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Changing Law Firms: Legal and Ethical Considerations

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  1. 1. Changing Law Firms: Legal and Ethical Considerations<br />Benjamin I. Fink, Esq.<br />Berman Fink Van Horn P.C.<br />
  2. 2. Prohibition on restrictions against competition by departing lawyers<br />Client’s right to choice of counsel<br />Ethical obligations to keep client informed and to work in the best interest of client<br />Fiduciary obligations owed to partners and clients<br />Primary Considerations for Departing Attorneys and Firms<br />
  3. 3. ABA Model Rules of Professional Conduct, Rule 5.6: <br /> “A lawyer shall not participate in offering or making: <br /> (a) a partnership, shareholders, operating, employment or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement …”<br />Client’s Right to Counsel and Lawyer’s Right to Practice<br />
  4. 4. Georgia Rules of Professional Conduct, Rule 5.6: <br />“A lawyer shall not participate in offering or making:(a) a partnership or employment agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or(b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a controversy between private parties.”<br />Client’s Right to Counsel and Lawyer’s Right to Practice<br />
  5. 5. Georgia Rules of Professional Conduct 5.6, Comment 1: <br />“An agreement restricting the right of partners or associates to practice after leaving a firm not only limits their professional autonomy but also limits the freedom of clients to choose a lawyer …”<br />Client’s Right to Counsel and Lawyer’s Right to Practice<br />
  6. 6. State Bar of GeorgiaFormal Advisory Opinion 97-3<br />Question Presented: Whether it is ethically permissible for a departing attorney to send a communication to clients of the former law firm?<br />Considerations: <br />No express Standard (or Rule) prohibits a departing attorney from contacting those clients with whom the attorney personally worked while at the law firm. <br />A client is not the property of a certain attorney. <br />The main consideration isthe best interest and protection of the client. <br />An attorney has a duty to keep a client informed.<br />
  7. 7. Formal Advisory Opinion 97-3 (cont.)<br />If departing attorney either had significant contact with or actively represented a client on the client's legal matters, the attorney may communicate with the client to advise the client of the attorney's departure from the firm. <br />An appropriate communication may<br />Advise the client of departure;<br />The attorney's new location;<br />The attorney's willingness to provide legal services to the client; and <br />Inform client of its right to select who handles the client's future legal representation. <br />If no significant client contact, communication may constitute a prohibited solicitation of clients under Rule 7.3. <br />
  8. 8. Georgia Rules of Professional Conduct, Rule 1.4: <br />A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation, shall keep the client reasonably informed about the status of matters and shall promptly comply with reasonable requests for information.<br />Georgia Rules of Professional Conduct, Rule 7.3. <br />Solicitation of prospective client? See Rule 7.3(a). <br />Marked as an “Advertisement”? See Rule 7.3(b). <br />Pre-Resignation Solicitation of Clients<br />
  9. 9. ABA’s Recommendations for Notice<br />If sending a notice of departure, you should<br />Mail the notice;<br />Send it to clients with whom you have an active attorney-client relationship immediately prior to change;<br />Limit the notice to clients with open and pending matters for which you are directly responsible;<br />Send it promptly after the change;<br />Do not urge client to sever relationship with former firm or recommend your employment at new firm;<br />Make the client’s right to its choice of counsel clear; and <br />Be brief and non-disparaging of former firm.<br />
  10. 10. Informing Clients of Departure<br />
  11. 11. Jenkins v. Smith, 244 Ga. App. 541, 535 S.E.2d 521 (2000):<br />Smith and Jenkins were 50 percent owners of firm<br />Jenkins managed real estate closings at Cobb office<br />Smith managed real estate closings at Perimeter Center office<br />Coldwell Banker residential real estate broker had office next to Jenkins’ Cobb office<br />Jenkins withdrew from firm but kept operating office next to Coldwell Banker<br />Legal Considerations: Misappropriation of corporate opportunity<br />
  12. 12. Smith’s misappropriation of corporate opportunity claim was rejected.<br />A corporate opportunity is where a “corporation has a beachhead in the sense of a legal or equitable interest or expectancy growing out of a preexisting right or relationship.”<br />There was no evidence of a contractual relationship between the Coldwell Banker broker and firm, or that the broker gave firm all of its business. <br />Damages of $600,000 for misappropriation of firm assets (i.e. furniture valued at $25,000) were excessive <br />Misappropriation of corporate opportunity<br />
  13. 13. Pre-resignation solicitation of firm’s clients can give rise to a claim by the firm of breach of fiduciary duty.<br />Also, an attorney’s fiduciary duty to the firm precludes solicitation of employees until departing attorney notifies firm of withdrawal. <br />However, pre-resignation solicitation of other partners may not qualify as breach of fiduciary duty. <br />Not much guidance from the Georgia courts, but jurisdictions outside of Georgia have addressed these issues. <br />Fiduciary Duty to Firm/Partners<br />
  14. 14. Wenzel v. Hopper & Galliher, P.C., 779 N.E.2d 30 (Ind. App. 2002):<br />Claim of breach of fiduciary duty against departing shareholder, Mr. Wenzel.<br />Alleged that he attempted to bring 17 of the firm’s clients to his new firm. <br />Evidence that Mr. Wenzel sent a facsimile to one of the firm’s biggest clients, in which he explained to it that his new firm agreed that he could continue to provide services to that client at his current rates. <br />Case law: Breach of Fiduciary Duty<br />
  15. 15. Court held: <br />Mr. Wenzel owed a fiduciary duty to his fellow shareholders and, “[i]n exercising his fiduciary duty, Wenzel was prohibited from acting ‘out of avarice, expediency or self-interest in derogation of [his] duty of loyalty to the other shareholders and to the corporation.’”<br />Duty includes a “duty to abstain from pre-departure ‘surreptitious solicitation’ of firm clients for personal gain”.<br />Once notice of departure given to firm, Wenzel did not breach his fiduciary duty by sending letters to the firm’s clients, in which he described the clients’ options to either send their file to him or to remain at the current firm.<br />
  16. 16. Graubard, Mollen, Dannett & Horowitz v. Moskovitz, 86 N.Y.2d 112, 653 N.E.2d 1179, 1183 (1995): <br />[A]s a matter of principle, pre-resignation surreptitious “solicitation” of firm clients for a partner's personal gain-the issue posed to us-is actionable.<br />Ideally, notice of departure to clients would “take place only after notice to the firm of the partner's plans to leave.”<br />Dowd & Dowd, Ltd. v. Gleason, 352 Ill. App. 3d 365, 816 N.E.2d 754 (2004): <br />Evidence of partners’ pre-resignation efforts to solicit and secure commitment from large client (Allstate) that client would transition with attorneys to new firm supported firm’s claim of breach of fiduciary duty. <br />
  17. 17. Meehan v. Shaughnessy, 404 Mass. 419, 535 N.E.2d 1255 (1989):<br />Evidence of departing partners’ coordinated, secret efforts to remove the firm’s clients before announcing their resignation to the firm.<br />Denied that they were resigning when asked.<br />After announcing departure, partners delayed providing the firm’s partners with a list of clients they intended to solicit until they had already obtained removal authorizations from a majority of the clients.<br />“The speed and preemptive character of [the departing attorneys’] campaign to acquire clients' consent took advantage of their partners' confusion. By engaging in these preemptive tactics, [the departing attorneys’] violated the duty of utmost good faith and loyalty which they owed their partners.”<br />
  18. 18. Usurpation of Corporate Opportunity<br />Tortious Interference with Contract/Business<br />Civil Conspiracy<br />Deceptive Trade Practices<br />Defamation<br />Violations of Trade Secrets Act<br />Aiding and Abetting a Breach of Fiduciary Duty (against new firm)<br />Other Potential Causes of Action<br />
  19. 19. THANK YOU!<br />Benjamin I. Fink<br />Berman Fink Van Horn P.C.3423 Piedmont Road, N.E., Suite 200Atlanta, Georgia 30305(404) 261-7711(404) 233-1943 facsimile<br /><br /><br />