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ON ETHICS: Death of a law firm

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

A very large Milwaukee-based firm, Gonzalez Saggio & Harlan, has died.

Not in the literal sense of life and death, but to the dozens and dozens of employees who have worked there over the years, it probably feels the same. Probably worse than death.

For the sake of fair disclosure, I should mention that I worked at the firm for a brief time as the general counsel. But my interest in the closing of Gonzalez Saggio is not merely personal, but instead stems from the lessons that all of us can learn. If nothing else, these recent events should have us asking: What should we, as licensed attorneys, do when our law firms or employers close shop?

Of course, it goes without saying that there are many things one should think about when a law firm closes. Among them are sending out resumes and looking for a job, reconnecting with old friends, colleagues and referral sources on LinkedIn and Facebook, and even enjoying more than enough adult beverages.

Yet, amidst all that, one thing should remain paramount — your clients’ interests. Most lawyers will agree matter of factly that clients should be their first priority.

But few have given that simple notion the amount of thought it deserves. When I say here that you should keep your clients top of mind, I do not mean you and your colleagues should just divide them up and try to take them elsewhere.

As the death of Gonzalez Saggio shows, law firms ought to be prepared, just in case. The U.S. is littered with the death of storied — and old — law firms. If it can happen to the Dewey and Brobeck law firms of the world, it can happen to you.

When the decision is made to close a law firm, every attorney at the firm (and I stress the word “every”) should immediately decide what happens to the clients; not who gets to keep the clients, but about the clients.

For example, does the law firm have money in a trust account that belongs to the client? If so, what happens to it now?

Does the client want the trust money (less any earned fees or payment of costs) refunded, or has the client made a decision to send the files and work to another law firm or successor firm, and if so, should the trust money go there as well? And just as important, does the law firm, as it winds down, have a written agreement with the client about where the client’s trust money should go? Remember, even after the law firm has died, you, as a former partner or member of a law firm, continue to have ethical obligations.

And speaking about the money, what about accounts receivables? Have you decided where that money goes?

Who will control the firm’s checkbook? How will that money be paid out — to creditors, employees, to the partners?

While it is tempting (especially if you are a partner) to make a money grab, doing so may expose you to questions about your ethics, at a minimum, and to public derision at the other extreme.

Besides the client’s money, what about the client’s other property? What other property you say?

How about the client’s data sitting on your law firm’s servers. Although cash is no doubt king, the client’s data have value that one cannot always assign a dollar figure to.

What happens to clients’ data? Will the information get transferred to a new law firm or go to the clients themselves, or will it remain on a server? If so, for how long? Will clients or new law firms have the ability to access all the data if they do not have a license for the software (i.e. that old WordPerfect file you insisted on keeping, etc.)? Or will the servers be wiped clean?

After taking care of the client’s data, there is other client property that you should concern yourself with, such as old wills and estate plans, original documents, etc. If you are an intellectual-property lawyer, do you have examples of the client’s product?

Or do you have the only original of some key document? What is your plan for getting this property into someone else’s hands? Also, what if the firm has a safe deposit box — who is responsible for identifying what is contained in the box and getting it into the hands of the client?

Another thought as to protecting the client at all costs — will you maintain malpractice insurance so that all the departing lawyers have tail coverage for any possible misdeeds, such as deadlines falling through the cracks or the errors that happen when a lawyer or legal assistant is more worried about next week’s mortgage payment rather than filing a motion to dismiss?

Who is going to pay for the insurance — the old firm, the lawyers departing or the new firms, etc.?

While there are many more ethical and practical issues to consider, a final one worth mentioning here involves lawyers rather than clients. What happens to the “other assets” of the firm? These are things like a pension, 401k or IRA contributions that have been earned, but not paid out.

Have you made a plan ensuring those assets will be protected and insured? Even if this doesn’t involve the practice of law, it does involve your fiduciary obligations.

Closing a law firm is a traumatic event, to all involved. No doubt any person affected by such a closing will go through the various stages of grief.

Here it’s important to remember that you, as a licensed lawyer in this state, have certain obligations. You cannot simply throw your hands up and contend that someone else will deal with it, since you are responsible for that other person’s errors and omissions.

RIP GSH.

2 comments

  1. Some good advice, but I was an employee. Sorry to break it to you, Mr. Cade, but the closing of a firm does not feel the same “or worse than” death. If you equate a firm closing with death, I’d suggest you get some perspective. It’s sad, but no one cares that much. People get other jobs and move on. A job is replaceable; people are not.

  2. This is how much Wisconsin cares about Ethics. Elected Clerk of Court running for Judge refuses to file a TRO for father.

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