The reason “laterals” or “merged attorneys” get mentioned so often is because professional liability carriers have noted sharp upticks in claims arising from laterals’ conduct and also from the conflicts they can bring to a new firm, if not properly resolved in advance. My theory is that firms are so anxious to get new business that they do not do the kind of due diligence on new lateral hires that they would insist their clients do in a business deal. Firms should always require possible new lawyers to provide extensive personal, financial and bar related information under confidentiality agreements. This failure to examine all about a lateral carefully can get you someone else’s problem, as bad as a car flooded out by a hurricane. Likewise, their clients can be cross-checked under tight conflicts procedures to see what conflict issues might exist if they do join. Resolution of these should be a big factor in any hire or merge decision.
Like most people, laterals will do things the way they did before and this could generate claims issues when not monitored. Firms should have a formal integration process for laterals that is better than the one they use for new hires. Particularly with lawyers now coming into a loss prevention conscious firm, old loose habits have to be changed and the new loss preventative procedures adopted, despite their complaints along the lines of “I just want to practice law”, rather than do the things you now require of me.
In the Minnesota Lawyer recently, Charles Lundberg discussed this subject and listed an American Lawyers article on the subject. There have been spectacular issues with hiring a lawyer who either brings or creates bad mojo for the new firm. These articles are good to point out how serious the problem can be to you.
However, the more regular lateral issue often comes about by promises made, but never met, and after years of paying them too much, it doesn’t work out. “We wish them well” is in the typical notice that Fred will be leaving the firm. This is not a new loss topic. Lots has been written about laterals and losses, but law firms keep doing this with, at best, a 50/50 financial success ratio, not to mention the greatly increased number of legal malpractice claims they generate. Think about that: 50/50 chance of success, but with a risk of conflicts and claims either way.
In a single firm study, I have seen better than this 50/50 without any big claims issues and with long-term friends who have done well for the firm. My point is that you must (1) do due diligence; (2) resolve conflict issues; and (3) integrate them into the firm. I have seen many big successes by way of merger or lateral hires, including a successful Managing Member in the study firm. They did full due diligence and lots of advance conflict work, but they still had some failures like the national stats show for all. I really do have many good friends in the successful lateral hire category.
See Model Rules 1.10 and 1.9 for screening and conflicts.