Kimberley Hoff 26 Oct 2012 PAR 115 2nd IRAC brief Case Name: Phoenix Founders Inc. v.

Marshall1 Citation: 887 S.W.2d 831 (Tex. 1994) FACTS In 1992, Phoenix Founders Inc. and others (Phoenix), represented by the law firm Thompson & Knight, filed a law suit to collect a 1991 federal court judgment against Ronald and Jane Beneke and others (the Benekes), represented by the firm David & Goodman. In July 1993 a legal assistant named Denise Hargrove at Thompson & Knight left the firm to work as a paralegal at David & Goodman, where she did a small amount of work on the case against Phoenix. After three weeks, Hargrove returned to Thompson & Knight, who did not question her on rehire about the possible conflict of interest presented. Counsel for the Benekes wrote to Thompson & Knight demanding that the firm be disqualified from representing Phoenix because of the conflict of interest. Hargrove resigned in order to avoid being dismissed but the firm refused to withdraw from the case. The trial court first ruled against the disqualification, then reconsidered on the grounds that all confidential information Hargrove possessed could now be imputed to the firm. The Benekes then sought a writ of mandamus from the Supreme Court of Texas to compel Thompson & Knight and the trial court to comply with the disqualification order. ISSUE Must a law firm be automatically disqualified in a suit if it hires a paralegal who has previously worked with the opposing counsel on the same case, because of imputed breach of confidence? RULE Disqualification is not required if the hiring firm is able to establish that it has effectively screened the paralegal from any contact with the underlying suit. ANALYSIS The relevant rule for attorneys in Hargroves situation was established in NCNB Texas Natl Bank v. Coker2, requiring attorneys to recuse themselves in any case substantially related adversely to the interests of a former client. This was established to apply to attorneys moving from one partys counsel firm to the others in Petroleum Wholesale Inc. v. Marshall3. The Benekes argued that the same standards that apply for attorneys should also apply to paralegals. The court held that it was correct to presume that a paralegal who worked on a case had confidential information about it that must be protected when they changed employers4. However, it was not correct to presume that the paralegal had shared that information with members of the hiring law firm, as the supervising lawyer had the
1

PHOENIX FOUNDERS, INC., Phoenix Mutual Life Insurance Company, and P/F-Campbell Crossing-Phase II, Limited, Relators v. The Honorable John McClellan MARSHALL, Judge, Respondent. 2 765 S.W.2d 398, 399-400 (Tex. 1989). 3 751 S.W.2d 295 (Tex.App. Dallas 1988, orig. proceeding). 4 TEX.DISCIPLINARY R.PROF.CONDUCT 1.05(a) (1991), reprinted in TEX.GOV'T CODE ANN., tit. 2, subtit. G app. (Vernon Supp. 1994) (STATE BAR RULES art. X, 9).

responsibility to ensure that the paralegal acted in accordance with the lawyers ethical standards5, which include protecting confidential information6. The Texas Committee on Professional Ethics7 and the American Bar Association8 had already issued guidelines cited by other courts9 that allowed paralegals to change firms without disqualification so long as safeguards against conflicts of interest were maintained. A major concern of these professional organizations and other jurisdictions was that the professional mobility of paralegals would be seriously impaired if they presented a possibility of automatic disqualification of the law firm should any conflicts of interest arise10. The Texas Supreme Court agreed with these concerns and ruled that as long as Chinese wall protections were carried out in accordance with published guidelines the hiring law firm was not automatically required to withdraw from the case. Specifically, at minimum the paralegal had to be cautioned not to disclose any information about their prior work and instructed not to carry out any related work at the hiring law firm11. Thus while the presumption that some sharing will take place remains valid, the hiring law firm could rebut the presumption by showing that proper precautions had in fact been taken. Disqualification would still be required if disclosure of information had taken place or screening would be ineffective. The trial court erred in preventing Thompson and Knight from presenting evidence of screening measures taken and their effectiveness. CONCLUSION Automatic disqualification is not required in this case so long as the firm can establish it employed sufficient screening. Mandamus denied, case remanded to the trial court for reconsideration under the standards of the new ruling.

5 6

TEX.DISCIPLINARY R.PROF.CONDUCT 5.03(a). TEX. DISCIPLINARY R. PROF. CONDUCT 1.05(b)(1). 7 Tex.Comm. on Professional Ethics, Op. 472, 55 TEX.B.J. 520 (1992). 8 ABA Comm. on Ethics and Professional Responsibility, Informal Op. 1526 (1988). 9 Makita Corp. v. U.S., 819 F. Supp. 1099, 1105 (Ct.Int'l Trade 1993); Smart Indus. Corp. v. Superior Court, 179 Ariz. 141, 876 P.2d 1176, 1184-85 (Ariz. Ct.App. 1994); In re Complex Asbestos Litigation, 232 Cal.App.3d 572, 283 Cal.Rptr. 732, 746-47 (1991). 10 Herron v. Jones, 276 Ark. 493, 637 S.W.2d 569, 571 (1982). 11 ABA Op. 1526 at 3.