Vol. 79, No. 12, December
Breaking Up is Hard to Do
Before your law firm breaks up, protect
your clients' interests and protect yourself from potential malpractice
claims by establishing some practical procedures.
by Thomas J. Watson
There was a time when a lawyer, after graduation from law school and
admission to the bar, would be hired by a law
firm and expect to remain with that firm for many years, perhaps even
for an entire career. Some lawyers aspired to eventually
acquire some ownership in their firm. In today's mobile society, the
tradition of a lawyer associating with only one or two firms has
been replaced by frequent changes.
Thomas J. Watson, Marquette 2002, is director of
communications at Wisconsin Lawyers Mutual Insurance Co., Madison.
Meanwhile, the continuity of most law firms isn't quite as
predictable as it was years ago either. Experience has shown
that sometimes even well-established law practices eventually
With the passage of time and management retirements,
the dynamics of a firm may change to the point that it is not feasible
to continue operations. When the professional liability
insurance policy insuring the firm terminates
because the firm has dissolved, coverage for the lawyers likewise
When lawyers part ways, the breakup sometimes can be ugly. The
issues that often arise include:
- properly severing client
- handling client files
- determining malpractice coverage for the departing lawyers, and
- identifying potential malpractice claims against the firm and the
departing lawyer or lawyers.
There are steps law firms should take before dissolution occurs and
before a lawyer leaves the firm. Sally Anderson, vice president
- claims at Wisconsin Lawyers Mutual Insurance Co., says, "A
good, well-thought-out agreement made when the law firm is
getting started can make a huge difference. Then there is a procedure
to follow." If a firm doesn't have an agreement in place, now is
the time to consider one.
Ripon attorney Steve Sorenson, who saw his law firm break up several
years ago, says there are two things lawyers at firms
should do to avoid problems: have a mediation agreement in place to
deal with any disputes between the lawyers, and be honest with
each other. "Don't plan a breakup behind the backs of your
partners or associates. If you and a couple other partners are leaving,
tell everybody. If everyone is on the same page, it will go much
better than a 'surprise attack'."
Hiring a mediator to deal with lawyer disputes will pay for itself
many times over, Sorenson says. "Otherwise, you spend
too much time and money arguing with each other trying to work out
Madison personal injury lawyer Lee Atterbury agrees. "I heard
of some cases in which the lawyers fought over everything,
from their office property, to clients and fees."
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"That certainly doesn't help the image of the profession,"
says Sorenson. "And it's simply bad for business. Whether a client
stays with the law firm left behind, or goes with the departing
lawyer, that person doesn't care about the arguments between the
lawyers. Just get the work done right. If the law firm is in disarray,
clients will go somewhere else, and take a pretty negative view of
lawyers with them."
Atterbury has gone through two law firm breakups. His firms did not
need mediation, the breakups went very well, and
everyone was happy. "In one case, my partner said he wanted to go
practice with a good friend of his, so we just sat down and made the
proper arrangements. We were honest with each other - that's the
Those arrangements included perhaps the most important part of any
law firm breakup - communicating with the firm's clients.
Severing Client Relationships
Clients must decide whether to stay with the remaining firm, go with
the departing lawyer, or hire a new, unrelated lawyer. The
file belongs to the client, not the firm or the lawyer working on the
case. Atterbury says that makes file disputes easy to handle. "It's
up to the client - plain and simple."
When Atterbury's first law firm broke up, he and his partner drafted
a letter to each client, explaining the situation. "We
simply told them they can stay with the firm, go with the departing
lawyer, or find someone else. They made the choice and we lived
Anderson says a good letter can help clients understand the
situation and feel confident that they will still get good
representation, regardless of their choice. "If the client is
leaving the firm and going with the departing lawyer, make sure the
a signed consent form confirming the client's desire to transfer the
file. Remember, the client controls the file."
Similarly, Anderson says that if a client wants to stay, the law
firm is obligated to continue to represent the client or to assist
the client in securing other counsel, if that is the client's wish.
Absent a special agreement, a client retains a law firm, rather than
a particular lawyer in the firm, to provide legal services.
"Communication is the key," Anderson says.
Whether a client stays with the firm or goes with the departing
attorney can be a thorny issue among lawyers. While the
decision is solely the client's, sometimes a battle is waged within a
firm for that client.
"Lawyers are not supposed to solicit clients if they're leaving
a firm," Sorenson says, "but it does happen. It's a question
of honesty and ethics. I had one lawyer say to me, `I didn't solicit
the client, I just told him I was leaving and if he wanted to
come with me, he could.' Well, there's a fine line between informing
the client and soliciting him."
Anderson says that's why a joint letter is so important. "A
joint letter from both the firm and the departing lawyer ensures
that everything is being done above board."
Check the Files
When a client does leave the firm to stay with the departing lawyer,
it's important that the firm retain copies of files or ensure
that it has the right to copy all the files being taken by the
departing lawyer. Anderson says it is equally important that those files
are audited for potential trouble. "We had a case in which a law
firm got sued by a client of the lawyer who had left the firm. When
the lawyer left, the firm just let him take the files without keeping
copies and without any communication with the client. The
firm never bothered to ask the client where he wanted the file to go,
let alone obtain a consent form from him and formally end
the relationship between the firm and the client. Later on, when the
departed lawyer dropped the ball, the client filed a
malpractice claim against the firm."
While lawyers sometimes fight to keep clients, there also are times
when nobody wants particular clients. One lawyer
reports that when his firm broke up, he lost many very good clients,
while being left with debt, an old building, and several
"troublesome" clients and cases. "The lawyers who left
didn't take the messy cases, just the really good ones. That left me
with some messes
to clean up. I managed to do it, but it took me a long time to dig out
and it was costly too."
One of the areas of dispute that can arise among lawyers is dealing
with fees from cases. Atterbury says he knew of a situation
in which a law firm was breaking up, and "every time a case
settled, the lawyers were in court battling each other over the
Atterbury's firm handles nothing but personal injury cases, all done
on a contingency fee basis. When his firms broke up,
each firm's lawyers had to come up with a fee-splitting arrangement,
determining how much work the departing lawyer had done
on behalf of the firm before his departure and agreeing on when and
how the departing lawyer would pay the firm back after the
case was concluded for disbursements paid out while the case was
pending. In every case, Atterbury says, agreements were reached
and there was no discord among the lawyers. "As long as we sat
down and discussed the issues and put everything in writing, we
Another fee problem that can arise over a law firm breakup occurs
when clients leave with the departing lawyer and
the remaining firm wants the client to pay for work already done.
Anderson says this has been the source of malpractice claims.
"I've seen firms sue clients for fees, wanting to get paid before
the clients go with the departing lawyer, only to get hit with a
malpractice counterclaim. It becomes a real mess."
Malpractice Insurance Coverage
The liability exposure for claims arising out of professional
services rendered by a lawyer while associated with multiple firms
often is unrecognized and misunderstood. Dennis Marx, vice president -
underwriting at Wisconsin Lawyers Mutual Insurance Co.,
says that when asked about coverage for potential claims arising out
of professional services previously rendered, a lawyer
sometimes responds, "That's not a problem. I'm covered by my
former firm's policy."
Not necessarily, says Marx. To truly appreciate the potential
pitfalls of this assumption, he says it is helpful to remember that
professional liability insurance policies for lawyers generally are
written on a claims made basis. Under these policies, coverage
is provided only for claims made and reported to the insurance company
during the policy period. As a result, coverage ceases when the policy
Policies may provide coverage to lawyers formerly affiliated with a
firm, but only for claims arising out of professional
services rendered by the lawyer when affiliated with that firm. This
coverage often is provided through a policy's definition of who is
insured. Still, a lawyer may want to carefully evaluate the
consequences of relying on coverage provided by this policy.
If you are leaving a law firm, you should consider the following:
- Check to see whether the policy of your former firm covers you
after you're gone.
- If a potential malpractice claim arises after you're gone, and
you are relying on your former firm's insurance coverage, you
will have to report the claim to your former firm - and be sure the
firm reports it to its carrier - otherwise the claim may not
- Consider obtaining a malpractice insurance policy that provides
prior acts coverage. Without that protection, a risk
created years earlier while you worked at another firm could become
a costly surprise years later.
When law firm breakups occur, it is critical that both the departing
lawyers and the lawyers remaining in the firm do several
things: 1) communicate with each other; 2) communicate with the firm's
clients (preferably through a jointly written letter from the
firm and the departing lawyer), spelling out the clients' options and
rights and seeking directions from the clients about how they wish
to proceed; 3) consider drafting a written agreement between all the
lawyers of your firm, indicating the process that will be used
if lawyers leave the firm or if the firm breaks up; 4) make sure fees
are handled properly; and 5) consider the impact on malpractice
insurance protection of all lawyers involved.
As Lee Atterbury says, fighting among the lawyers "just isn't
worth it. Nobody wins."