Winding Down and Moving On

You have had a small practice for the past 30 years. The majority of matters you handle include real estate, probate and family law matters.

You’ve always had an interest in gardening. Over the past 5 years you’ve been volunteering your time at a local community supported organic farm and have become intrigued with the possibility of becoming involved with it on a full time basis. Your analytical and organizational skills would be very useful to help develop the farm and to expand its volunteer base. You figure now is the time.

Before you move on, you will need to close down your law practice. What are some of the ethical considerations you should keep in mind?

• Can you sell your law practice? If you can, what are the general requirements of the sale of a law practice rule?

• If you decide to simply wind down the practice without selling it, what are your obligations to your clients? What are your obligations with regard to closed or dormant client files?

ANALYSIS

Sale of a Law Practice

In February of 1990 the ABA adopted Model Rule 1.17 Sale of a Law Practice.  Rule 1.17 was subsequently amended pursuant to the recommendations of the ABA Ethics 2000 Commission (E2K) in February of 2002.  The Rule as adopted in 1990 required that the practice be sold in its entirety.  The E2K inspired amendments, among other things, permit a lawyer to sell discrete parts of his practice.  The E2K Reporter gave this explanation for the change:

The Commission believes that the present requirement is unduly restrictive and potentially disserves clients. While it remains important to ensure the disposition of the entire caseload, it is not necessary to require that all cases must be sold to a single buyer. For example, it may make better sense to allow the sale of family-law cases to a family lawyer and bankruptcy cases to a bankruptcy lawyer. Common sense would suggest the lawyer should sell the cases to the most competent practitioner and not be limited by such a "single buyer" rule, and paragraph (b) has been redrafted accordingly.

For further information on the ABA E2K Report and the E2K Reporter’s explanation of changes memos, visit the ABA E2K Web site.

In a nutshell, Rule 1.17 permits a lawyer to sell his entire practice or an area of his practice if:

• The seller ceases to practice law or ceases to practice law in the area of practice that has been sold
• The seller gives written notice to each of the seller’s clients notifying them of the proposed sale, the client’s right to retain other counsel or to simply take possession of the file, and that the client’s consent will be presumed if the client does not object within 90 days of receipt of the notice.
• If the client cannot be given notice, the file can be transferred to the buyer only by court order.
• The fees charged clients are not increased because of the sale.

The Comments to the Rule provide additional guidance. For example, Paragraph 11 of the Comment states that the seller has an obligation to exercise competence in identifying a purchaser qualified to assume the practice, (See Rule 1.1 Competence.)

State Versions of Rule 1.17

     Since the ABA added Rule 1.17 in 1990, it has been adopted or used as a model by at least 42 jurisdictions.  There can be significant variations in the state versions of the Rule. For examples of these variations, see the materials posted on the additional resources page.  In three jurisdictions that have not adopted a version of 1.17, state bar ethics committees have issued opinions permitting the sale of a law practice. See, e.g., Conn.Ethics Op. 99-10 (1999), D.C.Ethics Op. 294 (1999) and Kan.Ethics Op. 93-14 (1993).

Law Review Articles, Treatises

In a nutshell, Rule 1.17 permits a lawyer to sell his entire practice or an area of his practice if:

There have been several law review and bar journal articles written on the topic of sale of a law practice.  One commentator has written an entire treatise on the subject.  See, Poll, Selling Your Law Practice: The Profitable Exit Strategy, LawBiz Management Co. (2005). Other treatises devote separate chapters to the subject.  See, e.g. Rotunda and Dzienkowski, "Sale of a Law Practice" Legal Ethics, the Lawyer’s Deskbook on Professional Responsibility, at page 620, West Publishing Co., (2006-2007); "Sale of Law Practice," in ABA/BNA Lawyers’ Manual on Professional Conduct, 91:801 (last updated 1999); and the analysis of Model Rule 1.17 in section 21.1 in Hazard and Hodes, The Law of Lawyering (2006).   See Also Overton, Are Lawyers for Sale? 15-APR CBA Rec. 64 (2001); DeWoskin, "When a Solo Takes Down the Shingle," in A Lawyers’ Guide to Retirement (David A. Bridewell ed., 3d ed., published by the ABA Senior Lawyers Division 1998); Coy, Permitting the Sale of a Law Practice: Furthering the Interests of Both Attorneys and Their Clients, 222 Hofstra L.Rev. 969 (1994); Schoenwald, Model Rule 1.17 and the Ethical Sale of Law Practices: A Critical Analysis, 7 Geo.J. Legal Ethics 395 (1993).

Other sources address the practical concerns involved in the sale of a law practice. See, e.g., Shaw, Winding Down, Closing Up Or Selling Out, 61-NOV Bench & B. Minn. 12 (2004); Poll, Selling A Law Practice: Prospects And Pitfalls, 16 NO. 11 Acct. & Fin. Plan. for L. Firms 1 (2003); Crawford, The Sale Of A Legal Practice In North Carolina: Goodwill And Discrimination Against the Sole Practitioner, 32 Wake Forest L. Rev. 993 (1997); and Dimitriou, What Should Be Your Concerns? Purchase or Sale of a Solo Practice, 19 Law Prac. Mgmt. 44 (1993).

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Winding Down the Practice

State Bar opinions that have addressed issues as they relate to the winding down of a law practice stress the importance of communication with clients, protection of client confidences, and the appropriate handling of client files.  Ethics opinions that address a broad range of issues as they relate to the winding down of a law practice include Louisiana Opinion 05-RPCC-001[PDF] (2005), a digest of which states as follows:

A lawyer closing her practice should surrender client files to the client or new counsel, return client property and unearned fees, and give clients adequate notice to enable them to employ other counsel. With respect to matters in litigation, the lawyer should inform clients of pending court dates, advise them to obtain new counsel as soon as possible, and file a motion to withdraw as appropriate. The lawyer should analyze any client file she has not been asked to surrender and advise that client how to protect his or her interests. If a client’s whereabouts are unknown, the lawyer should send a form letter to the last known address notifying the client of the lawyer’s termination of the representation and of the opportunity for the client to obtain his or her files and property. Rule 1.15 requires that a lawyer keep records of all client property and trust account funds for five years after termination of the representation. Rules 1.15, 1.16.  1201 Law. Man Prof. Conduct 4001.

See also Michigan Opinion RI-100 (1991), Maryland opinions 2005-01 (2004) and 92-2 (1992), Illinois State Bar Opinion 94-14, and New Jersey Opinion 692 (supplement) [PDF] (2002).

     To the extent that a sole practitioner’s retirement from and subsequent dissolution of his practice is in effect a withdrawal from the representation, ABA Model Rule 1.16, Declining or Terminating Representation, may be implicated.  For example, subpart (c) of Rule 1.16 requires that a lawyer must get the court’s permission to withdraw for those matters currently pending before the court, and that the lawyer must continue with the representation if ordered by the court to do so.

Client Confidences

     Some state bar opinions in this area focus on the lawyer’s duty to protect client confidences. (See, e.g. Oregon Opinion 2005-23 [PDF] (2005)):

...Absent consent from the affected client or some other applicable exception, it would be improper for lawyer either to turn over files to an educational institution or to inform a new lawyer for the same client about any prior confidences or secrets.

See also Pennsylvania Opinion 94-51 (1994) that addresses confidentiality issues from the successor lawyer’s perspective, a digest of which states as follows:

A lawyer who is the successor attorney for several former clients of a law firm that is now dissolved may grant access to the clients’ files to a former partner from the firm who requests information in connection with an arbitration proceeding regarding the dissolution. The successor lawyer must distinguish between information obtained since the dissolution when a new attorney-client relationship came about; this information may not be disclosed without client consent. A distinction must also be made between access and possession of the files. The former partner may be allowed access to information provided before the law firm dissolved, but may not take possession of the files unless the client consents. Rules 1.6, 1.9, 1.15.

Client files

ABA Informal Opinion 1384, Disposition of a Lawyer’s Closed or Dormant Files Relating to Representation of or Services to Clients (1977), listed the following guidelines relating to the disposition of closed or dormant client files:

1. Unless the client consents, a lawyer should not destroy or discard items that clearly or probably belong to the client. Such items include those furnished to the lawyer by or in behalf of the client, the return of which could reasonably be expected by the client, and original documents (especially when not filed or recorded in the public records).
2. A lawyer should use care not to destroy or discard information that the lawyer knows or should know may still be necessary or useful in the assertion or defense of the client’s position in a matter for which the applicable statutory limitations period has not expired.
3. A lawyer should use care not to destroy or discard information that the client may need, has not previously been given to the client, and is not otherwise readily available to the client, and which the client may reasonably except will be preserved by the lawyer.
4. In determining the length of time for retention of disposition of a file, a lawyer should exercise discretion. The nature and contents of some files may indicate a need for longer retention than do the nature and contents of other files, based upon their obvious relevance and materiality to matters that can be expected to arise.
5. A lawyer should take special care to preserve, indefinitely, accurate and complete records of the lawyer’s receipt and disbursement of trust funds.
6. In disposing of a file, a lawyer should protect the confidentiality of the contents.
7. A lawyer should not destroy or dispose of a file without screening it in order to determine that consideration has been given to the matters discussed above.
8. A lawyer should preserve, perhaps for an extended time, an index or identification of the files that the lawyer has destroyed or disposed of.

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Some state bar opinions have addressed the joint obligations partners have with regard to client files when they retire from a partnership or when the partnership they are associated with is dissolved.  See, New York State Bar Opinion 623 (1991):

A lawyer who leaves a law practice, due either to retirement or dissolution of a law firm, has joint and several responsibility with other firm members for the proper disposition of client files. In the case of closed client files, the lawyer may destroy all documents that belong to him without notice to the client unless extraordinary circumstances exist. As for documents belonging to the client, the lawyer must offer to make them available to the client and may follow the client’s instruction as to their disposal. If the client fails to respond in a reasonable period of time, the lawyer should review the files to determine which files he must salvage because of legal requirements or because the documents establish client rights. The lawyer may then destroy the remainder of the files in a manner that preserves client confidentiality. He must notify the client of any documents that must be salvaged and forward any documents the client is required by law to maintain. If the client is deceased or incapacitated, the lawyer may deliver the files to the client’s representative. If delivery to the client or his representative is not possible, the lawyer must retain these files until the expiration of the legal retention period or the period of reasonably foreseeable need by the client but may charge the client the cost for maintaining the files. NY State Opinion 460; DRs 1-102(A)(5), 4101(B)(1)(D), 9-102(B)(D)(G); ECs 1-5, 4-4, 4-6, 7-1, 7-8, 7-11, 7-12.

Committee on Legal Ethics and Professional Conduct of the Ohio State Bar Association Informal Opinion 98-2 (1998) provides the following guidance to a lawyer who wished to retire and who inquired as to what he should do with original client wills that he assumed responsibility for upon the death of two senior partners:

It is the Committee’s opinion that your ethical obligations with respect to these wills is to ascertain whether the makers are still living and, if so, to return the wills to them; and, if the maker is deceased, then your obligation is to locate and deliver the will to the maker’s personal representative. Your ethical obligation is to make a diligent effort to locate either the client or, if the client is deceased, his or her personal representative. If, after undertaking this effort, there remain clients whose whereabouts you cannot determine, then, the Committee is of the opinion that you must preserve and retain the wills. You should leave instructions that upon your death, if there is no responsible party willing to assume appropriate responsibility, then the wills should be delivered to the chair of the local certified grievance committee or Disciplinary Counsel.

Nassau County Bar Association 93-23 (1993) discusses the joint ethical obligations of the lawyers who were formerly partners in a now dissolved law firm. The lawyers who withdrew made arrangements to store their inactive files with the lawyers who remained to form a successor law firm. The successor firm then contacted the former partners and gave them a list of the files the firm had in storage. The former partners instructed the firm to send them approximately 30 percent of the files and to destroy the rest. The successor firm inquired as to its obligations with regard to the remaining files in its possession. The opinion states:

Neither the fact that inquiring counsel and his present partners have no knowledge of the files which remain in their custody, changes their obligations with respect to the files ....

Moreover, if there are any members of inquiring counsel’s current firm who are not members of the predecessor law firm in the present firm, of which they are members, has custody of the files ... an attorney voluntarily assuming custody of the files of another lawyer’s client has the same ethical obligations for the files as if they were his or her own files.

Thus, while the private contractual agreement may have the effect of allocating among the former partners the economic burden of dealing with particular files ... it cannot shift the ethical burden which is joint and several as to (a) all the former partners, both "withdrawing partners" and those remaining at the successor firm and (b) any new partners of the successor firm.

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Nassau County Bar Association Opinion 89-43 (1989) dealt with a situation where a law firm had custody of client files of a deceased partner who had previously acquired the files from another lawyer, now deceased, who was not a member of the firm. The opinion states:

It is no answer to the discharge of custodial counsels’ obligations under the Code of Professional Responsibility to complain that the benefits of their passive custody of the documents are not commensurate with the present burdens. Such burdens do not flow solely from an attorney-client relationship, and are not dependent on the payment of fees; rather, the burdens of custody as prescribed by the Code are inherent in the lawyer’s enjoyment of his professional status, and his concomitant obligations to the public generally. Once the burden is assumed, by actively (or passively) taking custody of funds or property belonging to any "client," those burdens must be fully discharged even if the benefits of the custody were minimal or non-existent.

See also State Bar of Wisconsin Committee on Professional Ethics Opinion E-98-01 (1998):

... The fact the firm has dissolved or that the lawyers maintaining the files may not have been involved in the representation does not alter the duties of either the lawyer or firm that performed the engagement or the lawyer or firm that now maintains the files. Each retains responsibilities to the client. Lawyers in firms that are dissolving should agree among themselves on the handling of client files, and shall transfer files to a departing or new lawyer upon client request. However, those arrangements do not obviate the ethical and fiduciary duty to maintain and properly handle client files. See Nassau County B. Ass’n Op. 93-23 (1993). Both the lawyers who handled the engagement and the lawyers who may have voluntarily assumed custody of the file owe the same obligation to handle the return or destruction in a reasonable fashion as described above.

For related topics, See two earlier Eye on Ethics columns, Client Files: From Paper to Kilobytes, December 2005 (addressing ethics issues involved when storing client documents in an electronic format) and When a Lawyer Dies,  March 2006 (addressing the importance of a sole practitioner having in place a plan to protect his practice in the event of his death or disability)

More information on the resources available on the general topic of client file retention is available here.

Addendum 1:

Lawyers interested in this topic, who may be thinking of changing their lives and their work, might also be interested in "Second Season of Service," an initiative of ABA President Karen J. Mathis. Information on the initiative can be found at the Presidential Initiatives Web site.

Addendum 2:

ABA Standing Committee on Ethics and Professional Responsibility has issued Formal Ethics Opinion 06-442 [PDF] Review and Use of Metadata (2006), the headnote of which states as follows:

The Model Rules of Professional Conduct do not contain any specific prohibition against a lawyer’s reviewing and using embedded information in electronic documents, whether received from opposing counsel, an adverse party, or an agent of an adverse party. A lawyer who is concerned about the possibility of sending, producing, or providing to opposing counsel a document that contains or might contain metadata, or who wishes to take some action to reduce or remove the potentially harmful consequences of its dissemination, may be able to limit the likelihood of its transmission by "scrubbing" metadata from documents or by sending a different version of the document without the embedded information.

A former Eye on Ethics column, What’s the Meta with Metadata, has more information on this topic.

ETHICSearch is intended to stimulate awareness of ethical problems and illustrate the varying approaches of different jurisdictions. It is not intended as legal advice. The ABA Model Rules of Professional Conduct and the opinions discussed are advisory only; the ethics rules, laws and court decisions of your jurisdiction may dictate a different result.

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