Ethics Opinion

Opinion 2017-1

January 2017

Summary: When lawyers change firms and clients move with them, new engagement letters should be executed with the new firms as to hourly matters, and must be executed as to contingent matters, even when no material terms change. A lawyer bears the burden of justifying as fair and reasonable to the client any material change in the terms of the engagement that occurs after a representation commences. As to clients who want the old firm to continue to represent them, that firm's actions must comply with ethical and, where applicable, court rules.

Facts: A lawyer writes that she has recently joined a new firm and that some of her clients have elected to leave the old firm with her. They include both hourly and contingent fee clients. All of them had signed fee agreements with the old firm. The lawyer asks whether these agreements will suffice or whether she should ask the clients to sign new agreements.

Discussion: Mass. R. Prof. C 1.5(b) requires as to hourly clients that within a reasonable time after a representation commences the client be informed in writing of the scope of the representation and the basis or rate of the fee and expenses to be charged to the client. The lawyer and her old firm followed the preferable practice of signing agreements with clients rather than merely giving them written notice. It seems reasonable to us that when the entity providing legal services changes, a new agreement be entered in the name of the new entity, even if the scope of the engagement and the arrangement for fees and expenses are unchanged. We believe that, when a lawyer moves laterally to a new firm, the common practice is to sign new engagement letters between the new firm and the incoming lawyer's clients. The lawyer has an obligation to communicate with the client about the fee arrangement with the new firm and obtain the client's informed consent to that arrangement. See Mass.R.Prof.C. 1.4(a)(1) and 1.4(b). The better practice is to document the client's consent with a new fee agreement.

In the case of contingent fee clients, a contingent fee agreement meeting the requirements of Rule 1.5(c), not just written notice, is mandated. If a new entity will provide the legal services, a new contingent fee agreement must be executed. Note that Rule 1.5(c)(2) requires that contingent fee agreements state "the name and address of the lawyer or lawyers to be retained …."

If the old firm is entitled to any portion of an eventual recovery on a contingent fee matter, its share should be worked out between the lawyer and that firm in a manner that will not affect the share to which the client is entitled or delay the client's receipt of that share. Although not mandated by the Rule, such an arrangement would be in accord with Paragraph 7 in Contingent Fee Agreement Form A attached to Rule 1.5, which states:

(7) [USE IF LAWYER IS SUCCESSOR COUNSEL] The lawyer is responsible for payment of former counsel's reasonable attorney's fees and expenses and the cost of resolving any dispute between the client and prior counsel over fees or expenses.

Such an arrangement would also be in accord with the Supreme Judicial Court's instruction that, "A client should never be made to pay twice." Malonis v. Harrington, 442 Mass. 692, 702 (2004).

While Paragraph 7 in Contingent Fee Agreement Form B provides an alternative under which the client is responsible for payment of former counsel's reasonable fees and expenses, this alternative provision does not seem appropriate where the new agreement is required because the lawyer has decided to change firms.

As to the hourly clients, we assume that work performed before the lawyer changed firms will be billed by the old firm, and work performed thereafter by the new firm. See Eisenstein v. Conlin, 444 Mass. 258 (2005) (when lawyer changes firms, old firm cannot claim a percentage of the hourly billings of the lawyer at the new firm).

Unless the lawyer's new firm will continue to bill the hourly clients at the same hourly rate as before and the basic financial terms of the contingent fee agreements will remain the same as before, the lawyer will bear the burden of proving that the changes under the circumstances were fair and reasonable to each client. See Restatement of the Law Governing Lawyers, § 18(1)(a), comment e (2000), quoted favorably in Saggese v. Kelley, 445 Mass. 434, 443 (2005).

Factors that bear on whether an increased fee at the new firm would be fair and reasonable to a client include the amount of the increase and whether the client had a viable option of continuing to be represented by the old firm. Although not directly applicable here, Mass. R. Prof. C. 1.17, dealing with Sale of Law Practice, may assist in determining what is fair and reasonable to a client. Rule 1.17(d) provides:

The fees charged clients shall not be increased by reason of the sale. The purchaser may, however, refuse to include a particular representation in the purchase unless the client consents to pay the purchaser fees at a rate not exceeding the fees charged by the purchaser for rendering substantially similar services prior to the initiation of the purchase negotiations.

Some of the departing lawyer's clients want to continue to be represented by the old firm. Under the present facts, the old firm, rather than the lawyer individually, signed the fee agreements with clients. The Supreme Judicial Court addressed just this situation in In re Kiley, 459 Mass. 645, 649, 652 (2011):

Where, as here, the client enters into a representation agreement with a law firm rather than a sole practitioner, the law firm may not terminate the agreement simply because the attorney who had been handling the case has died, left the practice of law, or moved to a different firm. While the departure of the responsible attorney may cause the client to leave the firm, it may not cause the firm to leave the client if withdrawal will have a material adverse effect on the client's interests and none of the circumstances requiring or permitting withdrawal is present. See Mass. R. Prof. C. 1.16.

. . . .

When an attorney who is a partner, shareholder, or employee of a law firm enters an appearance in a civil case, the appearance binds both the individual attorney and that law firm to appear on behalf of the client … Where an attorney leaves a law firm and moves to withdraw, and where successor counsel from another law firm does not file an appearance, a judge is entitled to expect that another attorney from the law firm will enter an appearance and continue to represent the client. In such circumstances, unless specified in the order, the allowance by a judge of a departing attorney's motion to withdraw does not also permit the law firm to withdraw.

This advice is that of a committee without official government status.

This opinion was approved for publication by the Massachusetts Bar Association's House of Delegates on Jan. 26, 2017.