This should serve as a cautionary tale for lawyers planning to leave their firms.
Earlier this month, the Supreme Judicial Court of Massachusetts held that lawyers who took proprietary information from their firm before leaving to start their own could be liable for unfair and deceptive business practices. The opinion is here. The ABA Journal, Holland & Knight, and the Boston Business Journal (sub. req.) reported the story.
I’ve previously blogged on the duties when a lawyer departs a law firm.
- Leaving a Law Firm: Update (December 2019)
- Leaving a Law Firm: Breaking Up is Hard to Do (October 2019)
The update references ABA Formal Advisory Opinion 489: Obligations Related to Notice When Lawyers Change Firms.
My prior posts assumed a relatively amicable transition. The Massachusetts case involved something different.
The Governo Law Firm (GLF) focuses on insurance defense in asbestos litigation. In 2016, several non-equity partners planned to offer to buy the firm while simultaneously preparing to leave the firm to start their own.
In October, they defendants surreptitiously downloaded materials from GLF’s computers to thumb drives. Per the Court’s opinion, “the materials copied included three different types of information: a research library, databases, and administrative files.” The non-equity partners snuck the thumb drives out of GLF.
Then, on November 1, the non-equity partners incorporated a new firm: CMBG3. On November 18, they made an offer to the founder. They indicated that they would resign in 30 days if the offer were rejected. That day, the founder rejected the offer. Three days later, the non-equity partners started operating their new firm, using the proprietary information they’d taken from the old.
GLF sued, alleging conversion, breach of the duty of loyalty, conspiracy, and violation of Massachusetts’ laws on unfair and deceptive trade practices act. An expert testified that the purloined information had been built over years at a cost of over $200,000 to the firm “and provided a competitive advantage to GLF over other law firms within the field of asbestos litigation.” Additional evidence established that one of the defendants sent “a text message to another attorney defendant informing the attorney that she should bring a gym bag when she removed materials, in order not to arouse the suspicions of building security.”
A jury returned a verdict of $900,000 for conversion and conspiracy but did not find the defendants liable for unfair & deceptive trade practices. GLF appealed, arguing that the judge had improperly instructed the jury that it could not consider the defendants conduct prior to leaving the firm in connection with the unfair & deceptive trade practices claim.
The Supreme Judicial Court agreed and remanded the claim for a new trial. The Court noted:
- “Where an employee misappropriates his or her employer’s proprietary materials during the course of employment and then uses the purloined materials in the marketplace, that conduct is not purely an internal matter; rather, it comprises a marketplace transaction that may give rise to a claim.”
As such, the trial court erred by instructing the jury not to consider the defendants’ pre-departure conduct.
Holland & Knight observed,
- “This appears to be the first such instance in which a court has deemed this type of improper conduct to implicate liability under a state’s deceptive practices laws, and it potentially opens the door for law firm employers to assert deceptive and unfair business practice claims against departing partners who take proprietary information to their new firms.”
Then, Holland & Knight concluded by offering these “takeaways:”
- “First, departing attorneys must be careful about what information they take with them. While the legal knowledge and experience acquired by an attorney during their employment will naturally go with the attorney, taking materials developed by or for the firm at the firm’s expense may create risks to the attorney and the attorney’s new firm under consumer protection laws. Second, attorneys’ duties to their firms are broad, and when violated, can lead to significant liability. While the facts of this case are more intense than what we usually see, departing partners frequently engage in misconduct, such as soliciting associates and legal staff or notifying clients of an impending departure. All of the parties involved – the departing attorney, former law firm and new law firm – need to be aware of their rights and liabilities during the transition.”
As always, be careful out there. Along the way, don’t take information that isn’t yours to take.
What can you take? Check out my prior posts.
In the meantime, if the information is such that you decide it’s best to sneak it out of the firm in a gym bag, well, there’s a sign.