In today’s legal world, the traditional view of what it means to be a “partner” seems to be ever-changing. As more law firms move from two-tier to multi-tier partnerships, the question of what it truly means to be a non-equity, income, or salaried partner is becoming an increasingly important issue. Specifically, during any partner departure or lateral transition, the exact nature of the partner’s status has a variety of ethical, contractual, and legal implications for the lawyer, as well as for the law firm. This issue must be analyzed carefully as part of any law firm departure. More
into New Partnerships While Minimizing Risk and Reducing Potential Liabilities
Are you Really a Partner? Non-Equity or Income Partners May Have Unique Issues During a Departure or Lateral Move
Mitigating Risks During Departure, Part 2: Minimize Exposure to Potential Claims Following a Partner Departure
It is important to remember that there are no absolute safe harbors protecting you from potential liability even when you endeavor to do all the right things when departing your firm. This is true in large part because there are often grey areas within the rules, tensions between those rules and your obligations to your firm, and a disparity between what is in the best interest of the firm versus the client, and even potentially you. In addition, you cannot control the response, behavior and/or motivations of certain firm members that may not want to see you succeed or are angry that clients may leave with you. Yet, making informed decisions, strategically planning and consciously navigating these grey areas helps to mitigate many of these risks.
As stated in part one on this topic, there are two main categories of risk a departing partner faces when considering his/her transition to a new firm. First, the risk that your firm will find out about the potential departure (or departure considerations) prior to the time that you are ready to tell the firm or provide formal notice. Second, the risk that your conduct with respect to your departure plans or considerations will expose you to potential claims by your firm or your clients of unlawful or unethical conduct. Sometimes attorney conduct will potentially implicate both categories of risks. Part two on this topic of mitigating risks analyzes ways to minimize your exposure to potential claims or allegations of misconduct following a partner departure. More
Mitigating Risks For Departing Partners, Part 1: Control the Timing of Your Departure Announcement
Taking the plunge to embark upon an attorney transition inherently involves some risk. Like with most things, some of the risk you can control, some may be outside of your control. However, taking steps to mitigate risk whenever possible will reduce the likelihood that you are subject to ethical scrutiny, disputes with the firm or protracted legal battles following your departure. It will also increase the likelihood that the firm will cooperate with your client transition plan and the eventual return of your capital.
There are two main categories of risk a departing partner faces when considering his/her transition to a new firm. First, the risk that your firm will find out about the potential departure (or departure considerations) prior to the time that you are ready to tell the firm or provide formal notice. Second, the risk that your conduct with respect to your departure plans or considerations will expose you to potential claims by your firm or your clients of unlawful or unethical conduct. Sometimes attorney conduct will potentially implicate both categories of risks. The first part of this article on mitigating risks will analyze ways to avoid having your firm or clients finds out about your departure before you are ready to announce it. More
Law Firm Can’t Require Departing Partner to Forfeit Equity If Partner Takes Clients
In an important order that impacts the field of partner departures nationwide, a district court judge in the the Eastern District of Virginia held that a provision in a law firm’s operating agreement that provides that a withdrawing partner who “takes clients” forfeits up to fifty percent of his equity in the firm is void and unenforceable because it places an impermissible restriction on the partner’s right to practice law. (Moskowitz v. Jacobson Holman, PLLC, (E.D. Va. Jan. 28, 2016.)
The Court’s ruling was based on Rule 5.6 of the District of Columbia Rules of Professional Conduct, which prohibits lawyers from placing restrictions on the right to practice law, and is modeled on the ABA Model Rules. Versions of this rule have been adopted in every state, except California, although California has its own Rule of Professional Conduct which prohibits “agreements restricting a member’s practice” in certain circumstances. (See California Rules of Professional Conduct, Rule 1-500.) More
Notice to Clients of Attorney Departure Not Likely Protected Speech in California
Earlier this month, California’s Fourth District Court of Appeal agreed with an Orange County trial court that several emails sent by a departing partner to clients and former clients announcing his departure to a new firm did not qualify as protected speech under anti-SLAPP laws. Although the Court of Appeal’s opinion was unpublished, the Court provided a detailed analysis of what constitutes protected speech in the context of attorney departures. The opinion also underscores that the anti-SLAPP statute has very limited utility in attacking claims related to partner departures. More
Are Recent Ethical Rules that Establish Attorney Notification Protocols For Departing Attorneys Really in the Best Interest of the Clients?
Earlier this year, the Virginia State Bar enacted a new ethical rule governing how attorneys and law firms should notify clients in the event of an attorney departure or firm dissolution. The new rule, Rule 5.8 of the Virginia Rules of Professional Conduct, is an effort by that state to regulate what it viewed as a difficulty in getting attorneys and law firms to cooperate related to the handling of law firm departures and dissolutions, and in how attorneys notify clients of these changes. More
Partner Departure Tip: Don’t Let Your Emotions Rule the Day
Perhaps the single biggest factor partners underestimate when transitioning their practice to a new firm, or starting a new practice, is the emotional impact of the move. Even those who consider themselves stoic and rational by nature are often caught off-guard by how highly emotional this transition can be, for both the departing partner and for those whom he or she is leaving behind. In fact, there are a whole host of emotions that may accompany any departure including excitement, relief, sadness, anger, elation, fear, betrayal and sometimes a bizarre combination of them all. However, emotions can be kryptonite to judgment. And clouded judgment often results in poor decision-making. More
Departing Partners And Potential Conflicts With Current And Former Clients: The Featured Role Of The “Substantially Related” Test In Two Recent Disqualification Decisions
In the space of fifteen months, the Northern District of Texas and the District Court of Delaware have each issued significant attorney disqualification orders. In both cases, the “substantially related” test regarding past and present representations had a featured role in the courts’ decisions to disqualify the same California law firm from significant patent cases. For departed partners and their new firms, these decisions serve as important reminders about the key factors to analyze before becoming adverse to former clients. More
Nelson Levine v. Lewis Brisbois Just Settled: Firm Laptops and the Computer Fraud and Abuse Act – Lessons from A Recently Resolved Attorney Departure Case
As many attorneys who follow partner departures and lateral moves know, in 2014 a group of attorneys at Nelson Levine De Luca & Hamilton, LLC (“Nelson Levine”) in Montgomery County, Pennsylvania, left the firm to join Lewis Brisbois Bisgaard & Smith LLP (“Lewis Brisbois”), a California limited liability partnership. This departure resulted in litigation that serves as a primer on the Computer Fraud and Abuse Act, underscoring the importance of adding firm-issued laptops and the handling of other technology (often accessing confidential information) that attorneys regularly use, to the growing list of topics that firms and departing attorneys should address as part of the firm’s policies and procedures and in advance of any separation.
Partner Departures and Golden v. California Emergency Physicians Medical Group: Does California’s Business and Professions Code § 16600 Void Any Partnership Provision that Restricts a Departing Partner’s Right to Compete?
The Ninth Circuit’s recent decision, filed April 8, 2015, in Golden v. California Emergency Physicians Medical Group (9th Circuit) Case No. 12-16514, has potentially far-reaching implications for what is deemed to be an unlawful professional restraint in violation of California’s Business and Professions Code § 16600. In closely examining the statute, the Ninth Circuit concluded that the reach of § 16600 does extend far beyond non-compete provisions to every contract restraining someone from “engaging in a lawful profession, trade or business.” With respect to partner departures, some restrictions contained in partnership agreements in anticipation of dissolution or partner departure are excluded from this rule by Section 16602. However, even non-compete agreements between partners, and other contractual provisions that have a similar effect, may be unenforceable if they impose any restrictions on a partner’s right to practice law not contemplated by Section 16602. More