Campbell & Associates Law Firm PC.

Lawyer Conduct Issues For Worker’s Compensation Lawyers

By: Bruce A. Campbell

I. Introduction

The small cadre of lawyers who practice in this area continues to work harder than ever to try to serve their clients. The hourly rate for workers’ compensation lawyers had remained the same. On the plaintiff’s side of the bar, counsel has had to become very efficient in attracting cases, selecting cases, and handling those cases in order to have some hope of recovering fees. There is a tremendous amount of pressure imposed by the workers’ compensation system to keep attorney fees as low as possible. Attorneys are told by the Commission what activities they can bill for, at what rate, and when they can collect their fees. The billing rate is often significantly lower than for other areas of practice given the expertise and skill necessary to handle these cases. The defense side of the bar is different, but the pressure put on defense firms to keep fees low by the workers’ compensation carriers is no less strenuous. As a whole, defense firms representing insurance carriers have over the last decade experienced substantial fee pressure. Many have been subjected to third-party audits, or relegated to unresolved fee disputes, or forced to live with budgets that are difficult if not dangerous to adhere to.

There are still many open issues that require a substantial exercise of professional judgment in the area. Such professional judgments twenty years ago were virtually unchallenged – that is not true today. Instead, judgment calls, tactical decisions, and case selection appear to give rise to disciplinary and professional liability concerns for workers’ compensation lawyers and are deserving of discussion and analysis.


A. Malpractice claims against Workers Compensation Lawyers.

Missed deadlines.

If I was in charge of the world, deadlines would be crystal clear and no lawyer would have to guess whether the time to do a particular act had passed or not. Obviously, I’m not in charge of the world and deadlines often come in various shades of gray. In Toma v. Adhers, 769 S.W.2d 614 (Tex. App. El Paso, 1989) the lawyers for the claimant missed the deadline for filing the claim. The lawyers argued under the old law that they reasonably relied upon a representation from the worker’s employer that the employer would file the claim. No claim was timely filed. The trial court granted summary judgment for the lawyers finding that the sole proximate cause of the claimant’s injury was the claimant’s failure to file his claim. The court of appeals reversed and held that there was a material issue of fact as to whether a reasonably prudent attorney representing a person with the claimant’s background would have relied for approximately two years and nine months on employer’s representation that employer would take care in seeing claim was filed.

Missed deadlines continue to occur under the new law. In the past several years I have seen several lawyers miss deadlines including the deadline for challenging an MMI determination and for filing an appeal to the district court. It is likely that each of you can think of many other fatal dates that can arise during the course of the handling of a workers compensation case (e.g. hearing dates, submission of written responses, etc). Each possible deadline should be docketed. A dual calendaring system should be employed. Most E & O carriers require the use of a dual calendaring system. That is, the lawyer should have a calendar that he or she maintains. And, the legal assistant for the lawyer should also maintain a calendar. Periodically both calendars should be compared so that both calendars can be used to help the lawyer avoid missing a deadline. Nevertheless, missed deadlines will continue to be a source of claims. All members of the lawyers’ staff must help watch out for upcoming deadlines.

Notice of withdrawal.

It is relatively clear that if you withdraw and fail to give reasonable notice of your withdrawal, you can be the subject of either a malpractice claim or a grievance. However, the tough question is always how much notice must you give. And, what other steps must you take to protect the client? The answers to these questions are often murky. In Medrano v. Reyes, 902 S.W.2d 176 (Tex. App. Eastland, 1995) a law firm that was first retained to represent the spouse and child of a worker who died on the job, was subsequently retained by the parents of the worker to file a wrongful death action against a third-party defendant. The law firm after undertaking to represent the spouse determined that it would be a conflict of interest to represent the spouse and child in the workers’ compensation claim and also represent the parents in the wrongful death action. The law firm withdrew from representing the parents in the wrongful death action and sent notice of the withdrawal 21 months before the statute of limitations expired. The parents did not retain other counsel and the statute of limitations expired on the wrongful death action. In holding that the law firm should not be held responsible for failing to file the third party action on behalf of the parents the court pointed out the Firm had taken reasonable steps to notify the client to protect their rights before the expiration of the statute of limitations where the firm properly and timely withdrew and where there was sufficient time for the employment of other counsel before the two-year expiration period.

Substantive errors of law.

Although there are instances in which workers’ compensation lawyers make substantive errors in interpreting the law, the total number of reported malpractice cases that stem from this type of problem is relatively few. Generally, these cases involve the interpretation of a substantive deadline such as the determination of when a latent occupational disease accrues or the time for filing an appeal or other immovable deadline. In Childs v. Haussecker, 974 S.W.2d 231 (Tex. 1998) a worker was diagnosed with work-related silicosis in May 1988 nearly 20 years after scoliosis has first manifested itself. In early April 1990, the worker consulted with an attorney who told him that too much time had passed and he could not help him. Thereafter the worker filed a legal malpractice case against the lawyer. In setting aside a summary judgment granted to the defendant’s lawyers, the Court found there were fact issues concerning when the injury occurred.

Failure to advise, and the scope of the representation.

One of the more common types of malpractice cases arises out of the lawyer’s failure to adequately define the scope of the representation. This type of problem is prevalent in all forms of law practices. The problem often arises when a client’s claim spillovers into other legal disciplines and other counsel are retained to represent the client. For example, in Moore v. Yarborough, Jamison & Gray, 993 S.W.2d 760 (Tex. App. – Amarillo 1999, no writ), the attorney was retained to represent a spouse in a divorce suit. In the context of the divorce, the family lawyer discussed a possible personal injury claim with the spouse, advising her that personal injury law was not his specialty and aiding her in obtaining a personal injury lawyer to pursue the personal injury claim. The family attorney contacted the personal injury attorney in an effort to determine whether the personal injury claims would be pursued in the divorce or in a separate lawsuit. Ultimately, the personal injury claims were pursued in a separate lawsuit, and the divorce suit reached judgment first. After the personal injury claim was barred by res judicata, the spouse contended that the divorce lawyer had a duty to advise her of the potentially adverse effect of trying the two claims separately. The claimant’s expert testified that the family attorney and the personal-injury attorney both should have advised the client as to the res judicata danger in trying the two matters separately. In reversing summary judgment granted in favor of the family lawyer, the Amarillo Court of Appeals pointed out that the family lawyer failed to present summary judgment evidence that the facts presented in the course of the divorce case were not related in time, space, or general motivation to the personal injury claim. And, therefore, the family lawyer failed to prove as a matter of law that the personal injury claim was sufficiently dissimilar to the divorce so that res judicata would not apply. The family lawyer, therefore, failed to establish that consultation about the possibility of res judicata was not required.

With the complexity of client problems continuing to increase, the likelihood that a workers’ compensation lawyer will be called upon to work with lawyers from other disciplines will become more prevalent. Carefully documenting the scope of your representation will become even more important than it is today.

5. Failure to Communicate with the Client.

A large number of lawyer discipline cases arise from a lawyer’s failure to communicate with the client. All too often, lawyers find themselves so deeply entrenched in their cases that they forget to pick up the phone and make a simple phone call to the client to advise them of the status of the case. In reviewing the Texas Bar Journal over recent months, it is evident that a large portion of the disciplinary actions involves violations of Rule 1.03, and the failure of a lawyer to communicate with the client. Specifically, last year, a Houston attorney received a one-year active suspension for failing to keep his client informed of the status of the matter or respond to notice of the complaint. Tex. B. J. Vol. 67, p. 71 (2004). Additionally, an Addison lawyer was disbarred when the committee found that he failed to respond to the complainant’s inquiries regarding the status of the matter, explain the matter to the extent necessary for the complainant to make informed decisions regarding the representation, or respond to notice of the complaint. Tex. B. J. Vol. 67, p. 149 (2004).

Keeping the client advised as to the status of a case is one of the easiest things a lawyer can do. However, many lawyers simply fail, for whatever reason, to keep the client informed. As a result, many lawyers find themselves being disciplined for their failure to communicate with the client. The foregoing instances are only a couple of examples; however, a review of the disciplinary actions in the Texas Bar Journal will reveal that there are many more.

B. Money Issues Under Rule 1.14

Texas like every other state imposes upon lawyers certain obligations when they come into possession of property of clients and third parties. These obligations include 1) the obligation not to commingle property; 2) the obligation to notify the client and third-parties of the lawyer’s possession of their property; 3) the obligation to safe-keep the property; 4) the obligation to account for the property; 4) and, where there is a dispute over the right to the property, the obligation to hold the property until the dispute is resolved or the lawyer’s obligations have been terminated. Rule 1.14 of the Texas Disciplinary Rules of Professional Conduct (the “Safekeeping Rule”) is written very broadly and can apply to virtually all lawyers at various times during their practice. In 2001, almost ten percent of the disciplinary sanctions against lawyers in Texas included a violation of Rule 1.14. Even more significantly, of the lawyers who were sanctioned for a Rule 1.14 violation, nearly seventy percent were suspended or disbarred. No other Rule garnered as many serious sanctions. Although personal injury lawyers are the lawyers who are most frequently disciplined for failure to properly handle property, they are by no means alone. No practice area is immune from sanctions under the Safekeeping Rule. Awareness of the breadth of the Rule is important in avoiding exposure for violating the Rule.

1. The Duty to Keep Property Separate and Not Commingle

Regrettably, the maxim that an honest lawyer will instinctively do the ethically correct thing often falls short of the obligations imposed by Rule 1.14. As has been observed, property entrusted to a lawyer is not an intuitive matter of morality, but rather the subject of extensive technical requirements. Rule 1.14 (a) provides:

A lawyer shall hold funds and other property belonging in whole or in part to clients or third persons that are in a lawyer’s possession in connection with a representation separate from the lawyer’s own property. Such funds shall be kept in a separate account, designated as a “trust” or “escrow” account, maintained in the state where the lawyer’s office is situated, or elsewhere with the consent of the client or third person. Other client property shall be identified as such and appropriately safeguarded. Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation.

Tex. Discip. R. Prof. Conduct 1.14 (emphasis added). The rationale for disallowing commingling of the lawyer’s property with the property of a client or third party is to protect the property from claims of creditors of the lawyer. The comments to Rule 1.14 point out:

A lawyer should not use even that portion of trust account funds due to the lawyer to make direct payment to general creditors of the lawyer or the lawyer’s firm, because such a course of dealing increases the risk that all the assets of that account will be viewed as the lawyer’s property rather than that of clients, and thus as available to satisfy the claims of such creditors. When a lawyer receives from client monies that constitute a prepayment of a fee and that belongs to the client until the services are rendered, the lawyer should handle the fund in accordance with paragraph (c). Tex. Discip. R. Prof. Conduct 1.14 cmt. 2.

The decisions under Rule 1.14 do appear to recognize a spectrum of conduct ranging from sloppy record-keeping to intentional theft. At the center of the prohibited conduct is the rule prohibiting lawyers from commingling their property with the property of their clients and third parties. Commingling in violation of Rule 1.14 may be found even though no funds are actually misused and, even though no client is deprived of the use of their property. For example, in In re: Brown, 427 S.E.2d 645 (S.C. 1993) a lawyer was suspended who commingled mortgage payments collected on a client’s behalf with other funds of the lawyers, despite the lawyer’s assertion that he had remitted all collected funds.

Similarly, Texas disciplinary authorities take a dim view of lawyers who commingle property. For instance, in 2001, a Lake Dallas attorney was disbarred who accepted land in trust for his clients but failed to indicate on the deed that he was a trustee. Tex. B. J. Vol. 64, p. 197 (2001). Recently, an Austin divorce attorney was disbarred when she represented she would receive credit card payments and put them into a trust account. She did not put the money in the trust account and ultimately disbursed the money to her client without paying off the credit card debt. Tex. B. J. Vol. 64, p. 829 (2001).

The anti-commingling rule also prohibits a lawyer from depositing his own funds into a trust account to shield them from attachment by a creditor. See e.g. Iowa State Bar Ass’n Comm. on Prof. Ethics v. Gross, 326 N.W.2d 272 (Ia. 1982) (a lawyer cannot deposit his own funds into his firm’s trust account to prevent an ex-spouse from seeking back child support payments).

When money is the property that is received by the lawyer, Texas requires that the money be placed in a trust account. See Tex. Discip. R. Prof. Conduct 1.14(a). Money, because it is fungible, must of course be separately accounted for, and at present, must ordinarily be deposited into an IOLTA account. Different forms of property may require other types of efforts to segregate by the lawyer. For instance, a deed for the property, at least in one instance, was required to be held in a representative capacity. See Tex. B. J. Vol. 64, p. 197 (2001). Securities should be kept in a safe deposit box, except when some other form of safekeeping is warranted by special circumstances. Tex. Discip. R. Prof. Conduct 1.14. cmt. 1. All property, which is the property of clients or third persons, should be kept separate from the lawyer’s business and personal property. Separate trust accounts may be warranted when administering estate monies or acting in similar fiduciary capacities. Id. Suppose a lawyer is given gold coins by a client to hold pending a determination of the ownership of the coins, is placing those coins in a pouch and placing them in the lawyer’s safety deposit box sufficient? Perhaps. See Restatement (Third) of the Law Governing Lawyers §44cmt. 3 (2001) (a lawyer must use reasonable measures for safe-keeping property. The reasonableness of measures depends upon the circumstances, including the market value of the property, its special value to the client or third person, and special difficulties that would be required to replace it if known to the lawyer, its transferability or convertibility, it’s susceptibility to loss or other damages, the reasonable customs of lawyers in the community, and the availability of safe-keeping, and the terms of any agreement under which the lawyer receives the property).

A developing issue concerning trust accounts arises when a client requests to deposit funds into the lawyer’s trust account, yet the number of funds may or may not be connected with a representation for which the lawyer is retained. For instance, a Kansas lawyer who represented a developer was disciplined for allowing his developer client to cause investor money to be placed in the lawyer’s trust account. In finding that the lawyer violated the safekeeping rule the court noted that the lawyer’s trust account was being used as a conduit to filter the investment money through to the developer. The Court stressed that under their view a trust account could only be used in connection with a representation, which they interpreted to mean representing the investors. Since the lawyer did not represent the investors he violated the safekeeping rule. In re: Rausch, 32 P. 3rd 1181(Ka. 2001).

2. Notice After Receipt of Property

After receiving property from a client or a third party and segregating it from the lawyer’s own property, the lawyer must give notice of the receipt of the property. More particularly, Rule 1.14(b) provides:

Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.

Tex. Discip. R. Prof. Conduct 1.14(b) (emphasis added). The problem of failure to timely give notice of receipt frequently comes up in the personal injury practice. For instance, lawyers have been sanctioned when they receive settlement proceeds and notice is either not given to the client or third party at all, or not until years later. For instance, a Dallas lawyer received a sixty-nine-month suspension, partially probated, when he used the money on deposit in his trust account for personal use and failed to notify the client of the receipt of funds. Tex. B. J. Vol. 64, p. 397 (2001). Recently, Andrew Dunlap, a Dallas lawyer, received a public reprimand for failure to safeguard settlement proceeds resulting in non-payment to medical providers. The lawyer’s failure to pay the medical providers resulted in collection efforts being made against the client by the medical providers. Tex. B. J. Vol. 66, p. 1004 (2003).

A common, but a somewhat different twist on the obligation to notify arose in Hanners v. State Bar of Texas, 860 S.W.2d 903 (Tex. App.–Dallas 1993, writ dism’d). In Hanners, an attorney agreed to pay a client’s former attorneys their assigned attorney’s lien. The lawyer settled the personal injury case and received the settlement check which he negotiated without the client’s consent. The check was not tendered to the medical provider but instead was deposited into the lawyer’s operating account. In the subsequent disciplinary action, the lawyer failed to appear for trial. The court found there was a violation of Rule 1.14 because the attorney failed to promptly notify third persons of his receipt of funds in which the third parties had an interest. The lawyer did not notify the third party for over 14 months. As a result, the lawyer was disbarred. The potential sanction for the lawyer was no doubt increased when he was caught lying to the grievance committee about the settlement checks.

3. Accounting for the Property Received

Lawyers who receive property of clients and third parties must properly account for it. An example of how the obligation to account was satisfied in a situation in which the lawyer came into possession of non-cash property can be seen in State Bar of Texas v. Dolenz, 3 S.W. 3d 260 (Civ. App..–Dallas 1999, no writ). In Dolenz, the subject lawyer had been retained to represent an artist to recover the artist’s paintings. The artist agreed to pay the lawyer an hourly fee and additional consideration for each painting recovered. Periodically as the artwork was recovered, the lawyer notified the client of the location of the painting recovered. In the subsequent disciplinary action, the State Bar asserted that the lawyer violated Rule 1.14(b) by retaining possession of the paintings he recovered rather than promptly delivering the paintings to the artist. In rejecting the application of Rule 1.14(b), the court noted that all of the recovered paintings had been returned to the artist prior to the effective date of Rule 1.14. Nevertheless, the Court also found that even if Rule 1.14(b) was applicable, that the attorney satisfied the obligations to the client because he notified the artist when a painting was recovered by notifying him of its location. Although the attorney did not immediately give the artist his paintings, the attorney testified that the artist agreed to let the attorney retain possession of the paintings. The court, therefore, found that there was no Rule 1.14 violation.[3]

The time within which a lawyer must account to his client or third party is not well defined in Texas, or in any other jurisdiction. Similarly, the determination of when the notification of receipt must occur appears to be based on the facts and circumstances of the particular case. This is particularly troubling given the quasi-criminal nature of disciplinary actions. In re: Ruffalo, 390 U.S. 544, 551, 88 S.Ct. 1222, 1226, 20 L.Ed. 2d 117, modified other grounds, 392 U.W. 254, 269-69, 90 S.Ct. 1011, 1020-21, 25 L.Ed. 2d 287 (1968). That is, unless there is a bright-line standard for how long a lawyer has to give notice or provide accounting, there will be serious fair notice issues for the lawyer who tries to conform his conduct to the requirements of the disciplinary rules. The lack of a bright-line standard also raises troubling questions for the State Bar in its choice of prosecuting alleged violators. Regrettably, there are no factors set out in Rule 1.14, nor the comments, to guide the timeliness analysis. About all we know is that waiting two years after the lawyer knows he has received the property to account for the property violates the rule. See Wade v. Commission, 961 S.W.2d 366 (Tex.App.–Houston [1st Dist.] 1997, no writ) (failure to account for settlement funds and expenses for over two years was sufficient evidence that the accounting requirement was violated).

4. The Duty to Safe Keep the Property

The lawyer who comes into possession of the property as a result of a representation of a client must maintain possession of the property until the property has been properly distributed or the rights to the property have been resolved. Although it does not occur frequently, occasionally clients and third parties disappear or relocate and cannot be found. Although the issue has not been addressed by any Texas court, the authorities suggest that the rules of escheat will apply, and the lawyer should follow those rules. ABA/BNA Lawyers Man. on Prof. Conduct 45:1205.

5. Property of Third Persons

On its face, Rule 1.14 places the property of third parties on the same level as that of a client. Thus, property, regardless of whether it belongs to a client, to medical providers, or even taxing authorities, is to be kept safe by the attorney. See Tex. B. J. Vol. 64, P. 198 (2001) (parow); Attorney Grievance Comm’n of Maryland v. Clark, 767 A.2d. 865 (Ct. App. May 2001) (employee taxes withheld by the lawyer for his staff must be kept safe). Interestingly, the sanctioning standards do not appear to recognize that the property of clients and third parties are to be treated the same. Rule 3.10 recognizes harm to a client as a factor to be considered in evaluating the sanction, yet harm to a third party is not expressly recognized. See Tex. Discip. R. Proc. 3.10. Failing to safe keep property belonging to someone other than the client may not be as serious an offense as failing to safe keep the property of the client. The decisional law has not explicitly addressed this issue. This lack of authority is created in part because the decisions rarely explicitly state the factors, which are relied upon for establishing the sanction. The only trend that does seem to be emerging is that lawyers who fail to safe keep the property of medical providers appears to receive some of the harshest sanctions. This may well be because medical providers are frequent complainants in the grievance process.

6. Safekeeping Property in Non-Disciplinary Cases

There have been a number of instances in which safekeeping obligations have been attempted to be asserted in support of civil liability claims against lawyers. Typically, the theory of recovery asserted against the lawyer is conversion or negligence, although a number of other theories have been asserted. The results have been mixed. Section 44 of the Restatement (Third) of the Law Governing Lawyers follows the requirements set forth in Rule 1.14. Comment C to Section 44 of the Restatement points out that a lawyer who violates the safekeeping obligations can be subjected to civil liability as well as disciplinary sanctions. A lawyer who converts property or negligently fails to safeguard it against loss can be held liable. Under agency principles, the lawyer is subject to civil liability for failure to segregate client or third party property and keep proper records, and must account for any profits resulting from the lawyer’s misuse of the property. Restatement (Third) of the Law Governing Lawyers Section 44 cmt. 3 (2001).

Nevertheless, the decisional law in Texas on civil liability is not particularly well developed. For instance, in Barraza v. Law Offices of Smith & Gogein, 918 S.W.2d 608 (Tex.App.–El Paso 1996, ref. overruled). A personal injury lawyer, who was discharged without cause, asserted a claim for conversion against the second personal injury lawyer, who had been advised of the first personal injury lawyer’s existence and of his claimed attorneys’ lien. The court found that the second personal injury lawyer did not violate Rule 1.14(b) by failing to account for the first lawyer even though the second lawyer knew of the first lawyer’s interest. This case has little analysis and gives no explanation of why the first lawyer was not entitled to notice nor an accounting. Nor does the case explain why the second lawyer had no safekeeping obligations.

The safekeeping obligations are expansive, yet not particularly well defined under Texas jurisprudence. Given the severity of the sanctions meted out for violating the Safekeeping Rule, all lawyers will be well served by exercising extreme care in handling the property of clients and third parties.

C. Review of Appling Interest:

Workers’ compensation lawyers, like most other practitioners, will have some exposure for negligent misrepresentation claims. Any time there is a representation that the other side or a third party may rely upon, the lawyer is potentially at risk. The seminal case on lawyer negligent misrepresentation is McCamish Martin Brown & Loeffler v. Appling Interests, 991 S.W.2d 787 (Tex. 1999). In Appling, a borrower sued the savings and loan’s attorney for negligent misrepresentation and fraud when the borrower agreed to sign the settlement agreement only if the attorney for the savings and loan affirmed that the requirements of 12 U.S.C. § 1823(e) had been met so the settlement agreement would be enforceable. The board of directors of the savings and loan approved the settlement, and the settlement was signed by the borrower. However, several weeks before the board approved the settlement, the board adopted a resolution placing the institution under voluntary supervision by the state banking commissioner. The commissioner did not ratify the settlement, the institution failed and the settlement was unenforceable under federal law. The Court of Appeals reversed the trial court’s summary judgment that dismissed the claim against the lawyers. The Court of Appeals pointed out that Texas recognizes a cause of action for negligent misrepresentation as defined by the Restatement of Torts (Second) § 552 (1977). In so holding, the Court of Appeals pointed out that the negligent misrepresentation claim was not equivalent to a professional malpractice claim. Accordingly, the Court of Appeals found that privity was not required in order for a negligent misrepresentation claim to exist. Appling at 408. The Court of Appeals explained that the basis for a negligent misrepresentation claim is the relationship of trust created when an attorney makes representations to a third party in order to induce the third party’s reliance. Id. at 408.

The question presented to the Supreme Court of Texas was whether the absence of an attorney-client relationship precluded a third party from suing an attorney for negligent misrepresentation under Section 552 of the Restatement (Second) of Torts. In holding that a negligent misrepresentation claim could be asserted, the court noted that it had already adopted the tort of negligent misrepresentation as described by Section 552 of the Restatement. The Court pointed out that eight lower court decisions had recognized a Section 552 claim against other professionals including, accountants [4], auditors [5], a physician [6], a real-estate broker [7], a securities placement agent [8], a surveyor[9] and a title insurer.[10] The Court could perceive no reason why a section 552 claim should not apply to attorneys.

Notwithstanding the Court’s attempts in Appling to limit negligent misrepresentation claims, there will still be in the future a substantial number of cases in which a negligent misrepresentation claim will be at issue. And, there still remain many unanswered questions. For instance, whether an adversarial relationship will be a fact question left to the jury or be a question for the court is an open question. What factors will be considered in determining whether the relationship is adversarial or not? Will one factor be controlling, or will the determination be based on the weight of all or some of these factors. Similarly, will the determination of whether a statement is a negotiating position or a statement of fact be a question for the court or the jury. What factors will the fact finder consider in determining whether a particular statement is a negotiating position? These and many more issues remain unanswered by the Court, and we will have to wait and see how these issues will affect all of our practices.

D. Review of Fee Forfeiture and Breach of Fiduciary Duty After Burrow:

The remedy of fee forfeiture also will haunt some workers’ compensation practitioners. In Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999), the Supreme Court of Texas held that an attorney’s fee may be forfeited, even in the absence of proof of actual damages, based on a breach of a fiduciary duty owed to the client. The Court further held that whether such forfeiture was appropriate was a question for the court.

In Burrow, the plaintiffs were former clients of five attorneys from the law firm of Umphrey, Burrow, Reaud, Williams & Bailey. The attorneys negotiated a $190 million settlement of the plaintiff’s personal injury and wrongful death claims, and their resulting contingency fee exceeded $60 million. After the settlement, the plaintiffs filed suit against their former attorneys alleging that they had violated various rules of professional conduct in negotiating and executing their settlements. The plaintiffs asserted causes of action for breach of fiduciary duty, fraud, violations of the Deceptive Trade Practices-Consumer Protection Act, negligence, and breach of contract.

In regard to a breach of fiduciary duty by an attorney, the court of appeals held that actual damages need not be proven to justify a fee forfeiture. The court of appeals held further, however, that this equitable remedy was neither automatic nor total for every breach of fiduciary duty. Instead, the court held that the propriety of a fee forfeiture would vary from case to case and that the determination was for the court, not the jury.

In affirming the appellate court’s decision regarding fee forfeiture, the Supreme Court noted that even though fee forfeiture is both compensatory and punitive in nature, compensation and punishment are not its main focus. Instead, the “central purpose” of a fee forfeiture is to “protect relationships of trust from an agent’s disloyalty or other misconduct.” Burrow v. Arce, 997 S.W.2d 229, 240 (Tex. 1999). The court set forth a list of nonexclusive factors that should be considered to determine the appropriateness and extent of the remedy. Those factors, taken from Section 49 of the Restatement (Third) of the Law Governing Lawyers, include “‘the gravity and timing of the violation, its willfulness, its effect on the value of the lawyer’s work for the client, any other threatened or actual harm to the client, and the adequacy of other remedies.’” Id. at 243 (citing Restatement (Third) of the Law Governing Lawyers § 49 (Proposed Final Draft No. 1, 1996) [hereinafter Restatement]). Finally, the court added to that list “the public interest in maintaining the integrity of attorney-client relationships” and noted that this public policy goal was “at the heart of the fee forfeiture remedy.” Id. at 244.

The duties at issue in Burrow arose from the Texas Disciplinary Rules of Professional Conduct. In allowing ethical violations to support a fee forfeiture, even in the absence of actual damages, the Supreme Court has given the judiciary a tool to further regulate the integrity of the legal profession outside of a disciplinary context.[11] However, even if this tool will successfully deter breaches of fiduciary duties by attorneys, it appears that both attorneys and other fiduciaries are left vulnerable to sanctions with a potentially punitive effect, especially if the forfeiture granted is not proportionate to the gravity of the underlying offense.

E. Lawyers and the DTPA:

In the last few years, there has been a trend in many legal malpractice cases for the plaintiff to add a claim under the Deceptive Trade Practices Act against the defendant’s lawyer. From the plaintiff’s perspective, one of the benefits of a DTPA claim is that it allows the plaintiff to potentially recover attorney’s fees and additional damages. In 1995, the legislature added certain amendments to the DTPA including the professional service exemption. The purpose of the exemption was to make it clear that simple negligence by a lawyer was not sufficient to give rise to a DTPA claim. Many of the DTPA claims that have been filed since the 1995 amendments have included the allegation that the lawyers’ conduct involved an unconscionable course of action. Under the DTPA an unconscionable course of action means “an act or practice which, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree.” Tex. Bus. & Comm. Code Ann. §17.45(5) (Vernon 2002). Proof of unconscionability requires a showing that the resulting unfairness was glaring, noticeable, flagrant, complete, and unmitigated.” Ballasderos v. Jones, 985 S.W.2d 485, 496 (Tex.App.–San Antonio 1998, pet. denied) (quoting Chastine v. Koonce, 700 S.W.2d 579, 584 (Tex. 1985).

The distinction between conduct that is just negligent and conduct that constitutes deception conduct for the DTPA has received some attention from the courts. In Goffney v. Rabson, 56 S.W.3d 186 (Tex.App.–Houston [1 st Dist.] 2001, pet. denied) the plaintiff alleged that a lawyer had engaged in an unconscionable course of action in violation of the DTPA by, among other things, misleading the plaintiff into believing that the lawyers had prepared the case for trial in a good workmanship manner and by failing to properly, timely, and adequately prepare for trial and misrepresenting the fact that they were prepared and qualified to try the case. The court found these allegations merely restated the plaintiff’s legal malpractice claim and disallowed the DTPA claim.


Ethical issues are a growing concern in the area of workers’ compensation law. Being such a high volume practice, many workers’ compensation lawyers fall into many ethical pitfalls, including failure to communicate with the client. With a large number of clients, workers’ compensation lawyers find it difficult to effectively communicate with each and every one of the clients on a regular basis. Additionally, an increasing number of disciplinary actions involve money issues under Rule 1.14. The rules under 1.14 are set forth with specificity, and a lawyer failing to follow 1.14 can find themselves in an ethics nightmare, which could result in the lawyer being suspended, and possibly disbarred.


[1] Mr. Campbell is a shareholder with the law firm of Campbell & LeBoeuf, P.C. He chairs the Professional Liability Section of the firm in Dallas, where he is a shareholder and practices in the area of lawyer conduct litigation. He is a former co-chair of the Dallas Bar Association’s Ethics Committee, a member of the Professional Liability Section of the Defense Research Institute. Mr. Campbell is the former chair of the Texas Chapter of the Professional Liability Underwriting Society. Mr. Schmidt is an associate with the firm and handles professional liability matters. All right are reserved, February 6, 2004.©

[2] See e.g. Iolta requirements. Tex. Gov’t. Code Ann. tit. 2, subtit. G, app. A, art. 1185 (West Supp. 1995); See discussion below.

[3] It is noteworthy that the attorney in Dolenz was disciplined for other disciplinary rule violations.

[4] Shatterproof Glass Corp. v. James, 466 S.W. 2d 873, 880 (Tex. Civ. App. – Fort Worth 1971, writ ref’d n.r.e.);Blue Bell v. Peat, Marwick, Mitchell & Co., 715 S.W.2d 408, 411-12(Tex. App — Dallas 1986, writ ref’d n.r.e.)

[5] 734 F.Supp. 269, 279-80 (N.D. Tex. 1990)

[6] Smith v. Sneed, 938 S.W.2d 181, 185 (Tex. App. – Austin 1997, no writ).

[7] Hagans v. Woodruff, 830 S.W.2d 732, 736 (Tex. App. – Houston [14 th Dist.] 1992, no writ).

[8] Lutheran Bhd. v. Kidder Peabody & Co., 829 S.W. 2d 300, 309 (Tex. App. – Texarkana 1992, writ granted w.r.m.).

[9] Cook Consultants, Inc. v. Larson, 700 S.W.2d 231, 234 (Tex. App. – Dallas, 1985, writ ref’d n.r.e.).

[10] Great Am. Mortgage Investors v. Louisville Title Ins. Co., 597 S.W.2d 425, 429-430 (Tex. Civ. App. – Fort Worth 1980, writ ref’d n.r.e.).

[11] Compare Scheller, 629 So.2d at 953 (court declined to confuse [its] rule on this appeal with that of the lawyer disciplinary process, which belongs in another forum.”).