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Phoenix Founders, Inc. v. Marshall 887 S.W.2d 831 (Tex. 1994) In this original proceeding, we consider whether a law firm must be disqualified from ongoing litigation because it rehired a legal assistant who had worked for opposing counsel for three weeks. We hold that disqualification is not required if the rehiring firm is able to establish that it has effectively screened the paralegal from any contact with the underlying suit. Because this standard had not been adopted in Texas prior to the trial court's disqualification order, we deny mandamus relief without prejudice to allow the trial court to reconsider its ruling in light of today's opinion. The present dispute arises from a suit brought by Phoenix Founders, Inc. and others ("Phoenix") to collect a federal-court judgment against Ronald and Jane Beneke and others. The law firm of Thompson & Knight represented Phoenix in the original federal-court suit, which began in 1990 and ended in 1991, and has also represented them in the collection suit since its commencement in 1992. The Benekes have been represented in the latter suit by the firm David & Goodman. In July of 1993, Denise Hargrove, a legal assistant at Thompson & Knight, left her position at that firm to begin working for David & Goodman as a paralegal. While at David & Goodman, Hargrove billed six-tenths of an hour on the collection suit for locating a pleading. She also discussed the case generally with Mark Goodman, the Benekes' lead counsel. After three weeks at David & Goodman, Hargrove returned to Thompson & Knight to resume work as a paralegal. At the time of the rehiring, Thompson & Knight made no effort to question Hargrove in regard to potential conflicts of interest resulting from her employment at David & Goodman. Three weeks after Hargrove had returned, counsel for the Benekes wrote to Thompson & Knight asserting that its renewed employment of Hargrove created a conflict of interest. The letter demanded that the firm withdraw from its representation of Phoenix. Hargrove resigned from Thompson & Knight the next week, after having been given the option of either resigning with severance pay or being terminated. The firm itself, however, refused to withdraw from the case. The Benekes then filed a motion to disqualify. . . . The disqualification order states that Hargrove possesses confidential information relating to the Benekes, and that all such confidentialp. 234 information was imputed to the firm of Thompson & Knight at the time she was rehired. This Court has not previously addressed the standards governing a disqualification motion based on the hiring of a nonlawyer employee. With respect to lawyers, however, this Court has adopted a standard requiring disqualification whenever counsel undertakes representation of an interest that is adverse to that of a former client, as long as the matters embraced in the pending suit are "substantially related" to the factual matters involved in the previous suit. [Citation omitted.] This strict rule is based on a conclusive presumption that confidences and secrets were imparted to the attorney during the prior representation. [Citation omitted.] The Benekes argue that the standards applied to the hiring of lawyers should also apply to the hiring of paralegals....[T]he Benekes urge that the entire firm of Thompson & Knight must be automatically disqualified because of the confidences Hargrove obtained while working at David & Goodman. We agree that a paralegal who has actually worked on a case must be subject to...a conclusive presumption that confidences and secrets were imparted during the course of the paralegal's work on the case. . . . We disagree, however, with the argument that paralegals should be conclusively presumed to share confidential information with members of their firms. The Disciplinary Rules require a lawyer having direct supervisory authority over a nonlawyer to make reasonable efforts to ensure that the nonlawyer's conduct is compatible with the professional obligations of the lawyer. Tex. Disciplinary R. Prof. Conduct 5.03(a). If the supervising lawyer orders, encourages, or even permits a nonlawyer to engage in conduct that would be subject to discipline if engaged in by a lawyer, the lawyer will be subject to discipline. R. 5.03(b). Thus, to the extent that the Disciplinary Rules prohibit a lawyer from revealing confidential information, R. 1.05(b)(1), they also prohibit a supervising lawyer from ordering, encouraging, or permitting a nonlawyer to reveal such information. This view is consistent with the weight of authority in other jurisdictions. The American Bar Association's Committee on Professional Ethics has considered whether a law firm that hires a paralegal may continue representing clients whose interests conflict with interests of the former employer's clients on whose matters the paralegal has worked. ABA Ethics Informal Op. 1526 (1988). After surveying case law and ethics opinions from a number of jurisdictions, the Committee concluded that the new firm need not be disqualified, as long as the firm and the paralegal strictly adhere to the screening process set forth in the opinion, and as long as the paralegal does not reveal any information relating to the former employer's clients to any person in the employing firm. Id. A number of courts have since relied on the ABA's opinion to allow continued representation under similar conditions. [Citations omitted.] p. 235 Underlying these decisions is a concern regarding the mobility of paralegals and other nonlawyers. A potential employer might well be reluctant to hire a particular nonlawyer if doing so would automatically disqualify the entire firm from ongoing litigation. This problem would be especially acute in the context of massive firms and extensive, complex litigation. Recognizing this danger, the ABA concluded that "any restrictions on the nonlawyer's employment should be held to the minimum necessary to protect confidentiality of client information." ABA Op. 1526 at 2. [Citations omitted.] We share the concerns expressed by the ABA, and agree that client confidences may be adequately safeguarded if a firm hiring a paralegal for another firm takes appropriate steps in compliance with the Disciplinary Rules. See ABA Op. 1526 at 3. Specifically, the newly-hired paralegal should be cautioned not to disclose any information relating to the representation of a client of the former employer. The paralegal should also be instructed not to work on any matter on which the paralegal worked during the prior employment, or regarding which the paralegal has information relating to the former employer's representation. Additionally, the firm should take other reasonable steps to ensure that the paralegal does no work in connection with matters on which the paralegal worked during the prior employment, absent client consent after consultation. See id. Each of these precautions would tend to reduce the danger that the paralegal might share confidential information with members of the new firm. Thus, while a court must ordinarily presume that some sharing will take place, the challenged firm may rebut this presumption by showing that sufficient precautions have been taken to guard against any disclosure of confidences. Absent consent of the former employer's client, disqualification will always be required under some circumstances, such as (1) when information relating to the representation of an adverse client has in fact been disclosed, or (2) when screening would be ineffective or the nonlawyer necessarily would be required to work on the other side of a matter that is the same as or substantially related to a matter on which the nonlawyer has previously worked. . . . In reconsidering the disqualification motion, the trial court should examine the circumstances of Hargrove's employment at Thompson & Knight to determine whether the practical effect of formal screening has been achieved. The factors bearing on such a determination will generally include the substantiality of the relationship between the former and current matters; the time elapsing between the matters; the size of the firm; the number of individuals presumed to have confidential information; the nature of their involvement in the former matter; and the timing and features of any measures taken to reduce the danger of disclosure. The ultimate question in weighing these factors is whether Thompson & Knight has taken measures sufficient to reduce thep. 236 potential for misuse of confidences to an acceptable level. As with any disqualification motion, the trial court must adhere to an exacting standard so as to discourage any use of a disqualification motion as a dilatory tactic. . . . Because we have modified the controlling legal standard, the writ of mandamus is denied without prejudice to allow the trial court to reconsider the disqualification motion in light of today's opinion. The stay order previously issued by this Court remains in effect only so long as necessary to allow the trial court to act.

Questions about the Case

1. Was the paralegal Hargrove aware of the potential conflict of interest? Did she work on the Phoenix Founders matter at Thompson & Knight, either before she went to David & Goodman or after?

2. Did David & Goodman do a conflicts check?

3. Did Thompson & Knight attempt to screen Hargrove from the Phoenix Founders matter on her return to the firm?

4. What is the standard applied to lawyers in disqualification motions in Texas courts? Does the court apply this same standard to paralegals? 5. What authority does the Texas Supreme Court rely on to make this new rule?

6. What specific steps does the court prescribe to establish an acceptable safeguard against the disclosure of client confidences?

7. Did the Texas Supreme Court here decide whether to disqualify Thompson & Knight?