Departing Partners: Duties and Pitfalls

A partner may notify a current client or a client with whom the partner has a family or prior professional relationship of his or her impending withdrawal prior to informing his or her own firm of the intention to leave. (ABA Comm. on Ethics and Prof'l Responsibility, Formal Op. 99-414 (1999) [hereinafter 'ABA Op.'] (emphasis added). The partner, however, must contemporaneously advise the client of the client's right of choice of counsel and must not disparage the law firm or engage in other conduct involving dishonesty, fraud, deceit or misrepresentation. Id. Ideally such conversations would take place only after notice to the firm of the partner's plans to leave. Graubard, 86 N.Y.2d at 120. The ABA, however, has not found the failure to do so to constitutes a violation of the Model Rules by the partner. See ABA Op.

The Model Rules in fact require notification of the impending departure in order to assure that current clients are informed that the partner is leaving and to assist them in determining whether the legal work should remain with the law firm, be transferred to the lawyer's new firm or transferred elsewhere. Id.; see generally Model Rules of Prof'l Conduct R. 1.4 (2002 ed.). This notification may be done through the partner, the remaining members of the firm, or jointly. ABA Op. Following a departure, a partner is permitted to communicate in writing to her former firm's clients regardless of such partner's prior relationship to the clients. Id.

Solicitation of the firm's clients, however, is not appropriate if the partner has yet to inform the firm of his impending withdrawal. Robert W. Hillman, 'Loyalty in the Firm: A Statement of General Principles on the Duties of Partners Withdrawing From Law Firms,' 55 Wash. & Lee L. Rev. 997, 1009 (1998). A partner's 'pre-resignation surreptitious solicitation of firm clients for partner's personal gain' would be actionable as 'such conduct exceeds what is necessary to protect the important value of client freedom of choice in legal representation and thoroughly undermines another important value ' the loyalty owed to partners (including law partners) which distinguishes partnerships (including law partnerships) from bazaars.' Graubard, 86 N.Y.2d at 119-20. Such conduct would constitute a breach of the duty of loyalty owed to the partnership. Hillman, supra, at 9.

Once a partner announces his plans to withdraw from the firm, the partner may solicit clients of the firm with whom the partner has a professional relationship if:

• sufficient time has elapsed following the announcement to allow the firm an equal opportunity to compete for clients;
• the solicitation is not done in secret; and
• the client is advised or otherwise aware that it is free to choose the current firm or the partner's new firm (or any other lawyer or firm). Id. at 1013-14; See generally Model Rules of Prof'l Conduct R. 7.3 (2002 ed.) (requiring a lawyer to have a familial, close personal, or prior professional relationship with a prospective client before such lawyer may solicit his business).

A withdrawing partner should be aware that the line between notification and solicitation is not entirely clear. In a joint option of the Pennsylvania and Philadelphia Bars, attorneys were warned that notice to clients prior to advising the firm of intended departure may be 'construed as an attempt to lure clients away in violation of the lawyer's fiduciary duties to the firm or as tortious interference with the firms relationships with its clients.' (Pa. Bar Ass'n Comm. on Legal Ethics and Prof'l Responsibility, Joint Op. No. 99-100, 1999 WL 239079 2 (1999) (quoted in ABA Op., n.16)). A cautious approach would be for the partner to advise the firm of the impending departure prior to contacting any clients.

Retaining Files and Other Firm Documents

Under the Model Rules, '[a] lawyer's removal or copying of materials from a law firm without firm's consent, that do not belong to the lawyer, that are the property of the law firm and that are intended by the lawyer to be used in his new affiliation could constitute dishonesty' amounting to professional misconduct. Gibbs, 271 A.D.2d at 185 (quoting D.C. Bar Legal Ethics Comm. Op. 273 at 192); see generally Model Rules of Prof'l Conduct R. 8.4(c) (2002 ed.). A departing attorney with the consent of the client and prior notice to the firm may take the files of a client reasonably related to representation of the client and copy them at his own expense. See Hillman, supra, at 1025. Generally, a lawyer may also take copies of his or her files and other documents, such as research memoranda, pleadings and forms personally prepared by the lawyer that are considered to be the lawyer's property or that are in the public domain. ABA Op.

A departing partner's disclosure or removal of confidential firm employment and personnel (non-public) information to other firms for recruitment purposes constitutes a direct breach of loyalty owed to partner's former firm. Gibbs, 271 A.D.2d at 186-87. In Gibbs, the court found, however, the departing attorneys' removal of desk copies of recent correspondence not to constitute a fiduciary breach since the partners took the copies with a good faith belief they were entitled to do so, the copies were 'comprised of duplicates of material maintained in individual client files, the partnership agreement was silent as to these documents, and removal was apparently common practice for departing attorneys.' Id. at 185 (in reaching this conclusion, the court applied the principle that 'the distinction between motive and process is critical to a realistic application of fiduciary duties' (citing Hillman, supra, at 999)). The New York Court of Appeals has noted however, that 'abandoning the firm on short notice (taking clients and files) would not be consistent with a partner's fiduciary duties.' Graubard, 86 N.Y.2d at 121 (emphasis added).

In addition to ethical rules, state and federal property and trade secret laws can affect what material (such as client lists, CLE materials, practice forms or computer files) an attorney is entitled to retain upon his or her departure. ABA Op.

Recruitment of Lawyers Within Departing Firm

The departing partner does not have a fiduciary relationship with associates that would potentially limit the partner's duty of loyalty to the firm. Gibbs, 271 A.D.2d at 186. Therefore the restraints on a partner's solicitation of associates are greater than those on the solicitation of clients. Pre-withdrawal recruitment of associates is generally allowed only after the firm has been given notice of the lawyer's intention to withdraw and to the extent reasonably necessary to avoid disruption in the representation of clients. Hillman, supra, at 1031. The firm should also be given the names of possible recruits to allow the firm to persuade those employees to continue their employment at the firm. Id. at 1032.

Pre-withdrawal recruitment is prohibited if the partner has yet to notify his or her firm of the departure. Id. A partner's internal recruitment via distributing confidential personnel information to prospective firms to assess the value of recruiting/hiring certain associates, prior to a partner's acceptance of an offer and withdrawal from the firm would also constitute a breach of loyalty. See Gibbs, 271 A.D.2d. at 187.

The New Jersey Supreme Court struck down a clause in a partnership agreement which imposed economic penalties on any withdrawing partner who solicits other professional (and paraprofessional) employees of the law firm to engage in the practice of law with the departing member. Jacob v. Norris, McLaughlin & Marcus, 607 A.2d 142 (N.J. 1992). In its decision, the court emphasized the importance of career mobility of the professionals and its effect on best serving the interests of a client. Id. at 153.

Anti-competition Clauses

Anti-competition clauses in partnership agreements have been generally prohibited because they restrict an attorney's mobility. More importantly, by limiting the public's choice of counsel, such restrictions are regarded as unenforceable as a matter of public policy. New York's Code of Professional Responsibility bars restrictive covenants among law firm partners and prohibits employment agreements from forbidding associates to accompany a withdrawing partner. 'A lawyer shall not be a party to or 'participate in a partnership or employment agreement with another lawyer that restricts the right of a lawyer to practice law after termination of a relationship created by the agreement, except as a condition to payment of retirement benefits.” Cohen v. Lord, Day & Lord, 75 N.Y.2d 95, 98 (1989) (quoting N.Y. Code of Prof'l Responsibility DR 2-108A) (2001)).

A clause in a partnership agreement can be prohibited even though it does not expressly bar a withdrawing partner from engaging in the practice of law. A clause is impermissibly restrictive if it imposes a significant monetary penalty on a withdrawing partner who continues to practice law in competition with his former firm. Cohen, 75 N.Y.2d at 100-01. For example, a partnership agreement cannot condition the payment of earned but uncollected partnership revenues upon the withdrawing partners' obligation to refrain from competition with former law firm. Id. By imposing a financial disincentive on the partner, the clause impermissibly restricts the partner's mobility and affects a client's right to choice of counsel. Id.; see Denburg v. Parker Chapin Flattau & Klimpl, 82 N.Y.2d 375 (1993). A clause imposing a time limit on a withdrawing partner's right to represent former clients and subsequent financial penalties if breached, is tantamount to a restriction on the practice of law and thus in violation of DR 2-108A. Matter of Silverberg, 75 A.D.2d 817 (N.Y. App. Div. 1980) (an agreement that provided such temporal restrictions (and financial disincentives if breached) upon termination of the partnership amounted to a covenant restricting the practice of a lawyer in violation of DR 2-108A).

However, clauses in partnership agreements, if structured carefully, can provide for reductions of supplemental payment arrangements if the withdrawing partner receives earned income over a pre-determined threshold from any source. See Hackett v. Milbank, Tweed, Hadley & McCloy, 86 N.Y.2d 146, 155-57 (1995). It is essential that the reduction is not tied to the source of the earned income, applies equally to all withdrawing partners regardless of subsequent career moves and thus is not anti-competitive on its face. See Id. at 157.

Debra Raskin joined Vladeck, Waldman, Elias & Engelhard, P.C. in 1986, and became a partner of the firm in October 1988. She is an adjunct faculty member at Columbia Law School. She can be reached at 403-7300. The assistance of Jill Chesler, a student at New York University School of Law, is gratefully acknowledged.

A modern day fixture of the law firm is the revolving door. See Graubard Mollen Bannett & Horowitz v. Moskovitz , 86 N.Y.2d 112, 114 (1995). As Chief Justice Rehnquist has observed: '[i]nstitutional loyalty appears to be in decline. Partners in law firms have become increasingly 'mobile,' feeling much freer than they formerly did and having much greater opportunity than they formerly did, to shift from one firm to another and take revenue-producing clients with them.' Justice William H. Rehnquist, 'The Legal Profession Today,' 62 Ind. L.J. 151, 152 (1986/1987). The increasing frequency with which partners leave law firms for new ones raises many issues concerning the permissibility of a withdrawing attorney's conduct regarding client/attorney solicitation, removal of client files or other documents and breach of anti-competition clauses in partnership agreements. In addition to adherence to the professional ethical rules, a partner is subject to a fiduciary duty to his firm and is thus constrained by such duty throughout the life of the partnership. See Gibbs v. Breed, Abbott & Morgan , 271 A.D.2d 180, 184-85 (N.Y. App. Div. 2000).

Law partners are bound to their firms by a fiduciary duty requiring 'the punctilio of honor the most sensitive.' Graubard , 86 N.Y.2d at 118 ( quoting Meinhard v. Salmon , 249 N.Y. 458, 464 (1928)). Law partners are similarly bound as fiduciaries to their clients. These dual duties can come into conflict in a myriad of ways when a partner simultaneously wishes to exercise his or her right of unrestricted job mobility and look out for the best interests of his client.

Notification and Solicitation of Clients

A partner may notify a current client or a client with whom the partner has a family or prior professional relationship of his or her impending withdrawal prior to informing his or her own firm of the intention to leave. (ABA Comm. on Ethics and Prof'l Responsibility, Formal Op. 99-414 (1999) [hereinafter 'ABA Op.'] (emphasis added). The partner, however, must contemporaneously advise the client of the client's right of choice of counsel and must not disparage the law firm or engage in other conduct involving dishonesty, fraud, deceit or misrepresentation. Id. Ideally such conversations would take place only after notice to the firm of the partner's plans to leave. Graubard, 86 N.Y.2d at 120. The ABA, however, has not found the failure to do so to constitutes a violation of the Model Rules by the partner. See ABA Op.

The Model Rules in fact require notification of the impending departure in order to assure that current clients are informed that the partner is leaving and to assist them in determining whether the legal work should remain with the law firm, be transferred to the lawyer's new firm or transferred elsewhere. Id.; see generally Model Rules of Prof'l Conduct R. 1.4 (2002 ed.). This notification may be done through the partner, the remaining members of the firm, or jointly. ABA Op. Following a departure, a partner is permitted to communicate in writing to her former firm's clients regardless of such partner's prior relationship to the clients. Id.

Solicitation of the firm's clients, however, is not appropriate if the partner has yet to inform the firm of his impending withdrawal. Robert W. Hillman, 'Loyalty in the Firm: A Statement of General Principles on the Duties of Partners Withdrawing From Law Firms,' 55 Wash. & Lee L. Rev. 997, 1009 (1998). A partner's 'pre-resignation surreptitious solicitation of firm clients for partner's personal gain' would be actionable as 'such conduct exceeds what is necessary to protect the important value of client freedom of choice in legal representation and thoroughly undermines another important value ' the loyalty owed to partners (including law partners) which distinguishes partnerships (including law partnerships) from bazaars.' Graubard, 86 N.Y.2d at 119-20. Such conduct would constitute a breach of the duty of loyalty owed to the partnership. Hillman, supra, at 9.

Once a partner announces his plans to withdraw from the firm, the partner may solicit clients of the firm with whom the partner has a professional relationship if:

• sufficient time has elapsed following the announcement to allow the firm an equal opportunity to compete for clients;
• the solicitation is not done in secret; and
• the client is advised or otherwise aware that it is free to choose the current firm or the partner's new firm (or any other lawyer or firm). Id. at 1013-14; See generally Model Rules of Prof'l Conduct R. 7.3 (2002 ed.) (requiring a lawyer to have a familial, close personal, or prior professional relationship with a prospective client before such lawyer may solicit his business).

A withdrawing partner should be aware that the line between notification and solicitation is not entirely clear. In a joint option of the Pennsylvania and Philadelphia Bars, attorneys were warned that notice to clients prior to advising the firm of intended departure may be 'construed as an attempt to lure clients away in violation of the lawyer's fiduciary duties to the firm or as tortious interference with the firms relationships with its clients.' (Pa. Bar Ass'n Comm. on Legal Ethics and Prof'l Responsibility, Joint Op. No. 99-100, 1999 WL 239079 2 (1999) (quoted in ABA Op., n.16)). A cautious approach would be for the partner to advise the firm of the impending departure prior to contacting any clients.

Retaining Files and Other Firm Documents

Under the Model Rules, '[a] lawyer's removal or copying of materials from a law firm without firm's consent, that do not belong to the lawyer, that are the property of the law firm and that are intended by the lawyer to be used in his new affiliation could constitute dishonesty' amounting to professional misconduct. Gibbs, 271 A.D.2d at 185 (quoting D.C. Bar Legal Ethics Comm. Op. 273 at 192); see generally Model Rules of Prof'l Conduct R. 8.4(c) (2002 ed.). A departing attorney with the consent of the client and prior notice to the firm may take the files of a client reasonably related to representation of the client and copy them at his own expense. See Hillman, supra, at 1025. Generally, a lawyer may also take copies of his or her files and other documents, such as research memoranda, pleadings and forms personally prepared by the lawyer that are considered to be the lawyer's property or that are in the public domain. ABA Op.

A departing partner's disclosure or removal of confidential firm employment and personnel (non-public) information to other firms for recruitment purposes constitutes a direct breach of loyalty owed to partner's former firm. Gibbs, 271 A.D.2d at 186-87. In Gibbs, the court found, however, the departing attorneys' removal of desk copies of recent correspondence not to constitute a fiduciary breach since the partners took the copies with a good faith belief they were entitled to do so, the copies were 'comprised of duplicates of material maintained in individual client files, the partnership agreement was silent as to these documents, and removal was apparently common practice for departing attorneys.' Id. at 185 (in reaching this conclusion, the court applied the principle that 'the distinction between motive and process is critical to a realistic application of fiduciary duties' (citing Hillman, supra, at 999)). The New York Court of Appeals has noted however, that 'abandoning the firm on short notice (taking clients and files) would not be consistent with a partner's fiduciary duties.' Graubard, 86 N.Y.2d at 121 (emphasis added).

In addition to ethical rules, state and federal property and trade secret laws can affect what material (such as client lists, CLE materials, practice forms or computer files) an attorney is entitled to retain upon his or her departure. ABA Op.

Recruitment of Lawyers Within Departing Firm

The departing partner does not have a fiduciary relationship with associates that would potentially limit the partner's duty of loyalty to the firm. Gibbs, 271 A.D.2d at 186. Therefore the restraints on a partner's solicitation of associates are greater than those on the solicitation of clients. Pre-withdrawal recruitment of associates is generally allowed only after the firm has been given notice of the lawyer's intention to withdraw and to the extent reasonably necessary to avoid disruption in the representation of clients. Hillman, supra, at 1031. The firm should also be given the names of possible recruits to allow the firm to persuade those employees to continue their employment at the firm. Id. at 1032.

Pre-withdrawal recruitment is prohibited if the partner has yet to notify his or her firm of the departure. Id. A partner's internal recruitment via distributing confidential personnel information to prospective firms to assess the value of recruiting/hiring certain associates, prior to a partner's acceptance of an offer and withdrawal from the firm would also constitute a breach of loyalty. See Gibbs, 271 A.D.2d. at 187.

The New Jersey Supreme Court struck down a clause in a partnership agreement which imposed economic penalties on any withdrawing partner who solicits other professional (and paraprofessional) employees of the law firm to engage in the practice of law with the departing member. Jacob v. Norris, McLaughlin & Marcus , 607 A.2d 142 (N.J. 1992). In its decision, the court emphasized the importance of career mobility of the professionals and its effect on best serving the interests of a client. Id. at 153.

Anti-competition Clauses

Anti-competition clauses in partnership agreements have been generally prohibited because they restrict an attorney's mobility. More importantly, by limiting the public's choice of counsel, such restrictions are regarded as unenforceable as a matter of public policy. New York's Code of Professional Responsibility bars restrictive covenants among law firm partners and prohibits employment agreements from forbidding associates to accompany a withdrawing partner. 'A lawyer shall not be a party to or 'participate in a partnership or employment agreement with another lawyer that restricts the right of a lawyer to practice law after termination of a relationship created by the agreement, except as a condition to payment of retirement benefits.” Cohen v. Lord, Day & Lord , 75 N.Y.2d 95, 98 (1989) ( quoting N.Y. Code of Prof'l Responsibility DR 2-108A) (2001)).

A clause in a partnership agreement can be prohibited even though it does not expressly bar a withdrawing partner from engaging in the practice of law. A clause is impermissibly restrictive if it imposes a significant monetary penalty on a withdrawing partner who continues to practice law in competition with his former firm. Cohen, 75 N.Y.2d at 100-01. For example, a partnership agreement cannot condition the payment of earned but uncollected partnership revenues upon the withdrawing partners' obligation to refrain from competition with former law firm. Id. By imposing a financial disincentive on the partner, the clause impermissibly restricts the partner's mobility and affects a client's right to choice of counsel. Id. ; see Denburg v. Parker Chapin Flattau & Klimpl , 82 N.Y.2d 375 (1993). A clause imposing a time limit on a withdrawing partner's right to represent former clients and subsequent financial penalties if breached, is tantamount to a restriction on the practice of law and thus in violation of DR 2-108A. Matter of Silverberg, 75 A.D.2d 817 (N.Y. App. Div. 1980) (an agreement that provided such temporal restrictions (and financial disincentives if breached) upon termination of the partnership amounted to a covenant restricting the practice of a lawyer in violation of DR 2-108A).

However, clauses in partnership agreements, if structured carefully, can provide for reductions of supplemental payment arrangements if the withdrawing partner receives earned income over a pre-determined threshold from any source. See Hackett v. Milbank, Tweed, Hadley & McCloy , 86 N.Y.2d 146, 155-57 (1995). It is essential that the reduction is not tied to the source of the earned income, applies equally to all withdrawing partners regardless of subsequent career moves and thus is not anti-competitive on its face. See Id. at 157.

Debra Raskin joined Vladeck, Waldman, Elias & Engelhard, P.C. in 1986, and became a partner of the firm in October 1988. She is an adjunct faculty member at Columbia Law School. She can be reached at 403-7300. The assistance of Jill Chesler, a student at New York University School of Law, is gratefully acknowledged.