When Lawyers Leave – How to Mitigate Risk in Law Firm Management

It’s not something we think of very often, but the odd dissolution or partner removal does occur and, when this happens, law firms are sometimes as unprepared as any group or association.  Laying a proper foundation before the fact can ameliorate many trouble spots. The Social Science Research Network has published a paper by Robert Hillman, Professor of Law, which addresses this issue in depth.  


It’s a fact of Big Law (and little law) life that lawyers are mobile. This may very well lead to situations where litigation comes into play, as former colleagues turn into opposing parties.  It’s necessary, therefore, to structure working relationships before a legal break-up occurs. It will all go a bit smoother if every foreseeable outcome is put in writing.   

In this regard, it’s wise for lawyers to heed the very advice they’d give their clients:  construct a (law firm partnership) agreement, and address a few matters which are often overlooked: intellectual property rights, the departure process, partner removal and de-equitization, dispute resolution and the winding up of an association.   

This isn’t as easy as it sounds.  “Lawyers as a group are uniquely disadvantaged when attempting to order their relationships through contracting activities.”  As one example, the restrictive covenant has reached other industries but has long been excluded from lawyers’ partnership agreements.  

The result has been that economic disincentives for partners who might go into competition upon leaving their present firm—such as a reduced exit settlement—do not fare well under the client protection standards.  “Agreements are constrained by ethics norms…to put the clients’ interests above their own.”  (This might result in attorneys competing whether they “want” to or not.)   Another difficulty that Hillman notes is an obstacle uniquely difficult to law firms.  They “are not self-executing and…require affirmative steps to enforce. 

damages for breach of agreement may be difficult to prove.”[1]  

Professor Hillman also informs us that courts don’t welcome litigation between former partners.  In addition, it’s “expensive, unseemly, [and] sometimes embarrassing.” If at all possible, steps must be taken to avoid litigation.   

And what about those poor clients who are sometimes placed smack dab in the middle of such proceedings?  Here’s Professor Hillman on that issue:  

“Equally important is the reality that even though most disagreements are usually directly or indirectly related to client loyalties, dragging clients into lawyer squabbles may not be the best strategy for enhancing a book of business and developing long-term relationships.”  

In the realm of intellectual property, the development of digital information has taken the concerns a step further than in days gone by when what was essentially at risk were (in addition to office paraphernalia) “hard copies”.  If, in simpler times, the definition of “client file” was sometimes “amorphous and vaguely defined”[2], these days, when data about data can be downloaded with a tap of the finger, it’s difficult to identify who owns what. 

What to do?   He advises using management mechanisms that require systematic creation and maintenance. This should also be the case when files are created, modified or transferred.  What this means is that any document that an attorney creates will be so catalogued as to allow easy discovery by certain select members of the firm.  

Professor Hillman also advises that such intellectual property issues be covered in partner agreements and, when possible, in engagement letters.

To read more on Professor Hillman’s exhaustive and thoughtful insights, go to http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1776362

[1] See, e.g., Rosenthal v. Sonnenschein Nath & Rosenthal, L.L.P, 985 A.2d 443, 454 (D.C. 2009).

[2] Nat‟l Sales & Serv. Co., Inc. v. Superior Court, 667 P.2d 738, 740 (Ariz. 1983).

EM

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