots of bills and client decides, “I never knew that guy, why did he illegally solicit my business?”

XV. STATE BAR OF TEXAS AND DISTRICT

ATTORNEY ENFORCEMENT: What effect if any will this statute have with regard to enforcement of the barratry rules relating to attorney conduct and §38.12 Texas Penal Code?

It could be quite significant. The State Bar will tell you that the difficulty of these cases is that they involve a closed loop. Presently, the client is not effected in any manner if the lawyer has solicited the case improperly. The fee is not reduced. The business model has evolved from the day when an incompetent case runner or attorney would run the case, handle it poorly, settle it below value and leave the client to their own devices. The allegation is that case runners, both attorney and non-attorney have evolved to sending the cases to the very best lawyers who do an outstanding job for the client. The client is generally happy with the outcome and with no benefit to them, why cooperate with the State Bar or a District Attorney to bring an action against an attorney who has done a good job?

Now, with an economic incentive and the informational campaign relating to barratry that will almost certainly follow the passage of this bill, it is believed that clients will be far more likely to

XVI. LIMITATIONS What limitations controls for a claim under this

statute and is there a discovery exception available under the limitations period?

I think an easy answer is there is a 4 year limitations period for claims made to void the attorney fee contract under §82.0651(a)(b) Government Code

and a 2 year limitations period for the civil penalty found in §82.0651(c)(d) Government Code.

The problem is applying the actual 4 year statute §16.004 Texas Civil Practice and Remedies Code and 2 year statute §16.003 Texas Civil Practice and Remedies Code to this statute.

There is not an easy analogy to anything found in this statute. We don't really have many civil penalty statutes in Texas law and the voiding a contract is also something new to Texas law. It is easy to imagine a "discovery" situation. Perhaps you believe you hired an attorney based upon the honest recommendation of a cousin. Come to find out, your cousin got an F-150 with a Hemi for recommending you to the law firm. You don't learn of this transaction until 5 years after your case is closed. Does the discovery rule apply to extend limitations?

There is no limitations period stated in the statute. As a practical matter, the elements of the claims made under the statutes do not fit particularly neatly into any box. The claims are penal in nature to be certain but there is an element of breach of fiduciary duty thrown in and will probably be plead in all claims.

As a practical matter, it is unlikely that any claim will start to run with regard to claims a client may have under these statutes until such time as the representation related to the underlying contract has ceased. Apex Towing Company v. Tolin, 41 S.W. 3rd 118 (Tex. 2001).In other words, limitations probably starts running only after the recovery has been distributed and the case has been closed.

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