GPSOLO January/February 2008
Breaking Up Is Hard to Do:
Ethics Concerns When Your Firm Splits Up or When a Lawyer Leaves for Another Firm
A four-partner law firm engaged in general practice is undergoing changes. One partner intends to retire in six months while a second partner is contemplating leaving to join another firm with a similar practice. The remaining two partners are considering whether to continue on as a partnership with the retiring lawyer as a named partner or to go their separate ways as sole practitioners. The situation raises several ethics questions:
- If the original firm dissolves, under what circumstances can the departing or retiring partners solicit clients of the former firm?
- If the remaining partners of the original firm do decide to continue on as a partnership, is it permissible for the departing partner to solicit clients to accompany him to his new firm?
- What are each partner’s responsibilities toward client files?
The Ethics of Breaking Up
When lawyers leave law firms or when law firms dissolve, many thorny ethics issues arise. As Kentucky Bar Association Ethics Opinion E-424 (2005) points out, there also can be many legal issues, including:
the allocation of fees, the notices the departing lawyer must give to the firm, and entitlement to various firm assets. Lawyers who practice together have fiduciary responsibilities to one another and they have the duty to conduct themselves ethically, keeping in mind the mandates of RPC 8.3 [Kentucky’s version of ABA Model Rule 8.4, Misconduct, prohibiting conduct involving dishonesty, fraud, deceit, and misrepresentation] and 5.6 [prohibiting restrictions on the right to practice law].
When all the partners decide to end the partnership and either retire, establish new separate practices, or join other firms, the firm enters dissolution. Under such circumstances, the “winding up” of the firm’s business and the distribution of the firm assets are typically governed by the applicable provisions of the Uniform Partnership Act (UPA), which is in effect in nearly every state. Note, however, that the UPA allows partners considerable latitude in crafting partnership agreements in such areas as the causes and consequences of dissolution, the compensation to be paid for work involved in winding up the partnership, partners’ rights to an accounting, and the valuation of partnership shares. (For further information on this topic, see the discussion in the chapter “Withdrawal and Termination” that appears at page 91:701 of the ABA/BNA Lawyers’ Manual on Professional Conduct. This chapter also provides a checklist of items that should be included in a partnership agreement.)
Bar Association Ethics Opinions
There have been several ABA, state, and local bar association ethics opinions addressing the ethical obligations of lawyers when changing firms. In general these opinions address the obligations of lawyers to inform clients of their impending departure (Rule 1.4, Communication), the types of pre- and post-departure notices they can send to their clients (Rule 7.3, Direct Contact with Prospective Client), the duty to protect client interests (Rule 1.16(d), Declining or Terminating Representation), and the need to avoid conduct involving fraud, deceit, or misrepresentation (Rules 8.4, Misconduct, and 7.1, Communications Concerning a Lawyer’s Services).
In 1999 the ABA Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 99-414, Ethical Obligations When a Lawyer Changes Firms.At page one of the opinion, the committee provides the following thumbnail sketch of the ethical issues it considers critical when a lawyer leaves her law firm for another:
- disclosing her pending departure in a timely fashion to clients for whose active members she is currently responsible or plays a principal role in the current delivery of legal services;
- ensuring that the matters to be transferred with the lawyer to her new firm do not create conflicts of interest in the new firm and can be competently managed there;
- protecting client files and property and ensuring that, to the extent reasonably practicable, no client matters are adversely affected as a result of her withdrawal;
- avoiding conduct involving dishonesty, fraud, deceit, or misrepresentation in connection with her planned withdrawal; [and]
- maintaining confidentiality and avoiding conflicts of interest in her new affiliation respecting client matters remaining in the client’s former firm.
Recent state bar ethics opinions include Alaska Bar Opinion 2005-2 (2005), Kentucky Bar Association Opinion E-424 (2005), Oregon State Bar Opinion 2005-70 (2005), Joint Opinion 2007-300 (2007) of the Pennsylvania and Philadelphia Bar Associations, South Carolina Bar Opinion 02-17 (2002), and Virginia Legal Ethics Opinion 1822 (2006). (Links to the ethics opinions websites for the issuing state bar ethics committees are available on the ABA Center for Professional Responsibility website: www.abanet.org/cpr/links.html#states.) The Florida State Bar has adopted an ethics rule that specifically addresses procedures for lawyers who depart from or engage in the dissolution of a law firm (see Rule 4-5.8 of the Florida Rules of Professional Conduct). With near unanimity, these opinions state that under Rule 1.4, Communication, a lawyer who has played a significant role in a client’s representation must notify that client of his pending departure. However, Connecticut Bar Association Opinion 00-25 (2000) states that a lawyer may but is not required to notify clients of her upcoming departure from the law firm. Most state and local ethics opinions also agree that although it is not always possible, a joint notice from both the firm and the departing lawyer is preferable. All opinions note that both the departing lawyer and the firm must make it clear that clients have the ultimate right to decide who will represent them in the future.
The content and timing of departure notices and other communications to clients are frequent sources of contention when lawyers leave law firms, and such notices may implicate legal as well as ethical issues. As stated at page two of ABA Formal Opinion 99-414:
The departing lawyer also must consider legal obligations other than ethics rules that apply to her conduct when changing firms, as well as her fiduciary duties owed the former firm. The law of agency, partnership, property, contracts, and unfair competition impose obligations that are not addressed directly by the Model Rules. These obligations may affect the permissible timing, recipients, and content of communications with clients, and which files, documents, and other property the departing lawyer lawfully may copy or take with her from the firm. Although the Committee does not advise upon issues of law beyond the Model Rules, we must take account of other law in construing the Rules; so must the departing lawyer before determining an appropriate course of action.
Subject to the “legal obligations other than ethics rules” as summarized above, most ethics opinions state that lawyers can send pre-departure notices only to those clients with whom they have a current professional or personal relationship, but that lawyers are free to contact any firm client subject to the restrictions of Rule 7.3 after they have left the firm. For example, according to ABA Formal Opinion 99-414 at page 4:
[t]he departing lawyer nevertheless may contact the client through written or oral recorded communication pursuant to Rule 7.2(a), subject to the limitations in Rules 7.1, 7.3(b) and 7.3(c), at least after the lawyer has departed the firm and joined the new firm.
See also Joint Formal Opinion 2007-300 (2007) of the Pennsylvania and Philadelphia Bar Associations and Alaska Bar Opinion 2005-2 (2005).
Other state bar opinions hold that lawyers may send written pre-departure notices to clients at the firm but caution that a lawyer may violate Rule 7.3, Direct Contact with Prospective Client, if he were to make in-person or live telephone contact with a firm client with whom he has no existing lawyer-client or personal relationship. For example, Kentucky Bar Association Ethics Opinion E-424 (2005) states:
The departing lawyer may wish to advise former clients, as well as firm clients with whom the lawyer has had no association and others, of the change in affiliation. In such cases, the lawyer must consult Kentucky’s advertising rules, contained in SCR 3.130-7.01-7.50 and SCR 3.130-8.3 (misconduct). Of particular applicability is SCR 3.130-7.09 (direct contact with prospective clients); SCR 3.130-7.15 (communications concerning a lawyer’s services).
ABA Formal Opinion 99-414 lists the following principles that are applicable when the departing lawyer drafts pre-departure notices to her clients at the firm:
- the notice should be limited to clients [for] whose active matters the lawyer has direct professional responsibility at the time of the notice (e.g., the current clients);
- the departing lawyer should not urge the client to sever its relationship with the firm, but may indicate the lawyer’s willingness and ability to continue her responsibility for the matters upon which she currently is working;
- the departing lawyer must make clear that the client has the ultimate right to decide who will complete or continue the matters; and
- the departing lawyer must not disparage the lawyer’s former firm.
Duty to Protect Client Interests
ABA and state bar opinions agree that both the departing lawyer and the firm must take reasonable steps to ensure that client interests are protected during a period of transition, and that the interests of the clients in active matters are handled in accordance with Rules 1.1, Competence; 1.3, Diligence; and 1.7, Conflict of Interest: Current Clients. Under circumstances where either the departing lawyer or the law firm withdraws from the representation, Rule 1.16(d), Declining or Terminating Representation, states:
Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client’s interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee or expense that has not been earned or incurred. The lawyer may retain papers relating to the client to the extent permitted by other law.
Lawyers who change law firms also have fiduciary duties toward the lawyers they leave behind that may overlap with their ethical obligations. For example, in Graubard v. Moskowitz, 653 N.E. 2d 1179 (1995), the New York Court of Appeals provided the following “sliding scale” analysis it applied to a withdrawing partner’s conduct it found to be objectionable:
At one end of the spectrum, where an attorney is dissatisfied with the existing association, taking steps to locate alternative space and affiliations would not violate a partner’s fiduciary duties. . . . As a matter of ethics, departing partners have been permitted to inform firm clients with whom they have a prior professional relationship about their impending withdrawal and new practice, and to remind the client of its freedom to retain counsel of its choice. . . . Ideally, such approaches would take place only after notice to the firm of the partner’s plans to leave. . . . At the other end of the spectrum, secretly attempting to lure firm clients (even those the partner has brought into the firm and personally represented) to the new association, lying to clients about their rights with respect to the choice of counsel, lying to partners about plans to leave, and abandoning the firm on short notice (taking clients and files) would not be consistent with a partner’s fiduciary duties. ( Graubard at 120)
The extent to which the departing lawyer can remove client files from the firm also poses tricky ethical and legal issues. At page eight of ABA Formal Opinion 99-414 (1999), the ABA Ethics Committee states:
To the extent that these documents were prepared by the lawyer and are considered the lawyer’s property or are in the public domain, she may take copies with her. Otherwise, the lawyer may have to obtain the firm’s consent to do so.
The Committee is of the opinion that, absent special circumstances, the lawyer does not violate any Model Rule by taking with her copies of documents that she herself has created for general use in her practice. However, as with the use of client lists, the question of whether a lawyer may take with her continuing legal education materials, practice forms, or computer files she has created turns on principles of property law and trade secret law. For example, the outcome might depend on who prepared the material and the measures employed by the law firm to retain title or otherwise to protect it from external use or from taking by departing lawyers.
Client files and client property must be retained or transferred in accordance with the client’s direction. A departing lawyer who is not continuing the representation may, nevertheless, retain copies of client documents relating to her representation of former clients, but must reasonably ensure that the confidential client information they contain is protected in accordance with Model Rules 1.6 and 1.9.
Some state bar opinions have addressed the joint obligations partners have with regard to client files when they retire from a partnership or when their partnership dissolves. For example, New York State Bar Opinion 623 (1991) states that a lawyer who leaves a law practice either because of retirement or dissolution of the firm has joint and several responsibility with other firm members for the proper disposition of the client files.
Nassau County Bar Association 93-23 (1993) discusses the joint ethical obligations of the lawyers who were formerly partners in a now-dissolved law firm. The lawyers who withdrew made arrangements to store their inactive files with the lawyers who remained to form a successor law firm. The successor firm then contacted the former partners and gave them a list of the files the firm had in storage. The former partners instructed the firm to send them approximately 30 percent of the files and to destroy the rest. The successor firm inquired as to its obligations with regard to the remaining files in its possession. The opinion states:
Neither the fact that the law firm has dissolved, nor the fact that inquiring counsel and his present partners have no knowledge of the files which remain in their custody changes their obligations with respect to the files.
Moreover, if there are any members of inquiring counsel’s current firm who are not members of the predecessor law firm in dissolution, they are nonetheless equally ethically bound since the present firm, of which they are members, has custody of the files. . . . [A]n attorney voluntarily assuming custody of the files of another lawyer’s client has the same ethical obligations for the files as if they were his or her own files.
Thus, while the private contractual agreement may have the effect of allocating among the former partners the economic burden of dealing with particular files . . . it cannot shift the ethical burden which is joint and several as to (a) all the former partners, both “withdrawing partners” and those remaining at the successor firm and (b) any new partners of the successor firm.
A similar conclusion was reached in State Bar of Wisconsin Committee on Professional Ethics Opinion E-98-01 (1998).
The Committee on Legal Ethics and Professional Conduct of the Ohio State Bar Association Informal Opinion 98-2 (1998) provides the following guidance to a retiring lawyer who inquired as to the proper disposition of original client wills that he assumed responsibility for upon the death of two senior partners:
It is the Committee’s opinion that your ethical obligations with respect to these wills is to ascertain whether the makers are still living and, if so, to return the wills to them; and, if the maker is deceased, then your obligation is to locate and deliver the will to the maker’s personal representative. Your ethical obligation is to make a diligent effort to locate either the client or, if the client is deceased, his or her personal representative. If, after undertaking this effort, there remain clients whose whereabouts you cannot determine, then, the Committee is of the opinion that you must preserve and retain the wills. You should leave instructions that upon your death, if there is no responsible party willing to assume appropriate responsibility, then the wills should be delivered to the chair of the local certified grievance committee or Disciplinary Counsel.
A similar conclusion was reached in The Association of the Bar of the City of New York Opinion 1999-5 (1999).
Illinois State Bar Opinion 95-02 (1995) addressed the circumstances under which a lawyer who has left a law firm can have access to the closed files of clients she had represented while at the firm. The opinion states that her former firm should grant her access but that she would have to bear the costs of retrieval and copying charges.
When lawyers leave law firms or when law firms dissolve, all lawyers involved have legal and ethical obligations toward their clients and the law firms they leave behind. For information specific to your jurisdiction, check your local rules of professional conduct, case law, and ethics opinions.
Below are some recent law review articles and treatises that summarize the legal and ethical issues that typically arise upon departure:
- Ellenhorn, David N. “Legal and Ethical Issues Relating to Lateral Hiring,” Practicing Law Institute New York Practice Skills Handbook Series 155 (2005): 175.
- Hillman, Robert W. Hillman on Lawyer Mobility: The Law and Ethics of Partner Withdrawals and Law Firm Breakups. 2d Ed. New York: Aspen Law and Business, 1998.
- Long, Alex B. “The Business of Law and Tortious Interference.” St. Mary’s Law Journal 36 (2005): 925.
- Rotunda, Ronald D., and John S. Dzienkowski, Legal Ethics:The Lawyer’s Deskbook on Professional Responsibility. 2007-2008 Ed. St. Paul, MN: West Group, 2007.
- “Withdrawal and Termination,” in ABA/BNA Lawyers’ Manual on Professional Conduct, (Chicago and Washington, D.C.: American Bar Association and Bureau of National Affairs, 1993), 91:701.