Massachusetts Supreme Court Calls Foul on Departing Attorneys
Holds That Attorneys Violated Prohibition Against Unfair and Deceptive Trade Practices by Taking Proprietary Information to New Firm
- Lateral attorney transitions, particularly partner transitions, are often fraught with legal and ethical issues.
- While they are typically not as dramatic as the one described in Governo Law Firm v. Kendra Bergeron, et al., SJC-12948 (Mass. Supreme Judicial Court), the opinion, released from Massachusetts' highest court on April 9, 2021, could have wide implications for how courts view law firm partners who engage in misconduct on their way out the door.
- This alert examines the facts of the Governo case in greater detail.
Lateral attorney transitions, particularly partner transitions, are often fraught with legal and ethical issues. While they are typically not as dramatic as the one described in Governo Law Firm v. Kendra Bergeron, et al., SJC-12948 (Mass. Supreme Judicial Court), the opinion, released from Massachusetts' highest court on April 9, 2021, could have wide implications for how courts view law firm partners who engage in misconduct on their way out the door.
The facts of the Governo case are worth examining in some detail. The Governo Law Firm (GLF) was a Massachusetts firm that specialized in asbestos defense litigation. Asbestos defense is generally paid for by cost-conscious insurance companies that consider a firm's efficiency when determining which one to hire. GLF, during the course of two decades, created a "treasure trove" of proprietary materials that were an important marketing tool because of the efficiencies that they created. This trove consisted of three basic types of information: 1) a research library that was developed over 20 years and contained more than 10,000 documents related to asbestos litigation, including witness interviews, expert reports and investigative reports; 2) databases that organized the research material into categories sortable by multiple criteria, including by legal theory or client; and 3) certain administrative files that included office manuals, an employee handbook, marketing materials and client lists.
Non-Equity Partners Create Rival Firm
In 2015 and 2016, the founding member/owner of GLF began developing a retirement plan, and the defendant attorneys who were non-equity partners at GLF attempted to purchase his interest in GLF. In July 2016, the defendant attorneys created a "Plan B" and took steps toward the creation of a new law firm: CMBG3. They purchased a domain name in August and officially incorporated CMBG3 with the Massachusetts Secretary of the Commonwealth on Nov. 1, 2016.
In November 2016, the defendant attorneys made a final offer to buy GLF from its owner/founder. They notified him that the offer was only open for 24 hours, and if it was not accepted, they would all resign. The GLF owner/founder did not know that the defendant attorneys had been preparing to leave his firm for months and that in preparation for their departure they had downloaded more than 24 million pages of documents from GLF, including the research library, databases and administrative files. It is worth noting, as well, that the stolen material included client files for which the defendant attorneys had not received client authorization to transfer. The GLF owner/founder rejected the buyout offer, and terminated the defendant lawyers on Nov. 20, 2016.
On Nov. 21, 2016, the defendant lawyers began operating CMBG3 Law. They immediately accessed the material stolen from GLF, which they used to represent clients and run the new firm. Technical analyses of the CMBG3 Law computers suggested that the defendant attorneys used tens of thousands of GLF's files in the operation of the new firm.
GLF Sues Former Attorneys Over Taken Documents
A lawsuit followed. GLF sued the departing attorneys and CMBG3 for a number of claims, including conversion, breach of the duty of loyalty, conspiracy, and importantly unfair or deceptive trade practices in violation of the Massachusetts consumer protection law, G.L.c. 93A, § 11.
G.L.c. 93A, § 11 prohibits a person "engage[d] in any trade or commerce" from causing damage through engaging in "an unfair or deceptive act or practice." Prior case law had largely held that the statute did not apply to employer/employee relationships because intracompany disputes did not implicate commercial transactions between people engaged in commerce or trade. However, the application of the statute had never been analyzed by an appellate court in circumstances like the ones in this case: where an employee engages in unfair or deceptive conduct for the benefit of a competing business formed by the employee.
The Massachusetts Supreme Judicial Court accepted review. On April 9, 2021, the justices held that the type of activity that occurred in this case could very well form the basis of a deceptive trade practice because the then-employee defendant lawyers misappropriated material for the purpose of competing with their now-former employer. Such actions are not purely internal and cannot be shielded from liability because they occur during the existence of an employer/employee relationship. Massachusetts' statutory protections against unfair and deceptive business practices are robust, and they provide for multiple damages and fee shifting. 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.
There are several takeaways from this case. 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.
For more information about this topic or how Holland & Knight can help achieve your goals, please contact the authors.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.