A Litigation Risk In Hiring Laterals

Law firms that bring in lateral hires from a firm on the brink of dissolution may risk a future lawsuit, mounted by the bankruptcy trustees of the old firm. It’s sometimes called “the Jewel risk” not because these lawyers are jewels per se, although the plot certainly thickens when they are, but because of a 1984 legal precedent called Jewel v. Boxer. That case and the so-called Jewel doctrine shed some light on the situation, but as this piece by Arnold & Porter attorneys Lisa Hill Fenning, Pamela Phillips, Jonathan W. Hughes and Diana D. DiGennaro makes clear, much remains in the dark. The upshot is that the bankruptcy trustees could decide to sue for profits generated by work that was initiated by the attorneys when they worked in the dissolved firm. It’s unsettled law, but apparently they could go after the new law firm as well as the lawyers. The writers suggest some steps to minimize risk in any case. One strategy, although it’s not always practicable, would be to enter into an explicit agreement with the dissolving firm. Read this piece carefully, and caveat emptor.