Current through Register Vol. 39, No. 6, September 16, 2024
A lawyer or a law firm may sell or purchase a law practice,
or an area of law practice, including good will, if the following conditions
are satisfied:
(a) The seller ceases
to engage in the private practice of law, or in the area of practice that has
been sold, from an office that is within a one-hundred (100) mile radius of the
purchased law practice, except the seller may continue to practice law with the
purchaser and may provide legal representation at no charge to indigent persons
or to members of the seller's family;
(b) The entire practice, or the entire area
of practice, is sold to one or more lawyers or law firms;
(c) Written notice is sent to each of the
seller's clients regarding:
(1) the proposed
sale, including the identity of the purchaser;
(2) the client's right to retain other
counsel and to take possession of the client's files prior to the sale or at
any time thereafter; and
(3) the
fact that the client's consent to the transfer of the client's files and legal
representation to the purchaser will be presumed if the client does not take
any action or does not otherwise object within thirty (30) days of receipt of
the notice.
(d) If the
seller or the purchaser identifies a conflict of interest that prohibits the
purchaser from representing the client, the seller's notice to the client shall
advise the client to retain substitute counsel.
(e) If a client cannot be given notice, the
representation of that client may be transferred to the purchaser only upon
entry of an order so authorizing by a court having jurisdiction. The seller may
disclose to the court in camera information relating to the representation only
to the extent necessary to obtain an order authorizing the transfer of a file.
In the event the court fails to grant a substitution of counsel in a matter,
that matter shall not be included in the sale and the sale otherwise shall be
unaffected.
(f) The fees charged
clients shall not be increased by reason of the sale.
(g) The seller and purchaser may agree that
the purchaser does not have to pay the entire sales price for the seller's law
practice in one lump sum. The seller and purchaser may enter into reasonable
arrangements to finance the purchaser's acquisition of the seller's law
practice without violating Rules 1.5(e) and 5.4(a). The seller, however, shall
have no say regarding the purchaser's conduct of the law practice.
Comment
[1] The
practice of law is a profession, not merely a business. Clients are not
commodities that can be purchased and sold at will. Pursuant to this Rule, when
a lawyer or an entire firm ceases to practice and other lawyers or firms take
over the representation, the selling lawyer or firm may obtain compensation for
the reasonable value of the practice as may withdrawing principals of law
firms. See Rules 5.4 and 5.6.
Termination of Practice by the Seller
[2] The requirement that all of
the private practice be sold is satisfied if the seller in good faith makes the
entire practice available for sale to the purchasers. The fact that a number of
the seller's clients decide not to be represented by the purchasers but take
their matters elsewhere, therefore, does not result in a violation. Return to
private practice as a result of an unanticipated change in circumstances does
not necessarily result in a violation. For example, a lawyer who has sold the
practice to accept an appointment to judicial office does not violate the
requirement that the sale be attendant to cessation of practice if the lawyer
later resumes private practice upon being defeated in a contested or a
retention election for the office.
[3] The requirement that the seller cease to
engage in the private practice of law does not prohibit employment as an
independent contract lawyer or an employee for the practice. Permitting the
seller to continue to work for the practice will assist in the smooth
transition of cases and will provide mentoring to new lawyers. The requirement
that the seller cease private practice also does not prohibit employment as a
lawyer on the staff of a public agency or a legal services entity that provides
legal services to the poor, or as in-house counsel to a business. Similarly,
the Rule allows the seller to provide pro bono representation to indigent
persons on his own initiative and to provide legal representation to family
members without charge.
See also 98 Formal Ethics Opinion 6 (1998)
(requirements in rule relative to sale of law practice to lawyer who is
stranger to the firm do not apply to the sale of law practice to lawyer who is
a current employee of firm).
[4] The Rule permits a sale attendant upon
discontinuing the private practice of law from an office that is within a
one-hundred (100) mile radius of the purchased practice. Its provisions,
therefore, accommodate the lawyer who sells the practice upon the occasion of
moving to another part of North Carolina or to another state.
Sale of Entire Practice or Entire Area of
Practice
[5] The
Rule requires that the seller's entire practice, or an entire area of practice,
be sold. The prohibition against sale of less than the entire practice area
protects those clients whose matters are less lucrative and who might find it
difficult to secure other counsel if a sale could be limited to substantial
fee-generating matters. The purchasers are required to undertake all client
matters in the practice or practice area, subject to client consent. This
requirement is satisfied, however, even if a purchaser is unable to undertake a
particular client matter because of a conflict of interest.
Client Confidences, Consent and
Notice
[6] Written
notice of the proposed sale must be sent to all clients who are currently
represented by the seller and to all former clients whose files will be
transferred to the purchaser. Although it is not required by this rule, the
placement of a notice of the proposed sale in a local newspaper of general
circulation would supplement the effort to provide notice to clients as
required by Paragraph (c) of the rule.
[7] A lawyer or law firm ceasing to practice
cannot be required to remain in practice because some clients cannot be given
actual notice of the proposed purchase. Since these clients cannot themselves
consent to the purchase or direct any other disposition of their files, the
Rule requires an order from a court having jurisdiction authorizing their
transfer or other disposition. The Court can be expected to determine whether
reasonable efforts to locate the client have been exhausted, and whether the
absent client's legitimate interests will be served by authorizing the transfer
of the file so that the purchaser may continue the representation. Preservation
of client confidences requires that the petition for a court order be
considered in camera.
[8]
Negotiations between seller and prospective purchaser prior to disclosure of
information relating to a specific representation of an identifiable client no
more violate the confidentiality provisions of Rule 1.6 than do preliminary
discussions concerning the possible association of another lawyer or mergers
between firms, with respect to which client consent is not required.
See Rule 1.6(b)(8). Providing the purchaser access to detailed
information relating to the representation, such as the client's file, however,
requires client consent. The Rule provides that before such information can be
disclosed by the seller to the purchaser the client must be given actual
written notice of the contemplated sale, including the identity of the
purchaser, and must be told that the decision to consent or make other
arrangements must be made within 30 days. If nothing is heard from the client
within that time, consent to the sale is presumed.
[9] All the elements of client autonomy,
including the client's absolute right to discharge a lawyer and transfer the
representation to another, survive the sale of the practice. The notice to
clients must advise clients that they have a right to retain a lawyer other
than the purchaser. In addition, the notice must inform clients that their
right to counsel of their choice continues after the sale even though they
consent to the transfer of the representation to the purchaser.
Fee Arrangements Between Client and
Purchaser
[10] The
sale may not be financed by increases in fees charged the clients of the
practice. Existing agreements between the seller and the client as to fees and
the scope of the work must be honored by the purchaser.
Other Applicable Ethical Standards
[11] Lawyers participating in the
sale of a law practice are subject to the ethical standards applicable to
involving another lawyer in the representation of a client. These include, for
example, the seller's obligation to exercise competence in identifying a
purchaser qualified to assume the practice and the purchaser's obligation to
undertake the representation competently ( see Rule 1.1); the obligation to
avoid disqualifying conflicts, and to secure the client's informed consent for
those conflicts that can be agreed to ( see Rule 1.7 regarding conflicts and
Rule 1.0(f) for the definition of informed consent); and the obligation to
protect information relating to the representation (see Rules 1.6 and
1.9).
[12] If approval of the
substitution of the purchasing lawyer for the selling lawyer is required by the
rules of any tribunal in which a matter is pending, such approval must be
obtained before the matter can be included in the sale (see Rule
1.16).
[13] After purchase, the law
practice may retain the same name subject to the requirements of Rule 7.5. The
seller's retirement or discontinuation of affiliation with the law practice
must be indicated on letterhead and other communications as necessary to avoid
misleading the public as to the seller's relationship to the law practice. If
the seller becomes an independent contract lawyer or employee of the practice,
the letterhead and other communications must indicate that the seller is no
longer the owner of the firm; an "of counsel" designation would be sufficient
to do so.
Applicability of the Rule
[14] This Rule applies to the sale of a law
practice by representatives of a deceased, disabled or disappeared lawyer.
Thus, the seller may be represented by a non-lawyer representative not subject
to these Rules. Since, however, no lawyer may participate in a sale of a law
practice which does not conform to the requirements of this Rule, the
representatives of the seller as well as the purchasing lawyer can be expected
to see to it that they are met.
[15] Admission to or retirement from a law
partnership or professional association, retirement plans and similar
arrangements, and a sale of tangible assets of a law practice, do not
constitute a sale or purchase governed by this Rule.
[16] This Rule does not apply to the
transfers of legal representation between lawyers when such transfers are
unrelated to the sale of a practice.
