Do you want to retire and sell your firm? Do you want to slow down and let another attorney take over all the headaches associated with running your firm? Are you a partner in a megafirm who has decided that it’s time to spend more time with the grandkids? Are you tired of your current firm and want to begin negotiating the transition to the firm down the hall?
These scenarios are common. Almost every lawyer considers them. Whether it’s thinking of the day when you won’t be working anymore or finally joining a firm where everything will be perfect, the grass always seems to be greener next door.
The next steps are easy, right?
I see it all the time. As the author of “Changing Law Firms: Ethical Guidance for Pennsylvania Law Firms and Attorneys,” I regularly meet with lawyers who assume that they can sell their practices and then join the firm next door. They often can’t. While that doesn’t mean they are shackled to their firms permanently, it does mean that the Rules of Professional Conduct—which do not treat all attorneys and all practices equally—can be an enormous stumbling block.
Consider the solo lawyer who wants to retire and then go to work for another firm or, perhaps, for the lawyer who bought the firm and wants the seller to continue to work and help with the transition. In most cases, that won’t be possible. Why? The rules get in the way.
Premised on the concept that the practice of law is a profession, not merely a business, the Rules of Professional Conduct require solo practitioners who sell their practices to cease to engage in the private practice of law in Pennsylvania. In other words, if you’re a solo and want to sell your practice, you either must give up private practice or retire. And when you retire, you do exactly that—under Rule of Disciplinary Enforcement 219, a lawyer with “retired status … shall no longer be eligible to practice law.”
Plus, if you’re a solo with multiple practice areas, you’re out of luck if you can’t find a buyer who handles your diverse interests. Under Rule 1.17(b), one of the conditions under which a lawyer or law firm may sell or purchase a law practice, including its goodwill, is that the seller “sells the practice as an entirety to a single lawyer.” Comment 3 affirms that the “rule requires a single purchaser,” explaining that “the prohibition against piecemeal sale of a practice 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. [Therefore, the] purchaser is required to undertake all client matters in the practice, subject to client consent.” While this may protect less-lucrative clients, it also means that if your practice includes two highly diverse areas of law, you may find it more difficult, if not impossible, to find a willing buyer.
Of course, there are other hoops the selling/retiring lawyer must jump through, although some apply to any attorney who moves from one firm to another. The retiring attorney must give each client: actual written notice of the proposed transfer of the client’s representation, including the identity and address of the purchasing lawyer; a statement that the client has the right to representation by the purchasing lawyer under the preexisting fee arrangements; a statement that the client has the right to retain other counsel or to take possession of the file; and a statement that the client’s consent to the transfer of the representation will be presumed if the client does not take any action or does not otherwise object within 60 days of receipt of the notice. In addition, the attorney purchasing the practice may not increase the fees charged or change the terms of any existing agreements between the seller attorney and the client concerning fees and the scope of work.
Although solos can sell their practices, lawyers in firms with two or more attorneys cannot, because Rule 1.17 limits the sale of practices to solos. But the rule provides a loophole for everyone else that doesn’t require lawyers—other than solos—to permanently give up their licenses. Under Rule 1.17, the “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.” Thus, non-solos merely need to have agreements relating to their admission or withdrawal from their firms in order to comply with the rule.
In other words, you can’t sell your practice unless you’re a solo because that would transform you from a professional into a businessman, but it’s perfectly acceptable to retire from a law partnership with a buyout or transition arrangement through which you can be compensated for the value of your clients. And, most importantly, when you have a buyout or transition agreement, you can continue to practice law at the same firm, at another firm or part-time as desired and still be compensated based on the contract.
The other problem that arises, whether lawyers are selling their practices or transitioning from one firm to another, is determining what information may be disclosed when changing between firms. How does this work? Again, it will depend on the type of firm and type of clients.
First, client information is confidential. That’s something every lawyer learns in the first year of law school. Thus, it clearly violates the Rules of Professional Conduct for an attorney to simply turn over his or her list of clients to the new firm, along with all of the billing and other financial information that would presumably make the transition so desirable.
However, when an attorney has large corporate-type clients, it’s easy for him or her to say that annual billings for a big insurance company have averaged a particular amount for many years and let the new firm do the math. It’s not so easy in other circumstances.
In smaller firms, and particularly firms such as personal injury, employment law, family law and criminal law offices, the new firm isn’t interested in aggregate or historical billing. It’s interested in the nitty gritty details, such as how strong the liability is, how big the damages are, what the anticipated billings are, and other details well beyond those that impact lawyers with only a handful of long-term clients with predictable billings.
Rule 1.6(c)(6) attempts to address these concerns about revealing confidential client information. In particular, the rule permits a lawyer to reveal information to the extent that the lawyer reasonably believes necessary to effectuate the sale of the practice.
In addition, Comment 17 to Rule 1.6 recognizes that attorneys must perform due diligence when selling a law practice that requires the limited disclosure of certain otherwise confidential information.
Comment 19 to Rule 1.6 further recognizes that lawyers “may need to disclose limited information to each other to detect and resolve conflicts of interest, such as when a lawyer is considering an association with another firm, two or more firms are considering a merger, or a lawyer is considering the purchase of a law practice.”
Under those circumstances, “lawyers and law firms are permitted to disclose limited information, but only once substantive discussions regarding the new relationship have occurred. Any such disclosure should ordinarily include no more than the identity of the persons and entities involved in a matter, a brief summary of the general issues involved and information about whether the matter has terminated. Even this limited information, however, should be disclosed only to the extent reasonably necessary to detect and resolve conflicts of interest that might arise from the possible new relationship. Moreover, the disclosure of any information is prohibited if it would compromise the attorney-client privilege or otherwise prejudice the client.”
While this guidance is helpful to the lawyer with the big insurance company as a client, it continues to prevent a personal injury lawyer, and others, from disclosing the information that generally matters to the new firm—the liability, damages and potential settlement or verdict value of incoming cases—because such information is well beyond the generic information permitted by the rule and the comments.
Second, there is the real potential, especially in larger firms, for conflicts to arise, and firms need to be certain that the transitioning lawyer’s files aren’t creating conflicts that are unresolvable or that would make it difficult, if not impossible, for the clients to move with the attorney.
In those cases, the rules, which clearly favor the larger firms, permit limited disclosure. Small firms, particularly those with individual clients, rarely have the problem.
Third, because every file is the client’s, and clients choose their attorneys, if an attorney changes firms, the lawyer’s clients must approve the transfer of their files to the new firm. When a big insurance company is the client, the transition may be accomplished with only one or two letters to its corporate counsel. On the other hand, when a lawyer has numerous clients, the notices and attendant record-keeping are more voluminous.
The bottom line remains that it can be difficult for lawyers to ethically transition from one firm to another. It can be even harder, if not ethically impossible, for a solo practitioner to sell his or her practice and continue to represent clients. In every circumstance, lawyers must carefully review the rules to determine the most appropriate way to overcome the ethical burdens that can arise.
Daniel J. Siegel is the principal of the Law Offices of Daniel J. Siegel, which provides appellate, writing and trial preparation services to other attorneys, as well as ethical and disciplinary guidance. He is also the president of Integrated Technology Services LLC, a consulting firm that helps law offices improve their workflow through the use of technology.