DC Bar to Lawyers: It’s OK to Change Firms: Business of LawEllen Rosen
Non-competes are generally regarded as acceptable for most professionals -- except lawyers.
Now an ethics opinion from the D.C. Bar, which oversees professional responsibility for lawyers practicing in the nation’s capital, has clarified that a law firm can’t try to limit a departing lawyer’s new practice.
And that’s good news for the many lawyers in Washington who currently are contemplating job changes.
Ethics Opinion 368, published earlier this month, found that a “law firm may not provide for or impose liquidated damages,” set before a departure is announced, on a lawyer who later competes with the firm. The decision also suggests that the former firm may not try to collect fees for work done after the lawyer leaves, even if the matter originated with the firm.
The ruling makes it clear that the lawyer and the original firm “may be responsible to one another for the value of the work completed” before the lawyer leaves.
A firm also cannot restrict a lawyer’s “subsequent professional association,” the D.C. Bar said, but a departing lawyer doesn’t “have an unlimited right to solicit firm partners or employees” before departure.
The opinion doesn’t disclose the names of lawyers or firms that spurred the ruling. That’s standard policy of the D.C. Bar. In this case, it’s also because the ruling resulted from “several inquiries involving firms who seem to be missing what the ethics rules require,” Hope Todd, the assistant director for legal ethics for the D.C. Bar said Friday in a telephone interview.
“We were getting questions about whether firms could put restrictive clauses in employment agreements with lawyers,” she said. “We thought we should remind lawyers that there are ethical provisions that prevent firms from restricting how lawyers can practice after they leave a firm.”
The Legal Profession Blog, run by Georgetown University Law Center’s adjunct professor Michael Frisch, first published the opinion. In an e-mail, Frisch said he agreed with the position of the D.C. Bar and said the opinion was noteworthy because it gives “some clearer guidance than past opinions.”
Although the opinion covers only lawyers practicing in Washington, that lateral market ranks as the “hottest” according to the American Lawyer, a trade publication. As Jeffrey Lowe, the global practice leader of recruiting firm Major, Lindsey & Africa, said in a telephone interview, the overall lateral market “is as busy as it’s been in the last five or six years.”
Additionally, most jurisdictions have rules akin to those in Washington, Todd said. “It’s about giving a client freedom to choose their lawyer. They should be able to decide whether to stay with a firm or go with the lawyer who is leaving.”
Publishing Industry Deals
Cravath Advises Barnes & Noble; Schulte Counsels Baker & Taylor
Cravath, Swaine & Moore LLP and Schulte Roth & Zabel LLP were involved in two recent developments in publishing that are emblematic of continued realignment in that industry.
Cravath advised Barnes & Noble Inc., which on Thursday announced the filing of a registration statement with the U.S. Securities and Exchange Commission to separate Barnes & Noble Education -- owner of the Barnes & Noble College business -- from Barnes & Noble’s retail and Nook e-reader businesses. When completed, the split will create two independent, publicly traded companies.
The Cravath team was led by partners Andrew Thompson, Kris Heinzelman and Scott Barshay, corporate, and included partners Stephen Gordon and J. Leonard Teti II, tax, and partner Eric Hilfers, executive compensation and benefits.
Schulte Roth & Zabel LLP advised Baker & Taylor Inc. in its sale of two businesses announced this month. The company sold its Marketing Services U.S. and Publishing Group businesses to Readerlink Distribution Services LLC. Additionally, the company sold its YBP Library Services to EBSCO Publishing Inc.
Schulte Roth served as lead counsel to Baker & Taylor. The firm’s team was led by M&A partner Robert Goldstein and M&A special counsel Frank Steinherr. Others on the team include partners Kurt Rosell, tax; Michael Swartz, litigation/antitrust; Ian Levin, employment and employee benefits; Howard Epstein, environmental; Robert Kiesel, intellectual property, sourcing and technology; and Julian Wise, real estate. Others included Michael Cutini, litigation/antitrust; Scott Gold, employment and employee benefits; and Scott Kareff, intellectual property, sourcing and technology. Bradley Murchison, Baker & Taylor’s general counsel, also worked on the deals.
Lawyers from Bradley Arant Boult Cummings LLP represented EBSCO. The team was led by partner Denson Franklin III and included partners David Joffe, ERISA/employee benefits; John Molen and Ken Wyatt, finance; Mark Miller, tax structure and diligence; Michael Denniston, antitrust and intellectual property; Sid Trant, environmental; and Alex Purvis, representations and warranties insurance.
Investor Suits Following Deal Announcements Remain Constant
A new report from Cornerstone Research shows that the percentage of lawsuits filed by stockholders following the announcement of a merger has remained constant over the past four years.
The report, “Shareholder Litigation Involving Acquisitions of Public Companies,” said that investors contested 93 percent of M&A transactions last year, although they brought a smaller number of competing lawsuits per deal and in fewer jurisdictions, challenged fewer deals valued below $1 billion, and took slightly longer to file lawsuits.
The report found “significant” that 60 percent of contested deals had lawsuits filed in only one jurisdiction. And only 4 percent were challenged in more than two courts, which the report says is the lowest number since 2007.
“This decline in the number of courts is likely the result of the widespread adoption of corporate bylaws that specify exclusive jurisdiction,” Adel Turki, a senior vice president of Cornerstone Research and head of the firm’s finance practice, said in a statement. “For acquisitions involving Delaware-incorporated companies, the Delaware Chancery Court has gained ground as a preferred filing destination,” she said in the statement.
Among the findings: the percentage of lawsuits resolved before deals closed last year dropped to the lowest level since 2008. “In 2014, only 59 percent of litigation was resolved before the deals were concluded, compared with 74 percent in 2013,” according to the statement.