Dissolution of a Law Firm
by Diane L. Karpman
(County Bar Update, February 2001, Vol. 21, No. 2)

 

Dissolution of a Law Firm

By Diane L. Karpman, Esq. of Karpman & Associates in Los Angeles. Karpman is a frequent expert consultant and witness in legal ethics and malpractice matters, and represents attorneys in disciplinary matters. She is chair of LACBA’s Professional Responsibility & Ethics Committee and past president of the Association of Professional Responsibility. The opinions expressed are her own.

When it comes to the withdrawal or termination of representational obligations owed to the clients, following Rule of Professional Conduct 3-700 works like an "ethical" charm.

The predicate to ending any attorney-client relationship is the avoidance of foreseeable prejudice to the interests of the client.

The avoidance of client harm is equally applicable in a law firm dissolution. Partnership or firm dissolution brings out interesting and remarkable characteristics in lawyers, qualities one would never believe would exist in "officers of the court." Anything can be expected, including hysteria and double-dealing. The deletion of a former partner’s name from Parker’s or the State Bar Membership Records, a classic passive-aggressive act, has actually occurred. For good guidance on how to disengage properly, see California State Bar Formal Opinion No. 1985-86, which is favorably cited in ABA Formal Opinion 99-414.

Entity dissolution is unequivocally the occurrence of a significant event. Therefore, it falls within the penumbra of Rule of Professional Conduct 3-500, which requires that the occurrence of significant events be communicated to the client. The method, timing and content of client notification are always issues of contention when "best friends" decide to break up. Preemptive strikes are common but are really unnecessary and merely ratchet up the animosity of the whole sordid affair.

There is some authority (primarily from the East Coast) that departing partners should actually obtain space, staff, and proper facilities prior to departure so that they can competently represent "their" clients, pursuant to Rule of Professional Conduct 3-110.

In other cases, these preparatory acts are seen as evidence of bad faith and used to establish a breach of the fiduciary duty owed to employers, partners or other shareholders if there is ensuing litigation.

It is well established that a client should not be forced to play "hide-and-seek." Attorneys who move their offices without advising clients of their whereabouts have been disbarred. Read v. State Bar (1991) 53 Cal. 3d 394.

Further, an attorney’s failure to communicate, and his or her inattention to the needs of the client, is considered proper grounds for discipline. Aronin v. State Bar (1990) 52 Cal. 3d 276.

Another critical question is the timing. If you jump the gun and "grab and run" with the clients, it is unfair to the remaining partners. Yet, if the other partners oust you, change the locks, and deny you access to client lists and files, you are rendered impotent and cannot administer to your clients’ needs. Cleaning out the entire satellite office on Christmas Eve, down to the wastebaskets and Rolodexes, may lead to intense litigation and the payment of megabucks.

Remember that the fiduciary duties apply at all times. Leaving the files in the lobby of a building, accessible to anyone who goes by, as a retaliatory measure directed at the former partner and the ungrateful clients choosing to go with that ne’er-do-well could be construed as a breach of the duty of confidentiality owed to those former firm clients. The dissolution of a law firm mandates that the attorneys on both sides, those departing and those remaining, share concurrent fiduciary duties to the clients. California Formal Opinion 1985-86 discusses these, citing Blackmon v. Hale (1970) 1 Cal. 3d 548. These duties include the entire cornucopia of obligations in the Rules of Professional Conduct and Business and Professions Code.

But wait! Instead of considering the event a disaster, this is an opportunity to engage in favorable marketing for everyone.

Put a positive "spin" on events before the word is out "on the street" or shows up in the Daily Journal. This could be a win/win situation with the proper characterization in the joint letter that both you and your former "best friend" lovingly craft to notify the clients.

The clients must receive notification since they have the absolute right of termination and the right to choose which lawyer will represent them in the future. You can use favorable terminology, such as statements that all parties will continue to provide "exemplary" legal services in the rapidly evolving "global markets" with "transparency" and integrity, continuing to "expand horizons" focusing on "individual" needs and "marshaling the vast resources" of the "strategic enterprise." This perspective can turn a catastrophe into a marketing coup.

Most important of all, put a smile on your face because as Sting would say, "It’s a brand new day."

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