http://www.scbar.org/MemberResources/PracticeManagementPMAP/LawyersinTransition/EthicsIssues.aspx
SCBar // Ethics Issues
SCBAR
  Login
Ethics Issues

A.        Five potential areas of ethical concern when there is a lawyer in transition:

 

            1.         The continuity of service to clients -   Rule 1.3 requires that a lawyer represent his or her client with reasonable diligence and promptness. This rule requires that the lawyers in transition take care that they continue to fulfill the lawful objectives of their clients. While the client may have a contractual relationship with the firm, any professional relationships with regard to legal matters are necessarily personal as between the client and at least one identifiable lawyer. Any lawyer involved in such a professional relationship with a client at the time of transition has an obligation to continue the representation, as contemplated by the contract of employment, until the matter is concluded or until the lawyer is required or permitted to withdraw.

 

            2.         The right of clients to counsel of their choice - The lawyers also must take care to notify present clients of the change in the relationship among the lawyers. In giving this notice, the right of clients freely to choose counsel must be preserved. Ideally, the lawyers will agree on the notice to be sent, who sends it, to whom it is sent, and when it is sent. In the absence of agreement, any lawyers in the firm who have had significant professional contact with the client may send such a notice. Each lawyer in the firm who has an ongoing professional relationship with the client has an obligation to see to it that such a notice is sent.

 

            3.         The obligation of the principals to deal honestly with each other - In allocating the firm's personal property, accounts receivable, fees to be received in the future for work in progress, and other assets and liabilities of the firm, the lawyers must deal with each other in compliance with their obligation to refrain from conduct involving dishonesty, fraud, deceit, or misrepresentation.

 

            4.         The involvement of clients in the disputes of the principals - If the transition gives rise to disputes among the lawyers about their respective rights to the firm's personal property, account receivables, fees to be received in the future for work in progress, or other issues, the lawyers should strive to resolve such disputes amicably without involving the clients in negotiations or litigation. If the lawyers are unable to resolve such disputes by agreement, they should resolve them, where possible, by arbitration.

 

            5.         The protection of the property of clients entrusted to the firm - A full and complete accounting of all fiduciary property of clients entrusted to the firm should be made to each client, with written request for their return or future disposition. Failure of the client to respond should be taken as a request for the return of the fiduciary property to the client unless governed by a court order or proceeding to the contrary.

 

B.        Ethical Obligations When a Lawyer Changes Firms:  ABA Formal Ethics Opinion 99-414  provides that "a lawyer's ethical obligations upon withdrawal from one firm to join another derive from the concepts that clients' interests must be protected and that each client has the right to choose the departing lawyer or the firm, or another lawyer to represent him. The departing lawyer and the responsible members of her firm who remain must take reasonable measures to assure that the withdrawal is accomplished without material adverse effect on the interests of clients with active matters upon which the lawyer currently is working. The departing lawyer and responsible members of the law firm who remain have an ethical obligation to assure that prompt notice is given to clients on whose active matters she currently is working. The departing lawyer and responsible members of the law firm who remain also have ethical obligations to protect client information, files, and other client property. The departing lawyer is prohibited by ethical rules, and may be prohibited by other law, from making in-person contact prior to her departure with clients with whom she has no family or client-lawyer relationship. After she has left the firm, she may contact any firm client by letter." 

 

C.        Deferred Compensation for Services: South Carolina Bar Ethics Advisory Opinion 91-20 provides that an amendment to a partnership agreement prohibiting withdrawing partners from receiving deferred compensation for services rendered before their withdrawal, regardless of whether those partners continue to practice law, does not appear to violate Rule 5.6(a), SCRPC. An agreement which sacrifices a benefit due to the continued practice of law must be carefully tailored to come within the retirement exception to Rule 5.6 (a). Specifically, a partnership agreement should not violate Rule 5.6 (a) if withdrawal benefits are clearly specified, qualifications for retirement are specified and are similar to those found in other business settings, retirement benefits are in addition to withdrawal benefits, and expelled partners who retire from practice are entitled to retirement benefits.

 

D.        Law Firms Merge - Fees and Conflicts: Ethics Advisory Opinion 92-23 provides that where Lawyer C investigated a matter for Client X, prepared the pleadings, and filed a lawsuit on behalf of X against Y and then Lawyer C's firm merged with Lawyer D's firm, which has been hired by the insurance company to defend Y, Lawyer C must withdraw completely from any representation of X in the matter if Lawyer D is to continue to represent Y. Lawyer C may receive a portion of the fee earned for work performed for X prior to withdrawal. If the fee is contingent, a lawyer who is disqualified for reasons other than intentional misconduct may receive a fee, upon successful completion of the case, based on quantum meruit and not disproportionate to the amount of time worked by the lawyer prior to withdrawal. Lawyer C cannot share in any part of the fee earned from the representation of Y. The opinion also provides that where Lawyer A represents Wife W in a divorce action and Lawyer B represents husband H and Lawyer B joins Lawyer A's law firm, Lawyer B may continue to represent H if five conditions are met: 1) A must withdraw from representing W. 2) B reasonably must believe that the representation of H will not affect adversely the loyalty and confidentiality interest of W. The reasonableness of that conclusion may depend upon whether A is screened from any contact with or benefits from the matter. 3) W must consent to the firm's continued representation of H. 4) Lawyer A may not use or reveal any information relating to the representation of W. 5) H must consent after consultation to the representation despite Lawyer A's presence in the firm.

 

E.        Conflict Where Newly-Hired Lawyer Has No Knowledge of Conflicting Cases with Lawyer's Old Firm: Ethics Advisory Opinion 95-28 provides that where law firm A has hired a lawyer who was formerly employed at law firm B, where he worked in the administrative and governmental relations area and where law firm B is defending several civil lawsuits that have been brought by various members of law firm A, SCRPC Rule 1.9(b) does not operate to disqualify the lawyer unless the lawyer has actual knowledge of confidential information protected by Rule 1.6 and Rule 1.9(b). If the lawyer acquired no knowledge or information relating to the client, and that lawyer later joined another firm, neither the lawyer individually nor the second firm is disqualified from representing another client in the same matter even though the interests of the two clients conflict.

 

F.        Law Firm Should Send Notification Letter as Promised and Continue with the Normal Responsibilities of Representation: Ethics Advisory Opinion 97-30. Associate was employed by Law Firm. During Associate's tenure, clients signed Attorney-Client contracts naming Law Firm as counsel. Associate is told by Law Firm at her departure that all clients will be notified that Associate is no longer with Law Firm and that the client is free to retain another firm, or that another attorney in Law Firm will handle any ongoing matter. Thereafter, Associate receives a Motion To Be Relieved in a case filed by Law Firm requesting that Law Firm be relieved as counsel and that Associate remain the Attorney of Record. Also, Associate received contact from an opposing attorney in another matter notifying her that he had been advised by Law Firm that Associate was handling the pending case. Associate took no files from Law Firm and is not presently employed in the practice of law. The opinion provides that Law Firm should send the notification letter as promised and continue with the normal responsibilities of representation. Absent notification by Law Firm, Associate should write to clients to notify them that she is no longer practicing law and that Law Firm has retained all client files.

 

G.        A Lawyer Should Inform a Client of Any Agreement to Split Fees Other Than in Proportion to the Work Performed: Ethics Advisory Opinion 98-32A. When Lawyer left Law Firm, Lawyer and Law Firm sent out a joint letter to inform clients on whose files Lawyer had worked that he was leaving and offering clients the option of staying with Law Firm or continuing to be represented by Lawyer. Law Firm and Lawyer reached agreements between them that, as to any client who chose to continue to retain Lawyer, Lawyer would protect Law Firm as to any costs previously expended and would divide any fee derived from the case equally with Law Firm. Clients were not informed of this arrangement nor asked to consent. At the later settlement of a matter, a client who had continued to retain Lawyer instead of Law Firm informs Lawyer that the client believed any prior relationship with Law Firm had ended and objects to anything being paid to Law Firm. Although Rule 1.5(e) generally applies in situations in which one lawyer refers a case to another lawyer, nothing in the rule precludes its application in this situation as well. Thus, a lawyer should inform a client of any agreement to split fees other than in proportion to the work performed. Having failed to do so here, Lawyer is best advised to retain the disputed funds in the lawyer's trust account until any dispute between the client and Law Firm is resolved.

 

H.        Former Firm Inflates Costs: Ethics Advisory Opinion 98-32B provides Plaintiff's attorney has left his former law firm, taking a file with him by consent. The agreement between attorney and former firm is, at time of settlement, to reimburse each for costs expended and to divide the fee equally. Attorney believes that the costs being charged by the former firm have been inflated and are greater that the actual cost incurred. Attorney believes this is improper, even though former firm disagrees. 1) Attorney must inform client if he believes costs being charged are improper. If client objects to paying the costs, then attorney must hold the amount of the costs until the dispute is resolved.

 

I.         Trade Secrets, In-house Lawyer and Agreement Not to Compete: Ethics Advisory Opinion 00-11. A lawyer who is in-house counsel for a corporation has been asked to sign an agreement not to compete which would prohibit him from working for a similar corporation for two years. One of the concerns of the corporation is the preservation of its trade secrets which may be revealed to the attorney. Rule 5.6(a) of the South Carolina Rules of Professional Conduct provides as follows:

A lawyer shall not participate in offering or making: (a) a partnership or employment agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement....

The non-compete agreement described would violate the clear provisions of Rule 5.6. (The corporation is not without recourse to protect its trade secrets disclosed to an employee lawyer. See Rule 1.6.) Other ethical rules are also implicated. Pursuant to Rule 1.7(a), a lawyer may not represent a client if the representation of that client will be directly adverse to another client unless the lawyer reasonably believes the representation will not adversely affect the relationship with the other client and each client consents after consultation. Similarly, Rule 1.7(b) provides that a lawyer may not represent a client if the representation of that client may be materially limited by the lawyer's responsibility to another client or to a third person unless the lawyer reasonably believes the representation will not be adversely affected and the client consents after consultation. In addition, Rule 1.9(c) precludes a lawyer who formerly represented a client from using information relating to the early representation to the disadvantage of the former client except as allowed by Rule 1.6 or Rule 3.3.

 

J.         Merger of Law Firms - Conflict of Interest: Ethics Advisory Opinion 00-13 states that Attorney A's firm represents an estate and its personal representative and has filed an action for formal probate of a will. Attorney B's firm represents the beneficiaries under the will and has filed an Answer joining in the prayer for relief. Decedent's heirs, represented by other counsel, have answered and counterclaimed contesting the will. After Attorney B filed his Answer on behalf of his clients, Attorneys A and B began negotiations to merge their law firms. They have agreed to merge in approximately four months, at which time the ongoing litigation is expected to still be active. When mergers reach a formal stage, the lawyers' interest in the merger and in staying on good terms with each other may materially limit the lawyers' representation of their clients. A lawyer is obliged to not allow his personal interest to interfere in his representation. He must be sure the proposed merger does not cause him to delay work on the file or recommend pursuit of a course of action less aggressive than he would otherwise have proposed. He must be careful not to reveal any confidences of the client during the discussions concerning their respective client base. Following the merger of their law firms, Attorneys A and B would simultaneously represent the estate, personal representatives and the beneficiaries under the will. There is no inherent prohibition on a lawyer representing both the estate and the prospective beneficiaries. Their representation of these multiple interests, however, must comply with Rule 1.7. As long as the clients of Attorneys A and B are seeking identical relief, there is no conflict of interest, but only the potential for one, and the lawyers may reasonably believe the representation will not be adversely affected. Both sides' consents should be obtained after consultation. If their positions become adverse, there would then be a conflict of interest which could materially interfere with either lawyer's independent professional judgment.

 

K.        Conflicts in Purchase of Law Practice: Ethics Advisory Opinion 02-14 states that 1) If Lawyer B is purchasing Lawyer A's existing practice, then Rule 1.17 applies and Lawyer A should retain the files of inactive clients and Lawyer B would have no more of an ethical obligation to Lawyer A's inactive clients than he had prior to the purchase. Unless Lawyer B was involved with the inactive client prior to the purchase, Lawyer B would have no ethical obligations to Lawyer A's clients. If Lawyer B is continuing the existing firm, then the inactive clients are still clients of the firm and Lawyer B would have a continuing duty to those clients, including the general duties of competence, confidentiality, communication, and conflicts of interest. 2) If Lawyer B purchases Lawyer A's practice pursuant to Rule 1.17, then Lawyer B should not take possession of the files of Lawyer A's former clients and is not obligated to them. If Lawyer B merely continues the existing firm's practice, then the files remain files of the firm and Lawyer B would be required to maintain those files as he would maintain any other file of the firm. 3) Because a client file is the property of the client, under Rule 1.15 it is appropriate for the lawyer to retain records of the property for a minimum of six years after the end of the representation. File contents should not be disposed of until such time as it is reasonable to believe that their disposal will not prejudice or potentially prejudice the rights of the client. 4) Rule 1.16(d) requires that upon termination of representation, the lawyer shall return papers and property to which the client is entitled.

 

L.        Law Firm Names and Fee Splitting:Ethics Advisory Opinion 02-19 provides 1) Under Rule 7.5, as interpreted inEthics Advisory Opinion 75-01and Ethics Advisory Opinion 79-06, a law firm may continue to use the name of deceased or retired partners in its name if the firm is the bona fide successor of the firm in which the deceased or retired person was a member. The use of the deceased or retired person's name could also be used in an amended or abbreviated firm name so long as the public is not misled. 2) It is ordinarily permissible for an attorney to associate with two different law firms. The dual association proposed in this opinion, however, could be confusing and misleading to the public because the firms have confusingly similar names and are apparently located in the same place. On the other hand, if one of the firms is not considered to be engaged in the practice of law, the dual association would be permissible. 3) The new firm may represent the former clients of the old firm after the clients are informed of the change of firm names and entities, consent to formal substitution of legal counsel and the Rule of Professional Conduct are otherwise followed. The proposed fee splitting arrangement appears permissible so long as the requirements of Rule 1.5(e) are followed.

 

M.       Sale of Law Practice by Suspended or Disbarred Attorney: Ethics Advisory Opinion 03-06 provides that a suspended or disbarred attorney may not sell his or her practice. The tangible assets of the practice, such as buildings, library materials and office materials, are not subject to these Rules and may be transferred regardless of the status of the disciplined lawyer. Otherwise, under Rule 1.17 a Lawyer may sell his practice so long as all of the conditions under Rule 1.17 are satisfied. Further, such sale must comply with all other applicable ethical standards.