Employment and Ethics Obligations for Departing Attorneys: Checking in on a Pending Case
Many ethics attorneys were intrigued by media reports of a complaint filed in February by Elliott Greenleaf, P.C. against four firm shareholder-attorneys and a paralegal who left the firm’s Wilmington office to join Armstrong Teasdale LLP. The complaint alleged that the defendants made secret plans to depart and “secretly copied and transferred out of the Firm certain client files, client correspondence, and Firm work product,” and “destroyed and shredded Firm files.” That was only one side of the story, of course. Hearing nothing about the other side, we checked the docket to see if the case had quickly settled, as many similar cases do. It turns out that the case is very active, and it continues to raise issues of interest to practitioners in this area.
On March 19, 2021, the defendants filed preliminary objections to the complaint on a variety of procedural and substantive grounds. The procedural objections focused on personal jurisdiction and venue. As for substance, the defendants argued primarily that the claims based on breaches of duty to the defendants’ employer (Elliott Greenleaf) were not cognizable because the relevant duties were owed to the firm’s clients, not to the firm, and because under Pennsylvania law minority shareholders of a professional corporation are effectively at-will employees who owe no fiduciary duty to the other shareholders or to the corporation. The defendants also argued that because they owed no duty to their employer and were free to leave at any time, their departure could not have caused legal damage to the firm. On this point, the defendants relied in part on the apparently undisputed fact that the parties sent joint letters telling clients that they were free to choose either the plaintiff or the defendants’ new firm, Armstrong Teasdale, as their lawyers going forward.
The defendants’ substantive arguments are somewhat novel. One difficulty in advising participants in departing-lawyer disputes is the relevance of two usually distinct practice areas: attorney ethics and employment law. Ethics rules sometimes inform or modify employment law concepts but the rules do not displace employment law altogether. See, e.g., Restatement (Third) of the Law Governing Lawyers § 9(2) & cmt. i; ABA Formal Ethics Op. 99-414 (Sep. 8, 1999). Many departing-lawyer disputes turn more on the departing lawyer’s duties as an employee, partner, member, or shareholder of a law firm than on the lawyer’s (or the firm’s) duties under the ethics rules. In this case, the defendants appear to contend that employment-law concepts such as the duty of loyalty do not apply to employees or shareholders of law firms formed as professional corporations.
In opposition, Elliott Greenleaf argued that the defendants owed the firm fiduciary duties, including a duty of loyalty, based on their positions as employees, or in some cases as shareholders and directors. These duties allegedly required the defendants to operate in good faith, in a manner reasonably believed to be in the best interests of the firm, and with ordinary care. The defendants allegedly breached these duties by misappropriating or destroying firm records, misusing computer and e-mail systems, converting firm materials to their own use, and abruptly departing the firm in a manner that damaged firm business. The firm further argued that the defendants surreptitiously copied at least some files of clients who had not requested transfer of their matters to the defendants’ new firm. And the firm argued that employees of Pennsylvania professional corporations clearly owe a duty of loyalty to their employer at minimum, and in any event the claim was based not on defendants’ decision to seek new employment, but instead on defendants’ “gross misconduct, including but not limited to [their] surreptitious conversion of and destruction of Elliott Greenleaf’s files,” and their “lies and misconduct designed to conceal their improper conduct.”
The parties are also engaged in discovery disputes. The defendants filed a motion for a protective order and a stay of discovery pending resolution of their preliminary objections. Armstrong Teasdale filed a motion to quash a subpoena for documents and testimony, which was granted in part pending a full decision on the motion.
The court has not yet ruled on the core of these issues. This blog takes no position on the parties’ arguments but is professionally interested in how they are resolved. Stay tuned.