Congratulations, the phone is ringing, and a new client is calling. But don’t go celebrate with an early lunch just yet.

Unless the client is an individual or sole proprietor, the wise attorney must make sure that the engagement letter identifies exactly who the client is, especially if room exists for interpretation or doubt.

Failing to define the relationship precisely — for example, by using an engagement agreement that is vague about exactly who a lawyer represents and that representation’s scope — can result in a serious conflict of interest.

It’s always wise to start with the Texas Disciplinary Rules of Professional Conduct. Under Rule 1.12(e), when:

dealing with an organization’s 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 based this rule on the American Bar Association’s model rule. Practically speaking, the goal is to ensure that attorneys take the steps necessary to understand exactly who they represent: Is it the entity, the management team or an employee? Of course, a corporation can speak and decide only through its agents, such as its officers or employees, who themselves may require distinct representation. This is where problems arise.

Suppose Mega Corp. President Jane Smith calls with a new matter. Nelson Newlawyer tells his assistant to draft an engagement letter, takes an early lunch to celebrate and returns to find the agreement executed.

The agreement is addressed to "Jane Smith, President and C.E.O., Mega Corp.," and it includes this brief description of the scope of the representation: "We are pleased to represent you in connection with the lawsuit styled Angry Ex-Director, et al v. Jane Smith, and Mega Corp, Case No. 2013-0001, in the 1st District Court of Lowen Burgh."

Two days later, after Smith signed the agreement as "Jane Smith, President and C.E.O., Mega Corp.," Smith calls Newlawyer. She reveals information clearly indicating that she breached her fiduciary duties to Mega Corp. and possibly engaged in conduct that could lead to criminal liability for the company. Newlawyer thought he represented the company, but after hanging up the phone, he realizes that Smith believes he is her attorney.

What is Newlawyer to do? Smith is the only one at the company with whom he has spoken. Panic sets in; does he represent both the president and the company?

The Fallout

According to the Texas Professional Ethics Committee, he does. If the individual client reasonably believes that a lawyer represents both parties, then that lawyer officially is in the middle of a conflict of interest. The proper recourse is to withdraw from representing both parties. (There are other issues in this scenario that deal with the Texas Disciplinary Rules of Professional Conduct and knowledge of crimes, but that’s for another column.)

There’s more bad news for attorneys in this situation. If the engagement agreement is otherwise unambiguous, courts will likely deem inadmissible outside evidence to prove the lawyer’s or client’s intent as to whom exactly formed the attorney-client relationship.

Compliance with Rule 1.12 means that the engagement agreement should contain a very specific description of exactly who a lawyer represents. The description does not have to be very long or full of lawyerese; it only needs to be clear.

If Newlawyer’s engagement agreement had included clear and easy-to-understand language as to whom exactly he represents, chances are that Smith would not have called and revealed the troublesome information. Here’s an example:

You have engaged this firm to represent you, Mega Corp. ("You" or "Mega"), in connection with the lawsuit styled Angry Ex-Director, et al v. Jane Smith, and Mega Corp, Case No. 2013-0001, in the 1st District Court of Lowen Burgh. You understand that we represent Mega only and we are not your personal counsel. Mega will be our only client in this matter, and our representation of Mega is limited to the matter described in this letter. We will not be representing related persons or entities. Any request to limit or expand our representation should be in writing.

Texas Disciplinary Rule of Professional Conduct 1.07 allows an attorney to advise both parties in this scenario, but only after the lawyer consults with each party, advises them of the advantages and risks involved and the effect of attorney-client privileges, and obtains both parties’ written consent to the common representation.

Dual representation presents its own unique benefits and pitfalls. However, before a lawyer even gets to that issue, he must make clear exactly who he represents. It’s worth skipping that early lunch to make sure the engagement letter is just right. There’s always happy hour.