Law firms hire laterally for numerous reasons, such as the need
to meet clients' demands, or in an effort to create specialized
practice groups within the firm. The marketplace no longer
discourages such jumps, which makes it easier to conduct such
hiring. Commentators in this field have identified three principal
areas that firms should thoroughly investigate during deliberations
on whether to hire a "lateral:"
Make sure your partner doesn't have two left
feet. The decision to hire a lateral, particularly if the
lateral is coming in as a partner, must be considered as a business
decision, and analyzed in that perspective, suggested Frederik
Fontein of Coregis Insurance Company in a paper submitted to the
Bar Association's Standing Committee on Lawyers' Professional
Liability. In other words, law firms must conduct "due diligence."
He suggests the following specific steps as part of the review
- Verify the apparent skills, and accuracy of credentials (such
as academic history), of the prospective new hire.
- Research both the disciplinary and malpractice history of the
- Interview others who have personal knowledge of the attorney's
- Review recent work products of the prospective hire. (Make sure
the work is that of the hire and not a supervised associate).
- If the lateral is bringing business to the firm, consider
potential conflicts of interest with existing clients. Also,
consider potential client relation problems (do the fee
arrangements with the lateral's clients conflict with the firm's
standard arrangements?). Evaluate whether the lateral's clients
appear financially stable.
- Define the lateral's staffing expectations.
- Make sure the criteria for determining compensation has been
thoroughly explored and agreed upon.
- Make sure the firm's administrative requirements (such as prior
engagement letters, or compliance with assignment committee
directives) will be adhered to by the lateral.
- Consider deferring full partnership status to a lateral hire
until a reasonable period of time has passed, to allow further
evaluation of the candidate; and then closely monitor performance
during that period of time.
Frontein also suggests that, before hiring a lateral partner,
the following considerations be taken into account:
- Ascertain the medical history and likely good health of the
- If the firm requires disclosure of income tax returns from its
existing partners, consider requesting a return and a personal
financial statement from the prospect.
Will your partner follow the rules of the
Lawyers (and firms) owe clients the duty to represent them
competently and diligently. A law firm break-up can increase the
difficulty of fulfilling these duties, as when all lawyers with a
particular expertise leave the firm, but a client with that type of
business remains. Similar difficulties can arise if the firm hires
to create a new practice group, but has yet to determine its new
attorneys' ability to accomplish tasks in that area. Moreover, the
personal stress created during a split-up might compromise an
attorney's ability to render competent legal services.
Clients' financial interest must also be protected. Some
jurisdictions have considered mandatory malpractice insurance
coverage as a means to protect clients' interests during such
transitional periods. There are also ethical issues which arise
between the lawyers at such times. Partners have fiduciary duties
to each other which require full disclosure of all issues affecting
the partnership. They also must account for all partnership
property, and refrain from self-dealing.
Will you two-step your way into trouble?
According to Kirk R. Hall, writing in LPL Review No. 3
(a publication of the ABA's Standing Committee on Lawyers
Professional Liability), the hiring firm should consider the
- What coverage does the firm's malpractice policy provide to
- Do the policies cover prior acts at the old firm?
- What about vicarious liability for claims against the old
- Should the firm offer this type of coverage to lateral hires at
Hiring firms often request a special endorsement to provide
"tail" coverage for their new hire, especially where the prior firm
has gone out of business. This can be quite costly; it effectively
means the new firm is broadening its insurance coverage to cover
the lateral hire's old firm activities, but is paying the entire
coverage premium. Claims made under such an endorsement may also
diminish available insurance limits and implicate the new firm's
underwriting record. Depending on the resulting experience, and the
market at the time, this conceivably could render the hiring firm
ineligible for future malpractice coverage, or affect its renewal
In short, Hall suggests that the hiring firm "should think long
and hard before agreeing" to obtain prior-acts coverage for the
As lateral hiring becomes an increasingly accepted mechanism for
satisfying law firm's staffing needs, these issues will become more
prevalent. Considering them in advance may avoid costly stumbles
during the lateral dance.
WILLIAM C. SATURLEY practices as a
director from the firm's Boston and Concord, New Hampshire offices.
His trial work focuses on commercial, employment and intellectual
property litigation. Bill also defends lawyers and other
professionals in malpractice claims and professional discipline
KENNETH E. RUBENSTEIN in is a
director of Preti Flaherty. He regularly represents public and
private companies in complex commercial disputes, with an emphasis
on matters involving construction issues and financial
professionals. Rubinstein was one of the founding co-chairs of the
Construction Law Committee of the Massachusetts Bar Association,
and is a member of the American Arbitration Association's Panel of