Let the Hirer Beware

A lawyer moving from firm to firm is nothing new. What is novel is the volume of lawyers on the go as the legal profession feels the sting of this recession. “Forced attrition” at law firms has reached unprecedented levels. At last count, more than 4,300 lawyers have been laid off from major law firms since January 2008 (see http://www.abovethelaw/layoffs). More than 1,300 pink slips came in one month alone. These staggering numbers do not contemplate downsizings taking place at smaller firms, or stealth reductions, taking place under the radar, at larger ones. These numbers also don't count the hundreds of lawyers being cut loose by the wholesale dissolutions of firms, notably the century-old Heller Ehrman.

Add in the many employed lawyers with healthy books of business who are looking elsewhere as their firms' finances decline, and you have an unprecedented number of wingtips pounding the pavement: a pool of potential lateral hires like none the legal profession has seen before.

With so many lawyers up for grabs, many of them eminently qualified, firms have enticing opportunities to bring aboard top talent, sometimes at bargain prices. The inclination is to act quickly and attract the best candidates before someone else does. But let the hirer beware. Lateral hiring isn't without risk, and more lateral hiring means more exposure to claims alleging malpractice and other failings.

Four decisive steps taken before (and after!) sealing a lateral hire deal can markedly reduce your firm's risk.

1. Check a Candidate's Background ' Thoroughly

While a candidate's revenue-generating potential will undoubtedly be put under the microscope, firms should be equally diligent in scrutinizing a potential lateral hire's background and credentials. Don't assume anything. Recently, one firm that did not do its homework when hiring a lateral later found out that the person had never graduated from law school or taken the bar exam. No firm needs this embarrassment. A basic checklist for a vetting process to help prevent these types of situations follows:

Academic and Bar Credentials

• Confirm legal qualifications by getting permission to secure law school graduation information and bar membership records. Trust is important. Verification even more so.

Claims/Disciplinary History

• Research disciplinary, malpractice and personal litigation history. Has the candidate been a party to any criminal, civil or administrative proceeding?

Clients

• Evaluate if and where potential conflicts exist. (More on this critical area below.)

Personal Finances

• Request copies of financial statements and tax returns and consider whether a candidate's financial data is compatible with his or her lifestyle.
• Ask about any bankruptcy filing.

Outside Business Activities

• Request information about all fiduciary positions (director, officer or general partner) held at any entity, including family businesses and non-profits.
• Request disclosure of any business transactions with clients.
• Request information on all publicly traded securities the candidate owns. Has the individual made investments of any kind in any client business enterprise?

Health

• To the extent permitted by law, research a candidate's medical history. Be alert to signs of substance abuse.

References

• Cast a wide net. Consider talking to a candidate's current peers, clients and employer. Also consider contacting judges, opponents in litigation, former partners and associates and professional association colleagues.

Work Product

• Review recent briefs, depositions, trial transcripts, etc.

'Intangibles'

Perhaps most challenging of all, a firm must delve into the “intangibles” of its potential new addition. What is the individual's character? Will he or she mesh with firm culture?

2. Assess Potential Client Conflicts

A lawyer who has formerly represented Client A cannot represent Client B in the same or a substantially related matter if Client B's interests are materially adverse to those of Client A. That's black and white, and it is the guideline set out in Model Rule 1.9. It is easy to see how this Rule can be implicated by a lateral hire. To ensure that a firm complies with Rule 1.9, a firm hiring a lateral needs to determine:

• the clients for whom the lateral candidate worked while at the prior firm;
• the nature of the work the lateral performed for each client; and
• the identity of clients about whom the lateral learned information (whether or not the lateral actually did work for those clients).

While the need to unearth potential conflicts is evident, the problem is that the deed is easier said than done because a lawyer's obligation to protect client confidences
(per Model Rule 1.6) complicates the process. Indeed, a lawyer is expressly forbidden from “revealing information relating to the representation of a client” unless the client consents, disclosure is required under the law, or certain other exceptions apply. A hiring firm's need to check conflicts when hiring a lateral is no such exception.

Sound analysis of this issue comes from Paul R. Tremblay in the Spring 2006 Georgetown Journal of Legal Ethics. In an article entitled “Migrating Lawyers and the Ethics of Conflict Checking” (19 Geo. J. Legal Ethics 489), the author is compelling in gathering support for the view that laterals should be allowed to disclose client information so that conflict checking can take place. Boiling the issue down to the need to balance competing interests, Tremblay concludes that disclosure of some limited client information is necessary if a lawyer is to change firms in a responsible and ethical manner.

In his 1998 law review article, “Loyalty in the Firm: A Statement of General Principles on the Duties of Partners Withdrawing from Law Firms” (55 Wash. & Lee L. Rev. 997, 1022), Professor Robert W. Hillman agrees. Covering the gamut of issues departing lawyers face as they transition from “present fiduciary to future competitor,” Hillman notes that a departing partner may make limited disclosure of confidential firm and client-specific information when meeting with a hiring firm, provided that the disclosed information “is the minimum necessary to allow the parties to assess, with generality rather than specificity” the partner's practice, what is required to support the practice and any limitations that could restrict the hiring firm's ability to represent clients of the prospective partner.

A New York ethics opinion (Opinion 720/Aug. 27, 1999) and a District of Columbia ethics opinion (Opinion 312/May 2002) provide further guidance on handling the dilemma posed by a hiring firm's need to know and a lateral candidate's confidentiality obligations.

The importance of thoroughly sifting through conflicts cannot be overemphasized. Left unaddressed, conflicts that arrive via a lateral can be catastrophic for a firm, since a lateral's conflict can potentially be imputed to all of the lawyers in the new firm and disqualify it from an ongoing representation. In the 1993 case of SK Handtool Corp. v. Dresser Industries, Inc. (619 NE2d 1282), a Chicago firm was disqualified when it failed to erect a screen until several weeks after a conflicted lateral arrived. This disqualification came even though the firm had invested more than 10,000 hours in the representation.

In a nod to the increasing mobility of lawyers between firms (and not a moment too soon for all the recently displaced lawyers), a firm's ability to avoid imputation received a shot in the arm last February when the ABA House of Delegates approved changing an ethics rule to allow firms to erect a screen around a recently hired lawyer to prevent that lawyer's conflicts from being imputed to the rest of the firm. In doing so, the House amended Model Rule 1.10 to articulate the manner in which screening can be implemented. Most importantly, a screen must be implemented in a timely fashion (the best practice is to implement the screen before the lateral begins work). In addition, the new lawyer cannot be apportioned any part of the fee received from the new firm's engagement and all affected clients must be notified promptly.

Assuming the ABA's action prompts the various states to consider the issue (24 states already have their own similar rules), it should be easier for lawyers to move from firm to firm. Absent a screen, a firm hiring a conflicted lateral must get a waiver from the lateral's former client ' or risk compromising an existing representation and/or inviting a malpractice claim.

3. Ensure a Graceful (and Lawful) Departure

A lateral's conduct when exiting the prior firm can create significant exposure for a hiring firm. Everything from a lateral's communications with the former firm's clients, to the handling of client files, to the solicitation of the former firm's employees, can all potentially give rise to a claim. Similarly, overlooking a lateral's fiduciary and contractual obligations to a previous firm can derail a potential move or trigger a claim ' against the lawyer, the new firm, or both.

A hiring firm must make it clear to any potential lateral that he or she is expected to conduct himself/herself with the utmost propriety, adhering to any applicable laws and regulations, during this period. ABA Formal Opinion 99-414 and the Pennsylvania and Philadelphia Bar Associations' Joint Opinion 2007-300 provide a good framework for examining some of the ethical rules and issues involved when a lawyer departs one firm for another. One firm wisely prepared a handbook that lays out rules and guidelines for properly departing one firm for another and highlights issues that can arise during the process. The handbook helps put both the hiring firm's internal team and the lateral candidate “on the same page” about what should (and should not) be done during a transition.

Requiring a lateral to certify compliance with the prior firm's fiduciary and other duties upon departure can be useful as well. It not only discourages improper conduct, but can provide an affirmative defense for the hiring firm if the former firm makes a claim.

4. After the Hire: Acclimate, Acclimate, Acclimate

So, you have pulled the trigger and made the hire. Of course, everybody hopes it will work well ' but don't breathe a sigh of relief just yet. Taking the time to proactively integrate the new lawyer into his or her new firm might be the most critical step of all in determining the success of both the lateral hire and the firm's risk mitigation efforts. This integration process should include:

• Formally introducing the lateral to firm personnel and procedures.
• Conducting orientation programs to familiarize the lateral with firm culture. Involving the lateral in practice group meetings to drive home that the firm's attorneys operate as a team, not independent actors.
• Monitoring the lateral's clients and matters for status and staffing. This includes not only screened clients and matters, but all pending matters. (To avoid integration issues, make it clear when interviewing candidates that the firm will determine the staffing and handling of client accounts.)
• Overseeing new lawyers and involving them in the overall firm helps ensure that new matters are handled in line with firm policies and procedures and also sends the important message that the firm does not tolerate “lone wolves” who resist exposing “their clients” to the firm. Such lawyers can significantly increase malpractice exposure.

With firms sharply focused on billable hours, dedicating ample resources to integrating new hires has historically been difficult. In the current economic climate, however, firms are struggling to find ways to keep lawyers productive.

What better investment than putting lawyers to work acclimating new laterals? The effort at the outset of the hire will be well worth it in the long run. If the lateral's new colleagues need incentive to do a thorough job, consider assigning a lawyer (perhaps the attorney who promoted the lateral's hire?) as the lateral's mentor or sponsor ' and linking a portion of that person's compensation to the lateral's successful performance and integration.

Conclusion

The downtrodden economy has increased lawyer mobility. There are vast amounts of talent available to those fortunate firms positioned for growth. But while the boom in lateral hires can work to a firm's advantage, it can be a double-edged sword, potentially increasing malpractice exposure.

The last thing any firm or attorney wants anytime ' especially in these difficult days ' is a malpractice claim. As lateral hiring rises to new levels, efforts to manage the risk of these hires must elevate too. With record numbers of currently unemployed lawyers angling for fewer positions, firms must be rigorous in deploying sound vetting and hiring processes.

Let the lateral hirer beware ' and make each hire with exceptional care. With an unprecedented focus on mitigating malpractice risk, both firms and lawyers can prosper through these unprecedented times. Source: http://www.abovethelaw/layoffs.

Brant Weidner is a claims manager for the lawyers' professional liability business of Beazley, a syndicate at Lloyd's. He is also leading the development of Beazley's risk management program for the large lawyers' line. Prior to joining Beazley in 2007, Brant spent 16 years as a lawyer in private practice at Winston & Strawn in Chicago. He also has almost five years' experience in managing lawyers' professional claims for Attorneys' Liability Assurance Society, Inc., an industry mutual. He can be reached at [email protected].

A lawyer moving from firm to firm is nothing new. What is novel is the volume of lawyers on the go as the legal profession feels the sting of this recession. “Forced attrition” at law firms has reached unprecedented levels. At last count, more than 4,300 lawyers have been laid off from major law firms since January 2008 (see http://www.abovethelaw/layoffs). More than 1,300 pink slips came in one month alone. These staggering numbers do not contemplate downsizings taking place at smaller firms, or stealth reductions, taking place under the radar, at larger ones. These numbers also don't count the hundreds of lawyers being cut loose by the wholesale dissolutions of firms, notably the century-old Heller Ehrman.

Add in the many employed lawyers with healthy books of business who are looking elsewhere as their firms' finances decline, and you have an unprecedented number of wingtips pounding the pavement: a pool of potential lateral hires like none the legal profession has seen before.

With so many lawyers up for grabs, many of them eminently qualified, firms have enticing opportunities to bring aboard top talent, sometimes at bargain prices. The inclination is to act quickly and attract the best candidates before someone else does. But let the hirer beware. Lateral hiring isn't without risk, and more lateral hiring means more exposure to claims alleging malpractice and other failings.

Four decisive steps taken before (and after!) sealing a lateral hire deal can markedly reduce your firm's risk.

1. Check a Candidate's Background ' Thoroughly

While a candidate's revenue-generating potential will undoubtedly be put under the microscope, firms should be equally diligent in scrutinizing a potential lateral hire's background and credentials. Don't assume anything. Recently, one firm that did not do its homework when hiring a lateral later found out that the person had never graduated from law school or taken the bar exam. No firm needs this embarrassment. A basic checklist for a vetting process to help prevent these types of situations follows:

Academic and Bar Credentials

• Confirm legal qualifications by getting permission to secure law school graduation information and bar membership records. Trust is important. Verification even more so.

Claims/Disciplinary History

• Research disciplinary, malpractice and personal litigation history. Has the candidate been a party to any criminal, civil or administrative proceeding?

Clients

• Evaluate if and where potential conflicts exist. (More on this critical area below.)

Personal Finances

• Request copies of financial statements and tax returns and consider whether a candidate's financial data is compatible with his or her lifestyle.
• Ask about any bankruptcy filing.

Outside Business Activities

• Request information about all fiduciary positions (director, officer or general partner) held at any entity, including family businesses and non-profits.
• Request disclosure of any business transactions with clients.
• Request information on all publicly traded securities the candidate owns. Has the individual made investments of any kind in any client business enterprise?

Health

• To the extent permitted by law, research a candidate's medical history. Be alert to signs of substance abuse.

References

• Cast a wide net. Consider talking to a candidate's current peers, clients and employer. Also consider contacting judges, opponents in litigation, former partners and associates and professional association colleagues.

Work Product

• Review recent briefs, depositions, trial transcripts, etc.

'Intangibles'

Perhaps most challenging of all, a firm must delve into the “intangibles” of its potential new addition. What is the individual's character? Will he or she mesh with firm culture?

2. Assess Potential Client Conflicts

A lawyer who has formerly represented Client A cannot represent Client B in the same or a substantially related matter if Client B's interests are materially adverse to those of Client A. That's black and white, and it is the guideline set out in Model Rule 1.9. It is easy to see how this Rule can be implicated by a lateral hire. To ensure that a firm complies with Rule 1.9, a firm hiring a lateral needs to determine:

• the clients for whom the lateral candidate worked while at the prior firm;
• the nature of the work the lateral performed for each client; and
• the identity of clients about whom the lateral learned information (whether or not the lateral actually did work for those clients).

While the need to unearth potential conflicts is evident, the problem is that the deed is easier said than done because a lawyer's obligation to protect client confidences
(per Model Rule 1.6) complicates the process. Indeed, a lawyer is expressly forbidden from “revealing information relating to the representation of a client” unless the client consents, disclosure is required under the law, or certain other exceptions apply. A hiring firm's need to check conflicts when hiring a lateral is no such exception.

Sound analysis of this issue comes from Paul R. Tremblay in the Spring 2006 Georgetown Journal of Legal Ethics. In an article entitled “Migrating Lawyers and the Ethics of Conflict Checking” (19 Geo. J. Legal Ethics 489), the author is compelling in gathering support for the view that laterals should be allowed to disclose client information so that conflict checking can take place. Boiling the issue down to the need to balance competing interests, Tremblay concludes that disclosure of some limited client information is necessary if a lawyer is to change firms in a responsible and ethical manner.

In his 1998 law review article, “Loyalty in the Firm: A Statement of General Principles on the Duties of Partners Withdrawing from Law Firms” (55 Wash. & Lee L. Rev. 997, 1022), Professor Robert W. Hillman agrees. Covering the gamut of issues departing lawyers face as they transition from “present fiduciary to future competitor,” Hillman notes that a departing partner may make limited disclosure of confidential firm and client-specific information when meeting with a hiring firm, provided that the disclosed information “is the minimum necessary to allow the parties to assess, with generality rather than specificity” the partner's practice, what is required to support the practice and any limitations that could restrict the hiring firm's ability to represent clients of the prospective partner.

A New York ethics opinion (Opinion 720/Aug. 27, 1999) and a District of Columbia ethics opinion (Opinion 312/May 2002) provide further guidance on handling the dilemma posed by a hiring firm's need to know and a lateral candidate's confidentiality obligations.

The importance of thoroughly sifting through conflicts cannot be overemphasized. Left unaddressed, conflicts that arrive via a lateral can be catastrophic for a firm, since a lateral's conflict can potentially be imputed to all of the lawyers in the new firm and disqualify it from an ongoing representation. In the 1993 case of SK Handtool Corp. v. Dresser Industries, Inc. (619 NE2d 1282), a Chicago firm was disqualified when it failed to erect a screen until several weeks after a conflicted lateral arrived. This disqualification came even though the firm had invested more than 10,000 hours in the representation.

In a nod to the increasing mobility of lawyers between firms (and not a moment too soon for all the recently displaced lawyers), a firm's ability to avoid imputation received a shot in the arm last February when the ABA House of Delegates approved changing an ethics rule to allow firms to erect a screen around a recently hired lawyer to prevent that lawyer's conflicts from being imputed to the rest of the firm. In doing so, the House amended Model Rule 1.10 to articulate the manner in which screening can be implemented. Most importantly, a screen must be implemented in a timely fashion (the best practice is to implement the screen before the lateral begins work). In addition, the new lawyer cannot be apportioned any part of the fee received from the new firm's engagement and all affected clients must be notified promptly.

Assuming the ABA's action prompts the various states to consider the issue (24 states already have their own similar rules), it should be easier for lawyers to move from firm to firm. Absent a screen, a firm hiring a conflicted lateral must get a waiver from the lateral's former client ' or risk compromising an existing representation and/or inviting a malpractice claim.

3. Ensure a Graceful (and Lawful) Departure

A lateral's conduct when exiting the prior firm can create significant exposure for a hiring firm. Everything from a lateral's communications with the former firm's clients, to the handling of client files, to the solicitation of the former firm's employees, can all potentially give rise to a claim. Similarly, overlooking a lateral's fiduciary and contractual obligations to a previous firm can derail a potential move or trigger a claim ' against the lawyer, the new firm, or both.

A hiring firm must make it clear to any potential lateral that he or she is expected to conduct himself/herself with the utmost propriety, adhering to any applicable laws and regulations, during this period. ABA Formal Opinion 99-414 and the Pennsylvania and Philadelphia Bar Associations' Joint Opinion 2007-300 provide a good framework for examining some of the ethical rules and issues involved when a lawyer departs one firm for another. One firm wisely prepared a handbook that lays out rules and guidelines for properly departing one firm for another and highlights issues that can arise during the process. The handbook helps put both the hiring firm's internal team and the lateral candidate “on the same page” about what should (and should not) be done during a transition.

Requiring a lateral to certify compliance with the prior firm's fiduciary and other duties upon departure can be useful as well. It not only discourages improper conduct, but can provide an affirmative defense for the hiring firm if the former firm makes a claim.

4. After the Hire: Acclimate, Acclimate, Acclimate

So, you have pulled the trigger and made the hire. Of course, everybody hopes it will work well ' but don't breathe a sigh of relief just yet. Taking the time to proactively integrate the new lawyer into his or her new firm might be the most critical step of all in determining the success of both the lateral hire and the firm's risk mitigation efforts. This integration process should include:

• Formally introducing the lateral to firm personnel and procedures.
• Conducting orientation programs to familiarize the lateral with firm culture. Involving the lateral in practice group meetings to drive home that the firm's attorneys operate as a team, not independent actors.
• Monitoring the lateral's clients and matters for status and staffing. This includes not only screened clients and matters, but all pending matters. (To avoid integration issues, make it clear when interviewing candidates that the firm will determine the staffing and handling of client accounts.)
• Overseeing new lawyers and involving them in the overall firm helps ensure that new matters are handled in line with firm policies and procedures and also sends the important message that the firm does not tolerate “lone wolves” who resist exposing “their clients” to the firm. Such lawyers can significantly increase malpractice exposure.

With firms sharply focused on billable hours, dedicating ample resources to integrating new hires has historically been difficult. In the current economic climate, however, firms are struggling to find ways to keep lawyers productive.

What better investment than putting lawyers to work acclimating new laterals? The effort at the outset of the hire will be well worth it in the long run. If the lateral's new colleagues need incentive to do a thorough job, consider assigning a lawyer (perhaps the attorney who promoted the lateral's hire?) as the lateral's mentor or sponsor ' and linking a portion of that person's compensation to the lateral's successful performance and integration.

Conclusion

The downtrodden economy has increased lawyer mobility. There are vast amounts of talent available to those fortunate firms positioned for growth. But while the boom in lateral hires can work to a firm's advantage, it can be a double-edged sword, potentially increasing malpractice exposure.

The last thing any firm or attorney wants anytime ' especially in these difficult days ' is a malpractice claim. As lateral hiring rises to new levels, efforts to manage the risk of these hires must elevate too. With record numbers of currently unemployed lawyers angling for fewer positions, firms must be rigorous in deploying sound vetting and hiring processes.

Let the lateral hirer beware ' and make each hire with exceptional care. With an unprecedented focus on mitigating malpractice risk, both firms and lawyers can prosper through these unprecedented times. Source: http://www.abovethelaw/layoffs.

Brant Weidner is a claims manager for the lawyers' professional liability business of Beazley, a syndicate at Lloyd's. He is also leading the development of Beazley's risk management program for the large lawyers' line. Prior to joining Beazley in 2007, Brant spent 16 years as a lawyer in private practice at Winston & Strawn in Chicago. He also has almost five years' experience in managing lawyers' professional claims for Attorneys' Liability Assurance Society, Inc., an industry mutual. He can be reached at [email protected].