Handling Law Partner Departures Ethically & Minimizing Risks
Emotions tend to run high for lateral law partners as they consider other law firm platforms. Law Partners may think about themselves and their clients first, then their current law firm. In this chapter, I will address a brief summary of the 8 main areas of risk, whether you are the law partner, the prospective law firm or former law firm. The choices a law partner makes will increase or decrease the potential risk of claims and disputes. Educated parties can help mitigate risk through setting policies and expectations in advance, and then as requirements throughout the process.
Law partners have a fiduciary duty to the partnership and separately to their clients. This is a common tension that every attorney faces in the profession. Partnership and Clients. The tension can greatly increase when a partner considers a lateral move. Most of the disputes that arise in a law partner move involve a violation of fiduciary duty with the former law firm. Case law tends to air in favor of the former law firm as well. Our hope is that this article will begin the discussion and inform the interested parties where risk lies.
ABA Formal Opinion 99-414 Ethical Obligations When a Lawyer Changes Firms discusses, “before preparing to leave one firm for another, the departing [law partner] should inform himself or herself of applicable law other than Model Rules, include the law of fiduciaries, property and unfair competition. He/she should also take care to act lawfully in taking or utilizing the firm’s information or other property.”
Law partners should not be discouraged from talking with their clients during the process of exploring a lateral move, but what they talk about is important to consider. And mind you, this is a gray area of lateral moves that tends to cause emotional tort litigation with departing law partners.
Opinion 99-414 has several ethics rules that apply to how a law partner conducts himself or herself with the client.
- Not discuss their departure plans with the client prior to giving notice to their current law firm.
- Not disparage their current law firm when speaking with clients.
- Not urge the client to sever relationship with the current law firm.
- Let the client exercise their right to choose counsel.
Why partners are urged to follow these rules:
- They are expected to abide by fiduciary duties of good faith and loyalty to the former firm.
- Pre-notice client solicitation could warrant tortious interference and unfair advantage over their former partners.
- Could be a breach of fiduciary duties or employment obligations.
- It is the current law firm’s ethical obligation to notify their clients that the law partner is leaving.
This occurred in Meehan v. Shaughnessy (1989), favoring the former law firm saying the law partners “unfairly acquired consent from clients to remove cases thus breaching their fiduciary duties of good faith and loyalty to their former firm. The Massachusetts Supreme Judicial Court reasoned that by virtue had obtained an unfair advantage over their former partners.”
Graubard Mollen Dannett & Horowitz vs. Moskowitz (1995), remains the authoritative case in New York for unethical client solicitation for law partner departures. In a unanimous decision, the New York State Court of Appeals agreed that “…as a matter of principle, predesignation surreptitious ’solicitation’ of firm clients for a partner’s personal gain is actionable.”
The exception to this rule came from the Graubard case. If the client may be harmed by a law partner’s decision to move quickly to another law firm may grant the client the right to choose counsel. For example client needs such as a trial or major transaction where the law partner move may happen in an inopportune time. Thus the duty to provide legal counsel for the client may take priority to the duty to the current law firm. Most lateral moves occur around such important client events but the urgent case of departure there could be an exception.
Now the current law firm has self-interest to speak with the client first, yet the same rules apply to them. So current law firms cannot:
- disparage the departing law partner
- dissuade or punish the client if following the partner
Ultimately, Opinion 99-414 suggests that both the current law firm and departing law partner would send a joint letter of notice. A joint letter would allow equal treatment of both the departing law partner and the current firm, and minimize the opportunity for disputes. This may be less than ideal for emotional departures but amicable relationships should certainly consider this option.
Bottom line: Law partner should generally not discuss their departure plans with the client before telling their current law firms and should not seek their client’s business prior to notification of departure with their current law firm.
I spent considerable more time on this subject since it is usually the most emotionally charged and disputed decision during a law partner departure. The following 7 areas of risk should not be ignored but I will be briefer.
Law partners are challenged by what they do with their time during the lateral move process. The primary risk is violating their fiduciary duty to their current law firm. Here are some actions that law partners have been tempted or known to do prior to leaving their current law firm.
- Delay their billing & collection activity
- Solicit business from new clients for their new platform
The tension of self-interest is strong during this process. Knowing this in advance always helps. Law firms, whether they are loosing a partner or gaining one, should encourage the law partner to finish strong and not create additional risk.
Bottom line: It is the law partner’s duty to keep working, billing and collecting from clients regardless before or after giving notice and up to their last day at their current law firm.
Law partners departing a law firm are allowed to recruit other partners within their own law firm, but that is about it. In Gibbs v. Breed, Abbott, & Morgan (2000), pre-departure recruitment of associates, attorneys and staff would be a fiduciary duty violation. This generally means W-2 employees and non-equity partners hits that gray area again.
Bottom line: Once the law partner leaves the law firm, it is fair game but not until then.
According to ABA Formal Opinion 09-455 “Disclosure of Conflicts Information When Lawyers Move Between Law Firms,” a conflicts check is required for a law partner before he or she can laterally move. This is certainly understandable since all three parties have a duty to the clients and the prospective law firm does not want to prevent representing their own clients due to a conflict.
Opinion 09-455 states that “any disclosure of conflicts information should be no greater than reasonable necessary to accomplish the purpose of detecting and resolving conflicts and must not compromise the attorney-client privilege or otherwise prejudice a client or former client. A lawyer or law firm receiving conflicts information may not reveal such information or use it for purposes other than detecting and resolving conflicts of interest. Disclosure normally should not occur until the moving lawyer and prospective new firm have engaged in substantive discussions regarding a possible new association.”
Thus law partners should only “submit what is minimally necessary to check conflicts with the prospect law firm.” Typically law partners only disclose the client list, billing rates, compensation and expected future revenues along with professional historical information.
Law partners run risk of disclosing confidential information of their current law firm that could lead to potential allegations of unfair advantage which includes associate and staff compensation, rates, and obvious disclosure of broad financial information about the current law firm.
Bottom line: Provide just enough information for a conflicts check and sufficient due diligence.
Client files both paper or electronic should be not carried out by the departing law partner. This client file transfer should be treated as if substitution of counsel on a normal day, which instructions will be based on what the client says. The file transfer should include physical files, electronic files, electronic correspondence, docket records, etc. See Sage Realty Corp v. Proskauer Rose Goetz Mendelsohn (1997) for more guidance.
The exception to this rule Opinion 99-414 states that the departing law partner may take any research memoranda, pleadings and firms that the partner drafted, but not any documents drafted by others.
Bottom line: is do not take anything with you and from the premise of your former law firm that is client related.
When the law partner departs and the clients decide to remain at the former firm, fiduciary duty requires the law partner to do whatever reasonably necessary to assist in the transition which could mean meeting with the new counsel or any memos needed.
Bottom line: Be cooperative and fulfill your fiduciary duties.
Under Opinion 99-414, criminal behavior is “conduct involving dishonesty, fraud, deceit or misrepresentation in connection with a planned withdrawal.” As a lawyer, you understand what constitutes these behaviors. And of course, if you crossed line get advice from legal counsel.
Bottom line: Criminal behavior equals sanctions, loss of license and/or jail time.
Law partners departing a law firm with financial concern or bankruptcy run the risk of “Jewel” or clawback claims.
A “Jewel waiver” provision waives the failing law firm’s rights and claims to seek payment of legal fees generated after the departure date of any partner or group of partners who have unfinished business. The term refers to a California appellate decision, Jewel v Boxer (1994), in which the court held that when a partner moves from a failing law firm to a new law firm, the new firm and the partner must pay the failed firm any profits on unfinished business ported the new firm.
Clawback provision is a contractual clause that allows an employer to get back compensation paid to an employee. Partners (including lateral partners) may be required to disgorge draws or other distributions if the amounts exceed what was permitted under the partnership agreement – for example, when expected profits fail to materialize. In 2015, a former Dewey & LeBoeuf partner settled a $1 million clawback suit brought by the liquidating trustee for the bankrupt firm. The trustee claimed that by not paying back the distributions paid to the partners wile the firm was insolvent a number of the firm’s partners breached their partnership agreement. The agreement stated that former partner Visian Polak was paid $988,864 between 2009 and 2012. Polar left the firm two years before the bankruptcy filing, after being wit the firm for 25 years. See cases Alan M. Jacobs v. Vivian Polak, in the U.S. Bankruptcy Court for the Southern District of New York and Jacobs v. Polak, in the U.S. District Court for the Southern District of New York).
As you can see and may already know, there are risks of being pursued by the plaintiffs (defunct law firm) and the bankruptcy trustee. Further discussion on this issue is found in the next chapter.
Bottom line: Great care should be weighed when a law firm is a going concern or bankruptcy.
Numerous law partners move successfully every year between firms. Beyond careless or rash moves, it is hard to for a law partner departure to go wrong if they have a plan and understand the risks, rights, and duties. Violating fiduciary duty and creating unfair competitive advantage causes most claims by former law firms. If a partner candidate can understand these pitfalls, he/she will reduce their chances of a painful transition. And finally, our obligatory disclaimer – we recommend that the law partner considering a move along with the two law firms involved hire legal counsel.
Learn more about lateral moves in my book: Lateral Moves: A Guide for Partners and Law Firms.
For more information on our legal recruiting services, contact us.
Follows us on Twitter @FindtheLions and @ChrisBatz On LinkedIn Chris Batz and The Lion Group
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