By Deanna S. Brocker and Douglas J. Brocker
The one thing we can always count on is change. It is the exception to find a lawyer who has remained at one law firm his entire career. If we know that the lawyers we work with now may not be there a year or two from now, then why aren’t lawyers and law firms better prepared to handle the departure of their partners and employees? Domestic lawyers advise their clients with respect to prenuptial agreements and corporate lawyers recommend shareholder or buy-sell agreements to handle changes in relationships between parties. Lawyers, too, can benefit from a written agreement in advance that sets forth how the transition should be handled in light of the Rules of Professional Conduct.
There are four primary concerns for both a firm and the departing lawyer when a lawyer leaves a firm. The first is client notification – which clients must be notified of the departure, who may contact the clients, how and when should the notice be given, and what should the notice say. The second concerns client files — how and when should the client file be transferred from the firm to the departing attorney, whether each side is entitled to a copy of the file, and who is responsible for making them. The third concerns firm proprietary information – is a lawyer ethically permitted to take client lists or contacts, form documents, firm policies, etc. and can the firm protect such information and documentation? The fourth primary concern is legal fees – how should they be divided?
While the Rules of Professional Conduct, and more specifically the ethics opinions, clearly address some of these issues, others remain fertile ground for disputes. For example, on the first issue, the ethics opinions require that when an attorney leaves a firm, notice must be given to those clients with whom the departing attorney has a “personal professional relationship.” These opinions require that the notice inform the clients of their right to counsel of their choice. The opinions also encourage the departing attorney and the firm to send a joint letter. RPC 200 and RPC 48. The opinions do not prescribe the time frame of the notice, and other than requiring that the notice explain the right to counsel of choice, do not prescribe the specific content. Agreeing on the contents of the letter, to whom it will be sent, and the timing and permissible means of the notice is often easier said than done after an attorney leaves. If drafted properly, a written employment or law firm agreement can mandate the timing, method and content of such notice and limit the departing lawyer’s ability to initiate other types of client contact. Why not agree on these items in advance?
The second issue – how to handle the transfer of the client’s files – should also be considered. Ordinarily, the file should remain with the firm until the client makes a decision concerning his or her representation. What happens to the file if the departing attorney must continue working on the matter until the client decides whether to retain him, remain with the firm, or choose completely separate counsel? The Ethics Rules are not entirely clear on this point except that the transfer or copying of the file should not interfere with the client’s representation. See generally RPC 227. To avoid disputes concerning copying and transferring client files, an employment or law firm agreement can address these issues in advance.
The Rules of Professional Conduct do not address the third issue – protection of firm proprietary information. As a professional business, however, a law firm needs to protect itself and its information. If an attorney leaves, is he or she entitled to take firm client lists, vendor lists, forms, brief bank materials, title notes, etc.? Even though the Rules of Professional Conduct prohibit non-compete agreements between attorneys, certain proprietary information can be protected from subsequent use and disclosure after a lawyer leaves a firm. An agreement can specify what types of information will be shared and what documentation must remain within the firm and the remedies for misappropriating it.
The final issue – the division of legal fees – often incites the most contentious disputes. The question most often arises when the law firm and the lawyer will be splitting a contingent fee. Part of the work was done while the lawyer was associated with the firm, and part was done after the lawyer departed. Unpublished Ethics Decision 283 provides that, for an associate, the employment arrangement or agreement should govern how the fee is handled. The same presumably is true for departing principals of a law firm if a clear arrangement or agreement exists. In the absence of an employment or firm agreement, any disputed portion of the legal fee must remain in trust until the dispute is resolved by agreement or litigation. See 2003 FEO 11. In all cases, attorneys should deal honestly with one another and make every effort not to involve the client in any negotiations or disputes over legal fees. RPC 48.
The difficulty in these situations is in agreeing, at the time of departure, on a proportional division of the fee based upon the time expended before the attorney left the firm and the amount of time spent to complete the matter. In an effort to avoid such later disputes, some law firms have drafted employment or law firm agreements that require the former attorney to pay a set amount to the firm for any file the attorney takes with him when he leaves regardless of the time spent on the matter. Another approach has been to have an associate pay the firm a percentage of the fee on a sliding scale, based only upon the amount of time the file has been in the office. Such agreements often also require the departing lawyer to reimburse the firm immediately for all costs and expenses incurred on behalf of the client, prior to obtaining any recovery. The problem with these agreements is that they likely violate Rule 5.6, Restrictions on the Right to Practice. Such provisions typically create a financial disincentive for a lawyer to continue representation of the client, thereby restricting the ability of the client to have counsel of his choice.
Rule 5.6(b) prohibits a lawyer from participating in offering or making an employment or law firm agreement that restricts the right of a lawyer to practice after termination of the relationship. 2001 FEO 10 and Ethics Decision 2000-6, interpreting this rule, provide that an employment agreement with a firm “must not create a financial disincentive that discourages or prevents a departing lawyer from representing a client from the former firm if the client chooses to follow the lawyer.” Although a firm can still minimize attorney fee disputes by appropriate advance agreement, any employment agreement proposing a fee split that heavily favors the law firm and bears no relation to the amount of work done by the departing lawyer is likely to be deemed unethical. However, agreements can be drafted to determine in advance a division of fees that complies with the Rules. Such arrangements generally are based on a reasonable advance estimate of work done on the case prior to departure of the lawyer, but not linked to the age of the file.
Employment or law firm agreements can provide a multitude of protections to a law firm and minimize the potentially unprofessional and unseemly disputes that often “come with the territory” when a lawyer leaves a firm. In general, a firm will be in a much better position when an attorney leaves if it has in place an agreement that complies with the Rules of Professional Conduct. Equally as important, such an agreement typically results in much more professional and orderly transitions and dissolutions. Without one, neither the State Bar nor the limited case law on these subjects can answer many of these questions or prevent potential disputes. There is no time like today to deal with these probable, if not inevitable, changes in your firm before someone is gone tomorrow.