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Law Firm Divorces & Associates Striking Out On Their Own:
The Art and Ethics of Client Grabbing
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© 1997 Charles F. Luce, Jr.
All Rights Reserved Worldwide

         The increased mobility of both partners and associates has generated great interest in the art and ethics of client grabbing. Whether the near absolute freedom the client enjoys to change lawyers is a blessing or curse depends largely upon one's relative position in these partings of company. As detailed elsewhere in these materials, however, in Colorado it is clear that the duty of loyalty is a "one way street" that runs from lawyer to client. The client's right to change counsel is considered sacred, and to be kept as unfettered as possible. See Section III. 4., infra.

         It is not difficult to support the policy of the client's right to change counsel at will.(1) The attorney-client relationship is intensely personal, and requires that each party repose the utmost trust in the other. Even were this not popular philosophy, the Colorado Rules command it:

         R.P.C. 1.16 requires an attorney's withdrawal from representation upon discharge by the client. The Comment to this rule states, in pertinent part: "[a] client has a right to discharge a lawyer at any time, with or without cause, subject to liability for payment for the lawyer's services."

         In order to assure no compulsion to retain an attorney where trust between attorney and client has been broken, and to further guarantee a client may always be confident with such representation, a client must, and does, have the right to discharge the attorney at any time and for whatever reason. See Thompson v. McCormick, 138 Colo. 434, 440, 335 P.2d 265, 269 (Colo. 1959). An attorney may not rely upon an indefinite continuation of employment but instead, enters an attorney-client relationship with knowledge that the relationship may be terminated at any time and for any reason.

Olsen And Brown v. City of Englewood, 889 P.2d 673, 676 (Colo. 1995). While the subject of this article is lawyers grabbing clients, an understanding of this area must begin with knowledge that, in such disputes, courts will give the utmost deference to the interest of the client, and typically view the embattled lawyer-participants with a disdain reserved for children squabbling over a toy.

         The reverence with which the law views the client's right to discharge counsel is further reflected in Rule 5.6(a) and the accompanying Comment:

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 . . . .

                  . . . .

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. Paragraph (a) prohibits such agreements except for restrictions incident to provisions concerning retirement benefits for service with the firm.

         Thus is it always under the banner of "the client's freedom to choose," that the departing/grabbing lawyer leave the old castle, client files in tow, leaving the remaining guard standing upon the surprisingly shaky ground of "sanctity of contract," and a "partner's fiduciary duty to fellow partners." And therein lies the rub; who holds the higher moral ground in law firm breakups has spawned a debate within the legal community from sea to shinning sea marked by a passion too rarely exhibited for client causes. To date, which side holds the upper hand in this struggle is too close to call. Whichever way the tide may be flowing, however, it is definitely changing as, through increased case volume, courts gain more experience in the equities of law firm breakups and are presented with partner withdrawal agreements more creative than a blanket non-competition provision.

         On one shore of ethics opinion stand such cases as Cohen v. Lord, Day & Lord, 550 N.E.2d 410 (N.Y. 1989) (financial disincentive in partnership agreement which conditioned payment of earned but uncollected earnings upon withdrawing partner's not practicing in competition with partnership was void as a limitation on client freedom of choice). Literally on the other shore is the California Supreme Court's decision in Howard v. Babcock, 863 P.2d 150 (Cal. 1993) (upholding partnership agreement penalizing withdrawing partner's withdrawal benefits for competing in specified counties). Ethicists have lined up in each camp. Compare Harris, Why Anti-Competitive Clauses should be Unenforceable in Law Partnership Agreements: An Argument for Rejection California's Approach in Howard v. Babcock, 8 Georgetown J. Of Legal Ethics 669 (1995) with Goble, You Can't Take it with You: Enforcing Noncompetition Agreements Between Law Firms and Withdrawing Attorneys, 30 Land & Water L. Rev. 179 (1995). See generally Hillman, Law Firms and Their Partners: the Law and Ethics of Grabbing and Leaving, 67 Tex. L. Rev. 1 (1988). Colorado, probably lies somewhere between these extremes.

Adversarial Departures

         The client's right to choose prohibits departing and remaining lawyers from simply parsing out client files. See, e.g., Corti v. Fleisher, 417 N.E.2d 764 (Ill. App. 1981). This does not mean that attorneys are prohibited from entering into any agreement regarding withdrawal, either prospectively or at the time of withdrawal. See infra. Because, however, many lawyer departures are not friendly, a review of the contestant's legal and ethical weaponry and tactics in such situations is appropriate.

         First and foremost in the arsenal of the departing attorney is the client's freedom to choose attorneys, coupled with the Rule's prohibition against agreements limiting an attorney's right to practice. In Colorado, this prohibition extends to participation in even offering such an agreement. R.P.C. 5.6, and Colorado Comment thereto. The cases are legion in striking down creative financial disincentives for withdrawing lawyers to compete. See, e.g., Cohen, supra; Jacob v. Norris, McLaughlin & Marcus, 607 A.2d 142 (N.J. Super. 1992). Additionally, the Supreme Court's decision in Shapiro v. Kentucky Bar Ass'n, 486 U.S. 466 (1988), finding a commercial free speech right for written targeted solicitation of legal business, almost certainly means that, at least after departure, departing attorneys may solicit former clients directly. Indeed, since R.P.C. 7.3 (a) permits in-person solicitation of persons with whom an attorney has had a "prior professional relationship," at least with regard to clients the departing attorney has worked with personally -- the most likely source of "seed" clients for the new practice -- the departing attorney is free to contact these persons directly, face-to-face.

         The loyal guard's best hope lies in finding a breach of fiduciary duty in the form of pre-departure solicitation. Just such wrongdoing was found in Adler, Barish, Daniels, Levin & Creskoff v. Epstein, 393 A.2d 1175 (Pa. Sup.Ct. 1978), Paul L. Pratt P.C. v. Blunt, 488 N.E.2d 1062 (Ill. App. 1986), In re Silverberg, 438 N.Y.S.2d 143 (N.Y. Sup.Ct.App.Div. 1981) and Meehan v. Shaughnessy, 535 N.E.2d 1255 (Mass. Sup.Jud.Ct. 1989) (distinguishing between permissible pre-departure planning, and impermissible pre-departure solicitation).(2) Also, Shapiro notwithstanding, the departing attorney's right to solicit is not without restriction. It must be truthful, mindful of the client's right to chose attorneys, and considerate that the best interests of the client come first. Moreover, to the extent the departing attorney has not had personal contact with the solicited client, any solicitation is probably limited to less effective written communication and, if the departing attorney relies upon information learned through employment to identify the potential client, may subject the attorney to liability under the Colorado Trade Secrets Act, Colo. Rev. Stat. 7-74-101 et seq., and/or general principals of liability for breach of fiduciary duties.

         Still, in the adversarial context, the deck appears somewhat stacked in favor of the client grabbers. The loyal retinue must, in large measure, count upon an inept legal blunder amounting to gross misconduct to gain an unfair advantage. A well informed, well advised, well planned departure seems to have an advantage from the outset. Of course, strong economic, as well as ethical policy arguments may be made that this is exactly as it should be. See Harris, 8 Georgetown J. Of Legal Ethics at 681-82; Hillman, 67 Tex. L. Rev. at 58.

Consensual Departures

         As noted, not all agreements between attorneys will be struck down per se as an unlawful impingement upon an attorney's right to practice law or a client's freedom to counsel of choice. Former Colo. Code DR 2-107(B) exempted from the general limitations on fee splitting a "payment to a former partner or associate pursuant to a separation or retirement agreement." Unfortunately, this language was not preserve in R.P.C. 1.5. Worse, the Colorado Comment to Rule 1.5 states "The fee splitting provisions of [the] Model Rule . . . , have been revised to resemble more closely DR 2-107(A) an to tighten up the client consent requirements," raising questions as to whether a fee division agreement between departing and remaining lawyers requires client consent.

         Still, there are indications that, so long as the two fundamental policies of lawyer autonomy and client choice are preserved, Colorado lawyers may agree between themselves regarding a reasonable division of fees. In Costello v. Cook, 852 P.2d 1330 (Colo. App. 1993), an associate entered into an agreement at the outset of his association with a law firm that called for negotiating a formula for compensating the firm regarding contingent fee cases begun, but not completed, during the associate's tenure with the firm. The court upheld the agreement, without any suggestion that it was improper.

         In summary, in law firm breakups, it is advantageous for Colorado attorneys to attempt to reach agreement regarding all aspects of departure whenever possible. Open and frank discussion, and coordinated communication with client's, is in the client's best interest, will avoid potential claims for breach of fiduciary duty, and makes both sides look better in the eyes of the client who is, of course, always free to say, "the hell with both of ya!" If this is not possible, departing lawyers should avoid pre-departure solicitation, and be careful regarding any solicitation of clients with whom the attorney has not had a personal professional working relationship. Firms hoping to minimize the economic impact of lawyer departures may be able to tailor withdrawal provisions to avoid immediate judicial rejection,(3) but must be mindful that most courts will eyes such provisions with extreme scrutiny and a bias toward voiding such provisions. The jury, and the tide, are still out on this issue in Colorado.

         1. This is not to suggest that the client may change counsel without regard to financial obligations, though such changes may effect a particularly harsh result upon the unprepared contingent fee lawyer. See Section III. 4, supra. The subject of retaining and charging liens, however, is for another article.

         2. In non-attorney contexts, the Colorado Supreme Court has similarly recognized a right of employees to make some pre-departure preparations. Jet Courier v. Mulei, 771 P.2d 486 (Colo. 1989). However,

An employee's duty of loyalty applies to the solicitation of co-employees, as well as to the solicitation of customers, during the time the soliciting employee works for his employer. Generally, an employee breaches his duty of loyalty if prior to the termination of his own employment, he solicits his co-employees to join him in his new competing enterprise . (Citations omitted.)

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Id., 771 P.2d at 494 (Colo. 1989).

         3. For example, in any termination provision compensating a departing attorney for some share of the value of the firm, it is not unreasonable to require that such valuation be made factoring out the departing lawyer's proven ability to generate firm income. Indeed, it would manifestly unrealistic to do otherwise.

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