Monday, October 30, 2023

Law Firm Prevails Over Departing Attorney

The Maryland Supreme Court affirmed a ruling in favor of a law firm against a departing attorney but reversed the Appellate Court's failure to award the firm prejudgment interest

Maryland Rule 19-305.6(a) prohibits an attorney from making “a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of an attorney to practice after termination of the relationship, except an agreement concerning benefits upon retirement.” The rule is based on ABA Model Rule of Professional Conduct 5.6(a).

The policy underlying the rule is enunciated in Comment 1: “An agreement restricting the right of attorneys to practice after leaving a firm not only limits their professional autonomy but also limits the freedom of clients to choose an attorney.” The rule prohibits agreements not to practice within a particular geographic or substantive area, agreements not to represent any of the firm’s clients, and restrictions on client contact or use of client information. Financial disincentives for representing certain clients may violate Rule 5.6(a) if they are disguised attempts to penalize competition.

An agreement “in clear and flagrant violation” of the rules of professional conduct may be “unenforceable,” because “it would be anomalous to allow a lawyer to invoke the court’s aid in enforcing an unethical agreement when that very enforcement, or perhaps even the existence of the agreement sought to be enforced, would render the lawyer subject todiscipline.” Post v. Bregman, 349 Md. 142, 168 (1998).

An agreement between a law firm and one of its attorneys concerning the division of a contingent fee that is earned after the attorney leaves the firm does not violate Maryland Rule 19-305.6(a), provided that the agreement endeavors to make a reasonable forecast of what a likely quantum meruit division of fees would have been. In the absence of such an agreement, the parties’ respective shares would be determined by principles of quantum meruit. But to determine its quantum meruit share, the firm would have to sue the client and the departing lawyer to establish the reasonable value of the services that it provided to the client. Lawyers should be encouraged to enter into agreements to resolve these kinds of potential disputes in advance and to avoid unseemly bickering over fees.

In this case, a law firm and one of its attorneys entered into an agreement concerning the division of a contingent fee that was generated after the attorney left the firm and was engaged by a client whom she had represented while she was at the firm. The agreement calls for the division of fees based on a sliding scale. The agreement compares the amount of time in which the firm was responsible for the client and the amount of time in which the attorney was responsible for the client. Then it uses those factors as a surrogate for the parties’ respective contributions to the outcome. The agreement does not purport to restrict the right of the attorney to practice law or prohibit the attorney from representing the firm’s clients. Nor does it limit the freedom of clients to choose to use the attorney’s services. And it does not penalize the attorney by requiring the forfeiture of a right that has already been earned. The Appellate Court of Maryland held that this agreement did not violate Maryland Rule 19-305.6(a) on its face or as applied to the facts of this case. The circuit court did not err upholding the enforceability of the agreement in this case.

Pre-judgment interest

Pre-judgment interest compensates judgment creditors for their inability to use the funds that should have been in their hands before the entry of judgment. Pre-judgment interest is available as a matter of right when the obligation to pay and the amount due is certain, definite, and liquidated by a specific date prior to judgment such that the effect of the debtor’s withholding payment was to deprive the creditor the use of a fixed amount as of a known date.

In this case, a lawyer received certain, definite, and liquidated settlement payments on discrete dates. She was contractually obligated to remit a certain, definite, and liquidated percentage of those payments to her former firm, but failed to do so. Hence, the firm was entitled to pre-judgment interest, as a matter of right, on each payment that she failed to make. The pre-judgment interest ran from the date on which each payment became due until the date of the judgment. The circuit court erred in denying the firm’s request for pre-judgment interest.

The attorney joined the firm in 2011 after a career as an Assistant United States Attorney. The parties had entered into a "prenuptial" agreement governing departure.

At issue

The Barker cases settled in principle on April 3, 2015. Less than two months later, on May 29, 2015, Ms. Bennett gave Ashcraft four weeks’ notice that she was resigning from the firm. She left on June 26, 2015. When she left, Mr. Barker chose to terminate his relationship with Ashcraft and to retain Ms. Bennett.

On September 2, 2015, the parties to the Barker cases, including Mr. Barker, entered into a written settlement agreement. The agreement obligated the defendants to pay between $25 million and $35 million to the United States and the State of Georgia, on a quarterly basis, over five years. At the time of the settlement, Ashcraft had advanced over $700,000.00 in legal fees and over $300,000.00 in costs.

Pursuant to the settlement agreement in the Barker cases, Mr. Barker would receive over $5,000,000.00, which was subject to a contingent fee of over $2,000,000.00. The settlement agreement also awarded Mr. Barker $675,000.00 in statutory attorneys’ fees. Ms. Bennett asserts that, as a result of her efforts after she left the firm, Mr. Barker’s share of the recovery increased from $3,750,000.00 to over $5,000,000.00. Ms. Bennett received the first installment of the settlement payments on September 3, 2015, the day after the settlement agreement was signed, and less than three months after she left the firm.

And

Before Ms. Bennett joined Ashcraft in 2011, the firm had entered into a joint venture with another firm to represent Robert Whipple in a case under the False Claims Act: United States ex rel. Whipple v. Chattanooga-Hamilton Cnty. Hosp. Auth., No. 3-11- 0206 (M.D. Tenn.). After Ms. Bennett joined the firm, she worked on the Whipple case. Following her departure from Ashcraft, Ms. Bennett continued to represent Mr. Whipple until his case settled in the summer of 2016. The settlement generated about $160,000.00 in fees.

Enforceability

we conclude that the Prenuptial Agreement is not unenforceable on its face—i.e., that it is not facially invalid. We are persuaded by the 1989 MSBA ethics opinion, which approved an agreement with a sliding-scale formula, much like Ashcraft’s—one in which the division of fees is “based upon a combination of the length of time that the case was in the law firm prior to the attorney’s termination and the period of time in which the fee is realized after the attorney has left the firm.” MSBA Ethics Comm., Formal Op. 1989-29. We are also persuaded by the 1991 District of Columbia ethics opinion, which approved an agreement that seems almost identical to Ashcraft’s—one in which the “[f]ees ultimately realized are divided on a percentage basis which varies according to the length of time the case was handled by the firm and the length of time it was handled separately by the departing lawyer.” D.C. Ethics Comm., Formal Op. 221. We are persuaded as well by the Michigan Court of Appeals’ decision in McCroskey, which upheld an agreement under which the departing attorney received “a ratable proportion of a given fee on the basis of the stage of the litigation at the time of departure.” McCroskey, Feldman, Cochrane & Brock, P.C. v. Waters, 494 N.W.2d at 828-29.

The unanimous opinion was authored by Judge Arthur. (Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2023/10/law-firm-prevails-over-departing-attorney.html

Billable Hours, Law Firms | Permalink

Comments

Post a comment