Ethics, Conflicts, Contracts & Divided Loyalty · • Dean’s List • Certificate of Merit, Alternative Dispute Resolution The University of Texas, Austin, TX Bachelor of Arts in

ETHICS, CONFLICTS, CONTRACTS AND DIVIDED LOYALTY

DAVID E. CHAMBERLAIN ETHAN F. GOODWIN

CHAMBERLAIN♦MCHANEY P.O. Box 684158

301 Congress Avenue, 21st Floor (78701) Austin, Texas 78768-4158

(512) 474-9124 Office (512) 474-8582 Fax

[email protected] [email protected]

State Bar of Texas 24TH ANNUAL

ADVANCED PERSONAL INJURY LAW COURSE July 16-18, 2008 − Dallas/Ft. Worth

August 6-8, 2008 − San Antonio August 27-29, 2008 − Houston

CHAPTER 27

DAVID E. CHAMBERLAIN

CHAMBERLAIN♦MCHANEY 301 Congress, 21st Floor

Austin, Texas 78701 512/474-9124

512/474-8582 (fax) www.chmc-law.com

In 2006, David E. Chamberlain was honored as The Outstanding Defense Bar

Leader in the nation by DRI, the largest association of defense trial lawyers in the country (Fred Sievert Award). He recently served as President of the Texas Association of Defense Counsel (2005) and has been named Texas Super Lawyer for three straight years in Texas Monthly Magazine (2005, 2006, 2007) (limited to 5% of Texas attorneys). He is Board Certified in Personal Injury Trial Law by the Texas Board of Legal Specialization (less than 3% of Texas attorneys are board certified in this practice area). He is the senior partner in the Austin civil trial firm of Chamberlain♦McHaney and has the highest peer review rating (A.V.) issued by Martindale-Hubbell. He was recently elected to the Board of Directors of the Austin Bar Association (2007-2009) and served as the Course Director of the 2007 Texas Advanced Personal Injury Law Course, sponsored by the State Bar of Texas.

Activities & Honors:

• President, Texas Association of Defense Counsel, 2004-2005 (President-Elect, 2003-2004; Executive Vice-President, 2002-2003; Secretary-Treasurer 2000-2001; President’s Award, 1991 and 1999;

• Defense Research Institute (named Outstanding Defense Bar Leader in the nation in 2006; Texas State Representative, 2006-2009; Regional Marketing Chair, 2007, 2008);

• Board of Directors, Austin Bar Association (elected 2007-2009); • President, Austin Young Lawyers Association (1987-1988); • Board of Directors, Texas Civil Justice League, (2004-present); • State Bar of Texas(Course Director, Advanced Personal Injury Law Course,

2007; Planning Committee; Advanced Personal Injury Law Course, 2006 and 2008; Planning Committee, Advanced Insurance law Course, 2008; Planning Committee, Advanced Civil Trial Law Course, 2008 and 2005; Member, Court Administration Task Force, 2007-2008); Chairman, State

Bar Jury Project, 2005-2006; Court Rules Committee, 1997-2000; Sunset Committee, 2002-2003);

• Board of Directors, Austin Bar Association (1987-1988); • Association of Defense Trial Attorneys; • Federal Bar Association; • Federation of Defense and Corporate Counsel; • International Association of Defense Counsel; • Bar Association of the Fifth Circuit; • Sustaining Life Fellow, Texas Bar Foundation (Nominating Chairman,

2000-2001) • Member, College of the State Bar of Texas

BOARD CERTIFICATION: Personal Injury Trial Law, Texas Board of Legal Specialization (less than

10% of Texas attorneys are board certified in any practice area and less than 3% are board certified in personal injury trial law).

Admissions: State Bar of Texas; Fifth Circuit Court of Appeals; All U.S. District Courts;

Northern, Eastern, Southern and Western Districts. Author and Speaker: Recent topics and publications include:

• Texas Legislative Update (State Bar Advanced Personal Injury Course, 2007, 2006 and Austin Bar Association, 2007 and State Bar College, 2005);

• Insurance Coverage Update (State Bar Advanced Insurance Law Course, 2007, 2008); (University of Houston, Advanced Insurance Law Course, 2008);

• Insurance Issues in Construction Defect Litigation (San Antonio 2007); • Article, Texas Legislative Update, Texas Bar Journal, January, 2007; • Tort Trends (Texas Causes of Action, State Bar of Texas, 2006); • Texas Legislative Update (State Bar, Advanced Civil Law Trial Course,

2005); • Texas Tort Reform (2003 & 2004); • Trying Tough Cases in Tough Venues (TADC, 2004); • Mold Litigation (2002); • Daubert Overview (State Bar, Advanced Civil Law Trial Course, 2000); • Texas Summary Judgments (Rutter Group, 1997); • Chapter, Government Liability (1998); • Insurance Coverage of Employment Claims (Austin Bar Association, 1997); • Editor in Chief -Texas Update (2002 to present).

Education:

• University of Texas at Arlington (B.A., 1975) • St. Mary’s University of San Antonio (J.D., with honors, 1978) (top 7% of

class) • Note and Comment Editor, St. Mary’s Law Journal, 1977-1978 • Phi Delta Phi (Vice President, 1978; Outstanding Law Graduate, 1978) • Harlan Honor Society.

Other: Briefing Attorney to Associate Justice Sears McGee, Texas Supreme Court,

1978-1979.

• Recognized as Texas Super Lawyer 2007, 2006 and 2005 in Texas Monthly Magazine

• AV-Rated by Martindale Hubbell and listed in Best’s Directory of Recommended Attorneys

Ethan F. Goodwin________________________________ Education: The Thomas M. Cooley Law School, Lansing, MI Juris Doctor, Litigation Concentration, expected September 2008 • Mock Trial Board, Member • Moot Court Board, Member • Melissa Mitchell Criminal Procedure Moot Court Competition, Quarterfinalist • Dean’s List • Certificate of Merit, Alternative Dispute Resolution The University of Texas, Austin, TX Bachelor of Arts in English, December 2004 • Minors in Philosophy and Communication Studies

Experience:

Chamberlain♦McHaney, Austin, TX Extern May 2008-present

Dispute Resolution Center of Central Michigan, Lansing, MI

Mediator January 2008-April 2008

Mediated cases for the Small Claims Division of the 55th District Court for Ingham County, Michigan. Helped parties reach a resolution in a non-adversarial manner: facilitated communication between parties; identified issues; explored options; promoted mutually acceptable agreements; and memorialized agreements in writing.

Chamberlain♦McHaney, Austin, TX

Runner/Administrative Assistant August 2001-July 2003 Provided support for the firm: worked independently; reproduced documents; made deliveries;

transported court materials and clients during trial; processed mail; received and distributed inter-office and facsimile communications; answered and operated phones; maintained law library; and purchased supplies for the firm. Assisted in billing: assembled time expenditure slips; and coded copy and fax totals.

Community Service:

Goodwill Industries, Lansing, MI Volunteer February 2007

Trained people with disadvantages, including welfare dependency, homelessness, lack of education or

experience, as well as those with physical, mental, and emotional disabilities.

TABLE OF CONTENTS

I. UNAUTHORIZED PRACTICE OF LAW COMMITTEE V. AMERICAN HOME ASSURANCE CO, INC.1 FACTS.................................................................................................................................................................... 1 THE HEXTER ANALYSIS .................................................................................................................................. 2 IS IT A PROFESSION OR A BUSINESS?. ....................................................................................................... 3 ON REHEARING ................................................................................................................................................. 3

II. THE ATTORNEY-CLIENT RELATIONSHIP................................................................................................. 4 A. WHEN DOES THE ATTORNEY-CLIENT RELATIONSHIP BEGIN? ............................................... 4 B. DETERMINING WHETHER AN AGREEMENT WAS REACHED..................................................... 4 C. HOW SHOULD THE AGREEMENT BE DOCUMENTED? .................................................................. 4 D. WHAT SHOULD ENGAGEMENT LETTERS CONTAIN? ................................................................... 4

III. HANDLING CONFLICTS OF INTEREST ...................................................................................................... 6 A. WHAT IS A CONFLICT?............................................................................................................................ 6 B. WHEN IS REPRESENTATION PRECLUDED BY A CONFLICT? ..................................................... 6 C. DECLINING REPRESENTATION ............................................................................................................ 6 D. WHAT IS INFORMED CONSENT? .......................................................................................................... 6 E. SHOULD INFORMED CONSENT BE OBTAINED IF AN ATTORNEY IS REPRESENTING

MULTIPLE PARTIES IN THE SAME MATTER?.................................................................................. 6 F. IS INFORMED CONSENT REQUIRED WHEN AN ATTORNEY IS CONSIDERING

REPRESENTING A PROSPECTIVE CLIENT WHO IS ADVERSE TO A FORMER CLIENT? .... 6 G. DO DISCLOSURES AND CONSENTS HAVE TO BE IN WRITING? ................................................. 6 H. WHAT IS THE EFFECT OF CONSENT IN GENERAL? ...................................................................... 6

Ethics, Conflicts, Contracts and Divided Loyalty Chapter 27

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ETHICS, CONFLICTS, CONTRACTS AND DIVIDED LOYALTY I. UNAUTHORIZED PRACTICE OF LAW COMMITTEE V. AMERICAN HOME ASSURANCE CO, INC., 2008 TEX. LEXIS 233 (TEX. 2008).1 An ever present issue across the country and in Texas is whether the use of salaried staff attorneys by insurers to represent insureds is legal when an insurer’s interests are not exactly in line with the client’s. Or, alternatively, as the Texas Supreme Court put it: “The issue in this case is whether a liability insurer that uses staff attorneys to defend claims against its insureds is representing its own interests, which is permitted, or engaging in the unauthorized practice of law, which is not.” UPLC, 2008 Tex. Lexis at at *1. In a 7-2 opinion, written by Justice Nathan L. Hecht, the supreme court concluded that “insurers could use staff attorneys to defend claims against their insureds if the insurers’ interests and the insureds’ interests are congruent, but not otherwise.” Id. at *2. This occurs, according to the Court, when both the insurer’s interests and the insured’s interests “are aligned in defeating the claim and there is no conflict of interest between the insurer and the insured.” Id. at *2. The court further held that “a staff attorney must fully disclose to an insured his or her affiliation with the insurer.” Id. at *2. Most liability policies require liability insurers to defend their insureds against claims and suits and these policies usually give the liability insurers “complete and exclusive control” over that defense. Id. at *1. A defense can be provided by the insurer by deploying one of three different types of attorneys: (1) independent private practice attorneys, whose work is paid for and supervised by the insurer; (2) captive attorneys, or attorneys who are not employees of the insurer, but who have no other clients; and (3) staff attorneys, who are salaried employees of the insurer. Id. at *1. According to the court, irrespective of which one of the three types of attorneys are hired, “the insured’s lawyer ‘owes the insured the same type of unqualified loyalty as if he had been originally employed by the insured’ and ‘must at all times protect the interests of the insured if those interest would be compromised by the insurer’s instructions.” Id. at *3 (citing Employers Cas. Co. v. Tilly, 496 S.W.2d 552, 558 (Tex. 1973); State Farm Mut. Auto. Ins. Co. v. Traver, 980 S.W.2d 625, 627 (Tex. 1998)). Arguments for and against the use of staff attorneys by insurers to represent insureds are plentiful. On the one hand, insurers argue the use of

1 This case analysis is taken directly from Lee H. Shidlofsky’s Insurance Law Newsletter, volume 2, Issue 6, April 25, 2008. I have added my own thoughts as well.

staff attorneys is “more efficient and economical than private attorneys and thereby reduce defense costs and premiums.” Id. at *4. Insurers also contend that staff attorneys also serve another purpose: they are “advertising tools” used to sell policies to prospective clients. Id. at *4. On the other hand, critics argue that “when an insurer controls the insured’s attorney as . . . an employer controls an employee, the attorney-client relationship can be impaired to the insured’s detriment.” Id. at *4 Staff attorneys have been used on and off by insurers since the late 19th century. Utilization of staff attorneys has historically been regarded as ethical by both the American Bar Association Committee on Ethics and Professional Responsibility and the State Bar of Texas Committee on Interpretation of the Canons of Ethics. Id. at *8. Amicus curiae in support of the use of staff attorneys by insurers estimated that staff attorneys presently defend insureds in over 10,000 cases in Texas. Id. at *8. To practice law in Texas, one must be licensed by the Texas Supreme Court or have special permission. Id. at *12 (citing Tex. Gov’t Code § 81.051(a)). Continuing legal education is required once one is admitted to practice in Texas. Id. (citing Tex. State Bar R. art XII, § 1-13)). Once one is admitted to practice law in Texas, that person is subject to the grievance process. Id. at *13 (citing Tex. R. Disciplinary P. § 1.01-15.11)). The Unauthorized Practice of Law Committee (UPLC) investigates and prosecutes the unauthorized practice of law in Texas. Id. at *13-14. FACTS: In August 1999, Katherine Woodruff, a staff attorney for American Home Assurance, received a letter from the UPLC informing her that she and her firm were under investigation for the unauthorized practice of law. Id. at *16. Subsequently, American Home Assurance, Katherine Woodruff, Woodruff & Associates, Katherine Woodruff’s firm, and Travelers Indemnity Co., sued the UPLC for a declaratory judgment that neither the use of staff counsel by American Home Assurance nor Katherine Woodruff’s practice as staff counsel was the unauthorized practice of law. Id. at *16. The UPLC “counterclaimed for declaratory and injunctive relief.” Id. at *16. The trial court, after nonsuiting all claims by and against Woodruff & Associates, denied American Home Assurance’s motion for summary judgment, and granted UPLC’s motion for summary judgment. Id. at *17. In doing so, the trial court “declare[ed] that each company’s ‘use of staff counsel who are employees . . . to defend insureds (third parties) in Texas is the unauthorized practice of law.” Id. at *16. On appeal, the Eastland Court of Appeals reversed. Id. at *17. The court held: (1) staff attorneys face no more or different conflicts than other lawyers; (2) insurers’ use of staff attorneys does not


http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=TX_caselaw&volume=496&edition=S.W.2d&page=552&id=22402_01



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violate the Texas Disciplinary Rules of Professional Conduct; (3) “[a] company that employs lawyers to represent its own interests is not engaged in the practice of law, and the situation is no different when such lawyers also represent insureds with like interests, even though conflicts may arise and must be addressed;” (4) insurers’ use of staff attorneys to defend insureds does not violate the Texas Business Corporation Act or the Texas Governmental Code; (5) § 38.123 of the Texas Penal Code does not prohibit insurers’ use of staff attorneys; and (6) “only . . . North Carolina and Kentucky[] prohibit insurers from using staff attorneys.” Id. at *17-*19. UPLC subsequently appealed. On appeal to the Texas Supreme Court, UPLC presented two issues: (1) “[i]n using staff attorneys to discharge their contractual duty to defend insureds against liability claims, are American Home and Travelers engaging in the unauthorized practice of law?; and (2) [i]f not, must a staff attorney’s affiliation with an insurer be fully disclosed to the insured?” Id. at *19. In examining the two issues that were presented, the court declined the request by amicus curie to determine what the unauthorized practice of law should be, and decided only what the unauthorized practice of law is under existing law. The court started its reasoning by noting that a corporation cannot practice law and that the court has the inherent power to adopt rules governing admission to practice law in Texas. Id. at *22. Under those rules, only individuals with particular qualifications are allowed to practice law. Id. at *22 (citing Texas Gov’t Code §81.102). “Entities, including insurance companies, are excluded.” Id. at *22. However, while insurers cannot practice law, the court acknowledged that an insurer is not engaging in the practice of law when it uses staff attorneys to represent its own interests. Id. at *26. This means that insurers can hire salaried staff attorneys to give advice on the legal affairs of the company and can appear in court on the insurer’s behalf. Id. “A lawyer representing an organization may . . . also represent its [employees and affiliates] as long as there is no conflict of interest that precludes representation.” Id. at *28. The court reasoned, after analyzing Texas Gov’t Code § 81.101(a) which defines the practice of law, that an insurer is not engaging in the unauthorized practice of law when it hires a private attorney to defend its insured as required by the policy even though the policy gives the insurer absolute control over the defense. Id. at *29. The court stated, “[i]mplicit in the definition is that the practice of law requires the rendering of legal services for someone else.” Id. at *31. It is only when an insurer employs an attorney to “represent the unrelated interests of

others does it engage in the practice of law.” Id. at *31. THE HEXTER ANALYSIS: So, when an insurer uses staff counsel to defend its insureds, is it practicing law or merely defending its interests by discharging its duty to the insureds and fighting claims for which it would be required to indemnify the insured? Id. at *31. The court relied on its decision in Hexter Title & Abstract Co. v. Grievance Committee, 179 S.W.2d 946 (Tex. 1944) to answer the question. Hexter’s salaried staff attorneys examined titles for defects upon application by Hexter’s potential customers. UPLC, 2008 Tex. Lexis at *33. The staff attorneys would then prepare written opinions describing the defects and instruments to correct them which Hexter would offer to potential customers for free. Id. at *33. Subsequently, Hexter was charged with engaging in the unauthorized practice of law. Id. at *33. The court held that Hexter’s opinions regarding defects of title and instruments to correct them, which were conveyances in which Hexter was not a party but had a prospective interest, affected the rights of individuals apart from Hexter’s interest in the title insurance industry. Id. at *34. In other words, Hexter was preparing papers that related to the rights of third parties in which it only had a prospective interest. Id. at *34. From its analysis of Hexter, the court “distilled three factors to be considered in determining whether a liability insurer is practicing law by using staff attorneys to defend claims against insureds.” Id. at *37. First, is the insurer’s interest being served by the performance of legal services existing or only prospective? Id. at *37. Second, does the insurer have a direct, substantial financial interest in the matter for which legal services are provided? Id. at *38. And third, is the insurer’s interest aligned with that of the person to whom the company is providing legal services? Id. at *39. Concerning the first factor, the court found “[a] liability insurer renders legal services to an insured in order to satisfy its contractual obligation to provide the insured a defense.” Id. at *37. American Home Assurance’s interest that is being served by the performance of legal services existed because American Home Assurance was required to provide legal services to insureds to satisfy a contractual obligation. Id. As for the second factor, the court found that “[a] liability insurer’s interest in avoiding its indemnity obligation gives it a direct, financial, and substantial interest in defending a claim against its insured.” Id. at *38. This is because an insurer benefits if a claim is defeated as the insurer doesn’t have to pay the claim. Id. With respect to the third factor, the most important of the three, the court found that “[i]n the vast majority of cases, a liability insurer and an insured have the same interest in defeating a



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liability claim, and their interests differ only when there are coverage questions or when the consequences of the manner in which the defense is rendered affect them differently.” Id. at *39. Applying these factors, the court concluded that an insurer does not engage in the unauthorized practice of law by using staff attorneys to defend a claim against one of its insureds, so long as the insurer’s interests and the insured’s interests in the defense are “congruent.” Id. at * 39. “In such cases, a staff attorney’s representation of the insured and the insurer [are] indistinguishable.” Id. at *39-40. IS IT A PROFESSION OR A BUSINESS?: The court went on to address the concerns raised by the UPLC and amici concerning conflicts. Those parties argued that the pressures and loyalties of the employment relationship jeopardize a staff attorney’s ability to exercise independent judgment to which the insured is entitled. Id. at *40. Further, they argued that “the insurer’s profit motive . . . is fundamentally inconsistent with the provision of independent legal services through staff attorneys.” Id. at *40. This results, they argued, in an erosion of the practice of law into a business, “and such obvious control of insurers over legal services undermines public confidence in the bar.” Id. at *41. While the court acknowledged these arguments raised serious concerns, it nonetheless rejected them, stating “neither the [UPLC] nor amici has been able to cite any empirical evidence . . . of injury to a private or public interests caused by a staff attorney’s representation of an insured.” Id. at *41. While the court noted that conflicts inevitably arise in the insurer-insured-defense attorney relationship, “there is nothing to indicate that staff attorneys do not either resolve them as they would be resolved in any other representation or withdraw, just as private attorneys would.” Id. at *41-42. Most often, the conflict between an insurer and an insured concern whether a claim is within the policy limits and the coverage provided. Id. at *42-43. Under such circumstances, the insurer can issue a reservation of rights letter, agreeing to defend the insured without waiving its right to decline coverage in the future. Id. at *43. According to the court, such a letter does not, by itself, create a conflict of interest; “it only recognizes the possibility that such a conflict may arise in the future.” Id. at *43. Problems may also arise when defense counsel acquires information that the insured would expect to be kept confidential and not revealed to the insurer. Id. at *45. In such situations, withdrawal may be the best option regardless of whether the attorney is an employee of the insurer or in private practice. Id. at *45. However, these kinds of problems “do not necessarily destroy the congruence of the insurer’s and insured’s interest. Id. at *46.

The court also refused to hold that a staff attorney’s obligation of unqualified loyalty in a Stowers situation is any different from that of an attorney in private practice because neither UPLC nor amici provided evidence of such occurrences. Id. at *46-47. The court refused to recognize that staff attorneys are more likely to adhere to their employers’ restrictions found in litigation guidelines even when it could compromise an insured’s interests because there was no evidence of such an occurrence happening in the past. Id. at *47-48. The court also appeared to answer a long-standing debate in Texas as to whether Texas is a one-client or two-client state. UPLC argued that Texas law only allows defense counsel to represent the insured, and staff attorneys violate that rule when they represent the insurer and insured simultaneously. Id. at *49. The court disagreed. Id. at *49. “[W]e have never held that an insurance defense lawyer cannot represent both the insurer and the insured, only that the lawyer must represent the insured and protect his interests from compromise by the insurer.” Id. at *49. Consequently, the court suggested that Texas is a two-client state, at least where a congruence of interest exists. The dissent, written by Justice Johnson and joined by Justice Green, would hold that insurers cannot represent insureds under the State Bar Act because the acts of staff attorneys are imputed to their employer, the insurer. Id. at *87. As such, when staff attorneys represent an insured, the insurer is representing the insured in violation of the Act because the insurer is practicing law without a license. Id. ON REHEARING: The UPLC has filed a motion for rehearing in the Texas Supreme Court, and has asked the court to provide definitive guidelines for determining when an insurer’s and an insured’s interests are incongruent, and to define the obligation of a staff attorney to disclose potential conflicts of interest to an insured. Petitioner’s Motion for Rehearing, UPLC v. American Home Assurance Co, Inc., No. 04-0138, (Tex. 2008). Specifically, with respect to reservation of rights letters, UPLC requested guidance as to what type of reservation of rights letters would create a divergence of interest which would result in incongruency. Id. at 3. UPLC also suggested the court give guidance as to other events that might create a lack of congruence. For example, is there a lack of congruence when the facts to be adjudicated in the liability suit are the same facts on which coverage will depend? Id. at 3. What about when an insurer refuses to allow its staff attorney to explain Stowers rights? Id. By providing guidelines, UPLC argued, staff attorneys would know the difference between the appropriate performance of


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legal services and the unauthorized practice of law. Id. at 4. While the court held that staff attorneys have the duty to inform insureds of the identity of their employer, UPLC argued staff attorneys should have to do more in terms of discloser. UPLC argued that staff attorneys, at the outset of representation, should also have to inform insureds of potential conflicts of interest that may arise which would cause the insurer’s and insured’s interests to become incongruent. Otherwise, UPLC argued, insureds will not know whether their interests are congruent with the insurer. Finally, UPLC reiterated insurers, through the use of staff attorneys to represent insureds, appear to be engaging in the unauthorized practice of law. Id. at 6. Consequently, it asked the court to adopt the dissent. Joining the Petitioner’s Motion for Rehearing was the Texas Association of Defense Counsel (TADC). TADC argued that there was no statutory exception that allowed insurers to own and operate law firms to defend insureds as long as the insurer’s and insured’s interests are congruent. Brief of Amicus Curiae Texas Association of Defense Counsel In Support of Petitioner’s Motion for Rehearing, UPLC v. American Home Assurance Co, Inc., No. 04-0138, (Tex. 2008). Further, TADC argued that while the term “congruence” has a specific mathematical meaning, its application to determine the difference between the authorized and unauthorized practice of law was inappropriate. Id. at 5. Instead, the court should simply apply our statutes as they are written. Id. If the court adopted the latter method, the issue is simple: Do Texas statutes give insurers the right to own, operate, and control law firms which provide legal services to third parties? According to TADC, “they do not, they should not, and this court should so state.” Id. But if insurers are allowed to use staff attorneys to represent insureds, then staff attorneys should have to disclose more to insureds than that they are employed by the insurer. Id. at 6. In any event, for the disclosure to be meaningful, TADC argued insureds should be given a choice between a staff attorney and a private attorney. Basically, TADC argued that it was impossible for a staff attorney, who depends on the insurer for his livelihood, to serve both the insurer’s and the insured’s interests simultaneously. Id. at 11. And the use of staff attorneys by insurers, at the very least, appears inappropriate.

II. THE ATORNEY-CLIENT RELATIONSHIP2 A. WHEN DOES THE ATTORNEY-CLIENT RELATIONSHIP BEGIN? The attorney-client relationship begins when an attorney agrees to perform professional legal services at the request of a client. This agreement may be express or implied based on the conduct of the parties. Perez v. Kirk & Carrigan, 822 S.W.2d 261 (Tex. App.- Corpus Christi, 1991). The relationship can even be formed before there is a fee contract or before a fee has even been paid. Id. B. DETERMINING WHETHER AN AGREEMENT WAS REACHED Because the attorney-client relationship is contractual in nature, an objective standard is applied in determining whether an agreement has been reached. Terrell v. State, 891 S.W.2d 307 (Tex. App.- El Paso, 1994). It is not enough that either the lawyer or the client, alone, thinks there is an agreement. There must be objective indications. Vinson & Elkins v. Moran, 946 S.W.2d 381 (Tex. App.-Houston, 1997). C. HOW SHOULD THE AGREEMENT BE DOCUMENTED? Documenting the attorney-client relationship in writing is the best practice. However, documenting the agreement in writing is not required except for contingent fee cases, and cases involving associations with or referral to a different law firm or lawyer. Tex. R. Disciplinary P. 1.04(D) and (F). D. WHAT SHOULD ENGAGEMENT LETTERS CONTAIN? The following list of suggestions to include in your engagement letters is good but not exhaustive. 1. Include a specific description of who the client is in the engagement letter. If the client is an organization, remember that the attorney represents the organization distinct from the organization’s directors, officers, employees, members, shareholders or other constituents. 2. For obvious reasons, it is also a good idea to include a description of the specific objective of the representation in the engagement letter. For example, if an attorney is only going to represent a client through trial but not appeal, then the engagement letter should reflect the scope of the attorney’s undertaking. 3. Include a provision detailing how work is allocated within the firm. Ordinarily, an attorney may allocate various tasks involved in representing a client to another attorney within the firm and to non lawyers. By including a provision in the engagement letter detailing the attorney’s right to do so, clients who may

2 The following discussion is taken directly from “Attorney-Client Relationships That Work” by Mark D. White. I have added my own thoughts as well.





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not know how the process works will not expect the attorney to personally handle every task involved in the representation. 4. Don’t forget to include any required disclosures about multiple representation. Remember, lawyers can not represent opposing parties to the same litigation. Tex. R. Disciplinary P. 1.06. However, the term “opposing parties” does not necessarily mean the parties are on opposite sides in a lawsuit. Rather, the term contemplates the situation where a favorable judgment to one of the parties will directly impact the other party in an unfavorable manner. This could happen even if both clients are on the same side of a lawsuit. 5. Include a specific description of any possible adverse consequences that may arise in the future. Tex. R. Disciplinary P. 1.06 requires clients to be told of the existence, nature, implications and possible adverse consequences of multiple party representation. This means that an attorney has to forecast, to the best of the attorney’s ability, the potential implications of representing more than one client in a common matter, and spell those potential implications out for the clients in a letter. 6. Always include a specific description of the fee. This part of the engagement letter, without exception, must be spelled out clearly. That means, if the fee charged is to be hourly, then the engagement letter should state it clearly. If the hourly rate will increase over time, then the engagement letter should state it clearly because it is inappropriate to raise the fee in the middle of the representation. The same can be said for contingency fees. It is inappropriate to raise the percentage of the contingent fee in the middle of representation without giving the client an opportunity to consult with another attorney. Robinson v. Garcia, 804 S.W.2d 238 (Tex. App.-Corpus Christi, 1991). 7. In general, a retainer is money paid in advance from which expenses and fees may be deducted. Retainers go in an attorney’s trust account until the money is earned. However, there is another kind of retainer. The other kind of retainer is nonrefundable; it is money paid by the client for the privilege of having you as the client’s attorney. There is very little case law on this topic and what is available is perplexing. But there is one general rule that we all know and must abide by: all fees must be earned in some way. Nevertheless, if a fee is nonrefundable, clearly state the retainer is earned upon receipt and why. 8. If the retainer must be replenished with funds periodically, then spell it out carefully in the engagement letter. Also, don’t forget to provide that any portion of the retainer that is unused will be returned to the client when the matter is concluded.

9. Whatever the arrangement, include a clear description concerning how expenses will be handled. If an attorney is charging a client for services such as photocopying or deliveries, the attorney should explain the charges for each of the services to be performed in the engagement letter. Also, remember that an attorney may advance court costs, expenses, and reasonably necessary medical and living expenses to a client, as long as the attorney provides in the engagement letter that the repayment of those expenditures may be contingent upon the outcome of the matter. However, providing any other type of financial assistance to a client is a prohibited transaction under Tex. R. Disciplinary P. 1.08. 10. Clients have certain rights. Tell them about their rights in the engagement letter. For example, clients have the right to be kept reasonably informed. Tex. R. Disciplinary P. 1.03. They also have the right to control the objectives and methods of representation. Tex. R. Disciplinary P. 1.02(b) and comments 4 and 5. Further, they have the right to decide whether to accept a settlement offer, even if the attorney disagrees. Tex. R. Disciplinary P. 1.02(a)(2). By advising clients of their rights in the engagement letter, a client’s confidence in their attorney may increase because the attorney is being open. 11. Just as clients have certain rights, attorneys have rights too. If these rights are made clear in the engagement letter, then problems may be avoided later. 12. Be extremely careful when dealing with limitations on the representation. Tex. R. Disciplinary P. 1.02 states that an attorney may “limit the scope, objectives and general methods of the representation if the client consents after the consultation.” However, attorneys often try to limit their professional duties to their client by having the client sign an agreement prospectively limiting the attorney’s obligation to communicate with the client. But remember that the agreement cannot limit the attorney’s duties so drastically that the representation would violate Tex. R. Disciplinary P. 1.03, neglect, or Tex. R. Disciplinary P. 1.03, communication. For example, don’t provide that the client consents to communication through legal assistants, as opposed to the lawyer directly. That would be contrary to Tex. R. Disciplinary P. 1.03 about a lawyer keeping a client reasonably informed as to the status of a matter and promptly complying with requests for information. 13. It is always a good idea to enclose the Texas Lawyer’s Creed. It is a mandate for professionalism that was promulgated by the Texas Supreme Court in 1989. It provides that an attorney should advise his clients of its contents when undertaking representation. Thus, it is recommended that it be enclosed with the engagement letter, and that the letter



6

spell out to the client that the lawyer intends on abiding by it. 14. Include information concerning filing a grievance. The State Bar of Texas requires attorneys to notify their clients of the availability of the attorney discipline system and how a client can use it. The following information should be set out verbatim: “The State Bar of Texas investigates and prosecutes professional misconduct committed by Texas attorneys. Although not every complaint or dispute with a lawyer involves professional misconduct, the State Bar Office of General Counsel will provide you with information about how to file a complaint. For more information, please call 1-800-932-1900. This is a toll-free call.” III. HANDLING CONFLICTS OF INTEREST In light of the recent decision in UPLC v. American Home Assurance, it also seems appropriate to discuss the handling of conflicts of interest. The following material comes from “A Practical Guide to Dealing with Conflicts of Interest,” by Jett Hanna. Again, I’ve added my own thoughts as well. This material uses the perspective of the Restatement (Third) of Law Governing Lawyers as opposed to Texas Disciplinary Rules of Professional Conduct or the ABA Model Rules of Professional Conduct. The Restatement is not primary law, but, instead, is an attempt to state the existing and preferred law. A. WHAT IS A CONFLICT? A conflict is a substantial risk that an attorney’s representation of a client or clients would be materially and adversely affected by the attorney’s own interests or by the attorney’s duties to another current client, former client, or a third person. Restatement § 121. There are many different kinds of conflicts of interest. As UPLC v. American Home Assurance indicates, one may not represent clients with conflicting interests. B. WHEN IS REPRESENTATION PRECLUDED BY A CONFLICT? All the time. Unless informed consent is given by all affected clients and other necessary persons and the conflict is consentable, representation is precluded by a conflict. Restatement § 121, §121(2). C. DECLINING REPRESENTATION If an attorney is disqualified from representing a prospective client due to a conflict of interest, then the attorney should immediately inform the prospective client in writing that the attorney is declining the representation. D. WHAT IS INFORMED CONSENT? It means the client has reasonably adequate information about the material risks of the representation. Restatement § 122. Informed Consent also requires knowledge of the advantages of joint representation. Tex. R. Disciplinary P. 1.06(c)(2).

E. SHOULD INFORMED CONSENT BE OBTAINED IF AN ATTORNEY IS REPRESENTING MULTIPLE PARTIES IN THE SAME MATTER? Even though the Restatement does not directly answer this question, the best answer is always. Raising the possibility that there may be differences may get clients to reveal issues unknown to the attorney at an earlier stage when they can be dealt with more easily. F. IS INFORMED CONSENT REQUIRED WHEN AN ATTORNEY IS CONSIDERING REPRESENTING A PROSPECTIVE CLIENT WHO IS ADVERSE TO A FORMER CLIENT? If the matters are the same or substantially related, then informed consent is required. The matters are substantially related when the new matter involves the work performed for the former client, or when there is a substantial risk that the new representation will involve the use of information acquired when representing the former client. Restatement § 132. G. DO DISCLOSURES AND CONSENTS HAVE TO BE IN WRITING? There is no disciplinary penalty for failing to give disclosures in writing and to get consent in writing under the Texas rules and the Restatement. However, the most recent version of the ABA rules requires written consent. ABA Rules 1.7(b)(4) and 1.9(b). Nevertheless, putting disclosures and consents in writing is the best practice. Tex. R. Disciplinary P. 1.06, comment 8. H. WHAT IS THE EFFECT OF CONSENT IN GENERAL? An attorney can continue to represent a client affected by a conflict if the conflicts is consentable, and the client has adequate information about the material risks of the representation. If the circumstances change rendering the attorney no longer reasonably able to provide adequate representation, then consent is no longer good. Further, because the requirement of informed consent suggests an ongoing duty to reassess conflicts, if the circumstances change and the client no longer has reasonable information about the material risks of the representation, then the attorney must obtain renewed informed consent or withdraw. Restatement § 122, Comment (f).


APPENDIX B - FIRM 2

Contingent Fee Contract and Power of Attorney

STATE OF TEXAS

COUNTY OF _

§

§

AGREEMENT made by and between the law firm of LAW FIRM 2, 123 West Street, Nowhere, Texas,77889. (the "Law Firm"), and . , (the "Client"). The Client isentering into this agreement in (Capacity). The Law Firm and the Client aresometimes collectively hereinafter referred to as the "Parties". Anyone of the Parties may be sometimes hereinafterreferred to as a "P arty".

1

SPECIAL DISCLOSURES

1.1. CLIENT ACKNOWLEDGES THAT THE CLIENT WAS ADVISED TO RETAIN INDEPENDENTLEGAL COUNSEL TO REPRESENT THE CLIENT IN CONNECTION WITH THENEGOTIATION AND EXECUTION OF THIS AGREEMENT. THE CLIENT FURTHERACKNOWLEDGES THAT CLIENT WAS ADVISED THAT THE LAW FIRM HAS A CONFLICTOF INTEREST THAT PREVENTS IT FROM REPRESENTING THE CLIENT IN ANY WAYWITH RESPECT TO THE NEGOTIATION AND/OR EXECUTION OF THIS AGREEMENT ANDTHAT THE LAW FIRM HAS NOT DONE SO.

1.2. THE CLIENT AND LAW FIRM AGREE THAT ANY DISPUTES ARISING OUT OF ORCONNECTED WITH THIS AGREEMENT (INCLUDING BUT NOT LIMITED TO THESERVICES PERFORMED BY ANY ATTORNEY UNDER THIS AGREEMENT) SHALL BESUBMITTED TO CONFIDENTIAL BINDING ARBITRATION IN NOWHERE COUNTY, TEXASIN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION.

1.3. ALL LAWYERS IN TEXAS HAVE AN OBLIGATION TO MAINTAIN A HIGH STANDARD OFETHICAL CONDUCT TOWARD THEIR CLIENTS AND OTHERS. TO ENFORCE THISSTANDARD, THE STATE BAR OF TEXAS INVESTIGATES AND PROSECUTESCOMPLAINTS OF PROFESSIONAL MISCONDUCT AGAINST ATTORNEYS LICENSED INTEXAS. IF YOU FEEL THAT MISCONDUCT MAY HAVE OCCURRED OR IF YOU HAVEQUESTIONS REGARDING THE DISCIPLINARY PROCESS, YOU MAY CALL OR WRITE THESTATE BAR OF TEXAS, P.O. BOX 12487, AUSTIN, TEXAS 78711, (512) 463-1381 OR1-800-932-1900 (TOLL FREE).

1.40 THE CLIENT ACKNOWLEDGES THAT PRIOR TO SIGNING THIS AGREEMENT CLIENTSWERE GIVEN THE OPTION OF RETAINING THE LAW FIRM TO PROSECUTE THELAWSUIT ON A NORMAL HOURLY RATE (PLUS COSTS AND EXPENSES INCURRED)BASIS BUT ELECTED INSTEAD TO RETAIN THE LAW FIRM TO PROSECUTE THELAWSUIT PURSUANT TO THE TERMS AND CONDITIONS OF THIS CONTRACT.

2

RECITALS

The Client is executing this Agreement for the purpose of retaining the Law Firm to represent her in connection with:

2.1 the recovery for _

The causes of action described in paragraph [s 2.1 through __ above] is/are sometimes hereinafter collectivelyreferred to as the "Lawsuit".

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THE AGREEMENT

NOW, THEREFORE, for and in consideration of the mutual covenants set forth in this agreement, and forother good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessedby each Party, the Parties agree as follows:

3.1. The client hereby assigns, sells, conveys, and agrees to pay and deliver to the Law Firm the followingcontingent interest in the Lawsuit measured by the amount or recovery to be enj.oyed, realized out of orcollected from Lawsuit (whether in money, other property, future relief, or other consideration), eitherthrough settlement, compromise or judgment (such amount of recovery is hereinafter referred to as the"Litigation Proceeds" and is more specifically defined below):

3.1.1 If, after the effective date of this Agreement, the Lawsuit is settled, thirty percent (30%) of theLitigation Proceeds;

3.1.2 If the Lawsuit is tried in the initial trial court, thirty-five percent (35 %) of the Litigation Proceeds(for the purpose of this Agreement, the Lawsuit will be deemed to be "tried" if the Law Firmannounces ready at a trial on the merits of the case or if any hearing approving a settlementagreement is contested);

3.1.3 If the judgment of the initial trial court is appealed to a Court of Civil Appeals, thirty-seven andone-half percent (37 Y2 %) of the Litigation Proceeds (for the purpose of this agreement, the lawsuit will be deemed to be "appealed" if the first step in such appeal such as filing the cost bond byeither side has been done). Client understands that a case may be tried and a settlement reached inprinciple but not documented by the time cost bonds and other filings are done which wouldincrease the attorney's fee;

3.1.4 If the judgment of the Court of Civil Appeals is appealed to the Texas Supreme Court, fortypercent (40%) of the Litigation Proceeds.

3.2. The Law Firm shall advance all expenses reasonably incurred for reports, travel expenses, long distancecalls, investigation fees, expert and witness fees, medical examination fees, charts, photographs, depositionfees and costs, xerox and other document reproduction costs, postage charges, and other expensesreasonably incurred by them in the prosecution of the Lawsuit ("Litigation Expenses").

3.2.1 As a consequence of the Law Firm's payment of the Litigation Expenses, the Law Firm shall beentitled to reimbursement of all such Litigation Expenses from any Litigation Proceeds receivedprior to the application of any percentage fee described in this Agreement;

3.2.2 The Law Firm is expressly authorized, as a separate alternative fee (the "Alternative Fee"), toapply to any court, prior to trial on the merits, at its own cost, for the maximum amount ofcompensation, costs and Litigation Expenses allowed to Client (or to the Client's attorneys) bylaw and to receive any such amounts awarded as compensation for their services hereunder fromany person referred to in the RECITAL paragraph above or from any trust purportedly created bythe Client. Any Alternative Fee recovered under this paragraph shall be offset against anycontingent fee payable to the Law Firm under this Agreement; provided however, that, if theAlternative Fee exceeds any contingent fee, the Law Firm shall be entitled to retain the entireAlternative Fee as compensation for its services (and shall receive no contingent fee);

3.2.3 The term "Litigation Proceeds" shall refer to a sum of money equal in amount to the fair marketvalue of all property, relief, and consideration of every kind and in every form enjoyed, realizedout of, or received (or to be enjoyed, realized out of, or received) by the Client as a proximateresult of the Lawsuit including, but not limited to, compensatory damages, exemplary damages,attorney's fees (other than any Alternative Fee), prejudgment interest, and post judgment interest(whether through trial or settlement of the Lawsuit). The amount of Litigation Proceeds shall notbe reduced by any income, gift or estate taxes incident to the recovered amount or by anyattorney's fees, costs, damages, interest or other award that may be awarded by a judge or juryagainst the client.

3.3. The Parties agree that the Law Firm has been induced to enter into this Agreement by representation madeby the Client (or her agents) regarding the facts of the case.

3.4. Notwithstanding any other provision in this Agreement (including, but not limited to paragraph 3.5 below),the Law Firm may withdraw as counsel (in which case this Agreement shall be null, void and of no effect) ifafter thoroughly investigating the facts incident to the Lawsuit it concludes that the Lawsuit either is withoutmerit or the defendant or defendants do not have sufficient net worth to warrant prosecution of the Lawsuit.

00043079.WPD


If the Law Firm were to withdraw pursuant to this paragraph the Client would owe no legal fees orlitigation expenses to the Law Firm.

3.5. The Client agrees that the Law Firm may withdraw from its representation of the Client in connection withthe Lawsuit if:

3.5.1

3.5.2

3.5.3

35.4

3.5.5

3.5.6

the Client insists upon presenting a claim or defense that is not warranted under existing law andcannot be supported by good faith argument of an extension, modification, or reversal of existinglaw;

the Client insists that Law Firm pursue a course of conduct that is illegal or that is prohibited underthe State Bar Rules;

the Client by other conduct renders it unreasonably difficult for Law Firm to carry out theiremployment;

the Client insists that Law Firm engage in conduct that is contrary to their judgment and advice,even if such conduct is not contrary to the State Bar Rules;

the Client deliberately disregards an agreement with Law Firm as to fees for services rendered oras to Litigation Expenses;

the Law Firm determines, in its sole discretion, after further investigation of the facts of the case,that the facts of the case are materially different from those represented to the Law Firm by theClient.

3.6.

3.7.

3.8.

3.9.

3.10.

3.11.

3.12.

3.13.

In the event that the Law Firm withdraws from representation pursuant to the applicable provisions of thisAgreement, the Client agrees to sign all necessary documents to facilitate the withdrawal of the Law Firmfrom such representation immediately after written notification to the Client by the Law Firm of theirintention to withdraw.

If the Law Firm withdraws from representation pursuant to the applicable provisions of this Agreement(except for subparagraph 3.5.6 in the preceding paragraph of this Agreement, in which case the Law Firmshall be entitled to no contingent interest) such withdrawal shall no in any way eliminate Law Firm'sownership of a contingent interest in the outcome of the Lawsuit (including but not limited to Law Firm'sright to participate in and consent to any settlement of Lawsuit).

The Client may at any time and for any reasonable cause terminate the Law Firm's representation of Clientwith respect to Lawsuit; provided, however, that such termination shall not in any way eliminate Law Firm'sownership of a contingent interest in the outcome or the Lawsuit (including but not limited to Law Firm'sright to participate in and consent to any settlement of Lawsuit).

If the Law Firm ceases to represent the Client pursuant to any provision of this Agreement, then the LawFirm shall no longer be liable to Client or to any third party for any costs or expenses incurred after the dateof the termination of the Law Firm's representation. If any third party makes any claim against the LawFirm for any costs and expenses incurred by the Client after the date of the Law Firm has ceased torepresent the Client, then the Client agrees to indemnify and hold the Law Firm harmless from any such costand expenses and all expenses incurred, including but not limited to, all attorney's' fees and litigationexpenses and costs incurred by the Law Firm in seeking to enforce this Agreement.

The Law Firm agrees to faithfully perform the duties imposed upon the Law Firm as attorneys for Client inthe prosecution of the Lawsuit. The Law Firm further agrees to use its best efforts to resolve the Lawsuit assoon as is reasonably possible.

The Law Firm agrees not to disclose any information regarding the whereabouts of the Client or her familyto any third persons without the consent of the Client.

The Law Firm may, at the discretion and expense of the Law Firm, associate any other attorney or LawFirm in the prosecution of the Lawsuit and may assign all or any part of their contingent interest in thisLawsuit to any other such firm. Notwithstanding anything to the contrary in this paragraph, the Partiesagree, however, that the Law Firm shall always be primarily responsible for the representation of the Clientin connection with the Lawsuit.

The Client authorizes the Law Firm to try, compromise, settle and receive for and in Client's names, alldamages or property to which Client may become entitled by reason of Lawsuit. Client agrees not to settleLawsuit without the written consent of Law Firm, and Law Firm agrees not to settle Lawsuit without thewritten consent of the Client.

00043079.WPD


3.14. The provisions of this Agreement constitute a Power of Attorney coupled with an interest and shallsurvive and shall not be affected by the subsequent disability or incapacity ofthe Client.

3.15. The Client agrees to keep Law Firm advised of her location at all times, agrees to appear on reasonablenotice at any and all depositions and court appearances and agrees to comply with all reasonable requests ofLaw Firm in connection with the preparation and presentation of the Lawsuit.

3.16. The Client specifically recognizes that the Law Firm has made no representation or warranty whatsoeverregarding the probable outcome of the Lawsuit and have in no way guaranteed any recovery from thesettlement or trial of the Lawsuit.

3.17. It is expressly understood and agreed that the mutual promises contained herein are the sole considerationfor this Agreement, and that said considerations are contractual and not mere recitals, and that allagreements and understandings between the Parties are embodied and expressed herein.

3.18. The Parties agree to execute such other documents as might be reasonably necessary or appropriate toconsummate and implement the terms of this Agreement.

3.19. This Agreement is executed in multiple counterparts, each one of which will be considered to be anoriginal.

3.20. It is expressly understood and agreed that this Agreement shall be governed by, construed, interpreted, andenforced in accordance with the laws of the State of Texas and shall be performable in Nowhere County,Texas.

3.21. This Agreement may not be modified or amended except by a subsequent Agreement in writing signed bythe Parties. The Parties may waive any of the conditions contained herein or any of the obligations of anyother party. Any such waiver shall be effective only if in writing and signed by the party waiving suchcondition or obligation.

3.22. In the event that any of the Parties become involved in litigation in connection with any right, obligation, orduty set forth in this Agreement then, and in that event, the Party prevailing in such litigation shall receivefrom the other Party all expenses, costs and attorney's fees suffered or incurred by such party as a result ofsuch litigation.

3.23. In the event that any of the Parties hereto shall breach any of the obligations imposed by this Agreement,then any other party shall be entitled to monetary damages by this Agreement, then any other party shall beentitled to monetary damages as a result of such breach. It is understood by the Parties, however, thatmonetary damages shall not be adequate recompense for any breach of this Agreement, and each of theParties shall, in addition to monetary damages, be entitle to equitable relief.

3.24. This agreement is and shall be binding and inure to the benefit of the Parties and their respective heirs,executors, administrators, legal representatives, successors and assigns.

3.25. The effective date of this Agreement shall be the day of , 2006.

LAW FIRM 2

By: _IMALAWYERState BarNo. 12345000

My Address

STATE OF TEXAS

COUNTY OF NOWHERE

This document was acknowledged before me on the day of , 2006, by IMALAWYER, President of LAW FIRM 2.

(Seal, if any, of notary)(printed name of Notary)My commission expires: _

00043079.WPD


(NAME OF CLIENT)

STATE OF TEXAS

COUNTY OF NOWHERE

This document was acknowledged before me on the __ day of(client).

(Seal, if any, of notary)

______ ., 2006, by

(printed name of Notary)My commission expires: _

00043079.WPD


APPENDIX B - FIRM 2

Legal Representation Engagement Letter

________ ,< 2006

Name of ClientAddress of Client

RE: Legal Representation Engagement Letter (the "Engagement Letter")

Dear Name of Client:

Thank you very much for allowing FIRM 2 (the "Law Firm") the opportunity to represent you. As used in thisEngagement Letter the term "Client" refers to you. The term "Parties" refers to both you and the Law Firm.

THIS ENGAGEMENT LETTER IS A LEGAL CONTRACT BETWEEN YOU AND THE LAW FIRM. YOUARE ADVISED TO HAVE INDEPENDENT LEGAL COUNSEL REVIEW THIS CONTRACT ON YOURBEHALF. THE LAW FIRM HAS A CONFLICT OF INTEREST THAT PREVENTS IT FROM

REPRESENTING YOU IN CONNECTION WITH THE NEGOTIATION, PREPARATION, OR EXECUTIONOF THIS ENGAGEMENT LETTER.

As a part of the Law Firm's regular procedure in establishing a new client relationship, we would like to take thisopportunity to set out the specific terms of our relationship. We request that you acknowledged your receipt andunderstanding of this letter by signing and returning the original to us at your earliest convenience. A signed, duplicateoriginal is enclosed for your files.

The Law Firm's fees in this case are set on the basis of a baseline computation of billable hours multiplied by theattorney's hourly billing rate and then adjusted as provided below. At the present time my hourly billing rate is $300.00per hour. John Doe's hourly billing rate is $250.00. Mary Smith's hourly billing rate is $150.00 per hour. Weanticipate that our normal hourly billing rates will probably increase on some future date.

The Law Firm's fees are set on the basis of what we consider to be a fair charge for the services rendered. We do not,however, bill on an hourly rate basis. We do use for guidance a baseline computation of our billable hours times ourhourly billable rate as set forth above. We then compute a reasonable fee that takes into account such things as: (1) thetime and labor required; (2) the novelty and difficulty of the questions involved in the legal representation; (3) the skillrequisite to perform the legal services properly; (4) the likelihood, if apparent to the Client, that the acceptance of theparticular employment will preclude other employment by the Law Firm; (5) the fee customarily charged in the localityfor similar legal services; (6) the amount involved and the result obtained; (7) the time limitations imposed by the Clientor by the circumstances; and (8) the nature and length of the professional relationship with the Client.

In addition to all fees described above, and out-of-pocket expenses incurred by the Law Firm in connection with theLegal Representation will be billed to the Client as a separate item on the Client's monthly statement. Additional detailson expenses can be provided on request. Invoices for firm expenses (including but not limited to, out-of-pocketexpenses, travel expenses, deposition transcripts, expert fees, court filing fees, court costs, printing charges, longdistance telephone charges, and title company fees) may be sent to you from time to time for immediate payment directto our suppliers. When reasonably possible we agree to allow you to arrange for any extraordinary duplication ofdocuments.

We will normally submit a bill to you on a monthly basis, and it is due and payable upon receipt. There may beoccasions involving unforeseen circumstances when a bill will go unpaid. In such instances, we will attempt to workwith you, if you communicate the nature of the delay to us.

Occasionally, when a bill for a specific project is rendered near the conclusion of the matter, posting of some time andcharges (such as telephone, copying, court costs, or similar items) may be delayed, or there may be an invoice which isnot delivered to the Law Firm until after the affair has been finalized. In such cases, these "after closing" expenses willalso be billed to you, even though you may have previously received a "final" bill.

Occasionally we will request reasonable attorney's fees from another party in a legal proceeding. Regardless of how anycourt rules with respect to the award of attorney's fees (or the reasonableness of legal fees requested in any pleading),the Client agrees to pay the Law Firm the fees set forth in this Engagement Letter. If the Law Firm receives anycompensation as the result of an award for attorney's fees then the Law Firm will, in its discretion, either: (1) credit suchreceipt to the Client's unpaid bill or (2) reimburse the Client for the amount of the receipt (if, and only if, the Client doesnot owe the Law Firm any fees or expenses at the time that the receipt is received).

By signing this agreement, you are authorizing the Law Firm to do whatever is reasonably necessary and appropriate, inour professional judgment, to represent you properly, and to incur the costs and expenses reasonably necessary to handleyour matter. This includes the authorization and power to associate or employ such other persons or entities as we maydeem necessary to assist us, such as support services, technical experts, or other attorneys who are not members of LA WFIRM 2 (either "local counsel" in a distant forum or contract legal services with attorneys in other firms in Nowhere).

00043079WPD 38


Should you have any questions regarding any bill, please contact us at your earliest convenience so that we may resolveany problems as quickly as possible. Your satisfaction with our legal services is very important to us.

Describe the Matters to Which this Engagement Letter Relates.

The Law Firm is not undertaking responsibility for matters outside this scope at this time; however, should you expresslyrequest, and should we accept additional matters and responsibilities in the future, the provisions in this letter agreementwill govern our continuing relationship, as well as our relationship with any of your related entities.

You have requested our advice and counsel as a part of our services to you. In the event that you fail to follow ouradvice, otherwise fail to cooperate reasonably with us, fail to pay any bill from us that is due and payable within thirtydays of receipt, then we reserve the right to notify you in writing of our withdrawal from representation and to collect allfees and expenses accrued to the date of our withdrawal. Of course, at any time that you wish, you may cease to use ourservices by notifying us in writing.

As you know, we cannot make representations to you regarding the probability of ultimate success in the LegalRepresentation. Similarly, we cannot guarantee any particular result; however, we do agree to exert in good faith ourbest reasonable, ethical and professional efforts on your behalf.

Although historically we have attempted to retain copies of most documents generated by our Law Firm, we cannot beheld responsible in any way for failing to do so, and we consequently request that you retain all originals and copies youdesire among your own files for future reference.

It is anticipated that, insofar as the Law Firm is concerned, I will be in charge of your representation. However, I alwaysreserve the right to assign other lawyers in our firm to assist me if, in my professional judgment, that becomes necessaryor desirable. As previously indicated, I may from time to time contract with other local attorneys to assist me inrepresenting you if, in my opinion, this will result in a cost effective benefit to you. If I do this I will bill these legalservices through my firm directly to you.

All lawyers in Texas have an obligation to maintain a high standard of ethical conduct toward their clients and others.To enforce this standard, the State Bar of Texas investigates and prosecutes complaints of professional misconductagainst attorneys licensed in Texas. If you feel that misconduct may have occurred or if you have questions regardingthe disciplinary process, you may call or write the State Bar of Texas, P.O. Box 12487, Austin, Texas 78711,(512) 463-1381 or 1-800-932-1900 (toll free).

We truly appreciate the opportunity to represent you, and we look forward to continuing a mutually beneficialrelationship. Weare very much aware that we are in a service business and that you, as a client, are the lifeblood of ourpractice. If you do not feel that you understand any part of this agreement, please call me. We are sending this letter toyou so that you may know our policies and billing practices at the beginning of our relationship.

Cordially yours,

LAW FIRM 2 byIma Lawyer

Agreed:

Name of Client

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Documents

Ethics, Conflicts, Contracts & Divided Loyalty · • Dean’s List • Certificate of Merit, Alternative Dispute Resolution The University of Texas, Austin, TX Bachelor of Arts in