Lawyer Mobility in an Uncertain Market - Contractual & Ethical Issues of Transition
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By Zachary Julian Freeman Contractual & Ethical Issues of Transition Lawyer Mobility in an Uncertain Market 30 SEPTEMBER 2009
In good economic times, lawyers regularly move their law practices from one firm
to another in search of new and better opportunities. Unfortunately, in today’s
uncertain market, ever-rising numbers of lawyers are being forced to relocate in-
voluntarily as the result of layoffs and downsizing.
A
CCORDING TO THE U.S. DEPARTMENT OF LABOR, The Texas Supreme Court in Bohatch v. Butler & Binion, 977 S.W.2d
in 2008, the legal services section of the U.S. economy– 543, 547 (Tex. 1998), in reliance on the “schism” jurisprudence,
which includes lawyers, paralegals, and legal assistants–shed even held that a law firm can expel a partner for “reporting suspected
approximately 6,800 jobs. In the first quarter of 2009, it has lost an overbilling by another partner.” This is not Illinois law. Nosal is the
additional 10,300 jobs. It seems that with each passing day, another controlling Illinois precedent. If the Texas Supreme Court’s narrow
law firm announces additional layoffs or cost-cutting measures. A view of fiduciary duties in the context of partner termination were
lawyer moving his or her practice, regardless of the reason, must adopted in Illinois, a lawyer could be expelled from a firm simply
ensure that the relocation complies with all contractual, fiduciary, for complying with the ethical duties to report misconduct commit-
and ethical duties. This article identifies many of the important ted by other lawyers. This would place all lawyers in the untenable
legal issues that mobile lawyers must address. Failure to do so could position of having to risk their employment status to comply with
land a lawyer in the middle of a nasty, protracted, and all too often their ethical duties.
personal lawsuit.
Voluntary Withdrawal
Involuntary Termination Just as the lawyer or law firm needs to comply with both contrac-
A law firm that is considering terminating a partner must ensure tual and fiduciary duties in the context of partner termination, a
that the termination complies with the firm’s contractual termina- lawyer voluntarily withdrawing from a law firm needs to do the
tion provisions and with the fiduciary duty of good faith. Even if same. (The enforceability of important contractual terms is dis-
the firm has a so-called guillotine termination clause that permits cussed below.) The voluntarily withdrawing lawyer has potentially
termination without cause and without notice, the termination of conflicting fiduciary duties. A lawyer has a duty to safeguard the
a partner must comply with the fiduciary duty of good faith. Win- clients’ interests and fiduciary duties to his or her partners and law
ston & Strawn v. Nosal, 279 Ill. App. 3d 231, 240-41, 664 N.E.2d firm. A withdrawing lawyer does not have to inform the law firm
239, 245-46 (1st Dist. 1996), is the controlling Illinois case on of his or her intention to withdraw immediately upon deciding to
fiduciary duties in partner terminations. In Nosal, the Court stated withdraw. To the contrary, the Supreme Court stated in Dowd &
that “[r]egardless of the discretion conferred upon partners under Dowd, Ltd. v. Gleason, 181 Ill. 2d 460, 470, 693 N.E.2d 358, 364
a partnership agreement, this [discretion] does not abrogate their (1998), that before announcing his or her withdrawal a lawyer can
high duty to exercise good faith and fair dealing in the execution of engage in preparations that are “necessary for the practice of law.”
such discretion.” Nosal held that the fiduciary duty of good faith, The Supreme Court permitted such pre-notification preparations
even in the context of partner termination, “prohibits all forms to enable the withdrawing lawyer to safeguard the clients’ interests.
of secret dealings and self-preference in any matter related to and Pre-notification preparations are also needed to ensure that the
connected with the partnership and requires each partner to fully client’s choice of counsel is not unduly impacted. If the withdraw-
disclose partnership business to other partners.” ing lawyers could not prepare to withdraw, they would be at a
Terminating a partner for personal self-gain or to appropriate competitive disadvantage vis-à-vis their old law firm with respect
that partner’s partnership share would likely constitute a breach to continuing to represent their clients.
of the fiduciary duty of good faith. The adoption of the Illinois One potential preparatory step that merits special attention is
Uniform Partnership Act (1997), 805 ILCS 206/100 et seq., which pre-notification solicitation of partners and staff. There is no con-
became fully applicable, but for the savings clause, on January 1, trolling Illinois precedent on the permissibility of asking colleagues
2008 may have limited the scope of partners’ fiduciary duties. For to join a lawyer who is withdrawing from a firm, but there are
example, Section 404(e) provides that “[a] partner does not violate a numerous out-of-state opinions that, not surprisingly, promulgate
duty or obligation under this [Act] or under the partnership agree- different rules:
ment merely because the partner’s conduct furthers the partner’s t ɨF/FX:PSL3VMFQSPWJEFTUIBUZPVDBOTPMJDJUZPVSQBSUOFST
own interests.” This provision appears to protect a partner whose but not your employees. Gibbs v. Breed, Abbott & Morgan, 271
actions incidentally advance that partner’s personal interests. It does "%E /:"QQ%JW
not authorize predatory terminations because Section 404(d) still t ɨF.BSZMBOE3VMFQSPWJEFTUIBUZPVDBOTPMJDJUUIFQFPQMFJO
requires that a partner exercise all partnership rights “consistent your “circle of friends.” Quality Sys., Inc. v. Warman, 132 F. Supp.
with the obligation of good faith and fair dealing.” E .E OPUBMBXëSNDBTF
Outside of Illinois, courts have held that a termination to resolve t ɨF7JSHJOJB3VMFQSPWJEFTUIBUZPVDBOTPMJDJUPVUPGUIFPïDF
a “schism” between partners complies with the fiduciary duty of and after hours. Appleton v. Bondurant & Appleton, P.C., No.
good faith. See, e.g., Holman v. Coie, 522 P.2d 515 (Wa. App. 1975). 8- BU 7B$JS$U+VMZ
CBA RECORD 31t ɨ F .BTTBDIVTFUUT 3VMF QSPWJEFT UIBU is moving his or her practice. According that a lawyer “keep a client reasonably
you can solicit the people with whom to the ABA opinion, lawyers should only informed about the status of the matter.”
you are actively working. Lampert, notify clients for whom they are actively Finally, administrative files, such as conflict
Hausler & Rodman, P.C. v. Gallant, No. working. The lawyers should not urge their checks and billing files, and attorney work
031887BLS, 2005 WL 1009522, at *2 clients to sever their relationship with the product, such as research, memos, drafts
.BTT4VQFS"QS former firm nor should the lawyers dispar- and notes, do not need to be given to the
Given the absence of controlling Illinois BHFUIFJSGPSNFSëSNJOBOZXBZ3BUIFS client.
authority, the safest approach for a with- lawyers should indicate a willingness to The ISBA opinion noted that the docu-
drawing lawyer is not to solicit colleagues continue to serve their clients and should ments that should be produced, or at least
prior to informing the firm of the decision make clear that the client has the ultimate made available for copying, can be withheld
to withdraw. In the event that the lawyer right to choose counsel. The lawyer should if the firm can assert an ethical retaining
is convinced that he or she would not be send a neutral letter and, whenever possible, lien. A retaining lien is a common law pos-
able adequately to represent his or her should send a letter jointly with their former sessory lien that arises when a client refuses
clients without the assistance of certain col- law firm. to pay a bill. In re: Thomas Leavy, Il. Disp.
leagues–as is frequently the case in complex 0Q$) BU "3%$ OP
litigation–the Supreme Court’s emphasis in Client Files and Retaining Liens retaining lien because lawyer never sent final
Dowd & Dowd on taking steps necessary to Another issue that frequently arises when bill). It is a passive lien, which means that
safeguard the clients’ interests may permit a lawyer leaves a law firm is whether the the firm cannot enforce the lien in court
a lawyer to solicit those lawyers before former firm is obligated to forward to that unless the client brings a motion to compel.
notifying the firm of his or her intention lawyer the files of the clients that are leaving Twin Sewer & Water, Inc. v. Midwest Bank
to withdraw. with him. This issue typically arises when a & Trust Co., 308 Ill. App. 3d 662, 675, 720
client has not paid all of the former firm’s N.E.2d 636, 645 (1st Dist. 1999). Finally,
Client Communication bills. Property law cannot fully determine the lien is discharged only when the client
3FHBSEMFTTPGXIFUIFSBMBXZFSJTNPWJOHIJT the client’s entitlement to its files because pays or posts adequate security; a statu-
or her practice voluntarily or involuntarily, this question implicates numerous ethical tory lien pursuant to 770 ILCS 5/1 is not
the mobile lawyer and the old law firm need EVUJFT*MMJOPJT3VMFPG1SPGFTTJPOBM$POEVDU considered adequate security to discharge
to pay particularly close attention to the 1.15(b), in relevant part, requires a lawyer a retaining lien. Upgrade Corp. v. Mich.
timing and manner in which that lawyer’s to provide a client with property that the Carton Co., 87 Ill. App. 3d 662, 666, 410
clients are informed that the lawyer has client “is entitled to receive.” Similarly, Illi- N.E.2d 159, 162 (1st Dist. 1980).
or will be leaving. The Supreme Court in OPJT3VMFPG1SPGFTTJPOBM$POEVDU E A retaining lien should not be asserted
Dowd & Dowd promulgated the general rule in relevant part, requires a lawyer prior to JGJUXPVMEWJPMBUF*MMJOPJT3VMFPG1SPGFT-
that pre-termination solicitation of clients withdrawing from employment to deliver sional Conduct 1.16(d)’s requirement that
in and of itself may establish a breach of “to the client all papers and property to a lawyer take “reasonable steps to avoid fore-
fiduciary duty. The Court also appeared which the client is entitled.” Neither of seeable prejudice to the rights of the client.”
to create a limited exception to that rule, these rules provides much guidance because Matter of Liquidation of Mile Square Health
stating that departing partners have been neither identifies exactly what property the Plan of Illinois, 218 Ill. App. 3d 674, 680,
permitted to inform clients with whom they client is entitled to receive. 578 N.E.2d 1075, 1080 (1st Dist. 1991).
have a prior professional relationship about However, the Illinois State Bar Asso- To determine if a retaining lien complies
their impending withdrawal and to remind ciation has provided a very detailed, albeit XJUI3VMF E BMBXZFSNVTUCBMBODF
each client of its freedom to retain counsel non-binding, answer to this question in the following factors:
of its choice. For example, if the lawyer ISBA Opinion No. 94-13. The ISBA opin- t 5 IF DMJFOUT GJOBODJBM TJUVBUJPO BOE
is relocating during the midst of a client ion identified various types of documents sophistication. If the client is insolvent,
emergency, such as a preliminary injunc- that are commonly found in client files and a retaining lien should not be asserted.
tion proceeding, the lawyer might have a stated what the lawyer should do with each t ɨFSFBTPOBCMFOFTTPGUIFBUUPSOFZTGFFT
sound basis for pre-termination solicitation category. First, property given to the lawyer and the client’s understanding of its duty
in order to avoid prejudice to the client in by the client must be promptly returned to to pay the attorney’s fees.
the lawsuit, so long as the principle of client the client. Second, client correspondence, t ɨFQSFKVEJDFUIBUBTTFSUJOHUIFSFUBJOJOH
choice is not infringed. Despite this possible third-party correspondence, court filings, lien would have on the important rights
exception, the best practice is to follow the and legal documents such as contracts and or interests of the client or third-parties.
general rule. wills must be made available to the client If the client needs the property to defend
The American Bar Association has issued for copying at the client’s expense. The against a criminal charge or to protect a
a formal, albeit non-binding, opinion: ABA ISBA opinion assumed that the client had significant personal liberty, a retaining
Formal Opinion 99-414 (Sept. 8, 1999), already been provided with copies of these lien should not be asserted.
which summarizes the best practices with EPDVNFOUTBTSFRVJSFECZ*MMJOPJT3VMFPG t 8IFUIFSUIFSFBSFMFTTTUSJOHFOUNFBOT
respect to informing a client that a lawyer Professional Conduct 1.4(a)’s requirement
32 SEPTEMBER 2009available to secure payment and whether Documents that may be protected by the associated lawyer–or that attorney’s former
failure to assert the lien would result in trade secret act are legal forms, practice law firm–formerly represented a person in
fraud or gross imposition by the client. guides, and legal summaries generated by a matter that the firm knows or reasonably
Even if a retaining lien can be asserted the firm as resources for the firm’s attorneys. should know is the same or is substantially
ethically, a firm considering asserting such Third, a lawyer should be especially careful related. There are two important exceptions
a lien should consider the business impli- with client lists. See Reeves v. Hanlon, 95 to this broad imputed disqualification rule.
cations of such a decision and whether the P.3d 513, 522 (Cal. 2004); Fred Siegel Co. v. First, the firm can continue to represent the
benefits of the lien outweigh the inevitable Arter & Hadden, 707 N.E.2d 853, 862-63 client if the newly associated lawyer has
loss of good will generated by withholding (Ohio 1999). These documents may be no confidential or material information.
a former client’s files. trade secrets, and the fact that a lawyer took Second, the firm can continue to represent
the firm’s entire client list could be evidence the client if the lawyer is timely screened.
Firm Documents of an intent to solicit all of the firm’s former *MMJOPJT 3VMF PG 1SPGFTTJPOBM $POEVDU
One question that a mobile lawyer will clients–including clients that the withdraw- 1.10(e) sets forth the criteria needed to set
inevitably have to address is which docu- ing lawyer had not previously represented. If up an adequate attorney screen: (1) isola-
ments he can pack up and take with him. a client is not in a lawyer’s personal rolodex, tion from the matter; (2) isolation from
There is no Illinois precedent on this then there is likely no pre-existing relation- the client; (3) no conversation about the
precise question, but the American Bar ship that could justify a direct solicitation NBUUFS BOE BïSNBUJWFTUFQTCZUIFëSN
Association and courts from other jurisdic- on behalf of the withdrawing lawyer. to accomplish the foregoing.
tions have provided some useful guidance. On February 16, 2009, the American
First, a lawyer can take the work product Attorney Screens and Former Clients Bar Association modified its model rule
he created–including documents relating Lawyers who move their practice between relating to imputed disqualification to
to former clients–as long as the confiden- firms need to pay close attention to any con- QFSNJUBUUPSOFZTDSFFOTɨF"#".PEFM
tiality of the documents is preserved. See flicts of interests that arise as a result of their 3VMF C XIJMFTJNJMBSUP*MMJOPJT3VMF
ABA Formal Op. 99-414 (Sept. 8, 1999). BïMJBUJPOXJUIUIFOFXëSN*MMJOPJT3VMFPG 1.10(b), has three important differences: (1)
Second, the Illinois Trade Secret Act, 765 Professional Conduct 1.10(b) creates par- the screened lawyer cannot be apportioned
ILCS 1065/1 et. seq., may preclude the ticular problems because it provides that a any fee resulting from the representation
lawyer from taking certain documents. firm should not represent a client if a newly that requires the screen; (2) the former
CBA RECORD 33client must be notified of the conflict to detail above, such action could constitute subsequently earned on those cases belong
allow that client to object to the adequacy a breach of fiduciary duty and a violation to the dissolved firm. Ellerby v. Spiezer, 138
of the firm’s screening procedures; and (3) of the Illinois Trade Secrets Act. The best Ill App. 3d 77, 81-83, 485 N.E.2d 413,
the firm must provide the former client with practice, as stated in ABA Formal Opinion 416-17 (1st Dist. 1985); In re Labrum &
certificates of compliance with the screening 99-414, is for a lawyer only to solicit clients Doak, LLP, #3 #BOLS&%
procedures at reasonable intervals. for whom he or she is actively working. Pa. 1998) (“[E]very other court confronted
Notice provisions that require a lawyer with this issue of division of post-dissolution
Contractual Covenants to provide the firm with advance notice proceeds of a law partnership has held that
There are three types of contractual cov- of withdrawal may be fully enforceable pending cases, regardless of whether they are
enants that cause the most concern to depending on how much advance notice is hourly-fee cases or contingent-fee matters,
mobile lawyers: (1) non-competition required. In fact, notice provisions requiring are unfinished business requiring winding
clauses; (2) non-solicitation clauses; and 90 days advance notice of a lawyer’s intent up after dissolution…”). While the profits
(3) notice provisions. Non-competition to withdraw have been upheld. Dowd & gained from the existing matters are shared
clauses are only enforceable if they relate Dowd, Ltd. v. Gleason, 284 Ill. App. 3d 915, pursuant to the partnership agreement,
to retirement benefits such as a pension or 931-32, 672 N.E.2d 854, 865-66 (1st Dist. under Section 401(h) of the Illinois Uniform
when they relate to the sale or transfer of 1996). Short notice provisions appear to be Partnership Act (1997), the lawyers wind-
a law practice. Non-competition clauses DPOTJTUFOUXJUI3VMF B BOEUIF*MMJOPJT ing up the existing matters are entitled to
BSFOPUFOGPSDFBCMFCFDBVTF*MMJOPJT3VMFPG Supreme Court’s emphasis on safeguarding reasonable compensation for their efforts.
Professional Conduct 5.6(a) provides that the clients’ interests and right to choose There are a whole host of additional
“[a] lawyer shall not participate in offering counsel. As the duration of the notice pro- issues that arise when lawyers moves their
or making [] a partnership or employment vision increases, however, this justification practice from one firm to another and this
agreement that restricts the rights of a recedes, and an unduly long advance notice article does not purport to address them
lawyer to practice after termination of the provision could prejudice the withdrawing all. The resolution of many of these issues
relationship, except an agreement concern- lawyer’s ability to represent that client and depends on the corporate structure of the
ing either benefits upon retirement or an the client’s right to choose counsel. law firm–partnership, LLC, or corpora-
agreement pursuant to the provisions of tion–and on the specifics of the partnership
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