A number of books have been written that discuss the myriad of issues raised by the departure of one or more firm attorneys. These books often cover everything from partnership law and the fiduciary duty of loyalty to whether or not a firm's client list is a trade secret. While such books can and do offer a plethora of valuable information, I suspect many attorneys depart from firms without anyone ever taking the time to study the issues by reading one of these books cover to cover, if for no other reason than the lack of time. In recognition of our need to know the basics presented in a succinct format, I offer the following tips to help guide one through a firm split.

1. Contact your firm's malpractice insurance carrier as early into the process as possible. If your current carrier is not informed until after the split has occurred, you could unintentionally create a gap in coverage and/or lose coverage for prior acts. Your carrier will work with the various groups of attorneys in order to determine who will be the successor firm to the soon to be predecessor firm (the current firm). This issue is important for continuity of coverage as most malpractice policies provide coverage for the firm and its predecessor firms. While definitions differ, in general the firm that will acquire 50.1% or more of the soon to be old firm's assets and liabilities will become the successor firm and continuity of coverage will remain for this successor firm. The attorneys that are determined to not be the successor firm, the departing attorneys, should seek coverage and pay the additional premium for prior acts coverage, which is the real issue here, in order to remain in control of what happens to their prior acts coverage. In the alternative the departing attorneys could choose to rely on "former attorney" language in the policy that will remain in force with the successor firm. The problem here is that this takes away control of prior acts coverage for the departing attorneys as the successor firm could change carriers down the road and obtain a new policy that does not provide coverage for former attorneys. Sometimes firm splits result in a situation where there is no successor firm. Consider a firm breaking apart into three new firms with each acquiring 1/3 of the original firms assets. Here the original firm is in effect completely dissolving and thus will not be a predecessor firm to any of the new firms. In a situation like this the dissolving firm should purchase an extended reporting endorsement (tail coverage). The three new firms would then begin with a clean slate as no prior acts coverage would be necessary.

2. A law firm cannot prohibit departing attorneys from leaving the firm and competing against the firm for clients. Courts have consistently refused to enforce non-compete clauses stating that clients have the right to choose who they wish to represent them. That said, the departing attorneys cannot ignore their fiduciary duties to the firm. Generally the departing attorneys may make necessary logistical arrangements prior to departure such as renting office space, opening bank accounts, or purchasing office equipment but such planning cannot include secret discussions to lure away staff, other firm attorneys, or firm clients, nor can it involve unilaterally deciding to move client monies to a new trust account.

3. With regard to notice to the original firm by the departing attorneys, timing is everything. The firm should be notified as soon as possible after the decision to leave has been made. While there are no bright lines, there is a difference between thinking about leaving a firm and committing to actually leaving. Committing to actually leaving does not mean waiting until after an agreement spelling out the terms of a lateral move has been formalized. It means when the departing attorneys have made the mental decision to begin investigating options because one should not allow a firm to make an untimely and potentially poor business decision unaware of an upcoming departure. Of course, if a partnership agreement exists and the document spells out the notice requirements for attorney departure, abide by the terms of the agreement.

4. Clients for whom departing attorneys are primarily responsible are to be promptly notified once a decision to depart has been made. With client notice, avoid the client grab. Remember who has hired who. Lawyers and firms do not own the client or their file. The file belongs to the client and the attorneys and the original firm are in the employ of the client. This means that the decision as to who gets the file post departure will always remain solely with the client: period, end of discussion. In a perfect world a joint letter from the firm and the departing attorneys is sent to all impacted clients that informs the clients of the upcoming change as well as the options the clients may have. The options would normally be that the client's matter/s may stay with the successor firm, go with the departing attorneys, or the client may select to have the matter/s transferred to a different firm altogether. There is no rule prohibiting differing default options should any particular client not respond to said letter. Regardless, never disparage the departing attorneys or the successor firm in the notice to the client. A sample client notice of attorney departure is included below.

5. Two additional points for departing attorneys are in order. First, in disputes over who gets the client, it's usually the departing attorneys who are perceived as having been too aggressive in pursuing firm clients so take the above advice to heart. Second, a special situation concerns partners departing a partnership. Partners cannot use the partnership for personal gain. In practice this means that partners departing a partnership should probably not solicit clients prior to departure. This means no behind the scenes discussions with clients by the departing attorney. It is fine to conduct business planning but limit it to this unless the joint letter discussed above is sent to agreed upon clients. 

6. As a departing attorney, don't unilaterally decide to remove client files, computer equipment, and the like off site in the middle of the night. By the same token, as the firm, don't unilaterally decide to prevent the departing attorneys from continuing to work on client files that they have primary responsibility for. Unfortunately, this advice does need to be shared.

7. When a client file leaves with the departing attorneys or is going to go to a new unrelated firm keep the following in mind. Unless you can do so without causing harm to the client, you cannot hold a client file until the firm is paid its share or the account is brought current. Further, the file must be delivered in a reasonable time. The question of what documents belong to the client and must be delivered verses what doesn't can be a difficult one. A practical guideline is this: going beyond client originals, if the client was billed for producing the document, it belongs to the client. If you have any concerns about potential liability on any given file, make a copy of the file before the file physically leaves the premises because obtaining a copy later on may be rather difficult. If you have concerns about the overall skills of one or more of the departing attorneys perhaps a file review of all outgoing files prior to delivery would be warranted. Finally, keep a record of what files went where and when they left.

8. Don't forget to document the transition. The concern that arises is how do you cut off liability for work done on files that are no longer in your control and no longer your responsibility? This liability concern is a two way street. A successor firm wants to protect itself from the errors and omissions of departing attorneys just as departing attorneys wish to cut off liability for the errors and omissions of the successor firm post departure. Understand that liability will not end until the original firm or the departing attorney responsible for any given matter has withdrawn or the client has discharged the original firm or attorney in accordance with RPC Rule 1.16 Declining or Terminating Representation. The key is written documentation. Be proactive with this. Proof that the client continued to send mail to the address of the firm that an attorney left and that this mail was addressed to the new successor firm name doesn't necessarily protect the departed attorney. A written letter to the client clearly informing the client of the change is necessary. This, coupled with documentation of the client's choice of counsel should be enough to cut off liability.

(Watch for Part II with sample letter in the September newsletter)