Ethical Considerations in
Working with Client Boards of
Water Supply Corporations
and Districts
Texas Rural Water Associat...
Role of the Attorney
• As ADVISOR, a lawyer provides a client with an informed understanding
of the client’s legal rights ...
Advisor
• In advising or otherwise representing a client,
a lawyer shall exercise independent
professional judgment and re...
Truthfulness in Statements
to Others
• In the course of representing a client a lawyer
shall not knowingly:
– make a false...
Organization as a Client
• A lawyer employed or retained by an organization
represents the entity. While the lawyer in the...
Organization as a Client
• A lawyer representing an organization must take reasonable
remedial actions whenever the lawyer...
Organization as a Client
• Except where prior disclosure to persons outside the organization is required
by law or other R...
Organization as a Client
• Such procedures, actions and measures may include, but
are not limited to, the following:
– ask...
Organization as a Client
• Upon a lawyer’s resignation or termination of the
relationship in compliance with Rule 1.15
(Re...
Organization as a Client
• In dealing with an organizations directors, officers,
employees, members, shareholders or other...
Obligations of District
Board Members
Things to remember in representing
Boards
2705 Bee Cave Road, Suite 110
Austin, Texa...
Sworn Statement, Bond and Oath
 As soon as practicable after a director is elected or
appointed, that director shall make...
Sworn Statement
• Texas Constitution, Article XVI, Section 1. All elected or
appointed officers, before taking the Oath or...
Official Oath
• Texas Constitution, Article XVI, Section 1. All elected
and appointed officers, before they enter upon the...
Bond
• Before beginning to perform the duties of office,
each director shall execute a bond for $10,000
payable to the dis...
Non-Profit Corporation
• Business Organizations Code, Sec. 22.221. GENERAL
STANDARDS FOR DIRECTORS.
– (a) A director shall...
Disqualification of Directors
 Texas Water Code, Sec. 49.052(a).
 A person is disqualified from serving as a member
of a...
Disqualification of Directors
 is related within the third degree of affinity or consanguinity
to a developer of property...
Disqualification of Directors
 is a developer of property in the district;
 is serving as an attorney, consultant, engin...
Disqualification of Directors
 is a party to a contract with or along with a developer
of property in the district relati...
Disqualification of Directors
 Texas Water Code, Sec. 49.052(b). Within 60 days after the
board determines a relationship...
Organization as a Client
• A lawyer representing an organization must take reasonable
remedial actions whenever the lawyer...
Non-Profit Corporations
• Business Organziations Code,
Sec. 22.153. ANNUAL MEETING.
– (a) Except as provided by Subsection...
Non-Profit Corporations
• Business Organziations Code, Sec. 22.154. FAILURE TO
CALL ANNUAL MEETING.
– (a) If the board of ...
Accountability Issues for
Board Members
•
•
•
•
•

State Laws
State Agencies
Voters
Residents
Certificate of Formation and...
Open Meetings Act
• Chapter 551, Texas Government Code
• Attorney General Approved Training Required
• Open Meetings Made ...
Open Meetings Act
• What do you do if there is a violation?
• How do you counsel your clients about
possible violations?
–...
Organization as a Client
• A lawyer representing an organization must take reasonable
remedial actions whenever the lawyer...
Public Information Act
• Chapter 552, Texas Government Code
– formerly the Open Records Act

• Attorney General Training R...
Public Information
• Districts and “the part, section, or portion of an
organization, corporation, commission,
committee, ...
Public Information Act
• What do you do if there is a violation?
• How do you counsel your clients about
possible violatio...
Organization as a Client
• A lawyer representing an organization must take reasonable
remedial actions whenever the lawyer...
Ethical Issues
• Conflict of Interest
• Nepotism
• Dual Office Holding/Incompatibility

AG Handbook: Public Officers: Trap...
Conflict of Interest
Why do we care?
• Conflict of interest rules are directed at
preventing public officials from using t...
Conflict of Interest
• Common Law
• If a public official directly or indirectly has a
pecuniary interest in a contract, no...
Conflict of Interest
• Prohibited Acts; Penalty
– (a) A local public official commits an offense if the official
knowingly...
Conflict of Interest
• Affidavit and Abstention From Voting Required (LGC Sec. 171.004)
(a) If a local public official has...
Conflict of Interest
• Substantial Interest in Business Entity (LGC 171.002)
(a) For purposes of this chapter, a person ha...
Conflict of Interest – Non-Profits
• Business Organizations Code, Sec. 22.230. CONTRACTS OR
TRANSACTIONS INVOLVING INTERES...
Conflict of Interest – Non-Profits
• An otherwise valid and enforceable contract or transaction is valid and
enforceable, ...
Conflict of Interest – Non-Profits
• A person who has the relationship or interest described by
Subsection (a) may:
– (1) ...
Conflict of Interest – Non-Profits
• If at least one of the conditions of Section 22.230(b) is
satisfied, neither the corp...
Nepotism
Inviting the family to the
government’s party
2705 Bee Cave Road, Suite 110
Austin, Texas 78746
(512) 614-0901
ww...
Nepotism
• Prohibition Applicable to Public Official (Gov’t Code, Sec. 573.041)

A public official may not appoint, confir...
Nepotism
• Prohibition Applicable to Public Official (Gov’t Code, Sec. 573.041)

• "Public official" means:
– (A) an offic...
Nepotism
Degrees of Relationship
Except as provided by Texas Government
Code, Section 573.043, this chapter applies to
rel...
Nepotism

2705 Bee Cave Road, Suite 110
Austin, Texas 78746
(512) 614-0901
www.carltonlawaustin.com
©2011
Nepotism

2705 Bee Cave Road, Suite 110
Austin, Texas 78746
(512) 614-0901
www.carltonlawaustin.com
©2011
Dual Office Holding
Government Service Addiction

2705 Bee Cave Road, Suite 110
Austin, Texas 78746
(512) 614-0901
www.car...
Dual Office Holding
Article 16 - GENERAL PROVISIONS
Section 40 - HOLDING MORE THAN ONE
OFFICE; EXCEPTIONS; RIGHT TO VOTE
(...
Dual Office Holding
• A position is one "of emolument" if its
emoluments are fixed by statute or by a
governmental body. T...
Incompatibility
• Self Appointment
• Self Employment
• Conflicting Loyalties

2705 Bee Cave Road, Suite 110
Austin, Texas ...
Incompatibility
• Self Appointment
– “It is because of the obvious incompatibility of being
both a member of a body making...
Incompatibility
• Self Employment
– Ordinarily, self-employment incompatibility will
arise only where one position is an o...
Incompatibility
• Conflicting Loyalties
– both positions must be “offices”
– the relationship between the positions create...
Other Issues

2705 Bee Cave Road, Suite 110
Austin, Texas 78746
(512) 614-0901
www.carltonlawaustin.com
©2011
Successive Government and
Private Employment
• (a) Except as law may otherwise expressly permit, a lawyer shall
not repres...
Successive Government and
Private Employment
• (c) Except as law may otherwise expressly permit, a lawyer
having informati...
Successive Government and
Private Employment
• (e) Except as law may otherwise expressly permit, a
lawyer serving as a pub...
Successive Government and
Private Employment
• (f) As used in this rule, the term matter does not
include regulation-makin...
Successive Government and
Private Employment
• (g) As used in this rule, the term confidential government information
mean...
Declining or Terminating
Representation
• (a) A lawyer shall decline to represent a client or,
where representation has co...
Declining or Terminating
Representation
(b) Except as required by paragraph (a), a lawyer shall not withdraw from
represen...
Declining or Terminating
Representation
(c) When ordered to do so by a tribunal, a lawyer shall continue
representation no...
Communications with One
Represented by Counsel
• In representing a client, a lawyer shall not
communicate or cause or enco...
Communications with One
Represented by Counsel
• For the purpose of this rule, organization or entity of
government includ...
Communications with One
Represented by Counsel
• When a person, organization, or entity of
government that is represented ...
Dealing with Unrepresented
Persons
• In dealing on behalf of a client with a person who
is not represented by counsel, a l...
Respect for Rights of Third Persons
• In representing a client, a lawyer shall not use means that have no
substantial purp...
TEXAS DISCIPLINARY
RULES OF PROFESSIONAL
CONDUCT
Link to Rules at State Bar Website
(www.texasbar.com)
2705 Bee Cave Road,...
QUESTIONS?

2705 Bee Cave Road, Suite 110
Austin, Texas 78746
(512) 614-0901
www.carltonlawaustin.com
©2011
John J. Carlton
The Carlton Law Firm, P.L.L.C.
2705 Bee Cave Road, Suite 110
Austin, Texas 78746
john@carltonlawaustin.com...
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2012 TRWA Attorney's Conference: Ethical Considerations in Board Governance for Water Supply Coporations and Districts

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Continuing Legal Education presentation regarding ethical issues to be considered when representing water districts and other entities.

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2012 TRWA Attorney's Conference: Ethical Considerations in Board Governance for Water Supply Coporations and Districts

  1. 1. Ethical Considerations in Working with Client Boards of Water Supply Corporations and Districts Texas Rural Water Association’s Attorneys Conference August 29, 2012 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  2. 2. Role of the Attorney • As ADVISOR, a lawyer provides a client with an informed understanding of the client’s legal rights and obligations and explains their practical implications. • As ADVOCATE, a lawyer zealously asserts the clients position under the rules of the adversary system. • As NEGOTIATOR, a lawyer seeks a result advantageous to the client but consistent with requirements of honest dealing with others. • As INTERMEDIARY BETWEEN CLIENTS, a lawyer seeks to reconcile their divergent interests as an advisor and, to a limited extent, as a spokesperson for each client. • A lawyer acts as EVALUATOR by examining a client's affairs and reporting about them to the client or to others. • Texas Disciplinary Rules Of Professional Conduct, Preamble, Section 2 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  3. 3. Advisor • In advising or otherwise representing a client, a lawyer shall exercise independent professional judgment and render candid advice. • Texas Disciplinary Rules Of Professional Conduct, Section 2.01 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  4. 4. Truthfulness in Statements to Others • In the course of representing a client a lawyer shall not knowingly: – make a false statement of material fact or law to a third person; or – fail to disclose a material fact to a third person when disclosure is necessary to avoid making the lawyer a party to a criminal act or knowingly assisting a fraudulent act perpetrated by a client. • Texas Disciplinary Rules Of Professional Conduct, Section 4.01 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  5. 5. Organization as a Client • A lawyer employed or retained by an organization represents the entity. While the lawyer in the ordinary course of working relationships may report to, and accept direction from, an entity’s duly authorized constituents, in the situations described in paragraph (b) the lawyer shall proceed as reasonably necessary in the best interest of the organization without involving unreasonable risks of disrupting the organization and of revealing information relating to the representation to persons outside the organization. • Texas Disciplinary Rules Of Professional Conduct, Section 1.12(a) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  6. 6. Organization as a Client • A lawyer representing an organization must take reasonable remedial actions whenever the lawyer learns or knows that: – an officer, employee, or other person associated with the organization has committed or intends to commit a violation of a legal obligation to the organization or a violation of law which reasonably might be imputed to the organization; – the violation is likely to result in substantial injury to the organization; and – the violation is related to a matter within the scope of the lawyer’s representation of the organization. • Texas Disciplinary Rules Of Professional Conduct, Section 1.12(b) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  7. 7. Organization as a Client • Except where prior disclosure to persons outside the organization is required by law or other Rules, a lawyer shall first attempt to resolve a violation by taking measures within the organization. • In determining the internal procedures, actions or measures that are reasonably necessary in order to comply with paragraphs (a) and (b), a lawyer shall give due consideration to – the seriousness of the violation and its consequences, – the scope and nature of the lawyers representation, – the responsibility in the organization and the apparent motivation of the person involved, – the policies of the organization concerning such matters, and – any other relevant considerations. • Texas Disciplinary Rules Of Professional Conduct, Section 1.12 (c) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  8. 8. Organization as a Client • Such procedures, actions and measures may include, but are not limited to, the following: – asking reconsideration of the matter; – advising that a separate legal opinion on the matter be sought for presentation to appropriate authority in the organization; and – referring the matter to higher authority in the organization, including, if warranted by the seriousness of the matter, referral to the highest authority that can act in behalf of the organization as determined by applicable law. • Texas Disciplinary Rules Of Professional Conduct, Section 1.12 (c) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  9. 9. Organization as a Client • Upon a lawyer’s resignation or termination of the relationship in compliance with Rule 1.15 (Relating to Terminating Representation), a lawyer is excused from further proceeding as required by paragraphs (a), (b) and (c), and any further obligations of the lawyer are determined by Rule 1.05(Relating to Confidentiality). • Texas Disciplinary Rules Of Professional Conduct, Section 1.12(d) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  10. 10. Organization as a Client • In dealing with an organizations directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when it is apparent that the organization's interests are adverse to those of the constituents with whom the lawyer is dealing or when explanation appears reasonably necessary to avoid misunderstanding on their part. • Texas Disciplinary Rules Of Professional Conduct, Section 1.12(e) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  11. 11. Obligations of District Board Members Things to remember in representing Boards 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  12. 12. Sworn Statement, Bond and Oath  As soon as practicable after a director is elected or appointed, that director shall make the sworn statement prescribed by the constitution for public office.  As soon as practicable after a director has made the sworn statement, and before beginning to perform the duties of office, that director shall take the oath of office prescribed by the constitution for public officers.  Texas Water Code, Sec. 49.055. SWORN STATEMENT, BOND, AND OATH OF OFFICE. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  13. 13. Sworn Statement • Texas Constitution, Article XVI, Section 1. All elected or appointed officers, before taking the Oath or Affirmation of office prescribed by this section and entering upon the duties of office, shall subscribe to the following statement: "I, _______________________, do solemnly swear (or affirm) that I have not directly or indirectly paid, offered, promised to pay, contributed, or promised to contribute any money or thing of value, or promised any public office or employment for the giving or withholding of a vote at the election at which I was elected or as a reward to secure my appointment or confirmation, whichever the case may be, so help me God." 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  14. 14. Official Oath • Texas Constitution, Article XVI, Section 1. All elected and appointed officers, before they enter upon the duties of their offices, shall take the following Oath or Affirmation: "I, (State your Name), do solemnly swear (or affirm), that I will faithfully execute the duties of the office of ______________________of the State of Texas, and will to the best of my ability preserve, protect, and defend the Constitution and laws of the United States and of this State, so help me God." 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  15. 15. Bond • Before beginning to perform the duties of office, each director shall execute a bond for $10,000 payable to the district and conditioned on the faithful performance of that director's duties. All bonds of the directors shall be approved by the board and paid for by the district. • Texas Water Code, Section 49.055(c) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  16. 16. Non-Profit Corporation • Business Organizations Code, Sec. 22.221. GENERAL STANDARDS FOR DIRECTORS. – (a) A director shall discharge the director's duties, including duties as a committee member, in good faith, with ordinary care, and in a manner the director reasonably believes to be in the best interest of the corporation. – (b) A director is not liable to the corporation, a member, or another person for an action taken or not taken as a director if the director acted in compliance with this section. A person seeking to establish liability of a director must prove that the director did not act: • (1) in good faith; • (2) with ordinary care; and • (3) in a manner the director reasonably believed to be in the best interest of the corporation. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  17. 17. Disqualification of Directors  Texas Water Code, Sec. 49.052(a).  A person is disqualified from serving as a member of a board of a district that includes less than all the territory in at least one county and which, if located within the corporate area of a city or cities, includes within its boundaries less than 75 percent of the incorporated area of the city or cities, if that person: 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  18. 18. Disqualification of Directors  is related within the third degree of affinity or consanguinity to a developer of property in the district, any other member of the board, or the manager, engineer, attorney, or other person providing professional services to the district;  is an employee of any developer of property in the district or any director, manager, engineer, attorney, or other person providing professional services to the district or a developer of property in the district in connection with the district or property located in the district; 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  19. 19. Disqualification of Directors  is a developer of property in the district;  is serving as an attorney, consultant, engineer, manager, architect, or in some other professional capacity for the district or a developer of property in the district in connection with the district or property located in the district;  is a party to a contract with or along with the district except for the purchase of public services furnished by the district to the public generally; or 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  20. 20. Disqualification of Directors  is a party to a contract with or along with a developer of property in the district relating to the district or to property within the district, other than a contract limited solely to the purpose of purchasing or conveying real property in the district for the purpose of either establishing a permanent residence, establishing a commercial business within the district, or qualifying as a director; or  during the term of office, fails to maintain the qualifications required by law to serve as a director. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  21. 21. Disqualification of Directors  Texas Water Code, Sec. 49.052(b). Within 60 days after the board determines a relationship or employment exists which constitutes a disqualification under Subsection (a), it shall replace the person serving as a member of the board with a person who would not be disqualified.  Texas Water Code, Sec. 49.052(c) . Any person who willfully occupies an office as a member of a board and exercises the powers and duties of that office when disqualified under the provisions of Subsection (a) is guilty of a misdemeanor and, on conviction, shall be fined not less than $100 nor more than $1,000. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  22. 22. Organization as a Client • A lawyer representing an organization must take reasonable remedial actions whenever the lawyer learns or knows that: – an officer, employee, or other person associated with the organization has committed or intends to commit a violation of a legal obligation to the organization or a violation of law which reasonably might be imputed to the organization; – the violation is likely to result in substantial injury to the organization; and – the violation is related to a matter within the scope of the lawyer’s representation of the organization. • Texas Disciplinary Rules Of Professional Conduct, Section 1.12(b) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  23. 23. Non-Profit Corporations • Business Organziations Code, Sec. 22.153. ANNUAL MEETING. – (a) Except as provided by Subsection (b), a corporation shall hold an annual meeting of the members at a time that is stated in or determined in accordance with the corporation's bylaws. – (b) If the bylaws provide for more than one regular meeting of members each year, an annual meeting is not required. If an annual meeting is not required, directors may be elected at a meeting as provided by the bylaws. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  24. 24. Non-Profit Corporations • Business Organziations Code, Sec. 22.154. FAILURE TO CALL ANNUAL MEETING. – (a) If the board of directors of a corporation fails to call the annual meeting of members when required, a member of the corporation may demand that the meeting be held within a reasonable time. The demand must be made in writing and sent to an officer of the corporation by registered mail. – (b) If a required annual meeting is not called before the 61st day after the date of demand, a member of the corporation may compel the holding of the meeting by legal action directed against the board of directors, and each of the extraordinary writs of common law and of courts of equity are available to the member to compel the holding of the meeting. Each member has a justiciable interest sufficient to enable the member to institute and prosecute the legal proceedings. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  25. 25. Accountability Issues for Board Members • • • • • State Laws State Agencies Voters Residents Certificate of Formation and Bylaws (NonProfits only) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  26. 26. Open Meetings Act • Chapter 551, Texas Government Code • Attorney General Approved Training Required • Open Meetings Made Easy • Open Meetings Handbook • https://www.oag.state.tx.us/open/publications_og.shtml 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  27. 27. Open Meetings Act • What do you do if there is a violation? • How do you counsel your clients about possible violations? – Email – Texting – Social Media – Walking Quorums 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  28. 28. Organization as a Client • A lawyer representing an organization must take reasonable remedial actions whenever the lawyer learns or knows that: – an officer, employee, or other person associated with the organization has committed or intends to commit a violation of a legal obligation to the organization or a violation of law which reasonably might be imputed to the organization; – the violation is likely to result in substantial injury to the organization; and – the violation is related to a matter within the scope of the lawyer’s representation of the organization. • Texas Disciplinary Rules Of Professional Conduct, Section 1.12(b) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  29. 29. Public Information Act • Chapter 552, Texas Government Code – formerly the Open Records Act • Attorney General Training Required • Public Information Act Made Easy • Public Information Handbook • https://www.oag.state.tx.us/open/publications_og.shtml 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  30. 30. Public Information • Districts and “the part, section, or portion of an organization, corporation, commission, committee, institution, or agency that spends or that is supported in whole or in part by public funds “ are subject to the Act. • Unless excluded, all public information is subject to disclosure under the act. • WSC records are subject to the Act. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  31. 31. Public Information Act • What do you do if there is a violation? • How do you counsel your clients about possible violations? – Email records – Text messages – Social Media messages and posts – Obstructing Access to other records 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  32. 32. Organization as a Client • A lawyer representing an organization must take reasonable remedial actions whenever the lawyer learns or knows that: – an officer, employee, or other person associated with the organization has committed or intends to commit a violation of a legal obligation to the organization or a violation of law which reasonably might be imputed to the organization; – the violation is likely to result in substantial injury to the organization; and – the violation is related to a matter within the scope of the lawyer’s representation of the organization. • Texas Disciplinary Rules Of Professional Conduct, Section 1.12(b) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  33. 33. Ethical Issues • Conflict of Interest • Nepotism • Dual Office Holding/Incompatibility AG Handbook: Public Officers: Traps for the Unwary http://www.oag.state.tx.us/open/publications_og.shtml 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  34. 34. Conflict of Interest Why do we care? • Conflict of interest rules are directed at preventing public officials from using their authority for personal benefit rather than for the benefit of the public. Thus, they govern situations where an officer’s personal interest conflicts or may conflict with his or her public duty. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  35. 35. Conflict of Interest • Common Law • If a public official directly or indirectly has a pecuniary interest in a contract, no matter how honest he may be, and although he may not be influenced by the interest, such a contract so made is violative of the spirit and letter of our law, and is against public policy. Meyers v. Walker 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  36. 36. Conflict of Interest • Prohibited Acts; Penalty – (a) A local public official commits an offense if the official knowingly: • (1) violates Section 171.004; • (2) acts as surety for a business entity that has work, business, or a contract with the governmental entity; or • (3) acts as surety on any official bond required of an officer of the governmental entity. – (b) An offense under this section is a Class A misdemeanor – punishable by up to 1 year in jail and/or up to $4000 penalty. • Texas Local Government Code, Sec. 171.003 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  37. 37. Conflict of Interest • Affidavit and Abstention From Voting Required (LGC Sec. 171.004) (a) If a local public official has a substantial interest in a business entity or in real property, the official shall file, before a vote or decision on any matter involving the business entity or the real property, an affidavit stating the nature and extent of the interest and shall abstain from further participation in the matter if: (1) in the case of a substantial interest in a business entity the action on the matter will have a special economic effect on the business entity that is distinguishable from the effect on the public; or (2) in the case of a substantial interest in real property, it is reasonably foreseeable that an action on the matter will have a special economic effect on the value of the property, distinguishable from its effect on the public. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  38. 38. Conflict of Interest • Substantial Interest in Business Entity (LGC 171.002) (a) For purposes of this chapter, a person has a substantial interest in a business entity if: (1) the person owns 10 percent or more of the voting stock or shares of the business entity or owns either 10 percent or more or $15,000 or more of the fair market value of the business entity; or (2) funds received by the person from the business entity exceed 10 percent of the person's gross income for the previous year. (b) A person has a substantial interest in real property if the interest is an equitable or legal ownership with a fair market value of $2,500 or more. • Applies to Spouse, Child and Parent Interests Too 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  39. 39. Conflict of Interest – Non-Profits • Business Organizations Code, Sec. 22.230. CONTRACTS OR TRANSACTIONS INVOLVING INTERESTED DIRECTORS, OFFICERS, AND MEMBERS. • Applies to a contract or transaction between a corporation and: – (1) one or more directors, officers, or members, or one or more affiliates or associates of one or more directors, officers, or members, of the corporation; or – (2) an entity or other organization in which one of the above: • (A) is a managerial official or a member; or • (B) has a financial interest. • Bus. Org. Code Sec. 22.230(a) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  40. 40. Conflict of Interest – Non-Profits • An otherwise valid and enforceable contract or transaction is valid and enforceable, and is not void or voidable, notwithstanding Subsection (a), if : – (1) the material facts as to the relationship or interest and as to the contract or transaction are disclosed to or known by: • (A) the corporation's board of directors, a committee of the board, or the members, and that group in good faith and with ordinary care authorize the contract or transaction by the affirmative vote of the majority of the disinterested individuals regardless of whether they are a quorum; or • (B) the members entitled to vote on the authorization of the contract or transaction, and the contract or transaction is specifically approved in good faith and with ordinary care by a vote of the members; or – (2) the contract or transaction is fair to the corporation when the contract or transaction is authorized, approved, or ratified by the board of directors, a committee of the board of directors, or the members. • Bus. Org. Code Sec. 22.230(b) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  41. 41. Conflict of Interest – Non-Profits • A person who has the relationship or interest described by Subsection (a) may: – (1) be present at or participate in and, if the person is a director, member, or committee member, may vote at a meeting of the board of directors, of the members, or of a committee of the board that authorizes the contract or transaction; or – (2) sign, in the person's capacity as a director, member, or committee member, a written consent of the directors, members, or committee members to authorize the contract or transaction. • Business Organizations Code, Sec. 22.230(d) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  42. 42. Conflict of Interest – Non-Profits • If at least one of the conditions of Section 22.230(b) is satisfied, neither the corporation nor any of the corporation's shareholders will have a cause of action against any of the persons described by Subsection (a) for breach of duty with respect to the making, authorization, or performance of the contract or transaction because the person had the relationship or interest described by Subsection (a) or took any of the actions authorized by Subsection (d). • Business Organizations Code, Sec. 22.230(e) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  43. 43. Nepotism Inviting the family to the government’s party 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  44. 44. Nepotism • Prohibition Applicable to Public Official (Gov’t Code, Sec. 573.041) A public official may not appoint, confirm the appointment of, or vote for the appointment or confirmation of the appointment of an individual to a position that is to be directly or indirectly compensated from public funds or fees of office if: (1) the individual is related to the public official within a degree described by Texas Government Code, Section 573.002; or (2) the public official holds the appointment or confirmation authority as a member of a state or local board, the legislature, or a court and the individual is related to another member of that board, legislature, or court within a degree described by Section 573.002. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  45. 45. Nepotism • Prohibition Applicable to Public Official (Gov’t Code, Sec. 573.041) • "Public official" means: – (A) an officer of this state or of a district, county, municipality, precinct, school district, or other political subdivision of this state; – (B) an officer or member of a board of this state or of a district, county, municipality, school district, or other political subdivision of this state; or – (C) a judge of a court created by or under a statute of this state. • Under Aldine Independent School District v. Standley, 280 S.W.2d 578 (Tex. 1955), an officer is an individual upon whom a "sovereign function of the government [has been] conferred . . . to be exercised by him for the benefit of the public largely independent of the control of others." Id. at 583. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  46. 46. Nepotism Degrees of Relationship Except as provided by Texas Government Code, Section 573.043, this chapter applies to relationships within the third degree by consanguinity or within the second degree by affinity. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  47. 47. Nepotism 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  48. 48. Nepotism 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  49. 49. Dual Office Holding Government Service Addiction 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  50. 50. Dual Office Holding Article 16 - GENERAL PROVISIONS Section 40 - HOLDING MORE THAN ONE OFFICE; EXCEPTIONS; RIGHT TO VOTE (a) No person shall hold or exercise at the same time, more than one civil office of emolument, … 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  51. 51. Dual Office Holding • A position is one "of emolument" if its emoluments are fixed by statute or by a governmental body. Tex. Attorney General Opinion No. JM-333 (1985). • Being a board member of a water district is an office of emolument. Texas Attorney General Opinion No. GA-0032 (2003). 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  52. 52. Incompatibility • Self Appointment • Self Employment • Conflicting Loyalties 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  53. 53. Incompatibility • Self Appointment – “It is because of the obvious incompatibility of being both a member of a body making the appointment and an appointee of that body that the courts have with great unanimity throughout the country declared that all officers who have the appointing power are disqualified for appointment to the offices to which they may appoint.” • Ehlinger v Clark, 8 S.W.2d 666 (Tex. 1928). 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  54. 54. Incompatibility • Self Employment – Ordinarily, self-employment incompatibility will arise only where one position is an office and the other an employment. – But, can arise when position is subordinate to the governing body in some of its principal duties. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  55. 55. Incompatibility • Conflicting Loyalties – both positions must be “offices” – the relationship between the positions creates conflict • if authorized to contract with each other • if both have the power of taxation – even if one district imposes an ad valorem property tax and the other imposes a sales tax that must be approved by the voters. • if boundaries overlap • whenever one governmental body has authority to impose its will on the other in any matter whatsoever. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  56. 56. Other Issues 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  57. 57. Successive Government and Private Employment • (a) Except as law may otherwise expressly permit, a lawyer shall not represent a private client in connection with a matter in which the lawyer participated personally and substantially as a public officer or employee, unless the appropriate government agency consents after consultation. • (b) No lawyer in a firm with which a lawyer subject to paragraph (a) is associated may knowingly undertake or continue representation in such a matter unless: – (1) The lawyer subject to paragraph (a) is screened from any participation in the matter and is apportioned no part of the fee therefrom; and – (2) written notice is given with reasonable promptness to the appropriate government agency. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  58. 58. Successive Government and Private Employment • (c) Except as law may otherwise expressly permit, a lawyer having information that the lawyer knows or should know is confidential government information about a person or other legal entity acquired when the lawyer was a public officer or employee may not represent a private client whose interests are adverse to that person or legal entity. • (d) After learning that a lawyer in the firm is subject to paragraph (c) with respect to a particular matter, a firm may undertake or continue representation in that matter only if that disqualified lawyer is screened from any participation in the matter and is apportioned no part of the fee therefrom. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  59. 59. Successive Government and Private Employment • (e) Except as law may otherwise expressly permit, a lawyer serving as a public officer or employee shall not: – (1) Participate in a matter involving a private client when the lawyer had represented that client in the same matter while in private practice or nongovernmental employment, unless under applicable law no one is, or by lawful delegation may be, authorized to act in the lawyer’s stead in the matter; or – Negotiate for private employment with any person who is involved as a party or as attorney for a party in a matter in which the lawyer is participating personally and substantially. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  60. 60. Successive Government and Private Employment • (f) As used in this rule, the term matter does not include regulation-making or rule-making proceedings or assignments, but includes: – (1) Any adjudicatory proceeding, application, request for a ruling or other determination, contract, claim, controversy, investigation, charge accusation, arrest or other similar, particular transaction involving a specific party or parties; and – (2) any other action or transaction covered by the conflict of interest rules of the appropriate government agency. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  61. 61. Successive Government and Private Employment • (g) As used in this rule, the term confidential government information means information which has been obtained under governmental authority and which, at the time this rule is applied, the government is prohibited by law from disclosing to the public or has a legal privilege not to disclose, and which is not otherwise available to the public. • (h) As used in this Rule, Private Client includes not only a private party but also a governmental agency if the lawyer is not a public officer or employee of that agency. • (i) A lawyer who serves as a public officer or employee of one body politic after having served as a public officer of another body politic shall comply with paragraphs (a) and (c) as if the second body politic were a private client and with paragraph (e) as if the first body politic were a private client. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  62. 62. Declining or Terminating Representation • (a) A lawyer shall decline to represent a client or, where representation has commenced, shall withdraw, except as stated in paragraph (c), from the representation of a client, if: – (1) the representation will result in violation of Rule 3.08 (Related to the Lawyer as a witness), other applicable rules of professional conduct or other law; – (2) the lawyer’s physical, mental or psychological condition materially impairs the lawyers fitness to represent the client; or – (3) the lawyer is discharged, with or without good cause. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  63. 63. Declining or Terminating Representation (b) Except as required by paragraph (a), a lawyer shall not withdraw from representing a client unless: (1) withdrawal can be accomplished without material adverse effect on the interests of the client; (2) the client persists in a course of action involving the lawyer’s services that the lawyer reasonably believes may be criminal or fraudulent; (3) the client has used the lawyer’s services to perpetrate a crime or fraud; (4) a client insists upon pursuing an objective that the lawyer considers repugnant or imprudent or with which the lawyer has fundamental disagreement; (5) the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer’s services, including an obligation to pay the lawyer’s fee as agreed, and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled; (6) the representation will result in an unreasonable financial burden on the lawyer or has been rendered unreasonably difficult by the client; or (7) other good cause for withdrawal exists. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  64. 64. Declining or Terminating Representation (c) When ordered to do so by a tribunal, a lawyer shall continue representation notwithstanding good cause for terminating the representation. (d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a clients interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payments of fee that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by other law only if such retention will not prejudice the client in the subject matter of the representation. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  65. 65. Communications with One Represented by Counsel • In representing a client, a lawyer shall not communicate or cause or encourage another to communicate about the subject of the representation with a person, organization or entity of government the lawyer knows to be represented by another lawyer regarding that subject, unless the lawyer has the consent of the other lawyer or is authorized by law to do so. • Texas Disciplinary Rules Of Professional Conduct, Section 4.02(a) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  66. 66. Communications with One Represented by Counsel • For the purpose of this rule, organization or entity of government includes: – those persons presently having a managerial responsibility with an organization or entity of government that relates to the subject of the representation, or – those persons presently employed by such organization or entity and whose act or omission in connection with the subject of representation may make the organization or entity of government vicariously liable for such act or omission. • Texas Disciplinary Rules Of Professional Conduct, Section 4.02(a) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  67. 67. Communications with One Represented by Counsel • When a person, organization, or entity of government that is represented by a lawyer in a matter seeks advice regarding that matter from another lawyer, the second lawyer is not prohibited by paragraph (a) from giving such advice without notifying or seeking consent of the first lawyer. • Texas Disciplinary Rules Of Professional Conduct, Section 4.02(d) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  68. 68. Dealing with Unrepresented Persons • In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding. • Texas Disciplinary Rules Of Professional Conduct, Section 4.03 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  69. 69. Respect for Rights of Third Persons • In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person. • A lawyer shall not present, participate in presenting, or threaten to present: – criminal or disciplinary charges solely to gain an advantage in a civil matter; or – civil, criminal or disciplinary charges against a complainant, a witness, or a potential witness in a bar disciplinary proceeding solely to prevent participation by the complainant, witness or potential witness therein. • Texas Disciplinary Rules Of Professional Conduct, Section 4.04 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  70. 70. TEXAS DISCIPLINARY RULES OF PROFESSIONAL CONDUCT Link to Rules at State Bar Website (www.texasbar.com) 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  71. 71. QUESTIONS? 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011
  72. 72. John J. Carlton The Carlton Law Firm, P.L.L.C. 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 john@carltonlawaustin.com 2705 Bee Cave Road, Suite 110 Austin, Texas 78746 (512) 614-0901 www.carltonlawaustin.com ©2011

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