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End-of-life notice: American Legal Ethics Library

As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.

Many people have contributed time and effort to the project over the years, and we would like to thank them. In particular, Roger Cramton and Peter Martin not only conceived ALEL but gave much of their own labor to it. We are also grateful to Brad Wendel for his editorial contributions, to Brian Toohey and all at Jones Day for their efforts, and to all of our correspondents and contributors. Thank you.

We regret any inconvenience.

Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


Michigan Rules of Professional Conduct

Comment - Rule 1.17

[1] This rule permits a selling lawyer or law firm to obtain compensation for the reasonable value of a private law practice in the same manner as withdrawing partners of law firms. See Rules 5.4 and 5.6. This rule does not apply to the transfer of responsibility for legal representation from one lawyer or firm to another when such transfers are unrelated to the sale of a practice; for transfer of individual files in other circumstances, see Rules 1.5(e) and 1.16. 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.

[2] A lawyer participating in the sale of a law practice is subject to the ethical standards that apply when involving another lawyer in the representation of a client. These include, for example, the seller's obligation to act competently in identifying a purchaser qualified to assume the representation of the client and the purchaser's obligation to undertake the representation competently, Rule 1.1, the obligation to avoid disqualifying conflicts and to secure client consent after consultation for those conflicts that can be waived, Rule 1.7, and the obligation to protect information relating to the representation, Rules 1.6 and 1.9.

[3] If approval of the substitution of the purchasing attorney for the selling attorney 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, Rule 1.16. See also MCR 2.117(C).

[4] 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.

Selling Entire Practice

[5] When a lawyer is closing a private practice, the lawyer may negotiate with a purchaser for the reasonable value of the practice that has been developed by the seller. A seller may agree to transfer matters in one legal field to one purchaser, while transferring matters in another legal field to a separate purchaser. However, a lawyer may not sell individual files piecemeal. A seller closing a practice to accept employment with another firm may take certain matters to the new employer while selling the remainder of the practice.

[6] Although the rule contemplates the sale of substantially all of the law practice, a seller retiring from private practice generally may continue to represent a small number of clients while transferring the balance of the practice.

[7] The seller remains responsible for handling all client matters until the files are transferred under this rule.

[8] Termination of Practice by the Seller. The rule allows the parties to agree that the seller cease practice in the geographical area for a reasonable time as a condition of the sale. In certain situations, a blanket prohibition on the seller's practice would not be appropriate or warranted, such as a judicial appointee who might subsequently be defeated for reelection, or a seller elected full-time prosecutor. The parties should be allowed to negotiate, for instance, whether any geographical or duration restrictions apply to the seller's employment as a lawyer on the staff of a public agency or of a legal services entity that provides legal services to the poor, or as inside counsel to a business.

Conflicts

[9] The practice may be sold to one or more lawyers or firms, provided that the seller assures that all clients are afforded competent representation. Since the number of client matters and their nature directly bear on the valuation of good will and therefore directly relate to selling the law practice, conflicts that cannot be waived by the client and that prevent the prospective purchaser from undertaking the client's matter should be determined promptly. If the purchaser identifies a conflict that the client cannot waive, information should be provided to the client to assist in locating substitute counsel. If the conflict can be waived by the client, the purchaser should explain the implications and determine whether the client consents to the purchaser undertaking the representation. Initial screening with regard to conflicts, for the purpose of determining the good will of the practice, need be no more intrusive than conflict screening of a walk-in prospective client at the purchaser's firm.

Client Confidences, Consent, and Notice

[10] Negotiations between the seller and prospective purchaser prior to disclosure of information relating to a specific representation of an identifiable client can be conducted in a manner that does not violate the confidentiality provisions of Rule 1.6, just as preliminary discussions are permissible concerning the possible association of another lawyer or mergers between firms, with respect to which client consent is not required. Providing the purchaser access to client- specific information relating to the representation and to the 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 fact 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 90 days. If nothing is heard from the client within that time, consent to the transfer of the client's file to the identified purchaser is presumed.

[11] 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 are not available to consent to the purchase or direct any other disposition of their files, the rule requires an order from a judge of the judicial circuit in which the seller maintains the practice, 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.

[12] The client should be told the identity of the purchaser before being asked to consent to disclosure of confidences and secrets or to consent to transfer of the file.

[13] MCR 9.119(G) provides a mechanism for handling client matters when a lawyer dies and there is no one else at the firm to take responsibility for the file.

Fee Arrangements Between Client and Purchaser

[14] Paragraph (b) is intended to prohibit a purchaser from charging the former clients of the seller a higher fee than the purchaser is charging the purchaser's existing clients. The sale may not be financed by increases in fees charged the clients of the practice that is purchased. Existing agreements between the seller and the client as to fees and the scope of the work must be honored by the purchaser, unless the client consents after consultation.

[15] Adjustments for differences in the fee schedules of the seller and the purchaser should be made between the seller and purchaser in valuing good will, and not between the client and the purchaser. The purchaser may, however, advise the client that the purchaser will not undertake the representation unless the client consents to pay the higher fees the purchaser usually charges. To prevent client financing of the sale, the higher fee the purchaser may charge must not exceed the fees charged by the purchaser for substantially similar service rendered prior to the initiation of the purchase negotiations.

Deceased Lawyer

[16] Even though a nonlawyer seller representing the estate of a deceased lawyer is not subject to the Michigan Rules of Professional Conduct, a lawyer who participates in a sale of a law practice must conform to this rule. Therefore, the purchasing lawyer can be expected to see that its requirements are met.