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Under the Microscope: Experts offer thoughts on the wide range of issues arising from lawyers' lateral moves.
Bottom Line: Real-life practices of lawyers and firms sometimes cross ethical and legal lines.
BOSTON--What sometimes happens behind the scenes when lawyers are in the process of changing firms can be at odds with partners' fiduciary duties, ethics rules, tort law, and clients' interests, according to a panel discussion at the 38th ABA National Conference on Professional Responsibility.
At a program June 2 on “Lawyers in the Night--Conflicts, Stealing Clients, Accessing Files,” lawyers who advise other lawyers and law firms about lateral moves shared their knowledge and experience via several hypotheticals drawn from the annals of real life.
From the discussion of current practices, an ugly picture emerged that resembled the Wild West, with lots of fighting, not much law, and only rough justice. Careful analysis is needed for lawyers and firms to traverse this increasingly uncertain frontier without violating ethics rules or becoming embroiled in lawsuits, the speakers made clear.
The program couldn't have been more timely, coming just a few days after Dewey & LeBoeuf LLP filed for bankruptcy (see 28 Law. Man. Prof. Conduct 341) and after a key ruling on who gets to keep profits from completing unfinished business of the defunct Coudert Brothers firm (see 28 Law. Man. Prof. Conduct 327).
Ethics and Changing Firms: A Straightforward Description of Lateral Moves
As background for a discussion of hypotheticals at a panel on “Lawyers in the Night--Conflicts, Stealing Clients, Accessing Files,” speaker Robert A. Creamer, Cambridge, Mass., provided a quick overview of basic rules about partners' transitions between firms:
Essential Concepts. Running through the rules and cases are three fundamental concepts: a client's right to counsel; a lawyer's and firm's duty to their client; and a lawyer's duty to the firm and/or other partners in the firm.
Two ABA opinions are sources of guidance, ABA Formal Ethics Op. 99-414, 16 Law. Man. Prof. Conduct 122 (1999) (discussing ethics obligations that apply when lawyers change firms), and ABA Formal Ethics Op. 09-455, 25 Law. Man. Prof. Conduct 621 (2009) (approving limited disclosure to spot conflicts in lateral moves).
Notice to Clients. ABA Formal Opinion 99-414 says that clients should be notified when a lawyer who is responsible or plays a principal role in a client's representation leaves the firm. On the question of who gives notice, the opinion indicates it is the responsibility of the lawyer, and sometimes the firm has that obligation as well. The opinion recommends joint notice, but that may not always be feasible. Florida Rule of Professional Conduct 4-5.8, for example, prohibits a departing lawyer from sending notice until after a good faith effort to negotiate a joint notice. (See 21 Law. Man. Prof. Conduct 530.)
Opinion 99-414 advises that timely notice is important so that the client can make a decision about who will continue the representation. Some cases say the lawyer must notify the firm before notifying clients.
Solicitation. Notice to clients can cross over into solicitation, but there's not much guidance for detecting the difference.
The Restatement (Third) of the Law Governing Lawyers) (2000) states in Section 9 that a lawyer may solicit clients after giving notice of leaving a firm; however, several states, including Massachusetts, consider it a breach of fiduciary duty to solicit clients before leaving the firm, even after the lawyer notifies her colleagues.
Once a lawyer leaves a firm, it's generally believed that she can solicit clients at that point. The lawyer is permitted to solicit those with whom she has a prior professional relationship, or, under the Model Rules, if they are lawyers--such as general counsel of a company.
The firm's clients with whom the lawyer has not had a personal professional relationship are treated like the general public for purposes of solicitation.
According to the leading treatise Hillman on Lawyer Mobility: The Law and Ethics of Partner Withdrawals and Law Firm Breakups, soliciting firm employees before a partner leaves the firm is probably a breach of fiduciary duty to other partners.
Taking Files. As for taking files--what used to be called “papers”--they generally follow the client, with some nuances about what belongs to the client and what belongs to the firm. ABA Formal Opinion 99-414 advises that a departing lawyer may take materials the lawyer created and personally worked on. Many firms now have special software to detect suspicious downloading.
See also Hillman & Rhodes, Client Files and Digital Law Practices: Rethinking Old Concepts in an Era of Lawyer Mobility, 43 Suffolk L. Rev. 897 (2010).
The first hypothetical teased out the issue of who gets to keep fees when a firm goes under and partners take unfinished matters to other firms.
Nine months before the hypothetical firm dissolved and sought bankruptcy protection, the partners had agreed that in the event of dissolution each partner could keep fees for firm matters to the extent the work was done at a successor firm. A partner took several former firm clients with ongoing matters to a new firm, promising $2 million in revenues to the new firm.
Panelist Allison D. Rhodes said that for those in the firm that brings in this partner, “the unfinished business doctrine will completely pull the rug out from under your feet.” Rhodes practices with Hinshaw & Culbertson in Portland, Ore.
She explained that under this doctrine, which was applied to law firms in Jewel v. Boxer, 203 Cal. Rptr. 13 (Cal. Ct. App. 1984), the unfinished business of a dissolved partnership is an asset of that firm, and the legal fees from completing those matters belong to that firm--with no extra compensation for the partner who wraps up the matters other than his proportional share of profits. The recent ruling in the Coudert firm's bankruptcy proceeding applied the unfinished doctrine to hourly fees, she noted.
Rhodes emphasized that firms can contract around this result by including in their partnership agreement a “Jewel waiver” so that if the firm dissolves, partners may keep fees from unfinished matters completed at another firm.
But in the hypothetical case, panel leader Ronald C. Minkoff said, the Jewel waiver was added too late to escape the unfinished business doctrine. Bankruptcy law, he explained, sets a one-year “preferential transfer period” for insiders. Minkoff is a shareholder in Frankfurt Kurnit Klein & Selz, New York.
As a matter of public policy, Minkoff argued, the unfinished business doctrine should not apply to law firms because it discourages them from taking on partners of a dissolved firm. The doctrine protects creditors rather than clients, he asserted.
Fellow panelist Robert A. Creamer of Cambridge, Mass., agreed with Minkoff. Jewel misconstrued partnership law and treats clients as if they were widgets, he said, and professional responsibility lawyers shouldn't create or encourage such a system.
Rhodes disagreed. Including a Jewel waiver in a partnership agreement isn't hard, she said, and shows that the firm is interested in attracting strong laterals. “It's a client service issue,” she added.
She suggested an estate-planning analogy: “If you've got stepchildren and a house in the mountains, write a will.”
A second hypothetical framed the issue of disclosing and collecting information when a partner in a dissolving firm looks to make a lateral move to a new firm.
In the hypothetical, the new firm asks the departing partner, even before the first interview, to provide a list of all his current clients and former clients for the past three years, the revenues those clients brought into the old firm, and expected future revenues for the new firm.
Panelist Tracy L. Kepler, who is senior litigation counsel for the Illinois Attorney Registration and Disciplinary Commission, made clear that she had concerns in this scenario about potential breach of confidentiality. Although lawyers are allowed to reveal information reasonably necessary to check for conflicts, some clients may not even want their names disclosed, she pointed out.
Minkoff commented that at some point lawyers have to give clients' names to the new firm “so there's not a train wreck when you get to the new firm.” The two questions to consider are when and how, he said.
With regard to timing, Minkoff noted that as in the hypothetical some large law firms won't even talk to a lawyer without full disclosure of client names and revenue “That's unacceptable; you can't do that,” he declared. A lawyer should not disclose information before the first interview, he stated.
As the process gets further along and becomes more serious, Minkoff said, information must be exchanged, “but you do it in a way that's protective to clients.” Minkoff said he insists that the laterally moving partner must give the information to one partner at the new firm, who is required to keep the information in a bubble.
The moving partner should not provide numbers, because a conflicts check does not require that information, he added. ABA and New York City ethics opinions support this compromise approach, he said, referring to ABA Formal Ethics Op. 09-455, 25 Law. Man. Prof. Conduct 621 (2009) and New York City Ethics Op. 2003-3, 19 Law. Man. Prof. Conduct 636 (2003).
Rhodes said she does not advise lawyers changing firms to ask for client consent, and that lawyers certainly may give the new firm billing revenue without clients' names. It's sometimes possible to use pseudonyms for clients such as a “Fortune 500 company in the electronics field,” she added.
Minkoff commented that lawyers changing firms should not reveal how much paralegals or associates in their current firm are paid. The moving lawyer can't even talk to employees in his current firm about leaving until he's out of the firm, because those contractual relationships are assets of the firm, he said, citing Gibbs v. Breed, Abbott & Morgan, 710 N.Y.S.2d 578, 16 Law. Man. Prof. Conduct 388 (N.Y. App. Div. 2000), as a leading case on these issues.
In another part of the hypothetical, the firm that is eyeing the departing partner decides to conduct its own investigation via “pretexting” to learn more about the lawyer's background.
Posing as a potential new client, the hiring partner contacts the lawyer's current firm and his current and former clients for recommendations. She also has another firm lawyer locate the potential new partner on Facebook and “friend” him without disclosing her affiliation.
According to Rhodes, some firms actually have done these things when they consider taking on a lawyer from another firm. Kepler concurred, saying she has heard of firms sending people out to the other firm's lunchroom or on golf outings to scavenge gossip.
Minkoff said he doesn't believe firms can call for recommendations, although some lawyers have a different view. “I discourage law firms from doing this,” he said.
As for friend requests on Facebook, Minkoff noted that a number of ethics opinions have been issued on this subject. A friend request may be permissible if you just have to type the lawyer's name and the lawyer's page is public, but “if you have to lie, you can't do it,” he said. (See New York State Ethics Op. 843 (2010), and New York City Ethics Op. 2010-2, 26 Law. Man. Prof. Conduct 607 (2010).)
Kepler noted, however, that others may view it as improper for attorneys to make a friend request to obtain inside information without disclosing the real purpose, even if there is no affirmative misrepresentation. (See Philadelphia Bar Ethics Op. 2009-02, 25 Law. Man. Prof. Conduct 218 (2009); San Diego County Ethics Op. 2011-2, 27 Law. Man. Prof. Conduct 438 (2011)).
From the audience, ethics expert Seth Rosner, Saratoga Springs, N.Y., said that if a small firm engaged in the practices described in the hypothetical, “they'd be before bar counsel.”
Minkoff noted that among big firms there's a sense of “what goes around comes around.” A lawyer may reason, he said, that if a big firm has done something bad to me now, I'll be doing it later, so if I complain it might come back to haunt me.
In yet another hypothetical, the partner in the dissolving firm has accepted a new position, but hasn't resigned or made a public announcement. He's worried that the remaining partners are going to compete for his clients before he leaves.
Creamer took the position that in light of the lawyer's fiduciary duty to the firm he is leaving, the lawyer should notify his partners before talking to his clients about the move, whether or not the firm is in dissolution.
Minkoff pointed out that the dissolution of the firm is a factor, because the firm's problems are public knowledge and clients will be worried. But “I still say tell the firm first,” he added.
Rhodes raised a different point. Don't you have a duty, she asked, to keep your client informed?
Creamer said that if the lawyer hasn't resigned and a client asks the lawyer directly whether he's jumping ship, the lawyer must be candid with the client and not lie, but still must tell the firm first.
In this situation, Creamer suggested, the lawyer could say something along these lines to the inquiring client: The situation is fluid and I haven't talked to my partners; once I do, you'll be the first to know.
Minkoff commented that during the transition period the old firm sometimes asserts a retaining lien and refuses to release the client file, or even takes action unilaterally in the client's matter. Observing that such tactics can fuel malpractice claims, he gave this advice: “Don't play games over small bills.”
Rhodes remarked that when mistakes are allegedly made in a client's representation while the lawyer is straddling two firms, “both firms will be in the caption of the malpractice action.”
The final hypothetical centered on an associate who decides to go out on his own. His firm forces him to leave hastily, so that the associate does not have access to client records or his list of contacts. Furthermore, the firm discontinues its practice in the areas where the associate did most of his work, tries to send his former clients to another firm, and refuses to give callers his new contact information.
The panelists agreed that the firm's conduct is unwise and could backfire. This type of behavior “can add a zero to the damages” in a tort suit against the firm, Creamer said.
Rhodes commented that even though the lawyer was an associate, the firm should provide joint notification to clients with whom the associate had an attorney-client relationship.
Minkoff noted, however, that many of these issues are not expressly covered by ethics rules or case law. No cases say that a firm must give out a departed lawyer's contact information or take certain steps with the lawyer's email or voicemail, such as forwarding messages to him, he remarked.
“This is an area bounded by very few rules and very little authority,” Minkoff said.
Kepler suggested that Model Rule 8.4(c), which forbids conduct involving dishonesty, fraud, deceit, or misrepresentation, could come into play. Rhodes mentioned Model Rule 1.16, which requires lawyers to make sure that they withdraw in a way that doesn't harm the client.
Copyright 2012, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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