Loyalty in the Firm: A Statement of GeneralPrinciples on the Duties of PartnersWithdrawing from Law Firms

Introduction For nearly two decades, law firms have been shaken by defections in the ranks of their members. Lawyers associated in firm practice necessarily cast wary eyes on their colleagues, wondering who will be the next to leave, when the exit will occur, and what the damage will be from the loss of clients who seem more often than not to follow defecting lawyers wherever they may go. Loyalty to the firm - by its members and by its clients - is a value that, at best, evokes nostalgic yearnings for some idealized past rather than a standard under which law is practiced in present times. It is hardly a secret that the "grabbing and leaving" activities of law firm members have served to destabilize the American law firm.' What is surprising, at least at first glance, is the extent of the activity in light of the "fiduciary" nature of the relationship that exists among partners in a firm. Whether expressed in terms of a "punctilio of an honor the most sensitive,"2 a duty of "undivided loyalty,"3 or an obligation to act with the "highest good faith,"4 the status of partners as fiduciaries of each other would seem to offer a powerful restraint on lawyer mobility.5 Yet at least in the law firm setting, fiduciary duties have not restricted the placement of individual interest above the interest of the group to any meaningful degree. Perhaps this fact is because, as the Illinois Supreme Court recently observed, "lawyers are [not] necessarily bound by the same fiduciary constraints that apply to nonlawyer officers and directors who are seeking to leave positions in commercial entities."6 The key to reconciling the existence of fiduciary standards with widespread grabbing and leaving activities is to recognize that fiduciary duties function to restrain rather than to eliminate the pursuit of private advantage by law partners.7 The power of the fiduciary norm is the restraint it imposes on the process by which partners pursue opportunities outside their firms. The distinction between motive and process is critical to a realistic application of fiduciary duties. Grabbing and leaving is not in itself a breach of fiduciary duty because no partner is permanently bound to a firm. The manner in which partners plan for and implement withdrawals, on the other hand, is subject to the constraints imposed on them by virtue of their status as fiduciaries. Although inconsistent with some expressions of the obligation of undivided loyalty,8 the idea that an individual may terminate a fiduciary relationship for the purpose of pursuing other opportunities is neither unusual nor new. The venerable Restatement (Second) of Agency, for example, informs us that the agent must act solely for the benefit of the principal and not in competition with the principal in all matters connected with the agency.9 Even the Restatement recognizes, however, that the agent is permitted to make plans, in secret, to compete with the principal in the future,'o and that after termination of employment the agent may not only compete with the principal" but also may use certain information acquired during the course of the agency in competition with the principal.'2 The problem, then, is managing the transition from present fiduciary to future competitor. Given the sheer volume of disputes arising among former law partners, the law firm offers a splendid model for testing and, perhaps, restating ancient expressions of partner duties that are long on generalities, but disturbingly short on specifics. Along this line, many recent reported cases address the duties of partners withdrawing from law firms.'3 Individually, the cases are often insightful, but as a whole there has yet to emerge from the reported decisions a coherent set of principles useful in defining duties (fiduciary and otherwise) owed by partners withdrawing from law firms. This Article attempts to provide a framework helpful in defining and giving meaning to those duties. The framework offered is expressed through a statement of "General Principles" that expresses core ideas rather than a detailed code of conduct. …