YourABA: June 2013
YourABA July 2013 Masthead

Who owns clients?

Lawyers often refer to “my client,” which is a perfectly acceptable way of describing a current client relationship, said Barry Cohen, Crowell & Moring, Washington, D.C. The problem is when the expression is sometimes used by a lawyer in a way that implies some ownership interest in the client relationship, said Cohen in a recent ABA Sound Advice podcast, sponsored by the Section of Litigation. “The context for such usage is usually when a lawyer is describing her practice to another law firm with which she may be negotiating prospective employment,” Cohen said.

The expression “my client,” when spoken to a prospective law firm employer, doesn’t mean I have a proprietary interest in the client relationship that I can bring with me to your law firm.

A proprietary interest in a client or a customer relationship is recognized in a commercial setting where a vendor of a good or service may have a proprietary interest in the client relationship, that is a client relationship that the law will protect, Cohen said. “We see this protection in the tortious interference with contract and the law’s enforcement of noncompete obligations imposed on a former employee of a business that sells goods or services to customers,” he said. “In this setting, the client relationship does under the law belong to someone. But the relationship between a lawyer and a client is different, primarily because a lawyer’s agreement to provide legal services to a client is terminable at will by the client. As comment 4 to Rule 1.16 states, a client has a right to discharge a lawyer at any time, with or without cause.

“The client relationship enjoyed by the lawyer at her current firm, then, even under a written engagement agreement providing for certain services to be provided by the lawyer over a period of time is not a legally portable relationship,” he added.

So the expression “my client,” when spoken to a prospective law firm employer, doesn’t mean I have a proprietary interest in the client relationship that I can bring with me to your law firm for the same reason the lawyer’s current firm does not have a proprietary interest in the client relationship either, Cohen said. But the current law firm does have one enforceable relationship in this setting. “It is the fiduciary duty that law firm partners, and to a somewhat lesser extent, associates and other employed lawyers have to the law partnership,” he said. “That fiduciary duty requires the lawyer to protect the business interests of the law firm, including its client base, and not use them for personal advantage.”

When a lawyer wants to represent to a prospective law firm employer that a client is hers, properly not implying that the relationship is legally portable but offering only that she has received an assurance that the client will follow her to the new law firm, she is standing at the intersection of her understandable desire to represent that she has a portable practice and her fiduciary duty to her current law firm, not to undermine its business while she still works there, Cohen said.

“Ironically, the ethics rules themselves provide safe passage for the lawyer through these intersecting currents,” he said. “The safe passage is found in the lawyer’s ethical obligation under Rule of Professional Conduct 1.4 to inform a client of matters relating to the representation, and a contemplated change in law firms is certainly an important matter of lawyer-client communication. That ethical obligation of communication permits the lawyer to inform a client of her possible law firm move, at which time the client may indicate a preference to follow the lawyer or to remain at the current law firm. If at the same time the lawyer informs the law firm of her possible departure, she has most likely satisfied her fiduciary duty to the firm by giving it an opportunity to retain the client relationship.”

Several state bar ethics opinions have endorsed this approach to balancing a lawyer’s interest in being able to tell a future employer that certain clients are hers and the lawyer’s fiduciary duty to her current law firm, Cohen said. “Note, however, that because both ethics and fiduciary duty law are subject to state variations, the approach I just described may not work in every state,” he said.

Cohen notes one exception to the principle that a client relationship is not property. That exception has developed in law coming from several recent bankruptcies of large law firms, he said.

“Several of the bankruptcy judges have held that the bankrupt law firm did have a recognizable property interest in a client relationship that left the firm with a partner departing the bankrupt law firm,” Cohen said. “Because of that property interest, the law firm receiving the client relationship must compensate the law firm bankruptcy estate to the extent of the profits it earned from that transferred relationship.”

In summary, Cohen said, while “my client” is an unobjectionable term to use to describe a client relationship, it shouldn’t be taken literally because no one, except perhaps a bankrupt law firm, owns a client relationship.

Sound Advice is produced by the Section of Litigation.

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