October 2015 | Earn one hour of MCLE Credit in Legal Ethics
By Michele Trausch
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In this article, we follow Laura Lateral as she plans to leave
her partnership position at Old Firm and become a partner of New Firm. Laura
wants to make sure she does everything correctly and doesn’t violate any ethics
rules. We also look at the New Firm's responsibilities and how it can avoid
ethical violations in hiring Laura.
First, from Laura’s perspective: What can I say and when can I say
Laura has met with New Firm several times, and the fit seems
right. But they want to know details of her client base and which clients she
thinks will follow her to New Firm. They also want to know her “numbers”
— how much did she bill last year and to which clients? What were her hours? And what is her compensation?
What can she say without breaching her obligations of
confidentiality to her clients? And what obligations does she have to Old Firm?
Talking to New Firm
Initially and as part of its due diligence, New Firm needs a
sense of Laura’s “book of business.”
Laura should be able to provide this information in a general
sense without violating her clients’ confidential information. But as the
discussions proceed, New Firm must complete a conflict check to assure itself
that bringing Laura into New Firm will not result in a motion to disqualify New
Firm or cause it to have a conflict with its existing clients. This discussion
and exchange of information should not occur until the parties are engaged in
serious and substantive discussions about Laura joining New Firm.
There is obviously a tension between the confidentiality Laura
owes to her clients and the conflicts analysis that must be performed by New Firm.
Laura knows she has obligations to protect her clients’ confidential
information. (Business & Professions Code section 6068(e); Rules of
Professional Conduct 3-100.) Does telling New Firm the identities of clients
and what their matters concern constitute a violation of those obligations?
Other than the obligation to preserve confidences, California’s Business &
Professions Code and the Rules of Professional Conduct give little guidance.
New Firm must know whether a matter Laura is handling conflicts with matters
they handle for their own clients.
The American Bar Association addressed these concerns in Formal
Opinion 09-455 and in amended Model Rule 1.6, effective in 2012. These allow
for disclosure of client information, to the extent necessary, “to detect
and resolve conflicts of interest arising from the lawyer’s change of
employment…but only if the revealed information would not compromise the
attorney-client privilege or otherwise prejudice the client.” The amount
of information provided by Laura to New Firm should be “no greater than
reasonably necessary to accomplish the purpose of detecting and resolving
conflicts and must not compromise the attorney-client privilege or otherwise
prejudice a client or former client.” (ABA Formal Opinion 09-455.) While
we have nothing similar in California, these sources provide good practical
New Firm will also want to know Laura’s compensation
requirements and whether they are compatible with their financial structure.
California has adopted the Revised Uniform Partnership Act (Corporations Code
section 16100 et seq.) which establishes standards of care, loyalty and good
faith; however these can be modified by agreement. One interesting provision is
that an individual partner’s self-interest is not necessarily incompatible with
a partner’s duties to the partnership: "A partner does not violate a duty
or obligation … merely because the partner’s conduct furthers the partner’s own
interests." (Corporations Code section 16404(e).)
So, Laura should turn first to Old Firm’s partnership agreement
to determine whether any restrictions or exceptions to her statutory
obligations of loyalty and good faith might be applicable. Barring some
restrictive provision in Old Firm’s partnership agreement, Laura should be able
to disclose limited information regarding her own practice and her compensation
to New Firm to let them both explore the suitability of her joining New Firm as
a partner and her expected level of compensation.
Talking to clients
After reviewing Old Firm’s partnership agreement to determine her
resignation notice obligations, Laura tenders her resignation to Old Firm. What
follows will depend on Old Firm’s culture, its relationship with Laura and the
suspected impact her departure will have on Old Firm — far too many variables.
Laura can turn to California’s Formal Opinion No. 1985-86 of
the State Bar’s Standing Committee on Professional Responsibility and Conduct
for some guidance. That opinion emphasizes that Laura’s and Old Firm’s
obligations are to ensure that “the interests of the clients must prevail
over all competing considerations.” Changes in an attorney’s employment
situation do not affect the professional responsibilities that an attorney owes
to her clients.
Laura has an obligation to keep her clients advised of any
significant developments in their matters. (Business & Professions Code
section 6068(m); Rule of Professional Responsibility 3-500.) Her departure for
New Firm would qualify as a significant development to clients for whom she has
primary responsibility. However, how and when she notifies her clients will
depend on Old Firm’s reaction to her resignation notice.
The American Bar Association’s Formal Opinion 99-414 provides
some direction. It holds that both the departing lawyer and the firm she is
leaving have ethical responsibilities to clients to ensure that the clients’
representation is not adversely affected by the lawyer’s departure. It provides
that notification to clients is required; that the lawyer must ensure that
client matters to be transferred to a new firm do not create conflicts of
interest, that no client is adversely affected by the change in firms and that client
confidentiality is preserved.
In an ideal world, Old Firm accepts the resignation graciously
and agrees to work with Laura toward a smooth transition of her practice and
certain clients to New Firm. In such instances, Laura and Old Firm would agree which
clients Laura could contact prior to her departure to New Firm, and the clients
could express their desire and willingness to accompany her to New Firm.
Not all resignations go so smoothly. If Old Firm declines her
request to contact clients, she may not do so. However, Old Firm might agree to
a joint letter with Laura which advises of her departure, assures the client
that Old Firm can reassign and staff the client’s matter and gives the client
the opportunity to choose which firm will represent it. Some authorities recommend
this approach as the preferred course of action. (See, California Formal
Opinion No. 1985-86)
In a not-so-ideal-world, Old Firm refuses to let Laura
"invite" her clients to come with her to New Firm. As long as Laura remains
a partner of Old Firm, her obligations are to it. Although she must advise
clients of her departure as a material development in their matters, she cannot
solicit them to join her at New Firm. Once Laura is at New Firm, she may
contact those clients with whom she worked and had a professional relationship.
Likewise, unless given permission by Old Firm, and as long as
Laura remains a partner, she may not solicit or invite staff or associates of
Old Firm to come with her to New Firm.
Now let’s consider New Firm’s concerns with its discussions and
eventual offer to Laura to join it. What can we ask and when can we ask it?
New Firm must do its due diligence to confirm that Laura will
fit into its culture but will also want to satisfy itself as best it can that
she can bring the book of business she hopes to bring, that she and the clients
she has represented and intends to continue to represent will not create
conflicts for New Firm’s clients or pose a potential for disqualification and
that it can compensate her fairly in comparison with its current lawyers.
The need to check for conflicts for a lateral hire is allowed,
if not exactly by a rule or statute in California, most definitely in practice.
Both Laura, who hopes to bring clients with her, and New Firm, which hopes she
will bring those clients, must determine whether having Laura join New Firm will
cause a disqualifying conflict.
Further, New Firm wants to avoid any claim by Old Firm or Old
Firm’s clients it has aided Laura in breaching any client confidence. But
inquiries on the identities of clients and adverse parties and a general
description of the work done can be accomplished without violating client
confidences in most situations. Again, the information Laura must provide
should only be as much as is necessary to detect and resolve conflicts of
If Laura is leaving Old Firm because it is dissolving or there
is a risk of it dissolving, New Firm should be sensitive to the decision of Jewel
v. Boxer (1984) 156 Cal.App.3d 171, which held that the profit from work
performed and fees earned on a matter brought by a lateral to a new firm from a
dissolving firm belonged to the dissolved firm. Jewel has been
criticized and distinguished in recent federal court decisions but has not been
specifically overturned by a California court. The decision found its rationale
in the Uniform Partnership Act and was based on the principles of fiduciary
obligations owed by a partner to the partnership. Since that decision,
California has adopted the Revised Uniform Partnership Act, which could
arguably lead to a different result. New Firm would be wise to inquire in a
general way of Laura on the stability of Old Firm. Laura’s fiduciary
obligations to Old Firm may not allow her to disclose these types of details,
depending on the circumstances.
New Firm should also generally know of the notice provisions of
Old Firm’s partnership agreement. Those could dictate how much notice Laura
must give Old Firm of her resignation. If the notice period is an excessive
period, such as 90 days, New Firm will want to take that into consideration in
making Laura an offer. However, New Firm must be circumspect about financial
information it elicits or requests from Laura. While information regarding her
practice and compensation may be appropriately shared, detailed information
regarding Old Firm’s overall financial picture may not.
New Firm will also want to assure itself that Laura understands
her obligations to Old Firm and how and when she may contact clients she wishes
to join her at New Firm. Encouraging Laura to contact clients before Old Firm
approves of such contact or before Laura has given Old Firm notice could lead
to a claim of interference with contract by Old Firm against New Firm.
New Firm should not press Laura for confidential information
regarding Old Firm’s finances or privileged information concerning Old Firm’s
clients to avoid risking a claim of aiding Laura in breaching her fiduciary
Changing firms can be a delicate dance for the lateral attorney
and for her new firm. Remembering that the clients’ interests must come first,
that the clients may choose their lawyers and that the lawyers involved owe
fiduciary obligations to both clients and the partnerships they belong to
should keep all concerned ethically appropriate.
Michele K. Trausch is a partner and general counsel at Hanson
Bridgett LLP. She is also a member of the State Bar’s Committee on Professional
Responsibility and Conduct (COPRAC). The opinions here are her own.
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