Cincinnati Bar Association
Ethics & Professional Responsibility Committee
Opinion Number 2006-2
The committee considered the need for guidance regarding the departure of an attorney from a law firm to continue practice at another law firm. This guidance does not apply where the parties have entered into express contractual obligations that are consistent with applicable Ohio statutes and rules providing terms for such a departure.
1. Upon announcement of the lawyer's departure, who contacts the client, when must the client be contacted, and what may be communicated?
The departing attorney and the law firm from which the departure occurred may each contact the client. The attorney may identify the new location of practice and offer services at the new location. The former law firm may communicate its desire to continue the representation with another attorney. Board of Commissioners Advisory Opinion 98-5 explains DR 2-102(A) and 2-103(A); that opinion was cited with approval in Fred Siegel Co., L.P.A. v. Arter & Hadden, 85 Ohio St.3d 171, 707 N.E.2d 853, 1999-Ohio-260.
It would be improper for the departing attorney to announce to clients of the firm, his or her pending departure, before the law firm is told. [Board Adv. Op. 98-5]
The departing attorney may communicate to clients of the prior law firm and “it would not be improper under the rule for the attorney to acknowledge that he or she would be available to continue to provide legal services at the new location.” [Board Adv. Op. 98-5] Such notice does not constitute a tort of interference with existing law firm contracts. [Sonkin & Melena Co., L.P.A. v. Zaransky, 83 Ohio App.3d 169, 614 N.E.2d 807 (8th Dist. 1992).] Neither should disparage the other to the client. The law firm should not withhold the whereabouts of the former lawyer from the client. If the client chooses the departing attorney to represent the client or the firm does not wish to continue the representation, then the firm should deliver the files in a professional and timely manner.
2. To whom does the client's file belong when a lawyer departs from a partnership?
The files belong to the client. The client may choose to have the files delivered to the departing attorney or to the client. [Board Adv. Op. 98-5]
3. What confidences of the client can be shared with potential new law firms as part of negotiation of new firm entry?
When a lawyer is negotiating with a potential new employer, confidences of the client regarding the client's affairs cannot be disclosed to other law firms without the permission of the client. EC 4-5 provides in relevant part that, “A lawyer should not use information acquired in the course of the representation of a client... except with the consent of his client after full disclosure... for his own purposes....Care should be exercised by a lawyer to prevent the disclosure of the confidences and secrets of one client to another, and no employment should be accepted that might require such disclosure.”
The lawyer may speculate about whether the client will be willing to move the representation to the new firm, but the departing attorney cannot “use a confidence or secret of his client for the advantage of himself or of a third person, unless the client consents after full disclosure.” [DR 4-101(B)(3)]
Nor may the lawyer disclose the confidential client list of the firm from which he or she departs. It would be improper for the departing attorney to supply a confidential list of the law firm's clients to the prospective new law firm, if that list was marked or safeguarded as confidential. As the court held in the law firm departure trade secrets claim in the Siegel case: “Listings of names, addresses, or telephone numbers that have not been published or disseminated, or otherwise become a matter of general public knowledge, constitute trade secrets if the owner of the list has taken reasonable precautions to protect the secrecy of the listing to prevent it from being made available to persons other than those selected by the owner to have access to it in furtherance of the owner's purposes.” [Fred Siegel Co., L.P.A. v. Arter & Hadden, 85 Ohio St.3d 171, 707 N.E.2d 853, 1999-Ohio-260]
The committee considered that the typical negotiated lateral move will involve disclosure requests for the projected hours of client billable work and the current billing levels of the attorney who seeks to move. If the law firm routinely makes available its rates of partner and associate billing or names of the principal clients, these would appear to lie outside of the trade secret protection in Siegel. Clients who are not disclosed and rates that are privately negotiated may be trade secrets under Siegel and may be protected from disclosure under DR 4-101(B)(3).
4. How are fees to be divided among departing and remaining partners in the absence of a term in the partnership agreement?
Fee allocation follows the equitable principle of quantum meruit. In Ohio, the leading case is Sonkin & Melena Co., L.P.A. v. Zaransky, 83 Ohio App.3d 169, 175-176, 614 N.E.2d 807 (1992). The essential elements of recovery under quantum meruit are that:
(1) Valuable services were rendered or materials furnished, (2) for the person sought to be charged, (3) which services and materials were accepted by the person sought to be charged, used and enjoyed by him, (4) under such circumstances as reasonably notified the person sought to be charged that the plaintiff, in performing such services was expecting to be paid by the person sought to be charged.”
The doctrine of quantum meruit was first applied to a discharged attorney as a measure of damages in Fox & Assoc. Co. v. Purdon 44 Ohio St.3d 69, 72, 541 N.E.2d 448, 450 (1989). The court found that “where an attorney is discharged by a client with or without just cause, and whether the contract between the attorney and client is express or implied, the attorney is entitled to recover the reasonable value of services rendered prior to the discharge on the basis of quantum meruit....”
The Fox case held that use of quantum meruit “strikes the proper balance by providing clients greater freedom in substituting counsel, and in promoting confidence in the legal profession while protecting the attorney's right to be compensated for services rendered.” So the parties may agree or may appoint an accountant to evaluate the division of compensation for services.
The Zaransky court noted that, “generally, a party who establishes his right to be compensated on quantum meruit should recover only as much as he reasonably deserves for his services, and no more. ...the amount which he can recover on quantum meruit is subject to a double limitation: (1) plaintiff cannot recover more than the actual value of the services rendered for defendant, including the value of materials and fair profit if and when applicable; and (2) plaintiff cannot recover more than the amount defendant was enriched by his rendering of services.” [Zaransky at 812.] The trial court, on remand, was told to evaluate the relative value of the services and to make an award. More often, the parties could be expected to select a third-party neutral to negotiate a settlement, which avoids the burdens on the courts.
The former law firm “does not have to show how much work it performed in order to be awarded fees under quantum meruit. All it has to show is evidence that it performed some services for its clients' benefit and was not paid for the services....” The mere statement that a “substantial part” of the legal work was done in the early stage of the representation is insufficient to warrant an award of 100 percent of the fees without proof that the party in question actually performed 100 percent of the services. Sonkin & Melena Co., L.P.A. v. Zaransky, 83 Ohio App.3d 169, 176, 614 N.E.2d 807, 812 (8th Dist. 1992).
This principle has been extensively discussed in other states. Fee division is a commonly litigated matter in lawyer departure situations; see Hillman on Lawyer Mobility §4.9 (2d Ed. 2004 Supp.)
5. What are the respective roles of tort claims (tortious interference with contract) and bar grievances in the “policing” of improper conduct by the departing attorney?
In its 1999 decision in Fred Siegel Co., L.P.A. v. Arter & Hadden, 85 Ohio St.3d 171, 707 N.E.2d 853, 1999-Ohio-260, the Ohio Supreme Court reaffirmed the elements of the tort of a lawyer's tortious interference with contract:
- the existence of a contract,
- the wrongdoer's knowledge of the contract,
- the wrongdoer's intentional procurement of the contract's breach,
- the lack of justification, and
- resulting damages.
The Supreme Court expressly rejected “the suggestion that the propriety of an attorney's conduct for purposes of a tortious interference analysis should be determined solely by application of the Disciplinary Rules. The purpose of disciplinary actions is to protect the public interest and to ensure that members of the bar are competent to practice a profession imbued with the public trust. Disciplinary Counsel v. Trumbo (1996), 76 Ohio St.3d 369, 667 N.E.2d 1186. These interests are different from the purposes underlying tort law, which provides a means of redress to individuals for damages suffered as a result of tortious conduct.”
A violation of the Disciplinary Rules does not, in itself, create a private cause of action. Am. Express Travel Related Serv. Co. v. Mandilakis (1996), 111 Ohio App.3d 160, 675 N.E.2d 1279. The improper solicitation of clients in violation of the Disciplinary Rules does not independently constitute a tort. A lawyer's compliance with the Code of Professional Responsibility is not an absolute defense to a claim of tortious interference with contract.
The Ohio Supreme Court has held that the propriety of the departing lawyer's conduct in contacting law firm clients, and suggesting that they follow the departing lawyer to her new firm, should be determined by applying relevant legal tests as defined in Section 766 et seq. of the Restatement of Torts. The Supreme Court also adopted Section 767 of the restatement, defining improper interference with another's contract. The court concluded that “in determining whether an actor has acted improperly in intentionally interfering with a contract or prospective contract of another, consideration should be given to the following factors: (a) the nature of the actor's conduct, (b) the actor's motive, (c) the interests of the other with which the actor's conduct interferes, (d) the interests sought to be advanced by the actor, (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other, (f) the proximity or remoteness of the actor's conduct to the interference, and (g) the relations between the parties.”
The Supreme Court held that the Disciplinary Rules are “relevant to, but not determinative of, the propriety of an attorney's conduct for purposes of a tortious interference with contract claim. Similarly relevant are the interests of clients in being fully apprised of information relevant to their decision-making in choosing legal representation and appellants' interests in engaging in constitutionally protected free speech.” The court held that the “establishment of the privilege of fair competition, as set forth in Section 768 of the restatement, will defeat a claim of tortious interference with contract where the contract is terminable at will.” Fred Siegel Co., L.P.A. v. Arter & Hadden, 85 Ohio St.3d 171, 707 N.E.2d 853, 1999-Ohio-260.
6. Conflicts of Interest: What effect will the attorney's past client relationships have on the new law firm?
The Ohio Supreme Court has recognized that when an attorney departs one law firm for employment at another, conflicts of interests may arise involving the former client's confidences. In Kala v. Aluminum Smelting & Refining Company, Inc. (1998), 81 Ohio St.3d 1, 688 N.E.2d 258, 1998-Ohio-439, an attorney represented a plaintiff in a wrongful discharge action through trial and the beginnings of the appellate process. Prior to filing the appellate brief, the attorney departed his law firm and joined the firm representing the defendant. The plaintiff then filed a motion to disqualify the law firm, alleging a conflict of interest. After the appeals court ordered disqualification, the Supreme Court granted a discretionary review of the issue.
The Supreme Court adopted a three-part test to determine the conflicts issue. It held that when “ruling on a motion for disqualification of either an individual (primary disqualification) or the entire firm (imputed disqualification) when an attorney has left a law firm and joined a firm representing the opposing party, a court must hold an evidentiary hearing and issue findings of fact using a threeâ€‘part analysis:
- Is there a substantial relationship between the matter at issue and the matter of the former firm's prior representation;
- If there is a substantial relationship between these matters, is the presumption of shared confidences within the former firm rebutted by evidence that the attorney had no personal contact with or knowledge of the related matter; and
- If the attorney did have personal contact with or knowledge of the related matter, did the new law firm erect adequate and timely screens to rebut a presumption of shared confidences with the new firm so as to avoid imputed disqualification?” Id. at Syllabus.
The Supreme Court offered the following factors to consider in deciding whether an effective screen has been created:
- whether the firm is sufficiently large;
- whether the structural divisions of the firm are sufficiently separate so as to minimize contact between the quarantined attorney and the others;
- the likelihood of contact between the quarantined attorney and the specific attorneys responsible for the current representation;
- the existence of safeguards or procedures which prevent the quarantined attorney from access to relevant files or other information relevant to the present litigation;
- prohibited access to files and other information on the case;
- a locked case file with keys distributed to a select few;
- secret codes necessary to access pertinent information on electronic hardware;
- instructions given to all members of a new firm regarding the ban on exchange of information; and
- the prohibition of the sharing of fees derived from such litigation.
The court also offered additional factors to consider when deciding disqualification, including (1) whether the screening devices are employed as soon as the disqualifying event occurs; (2) the hardship the client would incur in obtaining new counsel if a motion to disqualify is granted, noting that in a classic “side-switching” case, hardship may not carry as much weight, because the departing attorney may have created a greater hardship for his former client in finding new counsel; and (3) whether the hiring law firm discloses to its own client the potential disqualification.
Finding the facts before it to present the “classic side-switching attorney” case, the Supreme Court determined that the facts warranted a disqualification of both the departing attorney and his new law firm. Since the departing attorney represented the plaintiff for two years during the lawsuit, and proceeded to file an appeal on the plaintiff's behalf, the court determined that the attorney was negotiating with the new law firm while actively representing the plaintiff, and without disclosing to the plaintiff the negotiations. The court held that the appearance of impropriety was so strong that the new law firm could have done nothing to change the plaintiff's perception that “his personal attorney had abandoned him with all of his shared confidences and joined the firm representing his adversary while the case was still pending.” Id. at 14. “No steps of any kind could possibly replace the trust and confidence that [the plaintiff] had in his attorney or in the legal system if such representation is permitted.”
The text of Rule 1.10, as adopted in 2006, codifies the Kala holding in Division (c) and (d), as follows:
(c) When a lawyer has had substantial responsibility in a matter for a former client and becomes associated with a new firm, no lawyer in the new firm shall knowingly represent, in the same matter, a person whose interests are materially adverse to the interests of the former client.
(d) In circumstances other than those covered by Rule 1.10 (c), when a lawyer becomes associated with a new firm, no lawyer in the new firm shall knowingly represent a person in a matter in which the lawyer is personally disqualified under Rule 1.9 unless both of the following apply:
- the new firm timely screens the personally disqualified lawyer from any participation in the matter and that lawyer is apportioned no part of the fee from that matter;
- written notice is given as soon as practicable to any affected former client.