Ethical Obligations When Lawyers Change Firms
Duties of Firms and Lawyers When someone Leaves
Lawyers rarely stay with the same law firm their entire careers. When lawyers leave a firm, there are certain ethical obligations, client relations issues, and other duties that arise. This article will only address the ethical and professional considerations when lawyers change firms and not any tort, contract, or employment law issues.
From an ethics perspective, the goal is that lawyers changing firms – and their former and future firms – all behave like grown-ups. Really. Law firm changes may feel personal but as professionals, lawyers must nevertheless abide by their ethical obligations when transitioning firms.
In addition to ethical obligations to the firm and clients, departing lawyers also may be subject to both civil and criminal charges for theft of firm property, misuse of firm assets, misrepresentations, and interfering with contracts a firm has with clients. See, e.g, Florida Bar v. Winters & Yonkers (Sept., 2012)(two lawyers suspended from the practice of law for copying firm files, which constituted theft and made misrepresentations to the firm and clients to divert clients away from firm).
A departing lawyer should always tell her firm partners, first, before telling clients, staff, or others that she is leaving a firm. The recent amendments to the ABA Model Rules on Professional Conduct, ER 1.6 specifically note that lawyer may have fiduciary duties to their current firms.
If lawyers read nothing else, read these essential ethics opinions regarding lawyer transitions:
Ariz. Op. 99-14
ABA Op. 99-414
Ariz. Op. 10-02
Ethical Obligation to Communicate to Certain Clients
Two primary directives must be remembered when lawyers leave law firms: 1) lawyers have a duty to tell “their” (not all clients of the firm) clients that they are leaving; and 2) clients are not chattels – the firm and departing lawyer cannot decide which clients can stay and which can go – the clients decide. Lawyers must keep clients informed so that clients may make informed decisions about what the clients want to do. However, lawyers who are leaving need to tell the firm, first, and then communicate with clients.
Arizona Opinion 10-02 summarizes the requirements that departing lawyers and law firms have an ethical obligation to cooperate with each other and share information on client matters to avoid any prejudice or harm to clients when a lawyer leaves the firm. This means that departing attorneys who are not taking clients with them have an obligation to assure that the files on which they worked are in proper order and contain all necessary information (not to mention departing lawyers need to provide the firm with their time).
In addition to the ethical obligations departing lawyers have, they also must avoid interfering with the contracts the firm has with existing clients. See ,e.g., Raymond H. Wong Inc. v. Xue, No. 115269/04 (N.Y. Sup. Ct. N.Y. Cty. 1/21/05)(associate enjoined from attempting to lure away firm clients); Reeves v. Hanlon, 33 Cal.4th 1140, No. S114811, (Cal. 8/12/04)(departed lawyers liable for damages to firm for luring away clients and associates). Business tort litigation against departed lawyers is a growing practice area. However, the caution to avoid stealing clients must be balanced against the departing lawyer’s ethical obligation to notify clients that an attorney is departing.
As explained in ABA Formal Opinion 99-414, “The departing lawyer and responsible members of the law firm who remain have an ethical obligation to assure that prompt notice is given to clients on whose active matters she currently is working.”
Remember, Ethical Rule 1.4 requires that lawyers keep clients reasonably informed – which would include notifying those clients with whom the departing lawyer has had “significant contact” that their lawyer is leaving the firm.
Which clients to tell
Arizona Opinion 99-14 provides some guidance on when a departing lawyer may communicate directly with certain firm clients. A departing lawyer who has had “significant personal contacts” with the client, should inform the client that the lawyer is leaving the firm. Note: this does not mean that an associate who met a client once or twice and has prepared discovery requests has had “significant personal contacts” – the standard is that if the client were asked “which lawyer(s) at the firm represent you?” the lawyers mentioned would be those that have had “significant personal contacts.”
How to tell clients
Again – departing lawyers need to inform firm management about their anticipated departure before the lawyers start contacting clients. Section 9(3) of the Restatement of the Law Governing Lawyers (2000) provides:
“Absent an agreement with the firm providing a more permissive rule, a lawyer leaving a law firm may solicit firm clients:
(a) prior to leaving the firm: (i) only with respect to firm clients on whose matters the lawyer is actively and substantially working; and
(ii) only after the lawyer has adequately and timely informed the firm of the lawyer’s intent to contact firm clients for that purpose; and
(b) after ceasing employment in the firm, to the same extent as any other nonfirm lawyer.”
The preferred method of advising firm clients about the impending departure of an attorney is a joint letter from the firm and departing lawyer to all clients with whom the lawyer had significant personal contacts. Such a letter should advise the clients:
- When the lawyer is leaving and where they are going
- The client has the option of going with the lawyer, staying with the firm, or getting a new firm
- How any advance fee deposit will be treated
- A place for the client to sign and return the letter, with instructions on where their file should go.
This letter preferably should be sent prior to the lawyer’s departure and should be calendared to assure that written responses are received from all clients to confirm how each file should be handled. The letter needs to tell clients where the departing lawyer is going so that clients may check for conflicts before agreeing to a change. For those clients that want their files sent with the departing lawyer, the firm should review their malpractice policy for requirements on maintaining a copy of certain parts of the file for a period of time – that copying of course is at the firm’s expense because the client file is client property that belongs to the client. ER 1.16(d).
Note that if a joint letter is not sent, separate letters may be sent by the lawyer (or the firm) to clients with whom the departing lawyer had significant personal contact as long as: 1) the letters do not disparage the firm or the departing lawyer; and 2) the letters do not involve improper solicitation in violation of ER 7.3. Lawyers that have had an attorney/client relationship may communicate directly with those clients – that does not violate ER 7.3.
Yes, a joint email may be sent to clients with a request that the clients respond, within a certain time, to direct who they want as their lawyer.
Other People Who Should Be Told About the Departure
Whenever a lawyer changes firms the following people/groups need to be notified about the new address (and other contact information), and the effective date of the change:
- State Bar Membership Records Department
- Courts: including clerk’s office and the Judicial Assistants for each judge where the lawyer has a pending matter.
- Opposing counsels
- Vendors, expert witnesses, court reporting services
- publications such as Arizona Attorney magazine and Business Journal
- Other professional organizations in which the lawyer is a member (ABA, MCBA, etc.)
- The firm’s malpractice carrier, accountant, landlord, and banker.
Trust Account Monies
Clients that have given the firm an advance fee or advance cost deposit take the money with them (less earned fees and costs), if they go with the departing lawyer. While simple in theory, application sometimes can be problematic. The “old” firm should write a check, consistent with the written instructions of the client, to either the client or to the trust account for the departed lawyer’s new firm, when the client instructs that the trust balance should be transferred.
Note that departing lawyers must assist the firm by entering their billable time and costs so that the firm can generate a final invoice for any clients transferring with the departing lawyer.
Fee Divisions In General
When the firm is dissolved:
There is some disagreement regarding how fees earned after a law firm split may be apportioned between the firm and the departed lawyer, when the case initiated with the old firm. For example, in contingent fee cases where some or much of the work was performed at the existing firm, but the case is going with the departing lawyer, the firm and lawyer must agree how the contingent fee will be apportioned among them, based upon their respective contributions to the case (i.e., quantum meruit) or based upon terms in the partnership agreement.
But can a departing lawyer keep all of a contingent fee case that came into the old firm but ultimately settled when the lawyer was at a new firm? Probably not, according to several cases. See, e.g., Meyer & Susman v. Cohen, 194 CalRptr 180 (Calif CtApp 1983)(“The partner may take for his own account new business even when emanating from clients of the dissolved partnership and the partner is entitled to the reasonable value of the services in completing the partnership business, but he may not seize for his own account the business which was in existence during the term of the partnership”). A lawyer may be entitled to only his partnership portion of the fees earned on a case, even if he performed most of the work after the dissolution of the firm. See Jewel v. Boxer, 203 CalRptr 13(Calif CtApp 1984); Frates v. Nichols, 167 So2d 77 (Fla. Dist. Ct. App. 1964); Ellerby v. Spiezer, 138 485 NE2d 413 (Ill AppCt 1985); Resnick v. Kaplan, 434 A2d 582 (Md CtApp 1981); Smith v. Daub, 365 NW2d 816 (Neb SupCt 1985); Platt v. Henderson, 361 P2d 73 (Ore SupCt 1961).
Moreover, some decisions hold that all revenue generated by cases that originated with a law firm that then dissolves belong to the originating firm – even if the work is completed after the firm disbands. See Jewel v. Boxer, 203 Cal Rptr. 13 (1984)(profit from transferred matters belongs to the original law firm); Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 2012 WL 1918705 (S.D.N.Y. May 24, 2012).
When the firm remains but a lawyer leaves and takes cases:
If the firm continues to exist and a lawyer leaves the firm and takes a case with him, he may be entitled to the quantum meruit value of the work he performed after he left the firm. Similarly, the firm will be entitled to the value of work performed at the firm. How this is calculated may be an open issue, but as a starting point, courts will look to the hours spent (lodestar) and then decide if any other factors under ER 1.5(a) apply to determine the fair apportionment of the fee between the former firm and current firm.
The Schwartz v. Schwerin, 85 Ariz. 242, 245-46, 336 P.2d 144, 146 (1959) analysis provides: “Before discussing the separate counts, it seems advisable that we state the well-known basic elements to be considered in determining the reasonable value of an attorney’s services. From a study of the authorities it would appear such factors may be classified under four general headings (1) the qualities of the advocate: his ability, his training, education, experience, professional standing and skill; (2) the character of the work to be done: its difficulty, its intricacy, its importance, time and skill required, the responsibility imposed and the prominence and character of the parties where they affect the importance of the litigation; (2) the work actually performed by the lawyer: the skill, time and attention given to the work; (4) the result: whether the attorney was successful and what benefits were derived. See, 7 C.J.S. Attorney and Client § 191 a. (2), p. 1080 et seq.; 5 Am.Jur., Attorneys at Law, section 198. Cf. Ives v. Lessing, 19 Ariz. 208, 168 P. 506. Furthermore, good judgment would dictate that each of these factors be given consideration be the trier of fact and that no one element should predominate or be given undue weight.”
The final step in the attorney fee analysis is the reasonableness of the fees sought, which includes consideration of the hourly billing rate and the hours expended. Schweiger v. China Doll Rest ., Inc., 673 P.2d 927, 931-32 (Ariz.Ct.App.1983). See Geller v. Lesk, 644 Ariz. adv. Rep. 4 (Ariz. Ct. App. 2012)(hourly rate determines reasonable fee and any enhancement for the risk of nonpayment is reserved for exceptional cases).
Additionally, the majority view of “no extra compensation” upon dissolution of a firm does not apply to either the situation where the firm is completing work for a deceased partner or if the partnership agreement provides for a different compensation plan upon dissolution or departure. Such terms in partnership agreements will be upheld as long as they are not grossly inequitable. See Smith v. Daub, 365 NW2d 816 (Neb SupCt 1985).
Note also that Comment