Legal Profession Blog

No Mandatory Arbitration Of Departing Lawyer Fee Disputes

A staff report on the web page of the Ohio Supreme Court

The Ohio Board of Professional Conduct has issued an advisory opinion clarifying the application of a rule that mandates the arbitration or mediation of fee disputes between lawyers.

The Ohio Rules of Professional Conduct direct the arbitration or mediation of fee disputes between lawyers who are not in the same firm and agree to jointly represent a client.  These arbitration or mediation services are provided by bar associations.  In Advisory Opinion, 2024-04, the Board concluded that the conduct rule does not mandate the arbitration or mediation of fee disputes that arise between a law firm and a lawyer who has departed the firm.  The Board suggested that lawyers and their former law firms may voluntarily submit to an arbitration or mediation process to resolve these types of fee disputes.

(Mike Frisch)

"Dude I Ate A Big Ass Weed Brownie..."

The Tennessee Court of Appeals affirmed and remanded a Chancery Court decision in a law firm dispute

The plaintiff, a founding member of a law firm, filed this action against other members. The trial court found that the defendant members violated their duty of good faith and fair dealing, breached their contract with the plaintiff, violated their fiduciary duty toward the plaintiff, engaged in a conspiracy, and committed conversion. We affirm the ruling of the trial court.

This appeal arises from disagreement over the management of a new law firm. Matthew Ooten, Linda Betz, and Jason Baril, attorneys licensed to practice law in Tennessee, previously worked together at the Knoxville law firm of Ogle, Elrod and Baril (“OEB”) until they left OEB to start a new law firm, a separate disability practice, a supporting call center, and a holding company. They are the founding members of Ooten Betz & Baril, PLLC (“OBB”); Disability Advantage Group, LLC (“DAG”); Summit Conversions, LLC (“SC”); and Summit Partners, LLC (“SP”) (collectively the “LLCs”). OBB, DAG, SC, and SP were formed as limited liability companies through the Tennessee Secretary of State on December 1, 2018, with delayed effective dates: DAG, December 14, 2018; SP, SC, and OBB, January 1, 2019. Each LLC is member managed. Of these four entities, only OBB is a law firm.

At their former firm

The disability group that Ooten managed at OEB was very profitable, growing from essentially nothing in 2014 to roughly $1.6 million in 2018. Around this time, Baril approached Ooten about leaving OEB with him. Ooten understood that the entire disability practice would be moving from OEB. He thereafter approached [case managers] Freers and Cozart, his team at OEB, about leaving to start the new venture with Betz and Baril.

Initial agreements

Betz, Baril, and Ooten executed four separate documents titled “Partnership Agreements” referencing the LLCs.

But trouble ensued

Betz, who had managed the personal injury practice at OEB, was tasked with implementing the personal injury case management system for OBB. According to Ooten, however, Betz failed to make the personal injury system operationally sound and opposed his efforts to assist her. He claims that she became increasingly hostile, aggressive, and combative toward him when he suggested improvements. Ooten contends that he made good faith efforts to avoid conflict with her by outlining how the ownership of the LLCs could be restructured among the members to avoid interaction between Betz and Ooten.

As set forth below, there was ongoing interaction between Betz and Baril. 

Ooten sought to restructure the agreements

On March 20, 2019, Ooten and Baril were scheduled to go to Las Vegas for the NCAA basketball tournament. That morning, however, Baril texted Freers to ask if she wanted to meet for lunch at Calhoun’s, a Knoxville restaurant. Freers met with Betz and Baril for lunch, at which time Baril inquired if she would stay at DAG and assume the disability practice responsibilities if Ooten departed the firm. Freers informed them that she and Ooten were not a package deal; she would make a decision that was best for her and her family. She indicated, nonetheless, that she hoped things would work out. They discussed a raise if Freers assumed Ooten’s responsibilities. Freers mentioned that Cozart was a vital member of DAG’s leadership team and that she would like to see her remain with the firm. Betz and Baril subsequently invited Cozart as well as Freers to a second meeting. Cozart testified that Betz and Baril informed her that they were planning to meet with Ooten because the members were not all getting along and that Ooten would not be working there anymore. Betz and Baril expressed to Cozart their belief that she was a valuable employee at DAG and their desire for her to stay. As with Freers, an increase in Cozart’s salary was addressed. According to Cozart, she was to make close to six figures when the proposed profit sharing was included. As to Ooten, instead of meeting up with him in Las Vegas as planned, Baril texted him on March 21, 2019, at 10:48 a.m., stating “Dude I ate a big ass weed brownie and just woke up I think so I missed my flight[.] I’ll call you in a couple of hours to talk[.]”

Baril directed his attorney to advise Ooten by letter that the computer passwords and the locks on the doors had been changed at OBB, he had been removed from all partnership bank accounts, and that if he came around the physical premises, law enforcement would be notified. Upon Baril approving the letter, it was hand-delivered to Ooten on April 2, 2019. The letter outlined that if Ooten chose to litigate and/or request a formal market valuation of his vested partnership interest, Betz and Baril, pursuant to the Partnership Agreements, would hold a meeting and vote their majority interest to choose an appraiser to set the market value for the entities.

Two days after Ooten received the letter, the record reflects that Betz and Baril began making draws and distributions from DAG based on a 70/30 split—i.e., 70 percent to Baril and 30 percent to Betz, diminishing Ooten’s interest in the entities to zero. In July 2019, Betz filed for divorce, and she and Baril formally announced that they were a couple to firm personnel. Ooten opines that it can be reasonably inferred that the relationship existed before he was shutout on April 2, 2019.

Upon Ooten’s departure, Freers’ salary increased from $55,000 to $115,000, and Cozart’s salary increased from the low $40,000s to approximately $93,000. Freers took over most of Ooten’s role, and Cozart stepped into Freers’ shoes. Initially, Freers was granted access to Ooten’s emails in order for her to utilize Ooten’s vendor contacts and services as well as to see whether any matters needed to be addressed. Around December 2019, however, she no longer had access to Ooten’s account. Upon notifying Betz and Baril that the account had become unavailable to her, she was advised to ask them if she needed something.

In the inevitable litigation initited by Ooten

Dismissed were claims for punitive damages, intentional interference with business relationships, and a derivative action by Ooten on behalf of DAG. The trial court ordered that Ooten should recover from Betz and Baril, jointly and severally, the amount of $897,913 plus prejudgment and post-judgment interest at the maximum rate allowed by law and reasonable and necessary attorney fees. On January 10, 2023, the court further awarded Ooten discretionary costs pursuant to Rule 54.04 of the Tennessee Rules of Civil Procedure in the amount of $12,039.05. Additionally, on February 28, 2023, the court awarded Ooten attorney fees in the amount of $255,892.50 and expenses (not otherwise recoverable as discretionary costs) in the amount of $28,610.41.

Baril and Betz appealed; Betz's was dismissed on procedural grounds

Merits and non-applicablity of ethics rule of sale of law practice

Ooten was not selling his disability practice in an arm’s length transaction and leaving the industry—a requirement of Rule 1.17. The disability practice was continued as a going concern without interruption. Further, only one entity involved in this matter was a law firm, OBB. Rule 1.17 would have no application to the other three non-law firm entities.

Ooten's expert

Harvey demonstrated that he was qualified to testify about the “fair value” of law practices and his opinions were generally accepted in the financial community. His testimony established that he has degrees in accounting and business administration. He is a certified public accountant and accredited in business valuation. Harvey has conducted more than 1,000 business valuations since approximately 1999 and has experience as a broker applying the appropriate valuation approaches to businesses. Harvey observed that he had valued approximately five law practices, the last being three or four years prior to the January 2022 trial.

Conclusion

the judgment of the trial court is affirmed, and the case is remanded for enforcement of the court’s judgment.

Oral argument linked here. (Mike Frisch)

Failure To Pay

The New York Appellate Division for the Second Judicial Department affirmed an order declining to dismiss an action brought by a former law firm attorney

The plaintiff, an attorney, was employed by the defendant Curan & Ahlers, LLP (hereinafter the firm), for approximately 18 years. On June 30, 2021, the plaintiff commenced this action against the firm and its managing partner, the defendant Keith J. Ahlers, asserting causes of action sounding in breach of contract and violation of Labor Law § 193 based on allegations that the defendants failed to pay him certain amounts constituting salary and nondiscretionary bonuses for work that he performed. As alleged in the complaint, pursuant to an agreement negotiated between the plaintiff and Ahlers in 2004, the plaintiff would be paid an annual salary of $70,000 and an
incentive bonus of 5% of any attorneys’ fees recovered on cases that he litigated. Prior to January 2008, the plaintiff was paid pursuant to this arrangement.

However, as alleged in the complaint, in 2008, Ahlers began withholding the plaintiff’s biweekly paychecks and some of his bonus checks, advising that the firm had insufficient funds to pay him. Throughout this time, the plaintiff kept a spreadsheet of the bonus money that he was owed and periodically showed the spreadsheet to Ahlers, who repeatedlyacknowledged that the plaintiff would “eventually be paid the full 5% bonus on each case that he litigated.” On July 17, 2015, the plaintiff received his last bonus payment from the firm, but Ahlers continued to make assurances that the plaintiff would be paid the outstanding bonus money that he was owed. In August 2020, Ahlers changed course and informed the plaintiff that he would not receive any of the outstanding bonus money. At this point, the plaintiff resigned.

No dismissal

Here, contrary to the defendants’ contention, the plaintiff stated a cause of action to recover damages for violations of Labor Law § 193 based on the allegations that the firm failed to pay a portion of his salary and nondiscretionary bonuses (see Gertler v Davidoff Hutcher & Citron LLP, 186 AD3d 801, 808; Ackerman v New York Hosp. Med. Ctr. of Queens, 127 AD3d at 795). Further, as alleged, Ahlers and the firm are each “employers” that may be held liable for violations of Labor Law § 193 (see id. § 190[3]; Lomeli v Falkirk Mgt. Corp., 179 AD3d 660, 663; Cohen v Finz & Finz, P.C., 131 AD3d 666, 667).

Contrary to the defendants’ contention, the plaintiff can maintain a cause of action alleging breach of contract against Ahlers individually. Although the Partnership Law provides Ahlers, a partner in a limited liability partnership, with certain protections from liability (see id. § 26; Salazar v Sacco & Fillas, LLP, 114 AD3d 745, 747), there is an exception in the event that the partnership becomes insolvent

A related order is linked here.

Here, the plaintiff alleged that, over a course of years, the defendants made repeated assurances that they would pay him salary and bonus money that he was owed pursuant to his employment arrangement. Further, he alleged that the defendants made a partial payment of outstanding bonus money to the plaintiff on July 17, 2015, within the statute of limitations. Under these circumstances, the plaintiff raised a question of fact as to whether the statute of limitations was tolled or revived (see Lew Morris Demolition Co. v Board of Educ. of City of N.Y., 40 NY2d at 521; RTT Holdings, LLC v Nacht, 206 AD3d at 836; Matter of McDonald, 79 AD2d 754, 755).

The Supreme Court erroneously concluded that the plaintiff was required to show a writing in order to meet his burden of raising a question of fact as to whether the statute of limitations was tolled or revived by virtue of partial payment. Unlike General Obligations Law § 17-101, which is applicable when a party seeks to show that a statute of limitations is tolled by a written acknowledgment, there need not be a writing in order for a plaintiff to demonstrate that the statute of limitations is tolled or revived by reason of partial payment (see generally Lew Morris Demolition Co. v Board of Educ. of City of N.Y., 40 NY2d at 521).

(Mike Frisch)

All In The (Modern) Family

The ABA Journal reports on an interesting decision of the Colorado Supreme Court

When attorney Grant Bursek left employment with Johnson Family Law, P.C., d/b/a Modern Family Law (“MFL”), eighteen of the firm’s clients followed, preferring to maintain the attorney-client relationship they had established with him. MFL subsequently sought to enforce an agreement that required Bursek to pay an undifferentiated per-client fee for continued representation of these clients. Bursek now argues that this per-client fee violates the Colorado Rules of Professional Conduct, which prohibit attorneys from making employment agreements that “restrict[] the right of a lawyer . . . to practice after termination of the relationship.” Colo. RPC 5.6(a). We agree. There may be circumstances in which a firm can seek reimbursement of specific client costs when the client leaves a firm to follow a lawyer. But a firm may not require a departing attorney to pay an undifferentiated fee in order to continue representing clients who wish to maintain their relationship with that attorney. Such an agreement is an impermissible restriction on the attorney’s right to practice and on the clients’ right to counsel of their choice, both of which are important policy interests protected by Colorado Rule of Professional Conduct 5.6.

Rationale

An agreement that requires a lawyer to pay a former firm such an undifferentiated fee is fundamentally at odds with the twin policy goals of Rule 5.6(a): to protect lawyers’ professional autonomy and to ensure that clients have the freedom to choose an attorney. As the Ethics Advisory Committee of the Arizona Supreme Court recognized when considering a similar agreement, it “acts as a substantial disincentive for the departing lawyer to agree to continue representing a client who wants to continue working with that lawyer.”  Sup. Ct. of Ariz. Att’y Ethics Advisory Comm. Ethics Op. EO-19-0006 (2020)...Of particular concern, such a fee forces attorneys to make individualized determinations of whether a client is “worth” retaining and incentivizes them to retain clients in high-fee cases and to jettison clients with less lucrative claims. This direct intrusion on the attorney-client relationship is quite different from financial disincentives that might indirectly affect client choice by making it more costly for an attorney to leave a firm. No reasonableness analysis is needed to determine that per-client fees of the sort at issue here violate Rule 5.6(a).

(Mike Frisch)

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)

Not Renewed

The New York Appellate Division for the First Judicial Department affirmed the dismissal of contract action brought by a law firm former "special partner"

The parties entered into a written contract on February 1, 2017, whereby plaintiff was designated a special partner and chair of defendant's tax department for a term ending on March 31, 2018. Pursuant to the terms of the contract, if defendant chose to enter into a "further agreement" with plaintiff, it would propose terms and conditions at least 60 days before the ending date, but the contract did not state how "further agreement" would be reached. The contract also did not state that it could only be amended in writing or that it constituted the entire agreement of the parties.

In February 2018, defendant proposed new contract terms, which plaintiff rejected, and the parties continued to adhere to the original terms for an additional year. In March 2019, defendant again proposed certain changes to the terms of the contract, which plaintiff rejected, and the parties continued to adhere to the original terms until January 15, 2020. On that date, defendant paid plaintiff his bi-monthly salary at a reduced rate. In April 2020, defendant notified plaintiff that his base salary would be eliminated immediately due to the adverse effect of the pandemic. Plaintiff worked for defendant until September 17, 2020, and thereafter, commenced this action. In his cause of action for breach of contract, plaintiff alleges that defendant breached the contract by reducing his salary and terminating his employment without 60 days' notice or cause.

In considering defendant's CPLR section 3211(a)(7) motion to dismiss, the court concluded that the common-law presumption that the parties intended to renew the contract was operative for the periods of April 1, 2018 - March 31, 2019 and April 1, 2019 - March 30, 2020. However, the court granted defendant's motion to the extent it was based on breaches that occurred on or after April 1, 2020, finding that the reduction of plaintiff's compensation in January 2020 negated any implied agreement to renew the 2017 agreement for an additional one-year term beginning on April 1, 2020. As such, as of April 1, 2020, plaintiff became an at-will employee and there was no contract in effect to breach.

The common-law presumption "recognizes an inference that parties intend to renew an employment agreement for an additional year where the employee continues to work after expiration of an employment contract" (Goldman v White Plains Ctr. for Nursing Care, LLC, 11 NY3d 173, 177 [2008]). Here, the court properly determined that plaintiff became an at-will employee when the second renewal term ended due to material changes in the terms of the contract — his compensation (see Schiano [*2]v Marina, Inc., 103 AD3d 462 [1st Dept 2013]). Plaintiff contends that the court erred by finding, on a CPLR 3211 motion, that the contract did not renew on April 1, 2020. This argument is unavailing. By reducing plaintiff's base pay in January 2020 and eliminating it completely in April 2020, defendant expressed an objective intent not to renew the contract on its original terms, thus negating any inference of renewal (cf. Cinefot Intl. Corp. v Hudson Photographic Indus., 13 NY2d 249, 252 [1963] ["Entering into a contract to run for a year, and then continuing to act as if its time had not run, is sufficient evidentiary support for a finding that the parties in fact intended to keep it alive for another year"]).

Defendant contends that the parties' written contract, dated as of February 1, 2017, did not renew on April 1, 2018 or April 1, 2019. Because defendant did not cross-appeal, we decline to consider this argument (see Schiano v Marina, Inc., 103 AD3d at 464).

(Mike Frisch)

Jackpot

A big hit on a Deepwater Horizon claim led to an attorney's departure from his law firm, post-departure litigation and a remand of a decision favoring the law firm by the Mississippi Supreme Court

The Circuit Court of Washington County granted law firm Campbell DeLong, LLP, a declaratory judgment against a former partner of the firm, Britt Virden, who had alleged breach of contract, among other claims. Virden appealed, and the Court of Appeals affirmed. Virden v. Campbell DeLong, LLP, No. 2021-CA-00478-COA, 2022 WL 4478393, at *11(Miss. Ct. App. Sept. 27, 2022). On certiorari review, we find that Virden’s pre-withdrawal claims are not precluded by a signed agreement, which only comes into operation in the event of death, termination, withdrawal, or retirement of a partner.

                                            FACTS AND PROCEDURAL HISTORY

Britt Virden practiced law in Greenville, Mississippi, with Campbell DeLong, LLP, since 2001. Although Campbell DeLong, LLP, has operated as a law firm for nearly twenty-five years, it has never had a written partnership agreement that controlled the compensation paid to its partners. The only document signed among the partners was a Restated and Amended Memorandum Agreement, which governed the “withdrawal, termination, or retirement of any of the partners from the firm.”

According to Virden, Campbell DeLong never compensated its partners as a traditional partnership in which the partners share equally in all expenses as well as profits. Rather, Campbell DeLong practiced a partner compensation strategy of “eat what you kill,” meaning after an individual partner contributes from his revenue an equal share of the operating expenses of the law firm for calendar year, he or she keeps the remainder as his own personal income.

In 2018, Virden worked on a case for the Deepwater Horizon oil spill that settled for $12.3 million. Attorneys’ fees were $3.1 million. Virden emailed his partners about the settlement’s result, making his recommendation for distribution. The partners did not immediately respond to Virden’s request. When Virden asked the firm’s bookkeeper for a distribution of a special draw of his claimed portion to the fee, however, he was denied.

The partners then called for a meeting at which the allocation was discussed. The firm asserts that there is an implied contract between the partners that the firm’s compensation committee would decide how to split any profits. The firm allocated Virden $1.9 million and each of the five other partners $277,000. Virden immediately sent a written objection to the distribution and demanded the amounts be reconsidered and recalculated to allocate the fee pursuant to the normal and customary method.

A month later, Virden gave notice he was withdrawing from the firm. Virden then sued the firm for breach of contract, unjust enrichment, conversion, breach of fiduciary duties, violation of the Mississippi Partnership Act, and other claims. Virden alleged that the firm breached an implied contract among the partners by allocating to themselves a share of a significant fee that Virden generated.

The firm and its partners filed their answer and affirmative defenses, which included a motion for declaratory relief, a request to stay discovery, and a counterclaim. In the firm’s motion for declaratory judgment, it sought a ruling that all of Virden’s claims were encompassed by the Agreement Virden had signed in 2001.

After a hearing, the circuit court granted the motion for declaratory judgment, stating “that paragraphs 7, 12, 13 and 14 of the Agreement” controlled the outcome of the case.

The firm prepared an order, but the parties could not agree on the language. As a result, both Virden and the firm submitted proposed orders.

The order Virden drafted was brief, holding that the circuit court had jurisdiction over the parties, that the motion for declaratory judgment was granted, and that all discovery was stayed.

The firm’s order was lengthier and explained that the Agreement sets forth “[t]he payment obligations in paragraphs 7, 12, and 13 and are the only payment obligations that the [law firm] owed to Virden upon Virden’s voluntary withdrawal from the Firm on March 7, 2019.”

The firm’s order declared the Agreement was enforceable and said, “Virden is estopped from claiming entitlement to any monetary amount from the [law firm] for acts and/or events which occurred when Virden was a Partner in the Firm except to Virden’s entitlement to the amount of Virden’s Working Capital Account at the time of his withdrawal.”

Lastly, “Virden has a legal and binding contractual obligation to convey his entire interest in the Firm and in Campbell DeLong Properties, LLC, and in their respective assets to the Firm and Campbell DeLong Properties, LLC . . . .” 

The circuit court signed both orders, and both were then stamped filed by the circuit court clerk. Virden moved for reconsideration. The circuit court denied the motion, and Virden appealed. The Court of Appeals affirmed, and we granted certiorari review. Virden, 2022 WL 447893, at *11.

Majority holding

We reverse the judgments of the Court of Appeals and of the Washington County Circuit Court, and we remand the case to the circuit court to allow Virden an opportunity to maintain an action against his former firm for breach of an implied contract regarding partner compensation.

Difference of opinion

RANDOLPH, C.J., KITCHENS, P.J., CHAMBERLIN AND ISHEE, JJ., CONCUR. GRIFFIS, J., CONCURS IN RESULT ONLY WITH SEPARATE WRITTEN OPINION JOINED BY COLEMAN, J. MAXWELL, J., DISSENTS WITH SEPARATE WRITTEN OPINION. KING, P.J., NOT PARTICIPATING.

Concurring in result only

I have read the pleadings, motions and responses, the transcript of the argument of counsel, the circuit court judgments, and the record. As a result, I tend to agree that Campbell DeLong, LLP, and the individual defendants may be entitled to a declaratory judgment that the agreement governs the compensation or amount owed to Britt Virden as a withdrawing partner. The circuit court, the Court of Appeals, and now this Court’s majority reach a similar conclusion.

There is a fundamental error with this type of cursory review. There is a fundamental error with the decisions of the circuit court, the Court of Appeals, and now this Court’s majority. This Court should not affirm a circuit court’s judgment on the merits based only on unsworn pleadings, documents attached to unsworn pleadings, and argument of counsel. This review is not based on procedure authorized by the Mississippi Rules of Civil Procedure. Therefore, I am of the opinion the circuit court judgment and the decision of the Court of Appeals should be reversed. I would remand this case for further proceedings consistent with the Mississippi Rules of Civil Procedure.

Dissent

I disagree that this case should be reversed and remanded. Instead, for the reasons set forth by the Court of Appeals in its opinion affirming the trial court’s judgment, I would affirm.

(Mike Frisch)

Faithless Servant

A law firm is entitled to the referral fee paid to an employee, per a decision of the New York Appellate Division for the First Judicial Department

Plaintiff was entitled to summary judgment as a matter of law. The duty of loyalty, grounded in the faithless servant doctrine, is breached where the employee, "acting as the agent of the employer, unfairly competes with his employer, [and] diverts business opportunities to himself or others to the financial detriment of the employer" (Sullivan & Cromwell LLP v Charney, 15 Misc 3d 1128[A], 2007 NY Slip Op 50889[U], *7 [Sup Ct, NY County 2007]; see also Western Elec. Co. v Brenner, 41 NY2d 291, 295 [1977]). Defendant does not dispute that he referred a matter to another law firm without plaintiff's knowledge or consent and collected more than $140,000 in referral fees. A for-profit referral, without plaintiff's knowledge or consent, violates defendant's duty of loyalty and, at a minimum, entitles plaintiff to the referral fee (see Chun Ho Chung v Williams Schwitzer & Assoc., P.C., 200 AD3d 514, 515 [1st Dept 2021]).

The court's denial of the motion to reargue is not appealable.

(Mike Frisch)

Hacked

The United States District Court for the District of Columbia (Chief Judge Boasberg) dismissed claims brought by a former Wall Street Journal correspondent

Jonathan “Jay” Solomon, former chief foreign-affairs correspondent for the Wall Street Journal, was no stranger to having his name appear in the news, although he was more accustomed to showing up in the byline than in the headlines. That all changed in June 2017, when a story broke accusing him of maintaining an improper business relationship with one of his sources, prompting the Journal to fire him. Plaintiff has brought this suit against multiple individuals and businesses allegedly responsible for leaking his communications with that source. He claims that Defendants embarked on a campaign to discredit and silence him and are thus liable under a number of statutes, including the Racketeering Influenced and Corrupt Organizations Act and the Computer Fraud and Abuse Act.

Now that certain Defendants — including a prominent law firm — have been dismissed, those remaining are two groups of alleged hackers and one communications consulting firm and its employees. They now separately move to dismiss all of Solomon’s claims. As the Court agrees that the Amended Complaint does not adequately allege the elements of his federal causes of action, it will dismiss those counts and decline to exercise supplemental jurisdiction over his state-law claims.

Bloomberg News reported on the disposition of the claims brought against Dechert Price

An ex-Wall Street Journal reporter reached a financial settlement with Dechert in his lawsuit alleging the law firm aided a hacking scheme that led to his firing.

Dechert and journalist Jay Solomon “have concluded a settlement of this matter,” Solomon said in a statement Friday. The deal involved a financial settlement, according to a person familiar with the matter.

The settlement ends a suit Solomon brought against Dechert in October, alleging the firm participated with others in a sophisticated operation that led to the illegal retrieval of his communications with Farhad Azima, an Iranian-American aviation executive and source of the reporter’s.

Solomon declined to comment beyond his statement. His lawyers did not respond to requests for comment. Counsel for Dechert declined to comment.

Solomon, formerly a foreign affairs reporter at the Journal, initially alleged Dechert participated in a racketeering enterprise. He argued that his communications were spread online in a way that created the “wrongful” impression that he and Azima were engaged in unethical or fraudulent dealings. The Journal fired Solomon in 2017 for violating its ethics standards.

Solomon, formerly a foreign affairs reporter at the Journal, initially alleged Dechert participated in a racketeering enterprise. He argued that his communications were spread online in a way that created the “wrongful” impression that he and Azima were engaged in unethical or fraudulent dealings. The Journal fired Solomon in 2017 for violating its ethics standards.

Dechert in a February motion to dismiss called Solomon’s claims “untimely” and “without merit.” The reporter was the victim of his own “serious ethical lapses,” the firm said.

Solomon is now the global security editor at Semafor. On Aug. 14 he voluntarily dismissed Dechert and former partners Neil Gerrard and David Hughes as defendants in a lawsuit that claimed violations of the Racketeer Influenced and Corrupt Organizations Act, among other charges.

Solomon is still pursuing claims against Vital Management Services Inc., Israel Insight Analysis and Research LLC, SDC-Gadot LLC, and KARV Communications Inc.

The October lawsuit was one of several to target Dechert and Gerrard, a London-based white-collar attorney until his retirement in 2020. Azima last fall sued Dechert and Gerrard over the same alleged scheme.

The October lawsuit was one of several to target Dechert and Gerrard, a London-based white-collar attorney until his retirement in 2020. Azima last fall sued Dechert and Gerrard over the same alleged scheme.

The lawsuit, which remains pending in New York’s Southern District, claims Gerrard played a key role in the hacking scheme while working for a United Arab Emirate that Azima once did business with.

In July, Azima’s attorneys claimed in a court filing that directors of an India-based cyber firm admitted to hacking Azima’s computers on orders from Gerrard and Nicholas Del Rosso, a private investigator who has done work on Dechert’s behalf.

(Mike Frisch)

A Lawyer Prenup Passes Ethical Muster

The Maryland Appellate Court has upheld the post-departure provisions of an employment agreement between a law firm and an attorney 

This case principally involves a dispute between a law firm and an attorney who was formerly employed by the firm. At the outset of her employment, the attorney and the firm entered into an agreement about how they would divide a contingent fee if she left the firm, was engaged by a client of the firm, and earned the fee after leaving the firm.

The attorney contends that the agreement violates the Maryland Attorneys’ Rules of Professional Conduct and, thus, is unenforceable. On that premise, she withheld over $700,000.00 in fees that were due to the firm under the agreement. For the reasons stated below, we shall hold that the agreement is not unenforceable on its face or as applied in the circumstances of this particular case. Consequently, we shall largely affirm the judgment of the Circuit Court for Prince George’s County, which upheld the agreement and ordered the attorney to pay the fees that she had withheld in violation of it. We shall, however, vacate the judgment insofar as the circuit court failed to award pre-judgment interest to the firm. We shall remand the case with instructions to amend the judgment to include the undisputed amount of $81,212.10 in pre-judgment interest.

The parties and the agreement

In 2011, after approximately 20 years as an Assistant United States Attorney, appellant and cross-appellee Jamie Bennett joined the law firm of Ashcraft & Gerel, LLP (“Ashcraft”). Ashcraft, the appellee and cross-appellant, is a regional law firm that primarily represents plaintiffs on a contingent-fee basis. Ashcraft hired Ms. Bennett to take over its False Claims Act practice.

Ms. Bennett began her employment with Ashcraft on April 1, 2011. On April 5, 2011, Ms. Bennett signed an agreement, to which the parties refer as the “Prenuptial Agreement.” Ashcraft requires its attorneys to sign the Prenuptial Agreement as a condition of their employment.

The Prenuptial Agreement is not an employment agreement; it is a departure agreement. It governs the division of fees between Ashcraft and an attorney if the attorney leaves the firm, is retained by any of the firm’s former clients, and settles the clients’ cases after leaving the firm.

In the absence of an agreement like the Prenuptial Agreement, the parties’ share of a contingent fee would be governed by principles of quantum meruit, under which the firm would have to show the extent to which it contributed to the client’s success.

The agreement set up a sliding scale formula for fee division if and when the attorney departs

The Prenuptial Agreement uses a sliding-scale formula to apportion the division of fees. The formula considers two factors: (1) the amount of time between when the client retained the firm and when the attorney departed, and (2) the amount of time between when the attorney departed and when a fee was generated.

Specifically

In summary, if the client retained the firm more than two years before the attorney left, the firm’s share of the fee ranges from 75 percent to 65 percent, depending on whether the fee was generated within one year, two years, or three years of when the attorney left. If the client retained the firm between one and two years before the attorney left, the firm’s share of the fee ranges from 70 percent to 60 percent, depending, 4 again, on whether the fee was generated within one year, two years, or three years of when the attorney left. And if the client retained the firm less than a year before the attorney left, the firm’s share of the fee ranges from 65 percent to 55 percent, depending on whether the fee was generated within one year, two years, or three years of when the attorney left. The Prenuptial Agreement goes on to say that, when fees are generated more than three years after the attorney leaves the firm, Ashcraft receives 55 percent if the clients had been with the firm as long as they had been with the attorney; Ashcraft receives 50 percent if the clients had been with the attorney longer than they had been with the firm.

The attorney and law firm signed off

Ms. Bennett signed the Prenuptial Agreement, but about six months later she formed the opinion that the agreement was unethical and that it violated the Maryland Attorneys’ Rules of Professional Conduct. She expressed her opinion to Ashcraft’s managing partner.

She had initiated the litigation; the trial court upheld the agreement.

The court here agreed

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 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.

Consequences

It is undisputed that for three years thereafter Ms. Bennett adhered to that agreement and paid the percentage of the fee dictated by the Prenuptial Agreement. It is also undisputed that Ms. Bennett ceased making payments in October of 2018, when she commenced this action (by filing a complaint that made no mention of the Barker cases). Finally, it is undisputed that, between October of 2018 and the entry of judgment, Ms. Bennett failed to remit $706,164.83 in fees, not including pre-judgment interest. It would seem, therefore, that Ashcraft has indisputably established all of the elements of its breach of contract claim.

Ms. Bennett had sought sanctions

In this case, the court made no findings, but findings were unnecessary because it is abundantly clear from the record that the motions for sanctions were patently groundless. The motions were based on Ms. Bennett’s disagreement with Ashcraft’s interpretation of the law and the facts. Ms. Bennett contended that Ashcraft had falsely represented that Ms. Bennett had waived the right to challenge the enforceability of the Prenuptial Agreement. Ashcraft denied that it had agreed never, under any circumstances, to assert that Ms. Bennett had waived that right. In dismissing most of Ms. Bennett’s second amended complaint, including all of the counts relating to the Barker settlement, the court concluded that her allegations failed to state a claim upon which relief could be granted. In these circumstances, Ashcraft could not have acted in bad faith or without substantial justification.

The court awarded the firm pre-judgment interest. (Mike Frisch)

What One Has Earned

The Massachusetts Supreme Judicial Court affirmed the disposition of law firm breakup litigation

The plaintiff is a Boston law firm that specializes in personal injury cases. The defendant headed up a law practice that specializes in federal workers' compensation cases (OWCP practice). Effective March 1, 2016, the plaintiff and the defendant entered into an employment and purchase of practice agreement (agreement) under which they agreed to work together through at least March 30, 2019, and possibly March 30, 2020, with respect to the defendant's law practice. Under the parties' agreement, for the year beginning on April 1, 2019, and continuing through March 30, 2020, the defendant held the option either to continue working or to retire, with differing compensation depending on which option he chose. Upon the defendant's retirement, the plaintiff was to have control of the entire OWCP practice. From and after the defendant's retirement, however, the agreement provided for compensation to the defendant for seven additional years, in the form of a portion of revenues from the OWCP practice.

During the first year of the agreement, the plaintiff was to provide space for the defendant in its office, as well as "experienced attorney work" to support the OWCP practice. The agreement "contemplated that sometime prior to the expiration of [y]ear [one], [the plaintiff] will designate an attorney to devote [one hundred percent] of his/her professional time to the OWCP [p]ractice with other attorneys and support staff continuing to provide sufficient resources to continue to maintain a high level and quality of service to federal compensation clients; the designation of such personnel is subject to the acceptance and approval of [the defendant]." In return, the defendant was responsible for the salaries of certain then-current employees and for case and practice expenses, and had to pay the plaintiff a monthly amount as "a nominal fee" for office space and services provided by the plaintiff. The defendant was entitled to all profits generated from the OWCP practice that first year. Beginning in the agreement's second year, while the plaintiff was to continue providing space and attorney work to the OWCP practice, all income from the OWCP practice was to be deposited in an OWCP practice operating account, from which the plaintiff and the defendant were to be compensated pursuant to formulas set forth in the agreement.

The agreement included a provision regulating the termination of the parties' arrangement, and the allocation  of accrued expenses, if they decided at any time before March 30, 2017 (i.e., within thirteen months after inception), not to continue working together. In the event of such a termination, and after the allocation of accrued expenses, the defendant was to retain the OWCP practice, as well as "all practice and case expenses going forward." The agreement was otherwise silent on any termination following March 30, 2017. Perhaps predictably enough (if not so predictably as to have been addressed in the agreement), at some point after March 30, 2017, the parties developed irreconcilable differences and, in a telephone conversation between the defendant's attorney and the plaintiff's managing partner on November 29, 2017, the defendant's attorney advised the plaintiff that the defendant wished to "unwind" the parties' relationship, taking his former staff and clients with him. Soon thereafter, on or about December 6, 2017, the defendant left the plaintiff's office with all the cases from the OWCP practice. Importantly for present purposes, the cases the defendant took with him included more than eight thousand hours of unbilled work by the plaintiff's attorneys and paralegals over the approximately twenty months since the parties had commenced their collaborative arrangement.

The law firm sued

The plaintiff brought claims for breach of contract and the duty of loyalty, and for quantum meruit, and the defendant counterclaimed for breach of contract and fiduciary duty. The jury found no breach of contract or breach of the duty of loyalty or fiduciary duty by either party, but awarded the plaintiff $350,316.75 on its quantum meruit claim.

The lawyer-drafted agreement had a notable gap

the agreement was glaringly silent concerning the allocation of accrued revenues and expenses in the event of any dissolution of the parties' arrangement after the completion of the first year but before the defendant's retirement during or after the third year. Though the parties acknowledged that the agreement was an integrated contract "pertaining to the subject matter contained herein,"  that summary statement does not supply contractual regulation of the circumstances giving rise to the parties' current dispute.

Thus creating issues for the jury to resolve.

Affirmed

Assuming (without deciding) that the defendant is correct in his contention that the agreement required the plaintiff to designate an attorney to devote one hundred percent of the attorney's professional time to the OWCP practice,  the evidence at trial was sufficient to establish that three different attorneys were designated to support the defendant's OWCP practice at various times and were prepared to devote one hundred percent of their time to the practice. Though the defendant approved each designation, he thereafter refused to work with each of the three. The evidence was sufficient to support the jury's conclusion that the plaintiff did not commit a breach of the agreement by failing to designate an attorney to devote one hundred percent of their time to the OWCP practice, and we discern no abuse of discretion by the trial judge in denying the defendant's motion to set aside the verdict.

(Mike Frisch)

Georgia Considering Legal Malpractice Statute of Limitations In Transactional Matters

A summary of an oral argument held before the Georgia Supreme Court on May 18

DOUGLAS COE et al. v. PROSKAUER ROSE LLP (S21G1250)

The law firm Proskauer Rose, LLP provided a legal opinion to Douglas Coe, Jacqueline Coe, and GFLIRB, LLC, (collectively, “the Coes”) in 2002 regarding a proposed tax strategy.

The opinion advised that the Internal Revenue Service “should not” impose penalties on the Coes if they followed the proposed tax strategy; however, the IRS later audited the Coes, rejected the tax strategy, and imposed penalties.

After settling with the IRS in 2012, the Coes sued Proskauer in Fulton County State Court, claiming legal malpractice, fraud, and negligent misrepresentation. The trial court ultimately granted summary judgment in favor of Proskauer, and the Coes appealed the trial court’s decision.

The Court of Appeals, the state’s intermediate appellate court, affirmed the trial court’s decision, concluding that the Coes’ lawsuit fell outside the four-year statute of limitations period for fraud, misrepresentation, and legal malpractice because their claims accrued in 2002 when Proskauer provided them its legal opinion. The Court of Appeals also concluded that the Coes should have been on notice regarding the issues surrounding the tax strategy well before the IRS audit was complete.

The questions now before the Supreme Court are: Were the plaintiff’s claims of fraud and negligent misrepresentation barred by the four-year statute of limitations period applicable to legal malpractice claims? Did the plaintiffs fail, as a matter of law, to exercise ordinary care to discover the defendant’s allegedly fraudulent acts?

Several Georgia-based accounting firms filed a brief as amici curiae, or friends of the court, supporting Proskauer’s position in the case. Another amicus brief, also in support of Proskauer’s position, was filed by former presidents of the State Bar of Georgia and law firms
with substantial transactional practices in Georgia.

Attorneys for the Appellants (Douglas Coe et al.): Josh Belinfante, Jeven R. Sloan, Harry W. MacDougald
Attorneys for the Appellee (Proskauer Rose LLP): Harold D. Melton, Mark G. Trigg, Shari L. Klevens, Lisa S. Blatt, John S. Williams, Matthew Rice, Tyler Infinger, Denis Hurley Amici Curiae in Support of the Appellee (Aprio, LLP; Bennett Thrasher, LLP; Frazier & Deeter, LLC; Hancock Askew & Co; Mauldin & Jenkins LLC; Nichols Cauley & Associates, LLC.): Johannes S. Kingma, Jeffrey C. Hoffmeyer

Amici Curiae in Support of the Appellee (Former Presidents of the State Bar of Georgia, law firms with transactional practices in Georgia): Laurie Webb Daniel, Matthew D. Friedlander

Access the briefs:
- Brief of the Appellant
- Brief of the Appellee
- Reply Brief of the Appellant
- Amicus Brief in Support of the Appellee (Aprio, et al.)
- Amicus Brief in Support of the Appellee (Former Presidents of the State Bar of Georgia, et al.)

The heavyweights aligned with the firm demonstrate the significance of the issue of tolling statutes of limitations in transactional matters. (Mike Frisch)

No Summary Judgment For Departed Associate On Non-Compete Provision

A law firm associate and the office manager who departed and were sued by the former firm were granted summary judgment on a punitive damages claim but the denial of that relief was otherwise affirmed by the New York Appellate Division for the First Judicial Department

Plaintiff Feiner & Lavy, P.C., is a law firm that specializes in immigration law. Defendant Gadi Zohar, Esq. was a former associate attorney with plaintiff, and defendant Jihan Asli was its office manager for several years before joining Zohar's law firm, Zohar Law PLLC. Plaintiff alleges that defendants breached the terms of their employment agreements. According to plaintiff, Zohar entered into an employment agreement with plaintiff that included a requirement to maintain as confidential customer lists or other customer information, a noncompetition agreement, and a nonsolicitation agreement. According to plaintiff, the employment agreement prohibited Zohar from engaging in any business that conducts the same or similar business as plaintiff for a period of 36 months, within 90 miles of New York City or in the Israeli community. The agreement also purported to prohibit Zohar from directly or indirectly soliciting any business from customers or clients of plaintiff for a period of 36 months within 90 miles of New York City or in the Israeli community; or advertise on Israeli/Hebrew websites, TV or newspaper ads.

Plaintiff alleges that Asli entered into a confidentiality agreement wherein she agreed to maintain the confidentiality of customer or client information. Plaintiff alleges that Zohar breached the terms of his employment agreement by directly and indirectly engaging in the practice of immigration law in New York City and soliciting plaintiff's clients. As to defendant Asli, plaintiff alleges that she breached the terms of the confidentiality agreement by divulging confidential information pertaining to plaintiff's clients. Plaintiff contends that it is entitled to recover damages for defendants' alleged solicitation of its clients.

Defendants moved for summary judgment to dismiss the complaint, arguing that the employment agreement was null and void under Rule 5.6(a)(1) of the New York Rules of Professional Conduct, as it barred Zohar from representing clients and performing legal work within 90 miles of New York City. They argued that the noncompete clause should not be saved by partial severance to bring it into compliance with Rule 5.6(a)(1) because it was so overly broad that it constituted anticompetitive conduct and demonstrated plaintiff's lack of good faith in protecting its business interest. In addition, they argued that Zohar did not solicit plaintiff's clients, but its clients sought out Zohar after they were informed that he was no longer with plaintiff's law firm.

The court

We find that Supreme Court properly denied defendants' motion for summary judgment in that there remain issues of fact as to whether the non-solicitation clause is enforceable, and whether defendants solicited plaintiff's clients or disclosed confidential client information in violation of their respective agreements with plaintiff.

Rule 5.6(a)(1) of the Rules of Professional Conduct (22 NYCRR 1200.0) bars lawyers from "participat[ing] in offering or making a partnership, shareholder, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship," except under limited circumstances that are not relevant to this appeal. To the extent the noncompete provision in the employment agreement that Zohar executed with plaintiff seeks to prevent him from "conducting business activities that are the same or similar to those of [plaintiff]" within 90 miles of New York City or in the Israeli community, it is void and unenforceable (see Cohen v Lord, Day & Lord , 75 NY2d 95 [1989]; see also Denburg v Parker Chapin Flattau & Klimpl , 82 NY2d 375, 381 [1993]).

However, the noncompete clause here may be enforceable to the extent that it prohibits Zohar from soliciting plaintiff's clients (see Graubard Mollen Dannett & Horowitz v Moskovitz , 86 NY2d 112, 119-120 [1995]; see e.g. Feldman v Minars , 230 AD2d 356 [1st Dept 1997]).

Defendants' submissions failed to establish that the nonsolicitation clause was unenforceable as an undue restriction on Zohar's ability to practice law (see Cohen , 72 NY2d 95), or that Zohar did not solicit plaintiff's clients, through Asli, in violation of his employment agreement, which would be actionable (see generally Greenwich Mills Co. v Barrie House Coffee Co. , 91 AD2d 398, 404-405 [2d Dept 1983]). As for plaintiff's claims against Asli, rule 5.6(a)(1) precludes agreements that "restrict[] the right of a lawyer to practice after termination of the relationship," and is thus inapplicable to the enforceable confidentiality agreement that she executed with plaintiff. Accordingly, defendants' argument that this agreement was void and unenforceable, based solely on rule 5.6(a)(1), is unavailing.

The court found no basis for a punitive damages claim. (Mike Frisch)

Treasure Trove On Thumb Drives: Remand Ordered In Dispute Over Conduct Of Departing Attorneys

The Massachusetts Supreme Judicial Court has remanded in a suit brought concerning the conduct of departing law firm attorneys.

Over the course of more than two decades representing clients in asbestos litigation, the plaintiff Governo Law Firm LLC (GLF) systematically created the contents of a research library, a treasure trove of materials amassed from GLF's own matters as well as other sources, that gave it a competitive edge in attracting and providing legal services to clients in this specialized field. GLF also built electronic databases to render the library readily searchable, facilitating retrieval of the information. In the fall of 2016, these proprietary materials were taken by a group of nonequity employees at GLF (attorney defendants) as they prepared to start a new law firm, the defendant CMBG3 Law LLC (CMBG3), in case their planned purchase of GLF proved unfruitful. The attorney defendants took turns secretly downloading the library and databases, as well as GLF's employee handbook, other administrative materials, and client lists, onto high-capacity "thumb drives";  the attorneys then surreptitiously removed these materials from GLF's offices. They subsequently made an offer to GLF's sole owner, David Governo, to buy GLF, stating that they would resign if the offer were not accepted that day. Governo rejected the offer that same day and locked the attorney  defendants out of GLF's computer systems. The next day, the attorney defendants opened for business under the previously incorporated CMBG3, where they used the stolen materials and derived profits therefrom.

GLF filed a complaint in the Superior Court asserting claims against its former employees and CMBG3. A jury found some or all of the defendants liable on the claims for conversion, breach of the duty of loyalty, and conspiracy, and none of the defendants liable for unfair or deceptive trade practices in violation of G. L. c. 93A, § 11. The jury awarded GLF $900,000 in damages, calculated based on the defendants' net profits. The judge then issued a permanent injunction enjoining the defendants from using the library and databases, and ordering those materials removed from the defendants' computers.

In GLF's appeal from certain of the judge's instructions at trial, as well as his posttrial rulings, we first address the question whether the attorney defendants, who misappropriated proprietary materials from their employer during their employment, and subsequently used those materials to compete, may be liable for unfair or deceptive trade practices pursuant to G. L. c. 93A, § 11, for actions that were, in part, taken while still employed by GLF. We conclude that that they, and their new firm, may be. Because the judge erroneously instructed the jury that the defendants' preseparation conduct was not relevant to GLF's claim under G. L. c. 93A, § 11, and because GLF has shown that its rights were affected thereby, the matter must be remanded for a new trial on the G. L. c. 93A, § 11, claim. We next address the scope of the permanent injunction. Although the jury found that the defendants were liable for conversion of GLF's proprietary materials, the judge issued a permanent injunction precluding the defendants' use of
only a subset of these materials. We conclude that the judge abused his discretion. Finally, we consider GLF's claims with respect to pre- and postjudgment interest. We conclude that prejudgment interest was not required under G. L. c. 231, § 6H, but that GLF is entitled to postjudgment interest.

Three attorneys were involved

The materials copied included three different types of information: a research library, databases, and administrative files. The research library contained over 100,000 documents relevant to asbestos litigation, including witness interviews, expert reports, and investigative reports, and was known within GLF as the "8500 New Asbestos Folder" (8500 folder). The library was developed by GLF over a period of twenty years, at a cost of more than $100,000.  According to testimony by GLF's expert, these materials were "extremely valuable" and provided a competitive advantage to GLF over other law firms within the field of asbestos litigation.

The departure

The attorney defendants incorporated CMBG3 on November 1, 2016. On November 18, 2016, they "hijack[ed]" the scheduled GLF partners' meeting and offered Governo $1.5 million in cash, plus net profits for some of the attorneys' work performed through the end of the year, to buy GLF.8 The attorney defendants gave Governo until 5 P.M. that day to respond and told Governo that if he rejected their offer, they would resign in thirty days.

The offer was rejected that same day.

Instruction error

The erroneous instruction was prejudicial. Had the jury considered the attorney defendants' conduct during their employment -- in particular, their conversion of GLF property -- the jury well might have reached a different result.

Injunction error

the exclusion of the administrative files from the scope of the permanent injunction was an abuse of discretion.

The oral argument and other case materials from the Suffolk Law web page are linked here  (Mike Frisch)

Dismissal Of Claims Against Former Firm Affirmed

The Vermont Supreme Court affirmed the grant of summary judgment against an associate attorney who had sued his former law firm on a variety of theories premised on his belief that he had been undercompensated for his work.

Defendant hired plaintiff as an associate attorney in February 2016. Throughout his nearly two-year employment with defendant, plaintiff believed that he was underpaid.

His concerns came to a head and led to his termination

In February 2019, plaintiff filed suit, asserting claims for promissory estoppel, unjust enrichment, intentional misrepresentation, wrongful termination, defamation, and tortious interference with contractual relations. As relevant to this appeal, he first alleged that defendant promised him “a partnership-track position that would earn compensation of $100,000 within five years” and that he would receive “larger raises each of those years.” He argued that he relied on  this promise and continued to work for defendant when he otherwise would have left, and thus sought recovery under a promissory estoppel theory. Next, he argued that defendant was unjustly enriched by his work because it was inequitable for defendant to benefit from plaintiff’s work and billable hours under these circumstances. Third, he contended that Attorney Monaghan’s statement—that plaintiff’s goal of making partner and earning $100,000 in five years was “reasonable”—constituted an intentional misrepresentation because defendant never intended to make plaintiff a partner, but Attorney Monaghan made the statement to induce plaintiff to continue working for defendant. Finally, he asserted that defendant’s decision to fire him after he raised his legal claims in the April 2018 letter violated public policy. Defendant moved for summary judgment on all claims

There was no enforceable promise made or actionable misrepresentation

At best, Attorney Monaghan was expressing his opinion that it was reasonable that plaintiff might have the opportunity to become a partner and earn $100,000 annually in five years.

Nor was there unjust enrichment

there are no facts showing that plaintiff conferred an uncompensated benefit on defendant here. Defendant paid plaintiff the agreed salary for the work that he was hired to perform, and plaintiff even received numerous bonuses and raises. The record does not show that he took on any additional work beyond the scope of his employment that could be considered uncompensated. This latter fact distinguishes this case from the cases plaintiff cites in support of his argument; in each instance, the employee furnished an uncompensated benefit on the employer.

Public policy claim

Plaintiff asks us to conclude that public policy prohibits an employer from firing an employee in response to the employee’s threat to sue the employer. Plaintiff argues that there are several public policies violated when an employer fires an employee in response to a lawsuit, including the employee’s rights to access the courts, to raise claims against an employer, and to be free from retaliation for raising such claims.

Rejected

we need not determine the availability or scope of this type of wrongful termination claim under Vermont law because we conclude that plaintiff has not presented facts tending to show that his termination violated a “clear and compelling public policy” such that defendant’s conduct was “cruel or shocking to the average person’s conception of justice.”

...Here, plaintiff’s threatened lawsuit against defendant involved his own future compensation and promotion opportunities and thus does not implicate any public concern.

(Mike Frisch)

Inherent Conflicts; Trade Names

A Staff Report from the web page of the Ohio Supreme Court

The Ohio Board of Professional Conduct has issued two advisory opinions addressing rules regarding law firm representation of current clients and the use of trade names by law firms.

Advisory Opinion 2020-10 analyzes a law firm’s proposed representation of two adverse clients negotiating the same transaction. The board found an inherent conflict of interest in such an arrangement, even when the lawyers are separately assigned to each client, screening of the lawyers is utilized, and both clients consent to the arrangement. 

The board concluded that the lawyers’ independent professional judgment and competence would be compromised by the concurrent representation and would require an impermissible departure from the rules governing the imputation of conflicts.

Advisory Opinion 2020-11 concludes that a recent amendment to the Rules of Professional Conduct permits the use of trade names by Ohio law firms, provided the trade name is not false, misleading, or unverifiable. The opinion gives several examples of trade names that would be prohibited and identifies names that would be considered permissible.

Screening does not cure direct adversity

The steps proposed by the law firm in order to represent the two clients underscore the inherent nature of the conflict of interests that exist in the concurrent representation of two or more firm clients in the same transaction. The key features of the law firm’s proposal to resolve the conflicts, a combination of client consent and the screening of two groups of assigned lawyers, is not provided for in the Rules of Professional Conduct as a method to ameliorate conflicts arising from concurrent representation in the same law firm. The firm’s proposal would require a departure from the rules governing the imputation of conflicts that the Board is reluctant to endorse. For the foregoing reasons, the Board concludes that the law firm’s proposed concurrent representation of the two adverse clients in the same transaction is not permissible.

The trade name opinion

Because a trade name may contain one word or a combination of words, it may be considered misleading if it contains a material misrepresentation of fact or omits a fact necessary to make the trade name, considered as a whole, not materially misleading. Prof.Cond.R. 7.1, cmt. [2]. A trade name may also be misleading if a substantial likelihood exists that it will lead a prospective client to formulate a specific conclusion about the lawyer or the lawyer’s services for which there is no reasonable factual foundation. Id. For example, a trade name that implies results, such as “Zero Tax” or “Winning Law Firm,” would be considered misleading because it could lead a reasonable person or a prospective client to form an unjustified expectation that certain results can be obtained from the lawyer or firm. Id., cmt.[3]. In addition, trade names that imply a connection to a governmental agency, e.g. “Attorney General Collections,” “Public Defenders,” “Ohio Judge’s Law Group,” “Social Security Administration Associates;” imply expediency, e.g. “Divorce Fast,” “EZ Divorce,” “Quick Settlement;” or that imply a connection to an existing nonprofit or charitable organization, e.g. “Legal Aid Associates,” “Project Innocence Associates,” or “Legal Assistance Foundation;” are inherently false or misleading and implicate Prof.Cond.R. 7.1. See generally S.C. Bar Eth. Adv. Op. 03-04.

On the other hand, there exists a number of possible law firm names that utilize a trade name and that would be permissible under Prof.Cond.R. 7.1 and 7.5. For example, a law firm with multiple lawyers that concentrates its law practice in representing plaintiffs in personal injury law cases could ethically use the trade name “Ohio Personal Injury Associates.” Prof.Cond.R. 7.4(a), cmt.[1]. The name would only be considered false or misleading if no lawyers in the firm practice personal injury law or the firm ceased providing any legal services in the area of law used in the trade name. Likewise, a firm that exclusively practices in the area of insurance defense law may appropriately use the trade name “Ohio Insurance Defense Counsel.” However, a trade name is not required to reference the area of legal services the lawyer or the law firm provides in order to not be false, misleading, or nonverifiable. For example, a trade name such as “Summit Law” or “First Legal” would be permissible, even though the trade name does not indicate the area of law practiced

(Mike Frisch)

Dissolution Obligations At Issue

Certified questions in the Howrey bankruptcy case are up for argument before the District of Columbia Court of Appeals on September 12 

No. 18-SP-0218 ALLAN B. DIAMOND, CHAPTER TRUSTEE OF HOWREY, LLP V. BENSON KASOWITZ, ET AL

Christopher R. Murray, Esquire
Christopher Sullivan, Esquire
Shay Dvoretzky, Esquire
Michael Ryan Pinkston, Esquire
Robert Radasevich, Esquire
Jack Mckay, Esquire
Robert Novick, Esquire
Gregory G. Garre, Esquire
Brian R. Matsui, Esquire
Logan G. Haine-Roberts, Esquire

In a February 2018 opinion, the United States Court of Appeals for the Ninth Circuit sought guidance on governing District of Columbia law

Pursuant to D.C. Code § 11-723 we respectfully ask the District of Columbia Court of Appeals to resolve three questions of District of Columbia law that “may be
determinative” of this bankruptcy appeal. D.C. Code § 11- 723(a):

(1) Under District of Columbia law does a dissociated partner owe a duty to his or her former law firm to account for profits earned post-departure on legal matters that were in progress but not completed at the time of the partner’s departure, where the partner’s former law firm had been hired to handle those matters on an hourly basis and where those matters were completed at another firm that hired the partner?

(2) If the answer to question (1) is “yes,” then does District of Columbia law allow a partner’s former law firm to recover those profits from the partner’s new law firm under an unjust enrichment theory?

(3) Under District of Columbia law what interest, if any, does a dissolved law firm have in profits earned on legal matters that were in progress but not completed at the time the law firm was dissolved, where the dissolved law firm had been retained to handle the matters on an hourly basis, and where those matters were completed at different pre-existing firms that hired partners of the dissolved firm post-dissolution?

Our phrasing of the questions should not restrict the Court’s consideration of the issues. The Court may rephrase a question as it sees fit in order to best address the contentions of the parties or the specifics of D.C. law.

The Ninth Circuit cites the 1990 D.C. decision in Beckman v. Farmer on partnership dissolution.

The case is one of the career highlights of my friend and mentor Jake Stein, perhaps the most universally beloved lawyer in the history of the District of Columbia Bar. (Mike Frisch)

Resignation Accepted

The Nebraska Supreme Court affirmed a decision on the valuation of a departed partner of Fredericks Peebles & Morgan's interest.

This appeal concerns a determination of Fred Assam’s ownership interest in the law firm of Fredericks Peebles & Morgan LLP (FPM). After Assam voluntarily withdrew from the firm, FPM filed suit seeking a declaration of the rights of FPM and Assam under the governing partnership agreement (Partnership Agreement). Following a bench trial, the district court for Douglas County declared the fair market value of Assam’s interest in FPM to be $590,000. For the reasons stated herein, we affirm.

The story

FPM is a limited liability partnership composed of legal professionals. FPM has a nationwide practice which specializes in handling legal issues impacting Native American tribes, including, but not limited to, facilitating interrelationships between Native American tribes and the federal government, state governments, and other tribes, as well as foreign governments and foreign companies. FPM represents Native American tribes, entities, and individuals, as well as banks and financial institutions which deal with Native American tribes.

FPM was organized under the laws of the District of Columbia, and its principal place of business is located in Omaha, Nebraska. At the relevant time, FPM had dozens of attorneys throughout offices in Sacramento, California; Louisville, Colorado; Sioux Falls, South Dakota; Omaha, Nebraska; Winnebago, Nebraska; Peshawbestown, Michigan; and Washington, D.C.

As of October 1, 2014, FPM had five equity partners: Thomas W. Fredericks, John M. Peebles, Lance G. Morgan, Conly J. Schulte, and Assam. Fredericks, Peebles, Schulte, and Assam each held a 23.25 percent interest in FPM, and Morgan held the remaining 7 percent. FPM traditionally implemented a team approach in servicing its clients’ accounts, but nearly 90 percent of FPM’s clients were brought in by Fredericks, Peebles, Morgan, and Schulte. Assam, a financial attorney, worked on accounts brought in by the other equity partners. Only three clients followed Assam when he left FPM, two of which maintained a relationship with FPM.

Assam's actions came in the wake of compensation restructuring discussions 

On the evening of October 2, 2014, Assam sent an email to his partners in which he voluntarily resigned from FPM. In the email, Assam advised, “As you are all aware, over the course of the last few months, I have been under a personal attack by . . . Fredericks.” Assam stated the compensation structure Fredericks had proposed would “transfer complete control of [FPM] over to [Fredericks]. This means the life of my family and me will [sic] in complete control of a man who does not care for me and, in fact, will apparently act with intent to only to [sic] harm me.”

The following morning, Assam, whose office is located in Sioux Falls, flew to Denver, Colorado, to attend a partner meeting at the Louisville office, which had been scheduled prior to Assam’s resignation email. During his flight, Assam reviewed some of the more recent compensation structure proposals and realized the documents he had relied on when deciding to resign had significantly changed. At the meeting, Assam told the partners he had made a mistake and wanted to rescind his resignation and rejoin FPM. The partners declined and formally voted to accept Assam’s resignation...

After Assam’s resignation, the partners made him an offer of payment intended to represent the fair market value of his equity interest as set out in the Partnership Agreement. However, the two sides could not agree as to the value of Assam’s interest.

The firm filed and prevailed in a declaratory judgment action. 

Because we find no error in the district court’s ruling that FPM did not breach the Partnership Agreement, Assam is not entitled to a money judgment.

Fredericks Peebles & Morgan v. Assam can be found here. (Mike Frisch)

Ethics Of Spam Filters

The best Florida ethics blog - sunEthics - has a recent post of interest

Firm had duty to have sufficient procedures to ensure timely receipt of orders, and in using email system without safeguards or oversight firm could not claim excusable neglect under Fla.R.Civ.P. 1.540 when it failed to timely appeal emailed order it allegedly did not receive. [Added 10/18/17]

A trial court rendered an order assessing fees against Law Firm’s client.  The order was emailed to the mail addresses designated by each party’s counsel.  The clerk’s records showed that the email sent to Law Firm was accepted by the recipient server.  Law Firm, however, claimed that it never received the emailed order.  Accordingly, Law Firm’s client missed the deadline to appeal the order.  Law Firm filed a motion for relief from judgment under Fla.R.Civ.P. 1.540(b), alleging excusable neglect.
            A consultant who had provided IT services for Law Firm testified that the Firm’s system “was configured to drop and permanently delete emails perceived to be spam without alerting the recipient that the email was deleted.”  He had advised the Firm against this.  The Firm rejected the consultant’s recommendation to hire a third-party vendor to handle spam filtering “because [the Firm] did not want to spend the extra money.”  The Firm also rejected his recommendation to get an online backup system for about $700 to $1200 per year.  The consultant eventually ceased working for the Firm “because the firm rejected his recommendations.”
            An expert witness testified that Law Firm “did not properly implement and utilize its email filtering system.”  He understood that the Firm’s email system “was set to drop and delete emails identified as spam.”  The expert stated that, if the Firm was his client and wanted to implement such a system, “he would require the client to sign a waiver exonerating him from responsibility.”
            The trial court denied the motion for relief from judgment.  The First DCA affirmed, concluding that no excusable neglect was demonstrated.  The appeals court stated that, based on the testimony, the trial court could conclude that [Law Firm] made a conscious decision to use a defective email system without any safeguards or oversight in order to save money.  Such a decision cannot constitute excusable neglect.”  See, e.g., Bequer v. Nat’l City Bank, 46 So.3d 1199 (Fla. 4th DCA 2010) (reversing an order setting aside a default final judgment based on excusable neglect where the bank’s inaction was not the result of a ‘system gone awry,’ but rather of a ‘defective system altogether’).”
            The court concluded:  “Counsel has a duty to have sufficient procedures and protocols in place to ensure timely notice of appealable orders.  This includes use of an email spam filter with adequate safeguards and independent monitoring of the court’‘s electronic docket.  In cases where rendition of an appealable order has been delayed for a significant period of time, it might also include the filing of a joint motion for a case management conference to ensure that the order has not slipped through the cracks. [Law Firm] made no effort to do any of these things, reflecting an overall pattern of inaction and disengagement.  In short, there was an absence of ‘any meaningful procedure in place that, if followed, would have avoided the unfortunate events that resulted in a significant judgment against’ [Law Firm’s client].”  Emerald Coast Utilities Authority v. Bear Marcus Point, LLC, __ So.3d __ (Fla. 1st DCA, No. 1D15-5714, 10/6/2017) (on rehearing), 2017 WL 4448526.

(Mike Frisch)

Fee-Sharing In The Midwest

The Illinois Supreme Court held that fee-sharing agreement between law firms was enforceable

This appeal involves an action for breach of contract brought by one law firm against another after the defendant law firm refused to honor the fee-sharing provisions of the firms’ joint client retainer agreements. A single question of law is presented: Are fee-sharing provisions in otherwise valid retainer agreements between clients and two separate law firms void and unenforceable if the primary service performed by one firm is the referral of the clients to the other but the agreements fail to specifically notify the clients that the lawyers in each firm have assumed joint financial responsibility for the representation?

Reversing the judgment of the circuit court of Lake County dismissing the plaintiff law firm’s second amended complaint pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2014)), the appellate court answered that question in the negative, rejecting the defendant law firm’s argument that the agreements’ lack of an express statement that the attorneys assumed joint financial responsibility violated Rule 1.5(e) of the Illinois Rules of Professional Conduct of 2010 (eff. Jan. 1, 2010) and thereby rendered the agreements invalid. 2016 IL App (2d) 151148. In reaching this result, the court declined to follow the Appellate Court, First District’s decision in Donald W. Fohrman & Associates, Ltd. v. Mark D. Alberts, P.C., 2014 IL App (1st) 123351, to the extent that case held that fee-referral agreements must expressly inform clients that the attorneys are assuming joint financial responsibility.

We allowed the defendant law firm’s petition for leave to appeal in order to resolve the conflict between the appellate court’s decision in this case and Fohrman. Ill. S. Ct. R. 315(a) (eff. Mar. 15, 2016). We also granted the Illinois Trial Lawyers Association leave to file a brief amicus curiae. Ill. S. Ct. R. 345 (eff. Sept. 20, 2010). For the reasons that follow, we affirm the judgment of the appellate court and remand the cause to the circuit court for further proceedings...

We therefore agree with plaintiff that the fee-sharing provisions of the 10 joint client retainer agreements at issue in this case were not fatally defective under Rule 1.5(e) of the Illinois Rules of Professional Conduct of 2010 simply because they did not contain language specifically stating that plaintiff and defendant had agreed to assume joint financial responsibility for the representation. The circuit court therefore erred as a matter of law when it dismissed plaintiff’s second amended complaint on that basis, and its judgment was properly reversed by the appellate court. In light of this conclusion, we need not address plaintiff’s additional contentions that certain of the retainer agreements were not subject to the current version of Rule 1.5(e) because they were signed before the Rules of Professional Conduct took effect or that defendant should be estopped from contesting the validity of the agreements under Rule 1.5(e) based upon his failure to pursue the question in an earlier appeal.

(Mike Frisch)