Tag Archives: Partnership

Nonlawyer Ownership of Law Firms

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A financial planner, a CPA, and a lawyer walk into a bar … to form a law firm. A joke, right? Two years from now, some version of this could be happening for real in California.

A state task force headed by a former law professor is expected to produce proposals in 2019. Presently, Rule of Professional Conduct 5.4 prohibits nonlawyers from acting as partners, corporate officers, or directors of a law firm. The same rule strictly regulates fee sharing and forbids nonlawyers from directing or controlling a lawyer’s professional judgment.

Why consider nonlawyer ownership?

Some view nonlawyer ownership as a means of boosting productivity, reducing costs, and improving access to justice. Others herald the benefits of outside investment and potential for greater innovation in the corporate legal market.

What we can expect from California

Your opinion may differ, but I believe the State Bar of California is ready to make this change. The purpose of the Task Force is to work out the issues.  I predict:

  • California will be the first state to allow nonlawyer ownership of a law firm.
  • Nonlawyer owners will be prohibited from controlling or directing the professional judgment of a lawyer in the course of providing professional services to a client.
  • Nonlawyer owners will be allowed to control or direct business affairs of the firm.
  • Fee sharing will be authorized, provided: (a) clients give informed consent in writing; and (b) the sharing of legal fees does not affect the lawyer’s professional judgment.
  • Receiving referral fees from nonlawyers will be permissible.
  • Disclaimers or disclosures may be required in firm advertising, marketing, engagement agreements, websites, etc.
  • Lawyers will be permitted to reveal confidential client information to nonlawyer owners and their staff in order to carry out representation.
  • Conflict of interest rules will expand to include nonlawyers as “members” of the firm – a conflict for one is a conflict for all.

Operational concerns

Anyone pondering formation of a future lawyer/nonlawyer union should think long and hard about all the issues involved in business formation. A business plan, mission statement, and written ownership agreement will be an absolute must. Thorough insurance coverage, including professional liability, will be a necessity.  Prepare to integrate office systems, record retention, and nonlawyer staff. This includes training!  If nonlawyer partners are beholden to regulatory agencies, know the ins and outs for your sake, but don’t fall into the trap of advising nonlawyer owners. Lastly, have a plan for departure. When a law partner leaves you high and dry, the repercussions aren’t pretty. But at least you can temporarily cover your partner’s legal cases. This isn’t likely to be true with a nonlawyer partner who has an area of expertise (and perhaps licensure) that you lack.

All Rights Reserved – Beverly Michaelis – 2018

Lawyer Transitions: Departing Your Firm

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The days of spending an entire career at one firm are long gone.  By the end of three years, nearly half of all associates leave.  Partners bail out for many reasons – compensation, lifestyle choice, and conflicts with other partners – to name a few.

No matter who you are, tread lightly when you leave.  Departing lawyers have ethical, contractual, and legal responsibilities.

If you are a partner

Conduct your partnership withdrawal in a manner that honors the contractual and fiduciary responsibilities owed to your fellow partners.  Contractual duties are controlled by your written partnership agreement.  Fiduciary duties are described in case law and codified by statute in Oregon’s Revised Partnership Act.

If you are not a partner

Review your employment contract, employment letter, office policies, office procedures, or any other applicable terms that may control the process for terminating your relationship with your current firm or your obligations upon departure.

Are issues likely to arise?

Consult outside counsel experienced in the areas of lawyer mobility, partnerships, fiduciary duties, lawyer separation, and law firm dissolution.

Give notice before you contact clients

Inform the firm of your decision to leave before contacting any clients.  Failing to give adequate and timely notice to your firm or partners before you contact clients is a violation of the duty of loyalty owed by a lawyer to his or her firm based on their contractual or agency relationship.  It may also constitute conduct involving dishonesty, fraud, deceit, or misrepresentation in violation of Oregon RPC 8.4(a)(3).

Although there is no explicit rule requiring lawyers to be candid and fair with their partners or employers, such an obligation is implicit in the prohibition…against dishonesty, fraud, deceit, or misrepresentation. Moreover, such conduct is a violation of the duty of loyalty owed by a lawyer to his or her firm based on their contractual or agency relationship.” In re Complaint as to the Conduct of Murdock, 328 OR 18, 25 (1998), citing, In re Smith, 315 Or 260, 266 (1992). See also OSB Formal Op No 2005-70; ABA Formal Op No 99-414.

Assessing your client caseload

Undoubtedly there are clients you would like to take with you, but there may also be clients you prefer to leave behind.  Draft a client notification letter informing clients of your departure.  Schedule a meeting with your supervising partner or other appropriate member(s) of the firm.  Bring a printout of your current cases and your draft client letter.  This meeting must occur before you contact any clients.  [Note: more than one notification letter will be necessary if you intend to keep some clients and leave others behind.]

For clients transitioning to your new firm

Make arrangements to obtain trust funds, copy paper and digital records, and sign new fee agreements.  Checklists documenting the steps to take when leaving a firm are available from the OSB Professional Liability Fund.

For clients you are leaving behind

Properly document client files by preparing memos describing the status of each case and any upcoming deadlines.  If you are attorney of record, withdraw or confirm that a substitution of counsel has been filed where necessary.  Otherwise, you remain on the hook.  Check out the resources available from the OSB Professional Liability Fund describing a lawyer’s duties upon withdrawal and termination of representation.  If in doubt, contact the OSB General Counsel’s office or consult with outside counsel.

Transition don’ts

  • Misleading clients about their right to choose counsel
  • Contacting clients before speaking to your firm about your departure
  • Taking client files without the knowledge or consent of the firm
  • Taking client money without the knowledge or consent of the firm
  • Taking firm property, including forms, research, or other materials, without the consent of the firm

Transition Dos

  • Put clients first.  Whether you are making a lateral move to another firm or setting up your own practice, remember that the client’s freedom of choice in selection of counsel is paramount.
  • Keep the transition as amicable, professional, and stress-free as possible. Contentious withdrawals alienate clients and damage relationships.
  • Remember to take a list of clients with you so you can screen for conflicts at your new firm.

Handled properly, your departure should be smooth and uneventful.

 

All Rights Reserved 2017 Beverly Michaelis

 

Do Good Friends Make Good Partners?

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The following is an update of “Thinking about Partnership?”

A potential partnership between lawyers sparks many issues – capitalization; entity formation; allocation of profits, losses, income, and expenses; restrictions on partnership authority; division of management duties; decision-making; withdrawal; and more.

But the most important consideration is often ignored: basic compatibility.

Do good friends make good partners?

Not necessarily. The interests or characteristics that draw two or more people together as friends do not always translate well to the business world.  This includes the practice of law.

Sometimes money gets in the way.  Or you could be polar opposites when it comes to work ethic or work style.

Perhaps you and your potential partner are “two peas in a pod,” sharing the same dislikes. While that may sound like a basis for bonding, it can also be a deadly combination.  The example that comes to mind is accounting.  Billing, recordkeeping, accounting, and reconciling can be outsourced, but should still be supervised.  As partners, the buck stops with you.  If neither of you has an interest in tending to law firm finances, you may quickly find yourself out of business.

How to size up a potential partner

For two lawyers considering a partnership, compatibility can be gauged best by joining forces as solos in an office share.  Each lawyer maintains his or her own practice, following the usual recommendations for an office sharing situation.  See the Professional Liability Fund (PLF) form/practice aid, “Office Sharing Guidelines” available on the PLF Website.  

In an office share you can assess your potential partner’s work ethic, work style, and work habits first hand.  You will also learn how your potential partner approaches division of responsibility and money when the time comes to allocate and pay office share expenses.  You have the option of collaborating on individual cases while maintaining your independence.  This will give you intimate knowledge of your potential partner’s capabilities as a lawyer.

If the office sharing arrangement is successful, and you can come to terms on partnership formation issues, you are likely to have a successful union.  If the office sharing arrangement is not successful, you can accept the experience as a “lesson learned” and terminate the office share without the mess of a formal partnership dissolution.

For those who are convinced they have a winning partnership

Occasionally I meet two lawyers who are absolutely convinced they will form the perfect partnership.  They forge ahead, without the benefit of an office share experience, and later regret their decision.

I don’t wish to dampen anyone’s enthusiasm, and sometimes folks are absolutely right in their assessment.  If you’ve known each other for years, and “just know” it will work please do this simple exercise first:

Schedule a time to get together with your potential partner.  Bring two legal pads and two pens.  Allow ten or fifteen minutes for each person to make a list of the goals he or she has for the partnership.  Each person should be able to answer: what do I hope to get out of this?  How will partnering up be a significant improvement over my current working situation?  Exchange lists.  What you learn may surprise you.

Obviously you can approach this exercise any way you like, but here are my suggested ground rules:

  1. Keep the process as spontaneous as possible. If the exercise is your idea, resist the temptation to work on your list in advance.
  2. Write down the first thoughts that come to mind.  Don’t edit yourself to please your potential partner or you defeat the whole purpose of the exercise.
  3. Keep it succinct.  The next ground rule should help with that.
  4. Stick to the time limit. If one or both of you can’t put your goals down in writing in ten or fifteen minutes, that alone should make you pause.
  5. Be open to whatever the other person has to say.

Why bother?

As a wise man named Lee Rosen once pointed out, “lawyers can be nasty.”  We are, after all, human beings.  If we don’t get along, odds are we will take it out on each other. Finding someone compatible to partner with is incredibly important.  The experience should be positive, rewarding, and gratifying.  Life is too short for anything less.

All Rights Reserved [2017] Beverly Michaelis

 

 

To Boldly Go Solo

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How do you know if solo practice is right for you?  Do you have what it takes to organize, manage, and assume all the risks of running a law practice?

solo-with-laptop-cropped

As Bill Nye would say, please consider the following:

Independence

Solos get to call all the shots: client selection, case selection, setting fees, choosing a practice location – every decision that goes into running a practice.  The responsibility rests on your shoulders.  Do you find that appealing, daunting but doable, or overwhelming?  If you answer is appealing or daunting but doable, please proceed.

Are You a Decider?

Some people are decisive, others are not.  If you agonize over choices and normally poll multiple friends and family members before making a decision, solo practice will be difficult.

Solos need to make business and practice decisions every day.  Some of these decisions must be made under pressure with little time to reflect. The reward, of course, is that you get to decide.  You have the freedom and independence to use your creativity, knowledge, and skills to solve problems.

Are You a Self-Starter?

Solo practitioners must be self-regulating. Can you get the work out without someone supervising?  Give regular attention to administrative tasks like billing and bookkeeping? It will be up to you to meet deadlines, organize your time, and follow through on details. If you are a good planner and organizer, your solo practice will be successful.

Are You a Marketer?

All lawyers in private practice are expected to develop business, but in a solo practice the pressure is greater.  You’re it.  Can you create your own networking opportunities and business contacts?   Devote time to blogging or updating your website?  Post to social media?  Speak at CLEs?  Write articles for bar publications?  Build business referral relationships?

Financially Speaking

What resources are available to you?  What financial demands and commitments do you have?  Is it possible (or desirable) to apply for a micro loan, regular loan, or line of credit?  Are you up for crowdfunding?  Start by reviewing your expenses, then prepare a start-up and monthly budget.  Read about other business/financial essentials here.

Drive, Stamina, and Work-Life Balance

Can you practice law, run a business, and keep it all in balance with your personal life? Are you strongly motivated?  Healthy?  Is your family supportive of your efforts?  These are all good markers.  Nonetheless, make a plan to care for yourself and manage stress.  If you are looking for ideas or resources, contact the attorney counselors at the Oregon Attorney Assistance Program.  Services are confidential and free to Oregon attorneys.

Final Thoughts

Solo practice requires a lot of time and work, but it also has benefits: no one looking over your shoulder, no pressure to take a particular client, freedom to work in the areas of law that you prefer, and complete flexibility in deciding when, where, and how to work.  Is it a match for you?

All Rights Reserved Beverly Michaelis 2017