Risk Update

“Ex” Risk Edition — Lawyer “Prenup” Proves Practical, Ex-client Client File Fight Finished

A Lawyer Prenup Passes Ethical Muster” —

  • “The Maryland Appellate Court has upheld the post-departure provisions of an employment agreement between a law firm and an attorney:
    • “This case principally involves a dispute between a law firm and an attorney who was formerly employed by the firm. At the outset of her employment, the attorney and the firm entered into an agreement about how they would divide a contingent fee if she left the firm, was engaged by a client of the firm, and earned the fee after leaving the firm.”
    • “The attorney contends that the agreement violates the Maryland Attorneys’ Rules of Professional Conduct and, thus, is unenforceable. On that premise, she withheld over $700,000.00 in fees that were due to the firm under the agreement. For the reasons stated below, we shall hold that the agreement is not unenforceable on its face or as applied in the circumstances of this particular case. Consequently, we shall largely affirm the judgment of the Circuit Court for Prince George’s County, which upheld the agreement and ordered the attorney to pay the fees that she had withheld in violation of it. We shall, however, vacate the judgment insofar as the circuit court failed to award pre-judgment interest to the firm. We shall remand the case with instructions to amend the judgment to include the undisputed amount of $81,212.10 in pre-judgment interest.”
    • “The Prenuptial Agreement is not an employment agreement; it is a departure agreement. It governs the division of fees between Ashcraft and an attorney if the attorney leaves the firm, is retained by any of the firm’s former clients, and settles the clients’ cases after leaving the firm.”
    • “In the absence of an agreement like the Prenuptial Agreement, the parties’ share of a contingent fee would be governed by principles of quantum meruit, under which the firm would have to show the extent to which it contributed to the client’s success.”
    • “The Prenuptial Agreement uses a sliding-scale formula to apportion the division of fees. The formula considers two factors: (1) the amount of time between when the client retained the firm and when the attorney departed, and (2) the amount of time between when the attorney departed and when a fee was generated.”
    • “Ms. Bennett signed the Prenuptial Agreement, but about six months later she formed the opinion that the agreement was unethical and that it violated the Maryland Attorneys’ Rules of Professional Conduct. She expressed her opinion to Ashcraft’s managing partner.”
    • “We conclude that the Prenuptial Agreement is not unenforceable on its face—i.e., that it is not facially invalid. We are persuaded by the 1989 MSBA ethics opinion, which approved an agreement with a sliding-scale formula, much like Ashcraft’s—one in which the division of fees is “based upon a combination of the length of time that the case was in the law firm prior to the attorney’s termination and the period of time in which the fee is realized after the attorney has left the firm.” MSBA Ethics Comm., Formal Op. 1989-29.”
    • “We are persuaded as well by the Michigan Court of Appeals’ decision in McCroskey, which upheld an agreement under which the attorney received ‘a ratable proportion of a given fee on the basis of the stage of the litigation at the time of departure.’ McCroskey, Feldman, Cochrane & Brock, P.C. v. Waters, 494 N.W.2d at 828-29.”
    • “It is undisputed that for three years thereafter Ms. Bennett adhered to that agreement and paid the percentage of the fee dictated by the Prenuptial Agreement. It is also undisputed that Ms. Bennett ceased making payments in October of 2018, when she commenced this action (by filing a complaint that made no mention of the Barker cases). Finally, it is undisputed that, between October of 2018 and the entry of judgment, Ms. Bennett failed to remit $706,164.83 in fees, not including pre-judgment interest. It would seem, therefore, that Ashcraft has indisputably established all of the elements of its breach of contract claim.”

Ex-Cadwalader Clients Lose Bid for Legal File in Criminal Case” —

  • “Cadwalader, Wickersham & Taft LLP doesn’t have to turn over files related its representation of two former clients now facing criminal fraud charges who it says owe it at least $760,000 in legal fees.”
  • “Even assuming an urgent, particularized need for the file, the defendants haven’t demonstrated any prejudice or their inability to either pay the outstanding fees or post security, the US District Court for the Eastern District of New York said.”
  • “The defendants also have alternative means of obtaining the file, so denying the motion isn’t the equivalent of denying them access to the information they seek, Magistrate Judge James M. Wicks said.”
  • “Cadwalader represented the twins in multiple relevant preindictment matters from August 2021 through November 2022, when a disagreement over billing and nonpayment ended the relationship.”
  • “The firm asserted a retaining lien on the client file for the outstanding fees owed. The Kaplans, in turn, sued the firm in state court for legal malpractice and breach of fiduciary duty. That matter remains pending, but no application for a provisional remedy for return of the file had been made there, Wicks said.”
  • “The materials the Kaplans want include documents related to Cadwalader’s communications with the SEC, the US Attorney’s Office, and IHT Wealth Management LLC, where the Kaplans used to work.”
  • “The Cadwalader file isn’t ‘wholly unavailable’ and there are reasonable steps that the Kaplans could take to obtain it, he said.”