Aug. 18, 2010 – When a lawyer leaves a law firm for whatever reason – retiring, switching firms, going solo – there are a number of ethical pitfalls to consider without specific ethical rules that directly address a lawyer’s departure.

State Bar Ethics Counsel Tim Pierce and Professional Ethics Committee Chair Dean Dietrich discuss some of those pitfalls in the Aug. 5 PINNACLE webinar entitled “Moving On: Ethical Considerations When Leaving a Firm.” In particular, Pierce and Dietrich discuss the departure letter that should be sent to the client and rights associated with the client file. The ethics advisors also address issues concerning solicitation and proprietary rights.

Pierce said lawyers perceive a lawyer’s departure as “fraught with ethical pitfalls,” but the Rules of Professional Conduct do not address the issue directly. For instance, the rules do not mandate a departure letter specifically; however, the lawyer has a duty to communicate with appropriate clients.

In general, a lawyer must be aware of three things: obligations under the employment, operating, or shareholder agreement; obligations under the Rules of Professional Conduct; and the law of fiduciary duty, partnership, agency, and business torts.

The departure letter 

Wisconsin Supreme Court Rule (SCR) 20:1.4 requires that a lawyer keep a client “reasonably informed about the status of the matter.” Thus, when a lawyer leaves a firm, the lawyer and the law firm have separate duties to inform the client of the departure. Departing lawyers should inform the law firm of the departure before the lawyer informs the client.

Pierce advises that notification be written to minimize the risk that a firm or client will sue the departing lawyer for improper solicitation, failure to inform, or based on some fiduciary duty that a departing lawyer may have to the former law firm. A written letter serves as “prudent risk management,” Pierce said.

Where a departure is amicable, the departing lawyer and the firm often send a joint letter to the client. The letter should include the departure date, where the lawyer is going, and spell out the client’s three options – depart with the lawyer, stay with the firm, or seek other counsel. Pierce stresses that a client belongs to no one. The client has a right to counsel of choice.

If the client decides to seek other counsel, SCR 20:1.16(d) requires that a law firm take reasonable steps to protect the interests of the client, including preserving timelines and filing obligations.

Most importantly, a departure letter must remain neutral in tone so as to avoid a breach of solicitation rules. A letter, whether joint or not, should be informative only. That is, it cannot urge the client to stay with the law firm or the departing attorney.

Pierce noted cases from other jurisdictions in which a departing lawyer faced civil claims for actively soliciting a client prior to departure. For instance, in Dowd v. Dowd, Ltd. v. Gleason et al., 693 N.E.2d 358 (Ill. 1998), a law firm brought breach of fiduciary duty claims against two partners who allegedly solicited a major client before leaving to start their own firm.

The departure letter should not disparage the law firm or the departing lawyer, or mislead the client in any way. In the event that a law firm or departing lawyer would be without resources to continue representation, the letter should inform the client of the circumstance.

Solicitation 

Once a departure letter has been sent, and the lawyer has left the law firm, the law firm and the departing lawyer are free to solicit the client within the bounds of the ethical rules. Pierce noted that solicitation rules create “wild confusion” for lawyers.

Once the departure letter duty is satisfied, and the attorney has left the firm, “the firm has no legal basis to prohibit the departing lawyer from contacting the client,” Pierce said. In addition, there’s an exception to the general ban on in-person solicitation if a lawyer had a prior professional relationship with the client because they have had “an opportunity to judge you as a lawyer,” Pierce said.

Pierce advised that when soliciting a client, it is better to “tout your own virtues” rather than disparage the now-competing firm. Mindful of fiduciary duties on both sides, that road could lead to costly litigation and is best to avoid. But a law firm cannot restrict an attorney’s right to practice law elsewhere, and to solicit clients.

That is, SCR 20:5.6 explicitly prohibits restrictions on a lawyer’s right to practice. Non-compete agreements in the practice of law are prohibited, and placing any financial penalty on a departing lawyer for competing is a violation of the rule. The exception to the general rule that lawyers are not subject to non-compete restrictions involves bona fide retirement benefits.

Property 

When a lawyer departs a law firm, that lawyer will want to know what they can and cannot take with them to a new firm.

First, the file belongs to the client, says Pierce. An attorney or law firm cannot place a lien on client files. If a client asks for a file, a lawyer or law firm has a duty of prompt delivery. Pierce said Wisconsin law is “replete with instances of lawyers who are disciplined for failing to promptly deliver the client file to a departing client.”

When it comes to other property, the general rule is that a departing lawyer can take those things the lawyer developed in the course of his/her own practice. That may include CLE materials or published articles or procedures the lawyer developed at the firm’s direction.

The departing lawyer should first look to the employment, operating, or shareholder agreement. If the agreement does not restrict what a lawyer can take, Pierce advises the attorney to first inform the law firm and avoid taking property in a “surreptitious” manner.

However, a departing lawyer cannot take a firm’s proprietary business information. That includes client lists or information about salaries, bonuses, and other business information. But a lawyer can disclose a current or former client list to prevent conflicts at a new firm. In general, the information must be limited to that which is reasonably necessary to check for conflicts.

Additional Information 

The full one-hour program featuring Pierce and Dietrich is available in PINNACLE’s CLE OnDemand library on WisBar. Unlimited access to OnDemand seminars is available through PINNACLE’s Ultimate Pass. To view an excerpt of the program, click here.

Related: 

• Wisconsin Ethics Opinion E-97-2: Obligations of a lawyer and a law firm when a lawyer terminates association with a law firm.

• What Comprises a Client File? (July 2010 Wisconsin Lawyer)

• More WisBar videos