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daily report MONDAY, APRIL 15, 2013
istock
The lateral affair: It’s more
than a casual romance
A suitor desiring a new professional relationship must act smoothly, ethically
Mary Welch | Special to the Daily Report
making a lateral move to another law firm is a lot like having
an affair.
You meet clandestinely. And if the stars align and you feel sure the
match is right, you face the difficult task of telling your partner—or partners, as the case may be—that it’s over. Then you get down to the business
of splitting assets.
As in affairs of the heart, switching alliances can be done gracefully or
sloppily, in worst cases sparking publicity, lawsuits and rancor.
“The law is clear on how an attorney should handle switching firms,”
says Allison Rhodes, a partner with Hinshaw & Culbertson in Portland,
Ore., whose practice is focused on legal ethics and professional responsibility. “You have a fiduciary duty to follow, not only the bar’s ethics rules,
but also any contracts or partnership agreements you may have with your
soon-to-be-former firm—sort of like a pre-nup. But there’s a lot of muck
that comes with it as well.”
Rhodes advises, “It’s best to eliminate stress by doing it the right way,
otherwise there are a lot of calls, yelling and screaming, and the nuclear
option, which is to write or call the clients. That’s like asking the kids who
they want to be with.”
There are many reasons why an attorney would proactively seek another
position. In today’s mobile world, it’s not so much making the move, it’s
making it as seamlessly and professionally as possible.
See Laterals, page 8
Allison Rhodes
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Laterals, from page 7
Intellectual property lawyer Gregory
Kirsch joined Smith Gambrell & Russell in
October after 16 years with Ballard Spahr
and its predecessor, Needle & Rosenberg.
“I didn’t have a problem with my former
firm,” he says. “It was a different opportunity that presented itself. I decided over
the summer to speak to some people I had
relationships with.”
Kirsch’s first piece of advice is to leave for
the right reasons. “Money is usually not the
best reason,” he says.
Michael Hollingsworth, managing partner of Nelson Mullins Riley & Scarborough’s Atlanta office, says he’s too busy to
proactively bring laterals to the firm, but he
takes phone calls, both from the attorneys
as well as recruiters. “The first step is to
see if the attorney is looking for the type of
practice where we might be interested,” he
says. “I’m focused on growing certain practices in Atlanta and I will talk one-on-one
with someone for about an hour.”
During that time, he says he tries to ascertain whether the candidate is a good match
for the firm’s definition of success, “which is
different from King & Spalding’s or Alston &
Bird’s. We have a definitive culture where an
extreme self-starter would flourish. I’m looking for a cultural fit, a self-starter who would fit
into our collegiate team,” Hollingsworth says.
To Hollingsworth, having a potential big
book of business isn’t the ultimate turn-on.
“I’m not going to destroy our culture to
bring in someone with a $4 million book
who won’t fit in,” he says. “That does more
damage than good.”
Courtship and beyond
Once the partner decides to see what’s
out there, it’s a matter of how to go about
meeting with firms. It becomes, says Thad
C. Kodish, managing principal of Fish &
Richardson’s Atlanta office, “tricky initiating the waltz. You meet for coffee, maybe
a drink. You see people testing the waters;
they may feel stagnant or it might be the
greener pasture thing.”
“I’m getting no shortage of these type of
phone calls,” he says. “If someone has mustered up the courage to call me, I’ll meet
with them. It’s an initial flirtation.”
As talks progress to a more serious potential relationship, lawyers must navigate ethical
rules and the practicalities of striking a deal.
In a nutshell, a lawyer must have given
notice to the incumbent firm before talking
to clients or recruiting colleagues.
“In many cases, the question becomes
‘How much can I do without telling the firm
and suffering any legal consequences,’” says
Robert W. Hillman, a law professor at the
University of California at Davis and an
expert on partnership
law. “You don’t have
to do it until late in the
process, but you should
worry about legal liability. There is an argument
to be made for not telling until you are virtually out the door and it’s
Robert W. Hillman ‘Adios, I’m gone.’ But
that tends to infuriate
firms and might bring on some civil liability issues. Or it might prompt an emotional
response, such as a lockdown.”
JOHN DISNEY/DAILY REPORT
Greg Kirsch advises leaving for the right reasons. “Money is usually not the best reason.”
JOHN DISNEY/DAILY REPORT
Michael Hollingsworth II wants a candidate who is a good match for Nelson Mullins’ definition of success.
Hillman, author of Law Firm Breakups:
The Law and Ethics of Grabbing and Leaving, advises the time to tell the firm is once
the partner has internally committed to
departure and while the partner is identifying an exit plan. “At this point, there is little
to be gained from keeping your decision to
yourself,” Hillman says. “Make sure you
look over the partner agreement or your
contract to see how much notice your contract says you must give. But keep in mind,
even if you give the required 30 days notice,
you might only be given 30 minutes before
you’re out the door.”
Calling it a “gray area,” Ronald Minkoff,
a partner in the litigation group and head
of the professional responsibility group
at Frankfurt Kurnit Klein & Selz in New
York, says that a firm should be told once
the negotiations become serious. “It’s a
battle between wanting to wait until you’re
pretty sure there will be no conflicts and
you’ll get an offer, to jeopardizing your position at the firm if the offer doesn’t come. It’s
a delicate game.”
A law firm isn’t looking for a pretty face,
either; they want a book of business or a
potential rainmaker or leader. So how can a
lawyer negotiate a deal, which involves talking about what clients will split and how much
their book is worth, without talking to clients?
This is where, as Rhodes put it, the
“muck” comes in.
Kirsch said he did not speak with clients
before making the move to Smith Gambrell
& Russell, but while weighing his options,
he discussed with courting firms the types
of clients he thought might follow. “I gave
them odds and a total revenue of what I
thought I could generate,” he recalled. “I
didn’t go into too much detail because of
client confidentiality. I was pretty much on
target, and there were surprises both ways.
Frankly, it’s a leap of faith.”
Partners, in turn, counseled him to which
clients he should solicit and which ones he
shouldn’t, based on relationships, history
and potential conflicts. “Of course, I could
have contacted all of them once I left, but I
didn’t,” he said. “I didn’t want to step over
those bounds that we agreed on.”
Richard Rice, managing partner of
American Legal Search, says that by the
time a partner comes to the recruiting firm,
he or she should already have reached out
to clients with a hypothetical conversation.
“You can ask, ‘Theoretically, if I left the
firm, would you be interested in coming
with me?’ In most cases the clients want to
know what’s in it for them. Ninety percent of
the time they’ll go because they’ll probably
get a better rate at the new firm.”
Hillman says even discussing the potential of clients following is ill-advised. “It
could invite an adverse reaction,” he says.
“In the real world you should steer clear
of getting any sort of commitment, even a
theoretical one. It’s a gray, dangerous area.
“Also, don’t be too specific about your
book. You could be in trouble over confidentiality issues. Only give general information about your aggregate book—the more
specifics, the more problems.”
If you are going to talk ball-park clients
and figures, it is better to under-evaluate
than overpromise. Unlike the glory days
when lawyers were given a longer period of
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daily report MONDAY, APRIL 15, 2013
time to build their books back up, law firms
today are much quicker to re-adjust compensation if the anticipated numbers aren’t
delivered.
Conflicts arise
The courting cannot be completed until
the issue of possible conflicts is addressed.
“We have partners assigned to handle
potential conflicts,” says Hollingsworth.
“Someone with a $2 million book but $1
million in conflicts, well, that’s a totally different deal. You can even have a conflict
because two major players in an industry
don’t like each other. It’s an intricate process and very time-consuming. Conflicts
can kill a lot of deals.”
As an example, Kirsch narrowed his
search to three firms. One firm, however,
discovered enough conflicts to essentially
kill the deal, while another had fewer and
less fatal conflicts.
Kodish says conflicts pop up all the time,
especially in a multioffice firm. “We start
looking at potential conflicts and you can
have 400 attorneys raise their hand saying
their practice is threatened if that person
comes to work.”
Of course, once everything is out in the
open, it’s up to the clients to decide their
legal representation. “It’s a misconception
that lawyers have clients,” says Rhodes.
“Clients have lawyers. Everything is on
equal footing and the client should be given
the information to make an informed decision. If that doesn’t happen, there tends to
be anger and litigation.”
Kodish has no problem competing for clients’ affections. “Usually we have more than
one lawyer involved with a client, and once
everyone is safely on the right side of ethics,
we’re off to the races. We’ll go forward and
make our argument that we’re still the best
option for that client. We’ll do all we can.”
JOHN DISNEY/DAILY REPORT
Thad Kodish of Fish & Richardson likens the first meeting with a potential candidate to a tricky flirtation.
What about the kids?
Deciding whether to take associates
or partners is another gamble. Again, the
rules say there can be no discussions with
co-workers.
“Typically you will want the whole team,”
says Hollingsworth “But again, that’s tricky.
It’s a chicken-and-egg thing. You can’t tell
your team, but you are probably saying that
you could bring them. If the associates only
work for that lawyer, then they can either go
or not have a job.”
Sometimes, Hollingsworth notes, an
associate only has a few days to make a decision. “If there is a superstar associate, we
will pull out all the stops to encourage that
person to stay,” he said.
Hillman says that recruiting firms can
help in this area by recruiting associates.
“Again, you cannot tell a co-worker about
your departure plans before you have told
your firm,” he said. “Trying to recruit comes
with risks. Transparency is always better.”
More problematic than recruiting coworkers is the transfer of files from the old
firm to the new.
“What really galls law firms is that when
people leave and download firm files and
intellectual property files,” says Hillman.
“That’s an invitation to a real problem. It’s
more serious now that everything’s digital.
It was easy to tell if someone was taking
JOHN DISNEY/DAILY REPORT
Doug Towns says being totally transparent with both old and new firms is ultimately the best move.
files because you could see them walking
out with boxes.”
Today law firms have systems that control access and digitally trace files. “There
ought to be in the partnership agreement
exact procedures for leaving the firm and
what you can take with you,” Hillman said.
Again, the rules state that, once the client transfers representation, the prior firm
must turn over all files. “Now some firms
can have a temper tantrum and hold up
the transfer of files,” says Rhodes. “That
wreaks havoc and it makes it hard for the
client. Law firms lose sight of that. It’s about
the client first, not the departing attorney.”
“I’ve seen some messy situations where
people left in less than a pleasant way,”
says Kirsch. “I’ve seen where four or five
people took boxes and left in the middle of
the night. I look at that as kind of bad. It’s
rude and, from an ethics standpoint, I think
you’re on thin ice.”
Departing partners in managerial roles
have a special burden, and should be extra
careful about making important firm decisions. “If you are on the management committee and vote to go to expanded office
space knowing that you might leave and
the firm may not need that space, or if you
vote to give big bonuses to people, including those you might be taking, it could be
viewed as actionable,” says Rhodes.
Like a game of strategy, the lawyer
doesn’t want to show his hand. So how does
one not fulfill his or her current managerial position? “Get the flu,” she jokes. “You
can’t lie. You have to step away from the
management committee and it may force
you to say what you plans are quicker than
you wanted.”
Also, don’t use firm equipment, especially email. “Anyone who thinks a firm doesn’t
read employee emails is naive,” say Rhodes.
Kodish advises prospective laterals to
examine whether their reasons for moving could be made better before looking
elsewhere. “There is something to be said
for the devil you know,” he said. “Going to
another firm is a huge risk. If you have an
issue, go to the partners and talk. It’s a twoway street, but if you are going to move, do
your homework.”
And whatever you do, don’t lie, says
Minkoff. Don’t say that you are committed to
the firm and then give notice three weeks later.
“The firm will find that really annoying.”
Doug Towns, who in 2012 left Jones Day
to join Mazursky Constantine, looks at the
bigger picture. “I was very transparent and
I think that is the best way,” he recalled.
“I had conversations with Jones Day and
told them what I was planning to do. It
never crossed my mind to speak with my
clients ahead of time. I took no files until
I was authorized to it. I didn’t do anything
I shouldn’t be doing. I think it’s important
to leave with more creditability and good
will. If you’re leaving surreptitiously, that’s
not good.”
Towns adds, “You never know when you
might be teaming up with your former firm
on a case. Or what the future holds. Better
to stay ethical.”
Rhodes agrees, “I tell people that this
is my domestic relations part of my practice. And I don’t have a domestic relations
practice.” DR