Opinion ID: 1966939
Heading Depth: 1
Heading Rank: 3

Heading: Whose Clients Are They?

Text: When a law firm and an associate have no agreement for posttermination division of fees in cases originally handled by the firm, how shall the fees be determined: should they become the sole property of the firm, the departing lawyer, or both? Further, if the fees are to be divided, on what basis should that be done? The district court ruled that the fees collected by Peterson on cases he obtained while associated with the Watson firm remained the property of Watson, subject to payment of salary and benefits to Peterson as if Peterson had continued to work for Watson. For the reasons that follow, we disagree with this analysis. Watson also contends the procedure used by Peterson in contacting clients and obtaining their consent to remove files before the termination of Peterson's employment was improper. The proper procedure to follow, according to Watson, is set out in a 1982 opinion by the Iowa State Bar Association Committee on Professional Ethics and Conduct. This opinion was addressed to an associate who had left a law firm and was inquiring about how to handle cases in which he wanted to continue representation. The opinion stated: The Committee is of the opinion that it is the obligation of the firm to advise clients for whom you were doing work that you have left the firm and that the client can elect to have another lawyer in the firm handle the matter or select other counsel, including you, to complete the work. The firm should furnish you with an appropriate copy or copies of the notification letter so you will know that the clients have been advised of your departure and their options. If the firm fails to notify the clients within a reasonable time (one week to ten days) the Committee is of the opinion that it would be appropriate for you to advise the clients of the above information. If it is necessary for you to so write, you should furnish an appropriate copy or copies of your letter to the firm. ISBA Comm. on Prof'l Ethics & Conduct, Formal Op. 82-23 (1982) [hereinafter Formal Op. 82-23]. [1] We have no cases directly on point. The principal case relied on by Watson and the district court, West v. Jayne, 484 N.W.2d 186 (Iowa 1992), is distinguishable. West does not stand for the proposition, as Watson urges, that Peterson is entitled to only that which [he] would have earned under the employment contract. In West Jayne was an associate. The lawyers divided contingency fees one-third to the originating attorney, one-third to the attorney doing the work, and one-third to West for office overhead. West, 484 N.W.2d at 188, 190. In West the issue was whether one attorney, West, who had been suspended, was entitled to his share of the fees in view of the fact that, generally, suspended lawyers may not collect fees for legal work during the period of suspension. We held that, despite the suspension of West's license, his work that justified his referral portion was completed once he referred the case to Jayne, and the other portion West received was for office overhead. Id. at 190. This is not an issue in the present case. Although no Iowa cases are directly on point, the facts of this case are not uncommon. In fact, it has been observed that [l]aw firms are under siege. See Robert W. Hillman, Law Firms and Their Partners: The Law and Ethics of Grabbing and Leaving, 67 Tex. L.Rev. 1, 1 (1988) [hereinafter Hillman]. Because of lateral movement by attorneys between firms, there is the ever-present threat of [a lawyer] leaving and taking what many regard as the firm's assetsits clients. Id. at 4. [2] This phenomenon is referred to as grabbing and leaving. The idea that a partner `leaves' while others `stay' tips the analysis toward a view that the partner `taking' clients is, in effect, looting the firm. Id. at 5. Solicitation of clients by lawyers has been the subject of several Supreme Court cases. See, e.g., Shapero v. Kentucky Bar Ass'n, 486 U.S. 466, 108 S.Ct. 1916, 100 L.Ed.2d 475 (1988) (states may not categorically prohibit attorneys from soliciting clients with truthful letters); Ohralik v. Ohio State Bar Ass'n, 436 U.S. 447, 98 S.Ct. 1925, 56 L.Ed.2d 444 (1978) (states may discipline attorneys for in-person solicitation of clients). Grabbing, [as opposed to solicitation], typically involves clients for whom the lawyer has previously worked. Although grabbing may present some of the abuses of solicitation, it also may effectuate a client's educated and considered choice of a lawyer. Broad regulation of grabbing through ethical standards targeted at solicitation reflects the assumption that a firm owns clients and has a prior claim on their files. A logical extension of this view is that grabbing by departing lawyers should be regulated but that grabbing by firms attempting to retain clients does not present the same dangers. In a particular case, the actual relationships between a firm, its lawyers, and its clients may or may not justify the presumption favoring the firm in a battle for clients. When applied generally to all cases, however, treatment of grabbing as solicitation is little more than an uncritical extension of the vocabulary's biases [which labels the departing lawyer as the grabber.] Hillman, 67 Tex. L.Rev. at 12 (footnote omitted). However, one judge, obviously disdaining the practice of grabbing and leaving, has stated: It is noble and daring to embark on a career of law by cutting the umbilical cord that ties one to an employment contract. But taking the heart and soul of the benefactor is immoral, illegal and repulsive. If they want their own firm, let them get their own clients. Adler, Barish, Daniels, Levin & Creskoff v. Epstein, 252 Pa.Super. 553, 382 A.2d 1226, 1233 (1977) (Spaeth, J., concurring), rev'd, 482 Pa. 416, 393 A.2d 1175 (1978) (reinstating decree of the court of common pleas). While the grabbing of clients and their files raises professional issues, the primary concern, of course, is the best interest of the clients. Thus, a policy that effectively restricts in-person communications [between a departing lawyer and clients] is questionable on several grounds. First, disfavoring in-person grabbing communications may deprive the client of the very information he needs to make an intelligent choice of counsel. Second, grabbing is most likely to succeed when the client knows the lawyer well and is satisfied with the quality of her work; in such cases, restricting in-person contacts as improper solicitation does little more than restrain competition among lawyers. Finally, restrictions on grabbing assume a vulnerability and naiveté on the part of clients that may not exist. The sophistication of clients, especially that of larger institutions, may easily match that of their lawyers, in which case the abuses targeted by the antisolicitation provisions simply do not exist. Hillman, 67 Tex. L.Rev. at 14-15 (footnotes omitted). While ethics rules regarding solicitation might be invoked in these cases, this raises questions. As Professor Hillman observes: A strict application of the Model Code's antisolicitation rules to grabbing gives an advantage to law firms in their battles with grabbing lawyers. Judicial decisions sanctioning grabbing as solicitation under the Model Code assume that firms have a prior right to their clients and that regulation of firms' attempts to retain clients by fending off grabbing is unnecessary. The application of this double standard also conflicts with other tenets of legal ethics, most particularly the principle of client choice and the ban on restrictive covenants, that provide an edge to grabbing partners. The permissible scope of state regulation of grabbing activities remains an open question, but the increasing acceptance of the more liberal Model Rules may render the issue moot and thereby further sharpen the competition of lawyers for their clients. Id. at 15 (footnote omitted). Peterson acknowledges that Watson is entitled to share the fees he has collected on the cases he brought from Watson. The only question is how much he should pay, and that turns on what theory of recovery we adopt. Is it a lost-profit theory for breach of contract as the district court ruled, or is it a quantum meruit theory as suggested by Peterson? Another issue arising from the manner in which Peterson handled his exit from the firm is whether we should order him to pay punitive damages.