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All Lawyers in Dissolving Firm Must Take ‘Reasonable Steps’ to Guard Clients’ Interests

Thursday, May 8, 2014

By Joan C. Rogers  

May 2 --When a law firm breaks up every lawyer in it must take “reasonable steps” to safeguard the interests of the firm's clients from foreseeable harm, according to a recent opinion from the California bar's ethics committee.

The measures a particular lawyer must take vary with the circumstances, including the lawyer's relationship to the client and its matter and the lawyer's position within the firm, the committee said.

The opinion applies Rule 3-700(A)(2) of the California Rules of Professional Conduct which, similar to ABA Model Rule 1.16(d), prohibits bar members from withdrawing from a representation until they have taken “reasonable steps to avoid reasonably foreseeable prejudice to the rights of the client.”

“In the event of dissolution, all attorneys who are employed by or partners of a firm are required to comply with rule 3-700(A)(2) as to all clients of the firm, regardless of their connection to any specific client or the specific nature of their affiliation with the firm,” the opinion states.

The opinion provides several nuggets of advice:

 

• Partners should work collectively to protect the firm's clients from predictable harm, such as forming a dissolution committee that is charged with that mission.

• A partner who has worked extensively on a client's matter will have special responsibility to prevent prejudice to that client, even if it means the partner must delay a planned departure.

• Lawyers not handling a client's matter may need to take supplemental action if they learn that the transition poses a foreseeable risk of harm to the client.

• Associates and nonequity partners aren't off the hook merely because they have limited power in the firm, although the steps available to them may be limited.

Factors to Consider

The committee said that whether or not a dissolution committee or similar mechanism is in place, the actions required of each attorney depend on the totality of the circumstances.

One salient factor, it said, is the lawyer's prior relationship with a client. A lawyer who has worked extensively with a client before the firm's dissolution may not simply withdraw and refer the client to the dissolution committee without taking further appropriate measures to avoid harm to the client, it advised.

Another factor is the particular lawyer's ability to act for the firm, the committee said. Reasonable steps may differ for a lawyer who has actual authority to act for the firm, as compared to an associate, a junior attorney or even a senior partner who lacks that authority, it said.

A third factor the opinion identifies is the lawyer's competence to perform services for the client. For example, the committee said, typically it's not reasonable to expect a transactional lawyer to represent a litigation client whose deadline for filing a complaint is impending. But if the lawyer knows about the problem, she may have a duty to help find replacement counsel for the client if the dissolution committee or another lawyer in the dissolving firm does not take action to protect the client's interests.

Real-Life Scenario

The committee fleshed out its advice by positing a hypothetical situation in which Partner A and an Associate have worked on preparing a corporate client's complaint in a litigation matter for about six months, and the statutory deadline for filing the complaint is looming when the partners schedule a vote to dissolve the firm.

The committee said that Partner A was required to do more to protect the client's interests than simply send the client a brief e-mail announcing that the firm had dissolved, that the partner would not be representing the client at her new firm and that the client must promptly engage new counsel in light of the upcoming dealing for filing the complaint.

Because the filing deadline was imminent, Partner A could not treat her departure in the same way she might go about leaving an ongoing firm, the committee said. Depending on the risk of prejudice to the client, it said, Partner A may not be able to join her new firm until she has take reasonable steps to help the client find new counsel in time to meet the filing deadline.

As for the Associate, the committee found that she complied with Rule 3-700(A)(2) before moving to another firm by letting the client know about her departure, writing an exit memo for the client's file about her work on the client's matter and telling Partner B--a transactional lawyer, not involved in the representation, who has promised to discuss the associate's concerns with the firm's executive committee--about the upcoming deadline that might be missed unless special care is taken.


“[A]ll attorneys who are employed by or partners of a [dissolving] firm are required to comply with rule 3-700(A)(2) as to all clients of the firm….”
California Formal Ethics Op. 2014-190

An associate in other situations might not have to take all of these steps, but Rule 3-700(A)(2) does not exempt any lawyers from the duty to take “reasonable steps” to protect clients' interests, the committee advised. In most instances, it said, an associate may fulfill her duties--even in the face of a law firm dissolution--by notifying a partner of any concerns and receiving at least some assurance from that partner that those concerns will not be ignored.

All Join In

Although not involved in the client's representation, Partner B bears some responsibility to the client in this scenario, the committee said. When a firm dissolves, it stated, every lawyer in the firm has the duty of taking reasonable measures to protect all of the firm's clients from harm, regardless of the lawyer's particular affiliation with the firm or specific connection to the client. All lawyers in a dissolving firm need to take steps to avoid allowing any of the firm's clients to suffer foreseeable prejudice, the opinion makes clear.

Ordinarily partners in a dissolving firm can satisfy this obligation, the committee said, by successfully voting to establish a dissolution committee or comparable method of protecting the interests of the firm's clients from harm.

Partner B may have a greater burden, the committee said, because the Associate expressed her concerns to him. At a minimum, it said, he should follow up with the executive committee or dissolution committee to make sure the members know about the client's impending deadline and, if necessary, suggest they reach out to the Associate for more information.

To contact the reporter on this story: Joan C. Rogers in Washington at jrogers@bna.com

To contact the editor responsible for this story: Kirk Swanson at kswanson@bna.com


Full text on the California State Bar's website at http://ethics.calbar.ca.gov/Ethics/Opinions/2009176toPresent.aspx.

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.

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