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Partner Leaves Unfriendly Departure

Cool Heads Must Prevail: It behooves the partners of the firm to keep cool heads and to act ethically and graciously when a member is departing and to keep any disagreements within the confines of the law firm. This type of behavior minimizes the problems and quickly ends controversy.
Grabbing clients and leaving: Don't do it! Neither the firm nor the partner has a "right" to a client. The decision is the client's.

Notification of Clients:While the firm should inform departing partner's clients of the imminent departure in writing and explain that the clients have the right to choose which lawyers will continue with their cases, it is possible that the firm will refuse to do so. This leaves the departing partner in a ticklish situation. The departing partner must decide whether or not to contact the clients he or she represented in his or her old firm. Rule 1.16 provides that a partner must act to protect his or her client's interests, including giving notice when leaving a firm.

Furthermore, Rules 7.2 and 7.3 allow a partner to directly solicit business from his or her current and former clients. However, Rule 4.2 prohibits communication with a party the partner knows to be represented by another lawyer, who technically could include clients of the former firm, and Rule 7.3 prevents the attorney from soliciting clients with which the partner did not have a prior professional relationship. The ABA has said that working on a legal matter with a client in conjunction with other firm attorneys, entailing little or no direct contact with the client is insufficient to meet the standards of Rule 7.3. See ABA, Formal Opinion 99-414 (1999). Improper notice may result in a disciplinary action under Rule 8.4 against the partner. As a word of caution, to avoid causes of action sounding in other areas of law, a departing partner must be careful to limit the notice to his or her clients to mere notification of the partner’s departure and the ability of the client to either remain with the firm or leave with the partner. See Graubard Mollen v. Moskovitz, 86 N.Y.2d 112, 653 N.E.2d 1179 (1995) (where the court approved of the notification to former clients that informed the client of the attorney's withdrawal and told the client of their right to choice of counsel). Compare Siegel v. Arter & Hadden, 85 Ohio St. 3d 171, 707 N.E.2d 853 (Ohio. Sup. Ct. 1999) (showing the attorney's conduct in giving notice may result in unfair competition and trade secret counts), Pa. Bar Ass'n Comm. on Legal Ethics and Prof. Resp. Joint Op. No. 99-100 (advising that an attorney's conduct in giving notice may result in a breach of fiduciary duty and tortuous interference with the former firm's relationship with their clients).

Mediation or Arbitration: If the firm and departing lawyer cannot agree on the which files the departing lawyer is taking or the fee arrangements regarding the files the departing lawyer is taking with him or her, the parties should consider mediation or arbitration.

ECONOMICS:
Methods for Settling Economic Affairs: There are two general methods for settling the partner's economic affairs.

1. A departing partner receives a percentage interest in the firm's profits earned as of the date of withdrawal. The partner also receives his or her capital account. Normally, the share of profits will be paid within 30 days. These shares will be reduced by any cash withdrawals made by the partner prior to the withdrawal date. Capital accounts are normally paid over a longer period time, ranging from 30 days to three years.

2. The second method provides for the following payments:

1. the partner's share of profits or losses to date of withdrawal;
2. the partner's capital account; and
3. the partner's share of work-in-progress and accounts receivable.

Valuation: If payments are made under the second method, a practice valuation may be required. Essentially, this means that the firm must prepare an accrual basis financial statement. The major differences between cash- and accrual-basis financial statements are as follows:

(a) work-in-progress and accounts receivable are included in the assets of the firm;
(b) accounts payable, e.g. unpaid vendor bills, are included as liabilities; and
(c) unfunded vested retirement obligations are included as liabilities.

Work-in-progress: Work-in-progress is defined as the firm's unbilled time and expenses. Initially, most firms simply multiply the time expended on a particular matter by the timekeeper's assigned billing rate. This number may or may not be realistic depending on how much the matter will be billed for in the future. (See Problem Preventive Measures for sample partnership agreements and sample language.)