Lateral moves can be hard. One type in particular is harder than the rest.

In 2017, a lawyer moving from one law firm to another is a pretty common place occurrence.  Anyone who has been through the process knows how personally difficult and stressful the ordeal can be no matter how excited you are about your next destination.  The emotional and personal components alone can be trying, but the pressures imposed by the ethics rules are often overlooked … even though they shouldn’t be.

One area where the requirements of the ethics rules can make a potential lateral move nearly impossible is if a lawyer is looking to join a firm that is on the other side of an ongoing legal matter.  A well-done, quite succinct ethics opinion out of North Carolina issued near the end of January 2017 explains what the ethics rules actually require in order for such a move to be possible.   (And, important note to add, we’re only talking about if the lawyer looking to lateral is looking at moving from one private practice position to another private practice position.  Moves into and out of government employment are different and governed by different rules.) North Carolina Formal Ethics Op. 2016-3, titled “Negotiating Private Employment With Opposing Counsel,” lays out the sticking point that make this kind of lateral move more difficult than others — there comes a point in time when any such discussions have become serious enough — even though there is not yet any done deal — that both sets of clients have to give their informed consent for the negotiations/discussions to continue.

The ethics risk that mandates this result is the “material limitation” conflict that arises from the personal interests of the lawyers involved requiring consent under Rule 1.7(a)(2).  In laying this out, the North Carolina opinion echoes sentiments previously expressed in (1) an ABA Formal Opinion from 1996, (2) The Restatement (Third) of the Law Governing Lawyers, and (3) a Kentucky ethics opinion issued in 1998.

The North Carolina opinion also provides a similar description as did those other authorities of the moment in time that matters in terms of triggering the need to obtain the client’s consent: when the discussions become “substantive.”  The opinion also describes, in practical terms, what is necessary for each side of the potential lateral discussion to seek out and obtain consent from its respective client:

To obtain the client’s informed consent, the job-seeking lawyer must explain to the client the current posture of the case, including what, if any, additional legal work is required, and whether another firm lawyer is available to take over the representation should the lawyer seek to withdraw.  If the client declines to consent, the job-seeking lawyer must either cease the employment negotiations until the client’s matter is resolved or withdraw from the representation but only if the withdrawal can be accomplished without material adverse effect on the interests of the client.  Rule 1.16(b)(1).  Because personal conflicts of interests are not imputed to other lawyers in the firm, another lawyer in the firm may continue to represent the client.  Rule 1.10(a).

Similarly, the hiring law firm must not engage in substantive employment negotiations with opposing counsel unless its own client consents.  If the client does not consent, the firm must cease the employment negotiations or withdraw from the representation.  The firm may only withdraw if the withdrawal can be accomplished without material adverse effect on the interests of the client.  Rule 1.16(b)(1).

Most lawyers like to think of themselves as being risk averse as a general matter.  Interestingly enough, when the depths of the details are fully mined, the notion of doing what the North Carolina opinion indicates is required might seem riskier than not saying anything at all.  The situation gets more difficult for some lawyers to work through because it can be viewed as something of a modified prisoner’s dilemma situation — each side of the potential employment discussion may be making its own independent decisions about whether the situation has escalated to a point of seriousness where client notification and consent is required, and each side has its own thoughts about what is the right answer for each side (stop talking or withdraw) if the affected clients won’t consent.  While the two parties to the discussions might seemingly be in harmony about the potential move otherwise, they may very well have starkly different views in terms of balancing how important they value the business of the affected client versus the business that could be gained from the lateral move.

As a result, I have long suspected that most such moves that actually come to fruition are the products of one side or the other not strictly complying with their ethical requirements.  No, that is probably too cynical a thing to say and certainly a bit of an exaggeration of my view.

Some percentage of the moves that actually work out are the product of something less than strict compliance.  Probably not the majority, however.

The majority of them likely either involved matters for clients who are so incredibly important to the economics of the deal that there is a need to know sooner rather than later whether the impacted clients will consent or matters for clients who are of such little economic significance that all of the lawyers involved would be happy to jettison their matter if consent is not forthcoming.

An even more important factor in play that likely can be dispositive about whether such a move can be made is whether the jurisdiction involved permits the use of nonconsensual screening to avoid imputation of a disqualifying conflict.  No mention is made of this topic in the North Carolina opinion because North Carolina does not have any language in its version of Rule 1.10 to permit such screening.

In Tennessee, scenarios involving lawyers who aren’t litigators are potentially much more viable lateral moves because of our weirdish rule that treats “side switching” situations in litigation differently than in other contexts.  In Tennessee, whether a nonconsensual ethics wall can be erected to avoid disqualification from a lateral move can have a different answer depending on whether the matter is a litigation matter or not.

Our RPC 1.10 reads in relevant part:

(c) Except with respect to paragraph (d) below, if a lawyer is personally disqualified from representing a person with interests adverse to a client of a law firm with which the lawyer was formerly associated, other lawyers currently associated in a firm with the personally disqualified lawyer may represent the person, notwithstanding paragraph (a) above, if both the personally disqualified lawyer and the lawyers who will represent the person on behalf of the firm act reasonably to:

(1) identify that the personally disqualified lawyer is prohibited from participating in the representation of the current client; and

(2) determine that no lawyer representing the current client has acquired any information from the personally disqualified lawyer that is material to the current matter and is protected by RPC 1.9(c);

(3) promptly implement screening procedures to effectively prevent the flow of information about the matter between the personally disqualified lawyer and the other lawyers in the firm; and

(4) advise the former client in writing of the circumstances that warranted the implementation of the screening procedures required by this Rule and of the actions that have been taken to comply with this Rule.

(d) The procedures set forth in paragraph (c) may not be used to avoid imputed disqualification of the firm, if:

(1) the disqualified lawyer was substantially involved in the representation of a former client; and

(2) the lawyer’s representation of the former client was in connection with an adjudicative proceeding that is directly adverse to the interests of a current client of the firm; and

(3) the proceeding between the firm’s current client and the lawyer’s former client is still pending at the time the lawyer changes firms.

Thus, a Tennessee lawyer could make a move from one side of the table to the other in the middle of a $50 million real estate deal but could not make the same move if it involved moving from one side of the “v” to the other in a $10,000 automobile accident lawsuit.

Lawyering vicariously.

Lawyers in private practice work in a variety of settings ranging from solo practice to law firms with thousands of lawyers in scores of offices.  Lawyers also practice in a variety of business structures ranging from d/b/a arrangements on one end to Swiss Verein models.

My rough guess would be that the majority of United States private practice lawyers practice in connection with a business entity that provides (or at least is designed to provide) limited personal liability.  In Tennessee, we deviate from ABA Model Rule 1.8(h)’s approach to prospective limitations on liability for legal malpractice by prohibiting them entirely under RPC 1.8(h)(1).  But RPC 1.8(h)(1) does not mean that lawyers (or even a solo practitioner) cannot take advantage of Tennessee’s business organization laws to house their law practice in a professional limited liability company to manage financial risk.  This point is made clear in Tennessee in paragraph [14] of the Comment:

Nor does this paragraph limit the ability of lawyers to practice in the form of a limited-liability entity, where permitted by law, provided that each lawyer remains personally liable to the client for his or her own conduct and the firm complies with any conditions required by law, such as provisions requiring client notification or maintenance of adequate liability insurance.

Not all lawyers practice in such arrangements, however.  Some form traditional partnerships.  Others practice in an even looser fashion through things that are essentially just office-sharing arrangements but are often described, on letterhead or office signs or both, as “an association of attorneys.”  What I didn’t think lawyers would do would be to attempt to set up a version of both things (admittedly, my lack of awareness of this might just be my own ignorance of what is going on in the marketplace).

Three lawyers in middle Tennessee who may or may not be a law firm, appears to be an example of folks who have structured their law practice to do just that.  They hold themselves out to clients on letterhead as an association of attorneys while having also formed an LLC for the purpose of sharing office expenses.  Undertaking such an approach seems to offer the worst of both worlds, and an order denying summary judgment in a legal malpractice case — highlighted by the ABA/BNA Lawyers Manual on Professional Conduct — does not delve into whether the lawyers’ decision not to just become a law firm organized as a PLLC offers any tangible benefits.

What the order clearly does, however, is raise but leave unanswered, whether lawyers simply sharing office space can end up having vicarious liability for legal malpractice committed by one of their number.  The federal district court’s opinion is relatively short and can be read in full here.  Although it does not shut the door to the ability of these lawyers to demonstrate that vicarious liability should not be available, it does cite to existing Tennessee law regarding unincorporated associations to explain that Tennessee law permits such things to be sued as entities and for vicarious liability to arise among members for statutory violations and contract breaches.

In the end, I think with better constructed arguments, the firm in question ought to be able to muster stronger substantive arguments in opposition to vicarious liability than the one rejected by the court.  After all the concept of vicarious liability derives fundamentally from agency principles and one would hope the uninvolved lawyers could demonstrate lack of control or input into handling of the matter, as well as lack of interactions with those involved that would justify any apparent agency basis to justify vicarious liability.  But given the sole argument that the court indicates was teed up – we’re not a partnership and only partnerships can bring about vicarious liability —  the denial of summary judgment certainly appears to be the correct result.

What I’m still struggling to figure out is the reason one would go to the trouble of creating an LLC for office expense sharing, but attempt for that entity to have no relationship to your law practice and, instead, have your law practice be part of an “association of attorneys.”  I am certain that everyone involved is highly intelligent so there has to be a good reason to do so.  The only explanation I can conjure up is that it must be driven by a desire to avoid imputation of conflicts of interest among the lawyers sharing office space.

In Tennessee, our RPC 1.0(c) defines a “firm,” in part, as “a lawyer or lawyers in a law partnership, professional corporation, sole proprietorship or other association authorized to practice law.”  We dedicate a paragraph of the Comment accompanying this rule to giving guidance to lawyers about how the specific facts of their practice setting can impact whether or not they get treated as a “firm” for purposes of the ethics rules:

Whether two or more lawyers constitute a firm within paragraph (c) can depend on the specific facts.  For example, two practitioners who share office space and occasionally consult or assist each other ordinarily would not be regarded as constituting a firm.  However, if they present themselves to the public in a way that suggests that they are a firm or conduct themselves as a firm, they should be regarded as a firm for purposes of the Rules.  The terms of any formal agreement between associated lawyers are relevant in determining whether they are a firm, as is the fact that they have mutual access to information concerning the clients they serve….

Because RPC 1.10 imputes conflicts among lawyers in a firm, if these lawyers had organized themselves as a PLLC, then the conflicts of one would extend to all.  Typically, when handled correctly, a mere “association of attorneys” will not be treated as a firm for RPC 1.10 purposes.  If there’s another explanation out there, I’m missing it.  But, I’m also wondering how much added risk of still being treated as a firm comes from the information sharing necessary on the LLC side to work out expense arrangements.

A verein-teresting thought experiment? Part 1.

In preparation for a panel presentation coming up at the end of this month, I have been delving back into the complicated and contradictory world of disqualification rulings from around the country.  While the lay of the land is highly inconsistent to a large degree, there are some common themes that can be teased out of how courts deal with such issues.   I hope to find some way to help articulate that at that conference at the end of the month and, if the end product sounds like something that makes sense, will try to elaborate here as well.

For today though I wanted to touch on what might be the most important current one bubbling through the system – the ruling of an ALJ for the U.S Int’l Trade Commission disqualifying Dentons in a patent infringement suit and that, commensurate with its potential import for the mega-firms that proliferate in modern law practice, is generating some real publicity.

Several months ago now, I mentioned something in passing about a consultant who was talking about seeing 10,000 lawyer law firms in the future and the stress and strain conflicts of interest analysis can put on the outer limits of just how big a firm can get.  The vehicle it seems that the mega-firms have been counting on to make such things possible is the Swiss verein.  If you want to immerse yourself with the details and history of that structure, you can go here for a start.  Suffice it to say for the purposes of this post, I’ll stick with the shorthand description the ABA Journal uses in its article today:

 “[A] decentralized structure which allows independent legal entities to share marketing and branding while keeping finances separate.”

My immediate reaction every time I read something like that description, with conflicts of interest in mind, is that it certainly sounds fine in theory but, at base level, something either is one law firm or it is not one law firm.  So, in the back of my head, my thinking has been this: given how imputation of conflicts works under RPC 1.10 and the definition of a “firm” under RPC 1.0, either how a conflict of interest is defined for lawyers and imputed within a firm will have to be fundamentally changed or, at the end of the day, the Swiss verein concept will yield under the weight of problems of conflicts.

Normally, I like to thoroughly read the subject matter I write about before putting up a post, and I have not yet done that with the ruling of the USITC nor Dentons’ motion for reconsideration.  But I have a reason for that, and here comes my thought experiment.  My immediate reaction having only read the media pieces this week (including the quote from Karen Rubin who runs a wonderful blog you should check out here) is that it is absolutely fair to look at how a firm markets and brands itself for purposes of evaluating conflicts of interest.  Tennessee, for example, like many other states has built the concept into the Comment that accompanies RPC 1.0:  “However, if they present themselves to the public in a way that suggests that they are a firm or conduct themselves as a firm, they should be regarded as a firm for purposes of the Rules.”  RPC 1.0, cmt.[2].  We’ve had no problem using that paradigm to evaluate things on much smaller scales like whether a person being held out as “of counsel” to a law firm results in sharing of conflicts and all sorts of situations in which a group of lawyers share office space.

So, here’s the question I’m pondering, is there anything I can possibly read in those materials that would manage a good explanation for why that principle shouldn’t carry over to this situation and damn the consequences?  My plan is to work on tracking down the underlying documents and studying them this weekend and then following up with a post on Monday to “complete” this thought experiment.