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ON ETHICS: Partners face risks along with rewards

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Michael Steele, MSNBC commentator and former Republican National Committee chairman, appears to be in some trouble, based on recent reports.

He was a partner at the New York law firm of Dewey & Leboeuf LLP, which went through one of the largest law firm bankruptcies in the United States. Steele and others at Dewey have learned the downside of being partners in private practice at a large firm when it goes under.

Specifically, the bankruptcy trustee wants to get paid, and one way to get money for the bankruptcy estate is to seek it from the former owners.

When Dewey started sinking, everyone scattered. But before Dewey went down, many of the firm’s partners took billable work with them, along with the accounts receivable that came with that work, and went to their new firms.

But the trustee has sought to claw back the money the new firms were to receive from that transferred work.

The case should serve as a reminder to all lawyers that partnership comes with risk.

Steele and several of his former colleagues refuse to pay back the money they received from Dewey prior to its demise. Steele, in particular, received several million dollars, arguably because of his position with the RNC, among other things.

Nate Cade is a solo attorney who previously served on and chaired the State Bar’s Ethics Committee and served on the ABA’s Standing Ethics Committee. You can contact him at nate@cade-law.com

Nate Cade is a solo attorney who previously served on and chaired the State Bar’s Ethics Committee and served on the ABA’s Standing Ethics Committee. You can contact him at nate@cade-law.com

In fact, Steele essentially argued that his “celebrity status” is why he deserved to have received the money and that he really did not “bill” work for clients in order to earn the money. Steele wants to argue that his role at Dewey was more like the high-end casino host helping to land the big whales rather than being a partner at a major law firm.

The problem for Steele and the others, complex bankruptcy issues aside, is something even a first-year law student could understand. Steele represented himself internally, to the world and to MSNBC that he was a partner at Dewey.

And because he was a partner, it does not matter if he billed 2,400 hours, 24 hours or merely showed folks around the office. Whatever his partners did, including generating income for the firm, was to his benefit. He is bound by what they did or failed to do.

Indeed, even the American Bar Association’s comments to Rule 1.0 (Terminology) make clear that Steele’s proverbial goose is cooked: “Whether two or more lawyers constitute a firm within paragraph (d) can depend on the specific facts . . . if they present themselves to the public in a way that suggests that they are a firm or conduct themselves as a firm, they should be regarded as a firm for purposes of the Rules.”

The same would hold true even if a court were to determine Steele really wasn’t a partner, but more akin to an “of counsel” or pseudo-partner. If the firm purports to hold the lawyer as a partner or even a pseudo-partner to the world, that same purported partner does not get to argue after the fact that he really was “partner-lite” and not liable for ethical breaches.

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