Leaving Law Firms with Client Fees: Florida's Path.

• Author: Weidner, Donald J.
• Position: Cover story

When a lawyer leaves a firm with a client in tow, who has a right to the fees ultimately paid? The question is the most heated, and generally the most consequential, when a contingent fee is involved, although it also arises in the case of an hourly-fee matter. At a minimum, the firm of origin will be able to recover in quantum meruit for the value of any work it performed before the client left, provided any contingency occurs. The question is whether the firm of origin is limited to recovery in quantum meruit or whether it may instead claim the contingent or other fee itself.

Nationally, courts disagree on whether the firm of origin has a right to fees on unfinished business taken by a departing lawyer. The matter is important to the lawyers involved and may also be important to their clients. Many cases have held that departing owners of a firm have a fiduciary duty to the firm to share the contingent fees on unfinished business they take with them. The classic cases awarding former firms the fees from unfinished business arose in the context of partnership dissolutions. The basic idea is simple: The dissolving firm continues until its unfinished business is completed, and the lawyer completing it is under a fiduciary duty to do so for the benefit of the firm. Some cases apply the "unfinished business" doctrine to matters handled on an hourly basis as well as to matters handled on a contingent-fee basis.

Differences in outcomes are often explained by the weight courts give to the client's right to choose a new lawyer. At one extreme, cases say that a departing lawyer's duty to the firm is independent of the client's right to retain new counsel. Other cases say a client's right to choose new counsel would be impermissibly limited by requiring the departing lawyer to share fees with the original firm. Some differences in outcome are explained by disagreement on the impact of the Revised Uniform Partnership Act (RUPA), which provides for the first time that partners are entitled to reasonable compensation for winding up. (1)

In both New York and California, federal appellate courts have recently certified the question of the right to legal fees to the highest court of the state. The New York Court of Appeals has responded that, because of the client's right to choose, the firm of origin has no property right in hourly fee matters. The California Supreme Court has not yet responded on either hourly fees or contingent fees. Many Florida lawyers would welcome a definitive ruling from the Florida Supreme Court on the application of the unfinished business doctrine to legal fees in Florida. This article analyzes key Florida statutory and caselaw in the context of important ethical rules. It locates Florida on the national stage in a way that indicates decisions that may lie ahead for the Florida Supreme Court.

Key Florida Caselaw

The two leading Florida cases on the unfinished business doctrine are Frates v. Nichols, 167 So. 2d 77 (Fla. 3d DCA 1964), and Buckley Towers Condominium, Inc. v. Katzman Garfinkle Rosenbaum, LLP, 519 F. App'x 657 (11th Cir. 2013). Frates applied Florida law, including caselaw under the Uniform Partnership Act (UPA), (2) to the dissolution of a law firm partnership. Forty-nine years later, Buckley Towers said Frates was still good law, notwithstanding Florida's adoption of RUPA, (3) and applied the Frates partnership rule to attorneys leaving professional associations and limited liability companies.

Frates v. Nichols: Florida's "Grand Old" Case

Frates v. Nichols is Florida's "grand old" case on the right to legal fees on the breakup of a law firm. Although the opinion could have contained a more thorough discussion of the issues, it was a Florida case of first impression that has been cited with approval and never overruled. Attorney Frates left his law firm partnership, placing it in dissolution. He took with him 10 clients and their contingent fee negligence cases and started a new firm. He entered into new retainer agreements with the clients, and eight of the cases resulted in fees, which were the subject of the dispute.

The court first disposed of the issue regarding the retainer agreements. Frates had argued that, by signing those agreements, the clients had discharged the old firm, taking it out of the picture. Thus, he argued, any contingent fees would not be the property of the old firm but would instead go to him and his new firm as retained counsel. Under this view, the old firm could recover only in quantum meruit for the services it performed before the clients left with Frates. The court disagreed, calling the new retention agreements a "nullity" and concluding they did not effectively discharge the old firm.

It is true, as Frates contends, that these clients could have discharged the firm at any time and retained new lawyers, but that did not occur here. All these clients, who signed retainer agreements with Frates, did, was to manifest their intention of retaining Frates to fulfill the continuing obligation of the [old firm] to them. (4)

As will be discussed more fully below, this dictum should be disregarded. The result in Frates should be the same even if the clients discharged the old firm.

Having set aside the new retention agreements, the court applied traditional partnership doctrine. The dissolution of the partnership "did not put an immediate end to the partnership, it continued for the purpose of winding up its affairs." (5) As a partner in a dissolved firm, Frates owed a duty to the clients (6) and to the firm to wind up client matters: "Although never having been passed on by a Florida court, the proposition is universally accepted that a law partner in dissolution owes a duty to his old firm to wind up the old firm's pending business, and that he is not entitled to any extra compensation therefor." (7) The source of the "no-extra-compensation" rule was UPA [section]18(f): "No partner is entitled to remuneration for acting in the partnership business...." (8) The theory behind the rule was that a partner's services are presumed to be adequately compensated through his or her normal share of profits.

In sum, the basic rationale of Frates is simple. The old firm, with Frates still a member, continued to operate after its dissolution and through its winding up. Frates remained a member of the old firm for purposes of its winding up, despite his contemporaneous membership in the new firm. The unfinished business and resulting fee were the old firm's business and fee, and Frates shared in any resulting profits under the old firm's partnership agreement. Because there was no agreement to the contrary, Frates was bound by the UPA default rule that, even though he did all the work to wind up the case, he was not entitled to any extra compensation. (9)

Most of the court's discussion focuses on the obligations of the firm and of Frates to complete the client matter. Its language supports the inference that the fee follows the continuing obligation to the client. However, the court also referred to the property rights of the initial firm. The court said the cases were "assets of the old firm being wound up by Frates for them" and Frates was "entitled to receive his partnership share.of the net fee in each such case." (10) One basic question is whether the holding in Frates is limited by the court's reasoning that Frates was working to satisfy an obligation of his old firm. Under this rationale, if the client had signed a slightly modified retention agreement that explicitly and effectively discharged the old firm from its obligations, a different result might have been reached. However, if the unfinished business was an asset or opportunity of the firm, neither Frates nor the client should be permitted to unilaterally contract away his duty to account for it.

Buckley Towers Extends Frates to Dissociations, LLPs, PAs, and PLLCs

Buckley Towers is the second, and perhaps the most significant case, applying Florida law to an award of legal fees after a lawyer leaves a firm with a client in tow. The 11th Circuit concluded Frates was still good law and extended it to a dispute over a contingency fee involving three law firms: one was a professional association (PA); one was a limited liability partnership (LLP); and the third was a professional limited liability company (PLLC). (11)

Buckley Towers Condominium hired law Firm One, a PA, to represent it after its insurer refused payment for 2005 hurricane damage. Firm One, which was originally retained on an hourly-fee basis, prepared and filed Buckley Towers' complaint. Firm One later agreed to represent Buckley Towers on a contingency-fee basis. Attorney Rosenbaum, an equity shareholder in Firm One, led the litigation team that handled...