Corporate Lawyers – Advise The Officers And Employees Who You Represent

It’s not an uncommon fact pattern.  A corporate officer or employee will be testifying at a deposition or in a courtroom with the corporation’s lawyer present.  The officer/employee says something bad that subjects themeselves to liability.  And when things go south, the officer/employee ends up suing the corporation’s attorney for not protecting the officer/employee.

In such a situation, the fight is almost always whether an attorney client relationship existed between the officer/employee and the attorney.  In Texas, the relationship can be created where (1) the attorney told the officer/employee he was being represented, or (2) it was reasonable for the officer/employee to make the assumption the officer/employee was being represented and the attorney did nothing to dispel that understanding. (The two leading cases on this, Parker v. Carnahan, 772 S.W.2d 151 (Tex. Civ. App. – Texarkana 1989, writ denied) and Perez v. Kirk & Carrigan, 822 S.W.2d 261 (Tex. App. – Corpus 1991, writ denied), just happen to be sitting on my desk for a brief.)

A high profile version of that fact pattern is playing itself out now.  You may have seen that Laura Pendergest-Holt, the former Chief Investment Officer of Stanford Financial Group, is currently facing criminal prosecution.  But she’s not being prosecuted for stealing money; she’s being prosecuted for lying to Securities and Exchange Comm’n investigators.   You see, at the suggestion of a company lawyer, Ms. Pendergest-Holt sat down with the SEC for an interview.  The company attorney was then there at the interview.

During the interview, the attorney repeatedly told SEC investigators that he was there on behalf of the company and not as Ms. Pendergest-Holt’s personal attorney, but did he really explain to her what that means?  I’m not sure.  I just know it’s a strange situation.  The lawyer withdrew from representation of the company just a few days after the interview, and then he wrote the SEC disavowing everything he had told them about the client.  I don’t know how this is going to turn out, and if it wasn’t so hard to bring a legal malpractice case against criminal lawyers in Texas, I might think a legal malpractice case was a certainty.  You can read more details on this mess in a recent Law.com article.

This fact pattern should be a “teaching moment” for all attorneys that represent entities.  In my speeches on how to avoid legal malpractice claims, one emphasis is always to clarify who you represent, and maybe more importantly, who you DON’T represent, with a warning that the unrepresented should get their own counsel.

Hat tip to Texas appellate lawyer Don Cruse for the link to the story.