Ethics and Professional Conduct
The Texas Disciplinary Rules of Professional Conduct set the standard of conduct for Texas attorneys and are found in the Texas Government Code in title 2, subtitle G, appendix A, following section 84.004 of the Government Code. The rules are also available online at www.texasbar.com/AM/Template.cfm?Section=Ethics_Resources.
This chapter of the manual follows the attorney-client relationship from the initial client interview to the termination of the relationship, with examples of what a real estate attorney might do to document compliance with the rules. This chapter is very general and is not intended to be a substitute for a complete study of the rules.
The documents at the end of this chapter are examples only and provide general guidance, not “forms” for all transactions.
§ 1.1:1The Texas Lawyer’s Creed
On November 7, 1989, the Supreme Court of Texas and the Texas Court of Criminal Appeals adopted “The Texas Lawyer’s Creed—A Mandate for Professionalism.” An attorney adhering to the Creed agrees to advise a client of the contents of the Creed when undertaking a representation (article II, paragraph 1).
Recommended paragraphs for the disclosure about the Creed are found in the model engagement letters at forms 1-8, 1-9, and 1-10 in this chapter.
§ 1.1:2Notice of Grievance Process
Section 81.079 of the Texas Government Code requires attorneys to notify clients of the grievance process. Notice must be provided by making available in the attorney’s office grievance brochures prepared by the State Bar, by prominently posting a sign in the attorney’s office describing the process, by including the information in a written contract for services, or by providing the information in a bill for services. .
Example paragraphs for the disclosure about the Creed are found in the model engagement letters at forms 1-8, 1-9, and 1-10 in this chapter.
§ 1.2Sources of Interpretation of Rules
Judicial decisions in Texas regarding ethical violations are referenced in the annotations to the Texas Disciplinary Rules of Professional Conduct.
The Professional Ethics Committee for the State Bar of Texas issues opinions on the rules and the Texas Code of Professional Responsibility (the predecessor to the rules). These opinions are published in the Texas Bar Journal.
An attorney may obtain informal explanations of the rules from the State Bar. A consultation with the disciplinary counsel’s office may be not only informative but also probative of good faith should a question later arise. The telephone number of the attorney ethics line is 800-532-3947.
The Texas Center for Legal Ethics also maintains an online library, index, and text of all published opinions of the Committee on Professional Ethics; Texas cases dealing with ethics and professionalism; and a bibliography. The Center’s website is at www.legalethicstexas.com, and its phone number is 800-204-2222, ext. 1477. permits a lawyer to reveal confidential information to secure legal advice about the lawyer’s compliance with the Texas Disciplinary Rules of Professional Conduct.
Article VIII of the Texas Disciplinary Rules of Professional Conduct (Maintaining the Integrity of the Profession) generally governs an attorney’s conduct. Rule 8.04 sets out a comprehensive restatement of all forms of conduct that will subject an attorney to disciplinary action. , reprinted in Tex. Gov’t Code Ann., tit. 2, subtit. G, app. A (). It includes conduct controlled by the State Bar Act and the State Bar Rules. The rules govern attorneys who are admitted to practice in Texas or specially admitted for a particular proceeding. A licensed Texas attorney’s conduct in another state may also be the subject of a Texas grievance procedure. .
The rules do not prescribe either disciplinary procedures or penalties for a violation. . Possible sanctions are found instead in the Texas Rules of Disciplinary Procedure. These rules are reproduced in the Texas Government Code in title 2, subtitle G, appendix A-1, following section 84.004 of the Government Code. The rules are also available online at www.texasbar.com/AM/Template.cfm?Section=Ethics_Resources.
§ 1.4Consulting Potential Client
§ 1.4:1Attorney-Client Relationship
The relationship of attorney and client is one of agent and principal. Duval County Ranch Co. v. Alamo Lumber Co., 663 S.W.2d 627, 633 (Tex. App.—Amarillo 1983, writ ref’d n.r.e.). It is created by consent and governed by the general rules covering agency. Bar Ass’n of Dallas v. Hexter Title & Abstract Co., 175 S.W.2d 108, 115 (Tex. App.—Fort Worth 1943), aff’d, 179 S.W.2d 946 (Tex. 1944). The fiduciary obligations and responsibilities imposed on the attorney are predicated on the existence of the attorney-client relationship. See Shropshire v. Freeman, 510 S.W.2d 405 (Tex. App.—Austin 1974, writ ref’d n.r.e.).
The attorney-client relationship can be implied from the conduct of the parties. Duval County Ranch Co., 663 S.W.2d at 633. A written contract or payment of a retainer is not necessary. For example, gratuitous services can establish an attorney-client relationship. Prigmore v. Hardware Mutual Insurance Co. of Minnesota, 225 S.W.2d 897, 899 (Tex. App.—Amarillo 1949, no writ). But the fact that an attorney had business dealings with someone does not establish an attorney-client relationship. McGary v. Campbell, 245 S.W. 106, 116 (Tex. App.—Beaumont 1922, writ dism’d w.o.j.).
The existence of an attorney-client relationship is a question of fact. Jinks v. Moppin, 80 S.W. 390, 393 (Tex. App. 1904, no writ).
§ 1.4:2Areas of Concern When Consulting Potential Client
Consultation alone does not create an attorney-client relationship. Nevertheless, some duties attach during a consultation. See .
During a consultation, an attorney must maintain the requirements of confidentiality and must be wary to avoid current and future conflicts. A consultation and certainly an investigation may impose additional duties such as advising the potential client of the statute of limitations. See Villarreal v. Cooper, 673 S.W.2d 631 (Tex. App.—San Antonio 1984, no writ). At least one state has held attorneys liable for negligently investigating the claim, even though the attorney refused to take the case. See Togstad v. Vesely, Otto, Miller & Keefe, 291 N.W.2d 686 (Minn. 1980). Further confusion may result if an attorney has a continuing or gratuitous relationship with a client. See Bresette v. Knapp, 159 A.2d 329 (Vt. 1960).
An attorney should consider declining bad or unwanted business as well as the unwanted client. An attorney is not ethically required to represent all who seek the attorney’s advice. See
§ 1.4:3Refusing Representation
A potential client may believe that an attorney-client relationship is created by the initial interview. If the attorney decides not to represent a person, this should be made clear. The attorney should consider sending a letter to confirm that the proposed representation will not be undertaken. Form 1-1 in this chapter is an example of a nonrepresentation letter. requires the potential client’s documents to be returned. They may be withheld only if other law, such as a lien, permits the withholding of documents and if the client will not be prejudiced by the retention. See (1979). If the documents are particularly valuable, the attorney should consider having their receipt acknowledged.
§ 1.4:4Advising Potential Client
If the attorney declines the representation, there is a question about whether the attorney should advise the nonclient of any rights or statutes of limitation. Some attorneys, as a matter of policy, will advise the nonclient of such matters if the attorney is aware of them. Other attorneys believe that advice implies some representation of the nonclient and therefore, as a matter of policy, do not offer any advice in the nonrepresentation letter.
§ 1.5Establishing Attorney-Client Relationship
§ 1.5:1Disclosure of Conflicts
An attorney must disclose all potential conflicts before accepting employment and those that arise during the course of employment. Nonlitigation conflicts are addressed specifically in rule 1.06, comments 13–16. Unfortunately, these comments merely provide examples and conclude that the question is “often one of proximity and degree.” . Relevant factors include the duration of the relationship and intimacy that an attorney has with a client, the duties performed, the likelihood a conflict will arise, and the likelihood of resulting prejudice.
The disclosure requirement includes all personal conflicts, conflicts with current clients, and conflicts with past clients. For examples of disclosures and waivers of specific types of conflicts of interest, see forms 1-2 through 1-7 in this chapter.
Rule 1.12(a) states that an attorney employed by an organization represents the entity. Because investors often ask real estate attorneys to form a limited liability company, partnership, corporation, or other entity, it is a good practice to clarify that the client is the entity and not the individual investors. Keep in mind that investors or prospective clients may have impliedly formed a general partnership (without a formal or written partnership agreement) before your engagement if they have already created an association to carry on a business for profit. See forms 1-5 and 1-6 for examples of letters pertaining to the formation of a partnership and a corporation.
In addition, rule 1.12(e) requires the attorney to inform shareholders and officers that the attorney will not represent them if their interests are adverse to the interests of the entity. See .
§ 1.5:2Consent Required for Representation of Multiple Clients
A typical real estate transaction may involve sellers, purchasers, guarantors, lenders, title insurance companies, trustees, real estate brokers and agents, mortgage brokers, tenants, and lien claimants, as well as the attorneys. In addition, if any of the parties are limited liability companies, corporations, or partnerships, the individual officers, directors, shareholders, partners, members, managers, or venturers involved may have interests that diverge from those of the business entity. An attorney who provides legal counsel for more than one of the parties faces a potential conflict of interest that should be carefully examined before the attorney undertakes representation. Note that the initial client engagement may evolve during the transaction. For example, a buyer may assign a purchase and sale agreement to a newly formed entity for a closing that may or may not be directly affiliated with the initial client or its principals and want the attorney to carry on the representation. Also, sometimes situations arise where a lender may ask the opinion of the borrower’s attorney on the authority of entities with whom the borrower’s attorney is not directly engaged.
In examining the potential attorney-client relationship, the attorney should carefully consider the unique facts of the transaction and the purpose of the engagement. Representation may be analyzed under two theories: the traditional multiple-representation analysis (see ) and the intermediaries analysis (see ).
In many transactions, the multiple clients have adverse positions to each other but, because of economic constraints, want only one attorney to represent them in the transaction. Rule 1.06(a) prohibits an attorney from representing opposing parties in the same litigation. Rule 1.06(b) also prohibits an attorney from representing a client if the representation is substantially related and materially and directly adverse to the interest of another client of the attorney or if the attorney would be limited by other responsibilities. Notwithstanding the prohibition of rule 1.06(b), subsection (c) allows the attorney to represent multiple clients if the attorney believes each client’s representation will not be materially affected and each client consents to the multiple representation after full disclosure.
Rule 1.07 may also affect the consent required for representation of multiple clients. Rule 1.07 can be read to require that an attorney obtain “each client’s written consent” whenever “two or more parties with potentially conflicting interests” are represented by one attorney. One of the primary drafters of the rules has suggested that the literal language of rule 1.07 was in error and should be limited to situations in which an attorney mediates between clients, as illustrated by the comments to rule 1.07. See Robert P. Schuwerk & John F. Sutton, Jr., A Guide to the Texas Disciplinary Rules of Professional Conduct, 27A Hous. L. Rev., Oct. 1990, at 122.
If the attorney concludes that multiple representation is appropriate, obtaining written consent of the clients is advised. Form 1-3 in this chapter is a model letter for such a situation. See also forms 1-5, 1-6, and 1-7 for letters dealing with multiple representation. Separate engagement letters for each client may be appropriate in addition to the multiple-representation consent letter.
An additional problem that may arise is the division of the legal bill between multiple clients. Any representation of multiple clients will require a tailor-made consent agreement that clarifies the billing arrangement. See form 1-7 for an example of a consent agreement.
Further, if multiple parties are to receive cash or some other consideration, the attorney may have a duty to make sure all parties represented concur in the way the consideration is to be divided. See ; Quintero v. Jim Walter Homes, Inc., 709 S.W.2d 225, 229 (Tex. App.—Corpus Christi–Edinburg 1985, writ ref’d n.r.e.) (involves litigation but easily analogized to business settlements).
An attorney may not enter into an agreement for, charge, or collect an illegal or unconscionable fee. . A fee is unconscionable if a competent attorney could not form a reasonable belief that the fee is reasonable. . In borderline cases the comments specify two indications of unconscionability: the attorney’s overreaching with a client, especially one susceptible to such a practice, and the attorney’s failing to give the client at the outset of the representation a clear explanation of how the fee will be calculated. . Rule 1.04(b) lists a number of factors that may be considered in determining the reasonableness of a fee.
An attorney may not divide a fee with another attorney who is not a member or employee of the same firm unless (1) the client consents in writing to the terms of the arrangement ahead of time, (2) the division is in proportion to the services rendered by each attorney or is with an attorney who assumes joint responsibility for the representation, and (3) the aggregate fee is not unconscionable. .
Unless the agreement is confirmed by an arrangement conforming to paragraph (f)(2) of rule 1.04, the attorney may not collect fees or expenses in connection with the agreement except for (1) the reasonable value of legal services provided and (2) the reasonable and necessary expenses actually incurred. .
An attorney may share fees with an “of counsel” attorney ( (1988)) or with a former partner or associate ().
Fees paid in advance of the performance of work, as well as any of the client’s other property that comes into the attorney’s possession, must be held in trust by the attorney. . Attorneys must keep complete records of client account funds for at least five years after the conclusion of the representation. . If a client’s funds either are of an amount or are held for a long enough time that the interest generated is likely to exceed the costs of setting up and maintaining an account, an individual account must be set up for the client. For a client’s funds that are of a small amount or are likely to be held only for a short time, attorneys are required to maintain an interest-bearing account in which to pool the funds. Under the Interest on Lawyers’ Trust Accounts (IOLTA) program, interest from these pooled accounts is paid to the Texas Equal Access to Justice Foundation, which awards grants to organizations in Texas that serve the poor in legal matters. Attorneys must submit an annual IOLTA compliance statement to the foundation. (1989) (found in the Texas Government Code in title 2, subtitle G, appendix A, following section 84.004 of the Government Code). See also the Rules Governing the Operation of the Texas Equal Access to Justice Program (reproduced in Texas Rules of Court—State (West 2021)).
Although generally each party to a transaction pays its own attorney’s fees, there are certain circumstances in which a prevailing party may contractually recover fees from the opposing party or may be entitled to recover reasonable attorney’s fees under . When such a fee-shifting circumstance is legally authorized, the party seeking a fee award must prove both the reasonableness and necessity of the requested attorney’s fees. Rohrmoos Venture v. UTSW DVA Healthcare, LLP, 578 S.W.3d 469, 484 (Tex. 2019).
§ 1.5:4Engagement Agreements Detailing Fee Arrangements
Rule 1.04(c) states:
When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation.
(emphasis added). Forms 1-8, 1-9, and 1-10 in this chapter are examples of engagement letters for real estate transactions. Form 1-16 may be used as a basis whenever the terms of the engagement change (whether fee, scope of engagement, conflicts, or other matters).
§ 1.5:5Charging for Time and Expenses
As implied in rule 1.04(c), the attorney’s fee basis is established by an agreement between the attorney and the client. The attorney should, however, carefully outline the fee basis to avoid a client’s misunderstanding later. For example, the attorney might advise the client that there will be a fee to recover time previously spent to develop a limited partnership or other entity form, unbilled or unpaid time for research incurred on another matter, or initial consultation costs or that attorneys at the same firm may be substituted at different rates.
§ 1.5:6Record Retention and Destruction
Neither the rules nor Texas case law specify if, or how long, an attorney must retain client records. To resolve the ambiguity, some attorneys adopt a record retention and destruction policy. If the existence of a policy is disclosed to the client in either the engagement letter or the closing letter, the client has the opportunity to obtain the records and the attorney has some authority to dispose of the documents. See forms 1-8, 1-9, 1-10, 1-14, and 1-15 in this chapter for an optional paragraph concerning retention and destruction of records. As attorneys move to digital offices, this paragraph could be modified to reflect that the attorney would not be required to maintain paper files or records or how they handle highly sensitive client information.
An attorney that routinely handles matters with highly sensitive information (e.g., Social Security numbers, driver’s license numbers, passport numbers, or bank account numbers) may consider consulting an IT professional to understand vulnerabilities in their system, backup safety measures that may be best practices, and additional steps necessary to safeguard client information in order to comply with federal and state laws that govern data privacy or that impose notification requirements upon the unauthorized access or breach of the attorney’s system.
§ 1.6:1Duty to Keep Client Informed
Rule 1.03(a) requires an attorney to keep the client reasonably informed. In addition, the attorney has the duty to inform the client of relevant considerations and explain their legal significance to permit the client to make informed decisions. .
One way to meet these obligations is to routinely provide the client with copies of all pertinent correspondence, documents, and file memoranda; advise the client in writing of risks involved with the transaction, including the obvious; and document the business decisions made by the client.
An attorney may not knowingly reveal confidential information of a client or use such confidential information to the attorney’s advantage or for the advantage of a third person. . The ethical duty to preserve a client’s confidence is much broader than the attorney-client evidentiary privilege. This duty applies even if there is not yet an established attorney-client relationship—for instance, when a client comes in for an initial interview. See . The obligation of confidentiality also continues after the termination of employment. .
Rule 1.16, adopted effective July 1, 2021, authorizes an attorney to disclose a client’s confidential information if the lawyer reasonably believes it is necessary to protect the client’s interests. . This is limited to instances in which the attorney reasonably believes that the client has diminished capacity; that the client is at risk of substantial physical, financial, or other harm unless action is taken; and that the client cannot adequately act in the client’s own interest.
Rule 1.6(c) of the ABA Model Rules of Professional Conduct states: “A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client.” Comment 18 to this rule states, in part, that—
[t]he unauthorized access to, or the inadvertent or unauthorized disclosure of, information relating to the representation of a client does not constitute a violation of paragraph (c) if the lawyer has made reasonable efforts to prevent the access or disclosure. Factors to be considered in determining the reasonableness of the lawyer’s efforts include, but are not limited to, the sensitivity of the information, the likelihood of disclosure if additional safeguards are not employed, the cost of employing additional safeguards, the difficulty of implementing the safeguards, and the extent to which the safeguards adversely affect the lawyer’s ability to represent clients (e.g., by making a device or important piece of software excessively difficult to use).
§ 1.6:3Business Interests with Clients
Rule 1.08(a) provides that an attorney may not enter into a business transaction with a client unless (1) the transaction and the terms on which the attorney acquires the interest in the transaction are fair and reasonable to the client and are fully disclosed in a manner that can be reasonably understood by the client, (2) the client is given reasonable opportunity to seek the advice of independent counsel in the transaction, and (3) the client consents in writing. . Comment 2 to rule 1.08 indicates that the rule does not apply to standard commercial transactions between the attorney and the client for products or services the client generally markets to others, because the attorney has no advantage in dealing with the client.
In cases in which the attorney and client are both personally involved in a business transaction, malpractice insurance claims might be denied because the policies may exclude coverage under such circumstances. The attorney’s malpractice carrier can confirm if it provides such coverage or offers any special endorsements on a case-by-case basis (e.g., where an attorney is a part owner of a bank client and prepares loan documents on behalf of the bank).
See form 1-11 in this chapter for an example of a consent agreement for doing business with a client.
§ 1.6:4Duty to Clarify Nonrepresentation
An attorney dealing on behalf of a client with a person not represented by an attorney may not state or imply that the attorney has no interest in the outcome of the matter. If the attorney believes an unrepresented person misunderstands the attorney’s role, the attorney must correct this misunderstanding. . For example, an attorney might make a written nonrepresentation disclosure to a borrower when representing a lender. See form 1-12 in this chapter for an example of a nonrepresentation disclosure letter.
§ 1.6:5Communication with Someone Represented by Counsel
An attorney may not communicate about the subject of the representation with someone the lawyer knows to be represented by counsel. . Likewise, the rules prohibit an attorney from encouraging a client to make such a communication. See .
There are legally required exceptions to this rule, such as the sending of a foreclosure notice. See .
§ 1.6:6Responsibilities Regarding Nonlawyer Assistant
Rule 5.03 of the Texas Disciplinary Rules of Professional Conduct is similar to rule 5.3 of the ABA Model Rules of Professional Conduct. Comment 3 to ABA rule 5.3 recognizes that the use of nonlawyers outside the firm may include—
sending client documents to a third party for printing or scanning, and using an Internet-based service to store client information. When using such services outside the firm, a lawyer must make reasonable efforts to ensure that the services are provided in a manner that is compatible with the lawyer’s professional obligations.
(2006), addresses the use of an independent contractor for copying services. See 69 Tex. B.J. 793–94 (2006).
§ 1.7Respect for Rights of Third Parties
Rule 4.4(b) of the ABA Model Rules of Professional Conduct states: “A lawyer who receives a document or electronically stored information relating to the representation of the lawyer’s client and knows or reasonably should know that the document or electronically stored information was inadvertently sent shall promptly notify the sender.” Comments 2 and 3 to this rule state the following:
[2] Paragraph (b) recognizes that lawyers sometimes receive a document or electronically stored information that was mistakenly sent or produced by opposing parties or their lawyers. A document or electronically stored information is inadvertently sent when it is accidentally transmitted, such as when an email or letter is misaddressed or a document or electronically stored information is accidentally included with information that was intentionally transmitted. If a lawyer knows or reasonably should know that such a document or electronically stored information was sent inadvertently, then this Rule requires the lawyer to promptly notify the sender in order to permit that person to take protective measures. Whether the lawyer is required to take additional steps, such as returning the document or electronically stored information, is a matter of law beyond the scope of these Rules, as is the question of whether the privileged status of a document or electronically stored information has been waived. Similarly, this Rule does not address the legal duties of a lawyer who receives a document or electronically stored information that the lawyer knows or reasonably should know may have been inappropriately obtained by the sending person. For purposes of this Rule, “document or electronically stored information” includes, in addition to paper documents, email and other forms of electronically stored information, including embedded data (commonly referred to as “metadata”), that is subject to being read or put into readable form. Metadata in electronic documents creates an obligation under this Rule only if the receiving lawyer knows or reasonably should know that the metadata was inadvertently sent to the receiving lawyer.
[3] Some lawyers may choose to return a document or delete electronically stored information unread, for example, when the lawyer learns before receiving it that it was inadvertently sent. Where a lawyer is not required by applicable law to do so, the decision to voluntarily return such a document or delete electronically stored information is a matter of professional judgment ordinarily reserved to the lawyer. See Rules 1.2 [“Scope of Representation and Allocation of Authority Between Client and Lawyer”] and 1.4 [“Communications”].
Texas Disciplinary Rules of Professional Conduct rules 1.02 (“Scope and Objectives of Representation”) and 1.03 (“Communication”) are the comparable Texas rules referenced in comment 3 above.
§ 1.8Terminating Attorney-Client Relationship
A client may always terminate the attorney-client relationship. An attorney must return any unearned portion of the fee and all pertinent papers and property. ; (1979). However, rule 1.15(d) specifically provides that an attorney may retain papers relating to the client to the extent permitted by other law, but only if such retention will not prejudice the client in the subject matter of the representation. See (1984).
An attorney also may terminate the relationship; however, the attorney has a duty to minimize any adverse effects to the client. . It is a good practice for an attorney to send a disengagement letter to record the date of the termination of the attorney-client relationship. See form 1-13 in this chapter for an example of a disengagement letter.
sets out the circumstances under which the attorney must terminate the relationship with the client. An attorney must withdraw if continued representation will result in a violation of one of the Texas Disciplinary Rules of Professional Conduct or another law or if the attorney’s physical, mental, or psychological condition materially impairs the attorney’s fitness to represent the client. The attorney must also withdraw when discharged. When terminating the attorney-client relationship before completing the work for which the client contracted, the attorney should review rule 1.15 to be sure that good cause for withdrawal exists.
Withdrawal is permissible under the circumstances listed in rule 1.15(b). The rule provides that an attorney may withdraw if the client fails substantially to fulfill an obligation to the attorney, including the obligation to pay the attorney’s fee as agreed, and a reasonable warning has been given that the attorney will withdraw unless the obligation is fulfilled. . See form 1-13 for an example of a letter terminating the attorney-client relationship because of nonpayment of fees. At least one court in dicta has stated that by accepting employment an attorney implicitly represents that the attorney will see the task through to conclusion. See Staples v. McKnight, 763 S.W.2d 914 (Tex. App.—Dallas 1988, writ denied). By conditioning the commencement of work and continued performance on the payment of a fee, the attorney may avoid problems later.
§ 1.8:2Termination Due to Other Considerations
The attorney-client relationship does not continue automatically once the purpose of the employment is completed. However, it is often difficult to determine when a matter is completed. Again, it is a good practice to send a disengagement letter to record the date of the completion of employment. See form 1-14 in this chapter for an example of a completion letter.
§ 1.8:3Succession Planning for the Solo Practitioner
In July of 2021, the Texas Rules of Disciplinary Procedure were amended or revised to include rule 13.04, titled “Voluntary Appointment of Custodian Attorney for Cessation of Practice,” which states, in part, that—
[i]n lieu of the procedures set forth in Rules 13.02 and 13.03, an attorney ceasing practice or planning for the cessation of practice (“appointing attorney” for purposes of this Rule) may voluntarily designate a Texas attorney licensed and in good standing to act as custodian (“custodian attorney” for purposes of this Rule) to assist in the final resolution and closure of the attorney’s practice.
Tex. Rules Disciplinary P. R. 13.04. In addition, the State Bar of Texas Law Practice Management Committee has formulated a comprehensive succession planning toolkit via an online portal on the State Bar website designed to help solo practitioners appoint a voluntary custodian attorney who can assist with the emergency management of the practice and the protection of the attorney’s clients and family members in the event of an unexpected practice cessation. Contact information for custodian attorney should be provided to the State Bar of Texas for inclusion on its public website. For additional information or specific questions on succession planning, contact the State Bar Succession Planning Program at 512-427-1300, or on their website, www.texasbar.com/AM/Template.cfm?Section=Succession_Planning&Template=/Succession/home.cfm. As this area is still in flux, see form 1-18 for an additional provision that may be useful to add to an engagement letter or fee agreement.
§ 1.9Local Counsel Representation
In financing transactions involving multiple jurisdictions, due to either the location of the borrower or the location of collateral, the borrower is commonly required to provide opinions of local counsel. While all of the preceding rules apply in these situations, local counsel may have additional concerns, including the fact that they may be engaged by lead counsel, have little or no contact with the client, and have little or no knowledge of the overall transaction. Form 1-15, based on form 1-10, includes an additional provision in paragraph 1 that may be useful in a local counsel representation.
§ 1.10Technological Competence
The Texas Supreme Court has amended comment 8 to rule 1.01, which addresses competent and diligent legal representation, to address technological competency. The revised comment indicates each lawyer “should strive to become and remain proficient and competent in the practice of law, including the benefits and risks associated with relevant technology.” & cmt. 8 (emphasis added). The comment is similar to a change made in the American Bar Association’s model rule in 2012. See www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_1_competence/comment_on_rule_1_1/.
§ 1.11Duty to Report Ethical Violation; Peer Assistance Program Alternative
The Texas Lawyer’s Creed states that a lawyer must “abide by the Texas Disciplinary Rules of Professional Conduct,” and “[p]rofessionalism requires more than merely avoiding the violation of laws and rules.” The Texas Lawyer’s Creed—A Mandate for Professionalism, reprinted in Texas Rules of Court—State (West 2021).
Rule 8.03 of the Texas Disciplinary Rules of Professional Conduct requires attorneys to make a report when a substantial question arises about another lawyer’s “honesty, trustworthiness or fitness”:
8.03 Reporting Professional Misconduct
(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 lawyer’s 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 judge’s 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 lawyer’s 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.
(e)A lawyer who has been convicted or placed on probation, with or without an adjudication of guilt, by any court for barratry, any felony, or for a misdemeanor involving theft, embezzlement, or fraudulent or reckless misappropriation of money or other property—including a conviction or sentence of probation for attempt, conspiracy, or solicitation—must notify the chief disciplinary counsel within 30 days of the date of the order or judgment. The notice must include a copy of the order or judgment.
(f)A lawyer who has been disciplined by the attorney-regulatory agency of another jurisdiction, or by a federal court or federal agency, must notify the chief disciplinary counsel within 30 days of the date of the order or judgment. The notice must include a copy of the order or judgment. For purposes of this paragraph, “discipline” by a federal court or federal agency means a public reprimand, suspension, or disbarment; the term does not include a letter of “warning” or “admonishment” or a similar advisory by a federal court or federal agency.
(emphasis added). The rule and the alternative method of reporting under rule 8.03(c) reflect the values of the Texas Lawyer’s Creed; rule 8.03(c) allows attorneys to help each other without involving the disciplinary process.
§ 1.12Texas Lawyers’ Assistance Program
The only approved peer assistance program to which lawyers may make reports under rule 8.03(c) is the Texas Lawyers’ Assistance Program (TLAP). See ; Board of Directors Meeting Minutes, Jan. 20–21, 1989, State Bar of Texas. TLAP is available to lawyers, judges, and law students twenty-four hours a day, seven days a week, at 1-800-343-TLAP (8527). Information about attorney wellness and other related information is also available on TLAP’s website, www.tlaphelps.org. If a lawyer is required to report under rule 8.03(a), that is, if he has knowledge “or suspects” another lawyer is “impaired by chemical dependency on alcohol or drugs or by mental illness,” the report may instead be made to TLAP and discharges the reporting lawyer’s duty to report. See ; . “Mental illness” encompasses Alzheimer’s disease, dementia, and other cognitive disorders. American Psychiatric Association, Diagnostic & Statistical Manual of Mental Disorders 591 (5th ed. 2013).
Calling TLAP about a fellow lawyer in need is a way to help an attorney with a problem without getting that attorney into disciplinary trouble. The confidentiality of TLAP participants’ information is ensured under and by TLAP policy. All communications by any person with the program (including staff, committee members, and volunteers) and all records received or maintained by the program are strictly protected from disclosure. TLAP does not report lawyers to disciplinary authorities. While the majority of calls to TLAP are self-referrals, referrals may also come from partners, associates, office staff, judges, court personnel, clients, family members, and friends. TLAP is respectful and discreet in its efforts to help impaired lawyers who are referred, and TLAP never discloses the identity of a caller trying to get help for another attorney. Furthermore, the Health and Safety Code provides that any person who “in good faith reports information or takes action in connection with a peer assistance program is immune from civil liability for reporting the information or taking the action.” .
Approximately half of all assistance provided by TLAP is given to attorneys suffering from anxiety, depression, or burnout. Additionally, TLAP helps lawyers, law students, and judges suffering problems such as prescription and other drug use, eating disorders, gambling addictions, cognitive impairment, codependency, and many other serious issues.
Once a lawyer, law student, or judge is connected to TLAP, the resources that can be provided directly to that person include—
1.direct peer support from TLAP staff attorneys;
2.self-help information;
3.connection to a trained peer support attorney who has overcome the particular problem at hand and who has signed a confidentiality agreement;
4.information about attorney-only support groups such as Lawyers Concerned for Lawyers (weekly meetings for alcohol, drug, depression, and other issues) and monthly wellness groups (professional speakers on various wellness topics in a lecture format), which take place in major cities across the state;
5.referrals to lawyer-friendly and experienced therapists, medical professionals, and treatment centers; and
6.assistance with financial resources needed to get help, such as the Sheeran-Crowley Memorial Trust, which is available to help attorneys in financial need with the costs of mental-health or substance abuse care.
§ 1.13Corporate Transparency Act
As noted in section 2.60 in this manual, Congress enacted the Corporate Transparency Act (the “Act”) in 2021. The Act () and regulations implementing the Act (31 C.F.R. pt. 1010) (the “Regulations”) were enacted to assist law enforcement in its efforts against terrorists, money launderers, and other bad actors who hide behind a web of entities.
At the heart of the Act and the Regulations is a requirement that most corporations, limited liability companies, and other entities that are formed by filing with a secretary of state or American Indian tribe report to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury personal information regarding certain of their beneficial owners. Those who own 25 percent or more of the interest in the entity or who control the entity (through service on the board of directors, service as a senior officer, or other control mechanism) must be reported to FinCEN. In addition, for entities formed on or after January 1, 2024, the FinCEN report must include the identity of the “company applicant,” which may include not only the senior officer of the entity directing the formation, but also potentially the attorney, paralegal, and corporate filing service that actually files the report.
In additional to an initial filing shortly after the time of formation of entities formed on or after January 1, 2024, and on January 1, 2025, in the case of entities formed before January 1, 2024, the entity must update its filings with FinCEN after any change in the identity of its beneficial owners or other specific changes. These updates are due within thirty days after a change, which could be substantial, such as an increase in equity ownership by an individual shareholder or limited liability member, but which also could be as minimal as the issuance of a new driver’s license to a beneficial owner due to a change of residence or a change of name of a beneficial owner due to marriage. The need to provide timely updates will require entities to adopt specific policies to require beneficial owners to promptly notify the entity of any changes.
Initial and supplemental reports require disclosing personal information about the beneficial owner and company applicant, including name, residence address, date of birth, driver’s license or passport number, and a photocopy of the driver’s license or passport. All filings will be made electronically on the FinCEN website, www.fincen.gov/boi. It is possible for beneficial owners and company applicants to obtain a FinCEN identifier, which would allow future filings to omit personal information and list only the FinCEN identifier, reducing the number of times that a person’s personal information must be filed. An application for a FinCEN identifier is available on the FinCEN website. Once an individual has obtained a FinCEN identifier, the individual (and not the reporting entity) is responsible for notifying FinCEN of any changes in personal identification information.
While the Act and the Regulations outline a number of entities that are exempt from the filing requirements, they should be read in detail as they are extremely complicated. These are also available at the FinCEN website.
While a complete discussion of the Act and Regulations is beyond the scope of this manual, attorneys, clients, and beneficial owners should familiarize themselves with its requirements. Penalties for failing to comply are substantial, including civil penalties of up to $500 per day and criminal penalties of up to two years imprisonment and a fine of up to $10,000. The most reliable way to access the Act and Regulations, the electronic filing site, and helpful guides, is at the FinCEN website.
Many attorneys, including those who form entities for their clients as well as those who may provide continuing services of a general nature to entities, are considering how to adjust to the requirements of the Act. For instance, attorneys may consider drafting or revising bylaws of corporations or the company agreements of limited liability companies to require all holders of equity interests to report this personal information to the entity and to update that information within a short time after changes to the initial information. In addition, attorneys are considering how to revise their engagement letters to reflect what duties they will or will not accept in connection with these filing requirements. An attorney who is considered a “company applicant” may need to obtain extensive personal information and may be concerned with liability if its records are hacked or the information is otherwise obtained by third parties.
There is no consensus of how attorneys will address compliance with the Act in their engagement letters. Some expect to disclaim any involvement in the Act; some expect to agree to make filings only if presented with complete and timely information from the entity; and others, as mentioned above, are concerned with potential liability for failing to keep personal information from beneficial owners confidential. There have been several challenges to the CTA, and as of the publication of this manual, it is uncertain whether requirements for filings have been or will be delayed or enjoined. However, other states such as New York have adopted their own version of the CTA, so attorneys should be aware of potential local filing rules.
As this area is still in flux, form 1-17 includes clauses that attorneys may consider inserting in their engagement letters.
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