Risk Update

Lateral Risk — Lateral Hire Client & Confidentiality Management

Avoiding the Confidentiality ‘Trap’: Helpful Suggestions” —

  • “While virtually all partners are aware of their fiduciary duties to their law firm, including when they are considering departure, and hopefully act in good faith to comply with these duties, they sometimes overlook an aspect of this duty—confidentiality. In this column we analyze the complications that occur in this important undertaking and offer some hopefully helpful suggestions to avoid being ensnared in this potential trap.”
  • “The confidentiality issue is difficult because it contains inherent tensions between the confidentiality rights of both law firms and clients and the commercial needs and interests required to determine the merits of a lateral move. An additional tension is caused by the interplay of the ethical rules and commercial law, including the law of trade secrets.”
  • “The departure of a partner from their law firm is naturally fraught with tension as the participants (the current firm, the potential lateral partner and the acquiring firm) have divergent interests. Sometimes those tensions are amicably resolved and others (too often) they are not—but they are inevitable, nonetheless. The same is true concerning confidentiality.”
  • “In his well-respected treatise, Simon’s New York Rules of Professional Conducted Annotated (‘Simon’), Prof. Roy D. Simon describes a cause of this tension: ‘disclosure … of [potentially confidential] information [is] needed to enable a law firm and lawyers to assess the financial and strategic concerns relevant to going forward with a prospective lateral hire…'”
  • “A partial relief from all these tensions can be found in the New York Rules of Professional Conduct, in particular, Comment [18B] to Rule 1.6, entitled “Lateral Moves, Law Firm Mergers, and Confidentiality.” The existence of these comments, in and of itself, is further evidence of the proliferation and importance of lawyer mobility. But, independent of that, the comments are hugely helpful and worthy of being quoted in quoted in full:
    • [18B] Disclosure without client consent in the context of a possible lateral move or law firm merger is ordinarily permitted regarding basic information such as: (i) the identities of clients or other parties involved in a matter; (ii) a brief summary of the status and nature of a particular matter, including the general issues involved; (iii) information that is publicly available; (iv) the lawyer’s total book of business; (v) the financial terms of each lawyer-client relationship; and (vi) information about aggregate current and historical payment of fees (such as realization rates, average receivables, and aggregate timeliness of payments). Such information is generally not “confidential information” within the meaning of Rule 1.6.”