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INSIGHT: Do You Really Know Everything About That Lateral Hire?

Jan. 13, 2020, 9:00 AM

The benefit of hiring experienced lateral attorneys is obvious—they hit the ground running. However, as with most benefits, there are risks.

Among the most harmful threats to the fledgling relationship is a claim against the hiring firm arising from the lateral’s alleged pre-hire negligence.

Law firms can’t completely avoid risk arising from a lateral’s prior actions, but implementing strategies that reasonably limit and manage the potential costs and claims arising from laterals’ pre-hiring actions can mitigate the risk.

Before You Ink That Deal

At a minimum, due diligence before inking the deal is critical. Inquire whether the candidate has been a party to prior claims, lawsuits, or disciplinary matters. Verify the answers with docket searches and other on-line investigation. A simple internet search can uncover issues that might later blossom into costly claims.

Of course, conflicts must be investigated. Note that Model Rule 1.6(b)(7) contains a limited exception to client confidentiality for the purposes of assessing conflicts of interest arising from a lawyer’s change of employment. Firms conducting due diligence should consider whether the candidate must obtain client consent before providing extensive client-related information.

The hiring firm should also review and assess the clients and matters that the lateral attorney is bringing to the firm. This includes determining whether any errors might have occurred.

Questions to ask include: Have the clients criticized the amount or quality of work performed, or questioned the strategy employed? Have the clients asked for fee reductions, or refused to pay for work already performed? Do the clients have unrealistic expectations? Do they require unreasonable amounts of non-billable or staff time to keep them satisfied?

If possible errors are identified, the firm should consider steps to take to mitigate the error or the damage, and what related obligations might be owed to the client (see, e.g., ABA Formal Op. 481). This is important because, if a subsequent firm is able to correct or mitigate an error made by a prior firm but fails to do so, that failure may be an available defense for the prior firm to a malpractice claim.

Even if the previous error cannot be corrected, the hiring firm should completely assess potential ethical obligations to report material errors to the client, including considering whether the firm may or should continue in the representation.

What to Do After Hiring

Firms can take advantage of other loss-control measures even after satisfactory completion of due diligence and the actual hiring of the lateral candidate. The lateral hire and prior firm should communicate to the clients the lateral’s change of law firm. This obligation does not necessarily belong to the hiring firm, but the hiring firm should confirm that client communications comply with the law of the state of practice. (See, e.g., ABA Formal Op. 489 [Obligations Related to Notice When Lawyers Change Firms].)

The firm’s client intake process also provides loss-control opportunities. For instance, the hiring firm should enter into new engagement agreements with the incoming clients. In addition to mapping out the new firm’s unique terms and conditions, the agreements could more precisely limit the scope of the firm’s representation, carve out specific services that the firm will not provide, or identify a default event that signals the end of the attorney-client relationship.

Whether the firm identifies a specific error or just wants to guard against the possibility, it’s possible to employ the engagement agreement to limit the hiring firm’s liability for negligence.

Before doing so, Model Rule 1.8(h), which limits lawyers’ ability to make an agreement prospectively limiting malpractice liability, should be carefully reviewed. The requirements for entering into such an agreement vary significantly from state to state, so consult your state’s version of the Rule and related decisional authority.

The hiring firm should also consider inserting an acknowledgment in the engagement agreement that the attorney-client relationship commenced on a specific date on or after the lateral began work at the firm. Such a provision can provide a later defense against a claim that the firm’s responsibility to the client began prior to the lateral’s date of hire.

In addition, firms should consider describing the attorney-client relationship as new to the hiring firm, in order to position the relationship with the new firm as replacement or successor counsel. This could be an important defense if an alleged error became uncorrectable prior to the hire date.

Finally, during the lateral assessment and hiring process, consider seeking guidance from your professional liability insurance broker or carrier. Both brokers and carriers will have knowledge of and insight into the available insurance products and what coverage issues might exist.

In reality, no process, no matter how thorough and strictly employed, can guarantee complete safety against malpractice actions or impenetrable defenses to a suit arising from a pre-hire error. Rather, each action is a small step in the right direction.

By consistently employing manageable steps throughout the lateral hiring process, hiring firms can significantly reduce the risk of loss, and significantly increase the likelihood that the lateral hire will prove profitable for all involved.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Cassidy E. Chivers is a partner in the Hinshaw & Culbertson LLP San Francisco office. She focuses her practice on professional liability in state and federal courts, including matters encompassing the defense of lawyers and design professionals through trial. She also regularly counsels lawyers on risk management, ethics and discipline issues, and law firm formation and registration.

Noah D. Fiedler is the partner in charge of Hinshaw’s Milwaukee office. He has extensive experience defending lawyers in malpractice claims and in disciplinary proceedings, as well as counseling individual lawyers, law firms, and legal departments on risk management and ethics issues. He is the co-editor of Hinshaw’s Lawyers’ Lawyer Newsletter and Cyber Alerts and is an adjunct instructor at the University of Wisconsin Law School.

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