Ethics Counsel on www.OKbar.org

Dim the Lights: Issues in Winding Down a Law Practice

By Gina L. Hendryx, Ethics Counsel

The decision to close your law practice may be the result of varying factors. Judicial appointment, change of employment, retirement and relocation constitute life events which may precipitate the need to shutter your solo or small firm. Regardless of motivation, ending a law practice requires preparation and planning. Due consideration must be given to clients, rules of professional conduct, courts and compensation.

Oklahoma attorneys have options when determining the vehicle to use to close their law practices. Included in these options are 1) the sale of the entire practice or an area of the practice; 2) establishing a partnership wherein the partnership agreement details the transfer terms of the practice; 3) associate counsel on current files within your office; and 4) withdrawal from client representation and termination of the law practice.

SALE OF A LAW PRACTICE

Effective Jan. 1, 2008, a lawyer may sell an entire practice or an area of practice.

Oklahoma Rules of Professional Conduct
Chapter 1, App. 3-A
Client-Lawyer Relationship
Rule 1.17. Sale Of Law Practice

1. A lawyer or a law firm (or the authorized representative of a lawyer or a law firm) may sell or purchase a law practice, or an area of 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, in the geographic area in Oklahoma in which the practice has been conducted; and

(b) The entire practice, or the entire area of practice, is sold to one or more lawyers or law firms, except that:

  1. the representation of any client who does not consent as provided in paragraph (c) shall not be transferred;
  2. matters shall not be transferred to a purchaser unless the seller has reasonable basis to believe that the purchaser has the requisite knowledge and skill to handle such matters, or reasonable assurances are obtained that such purchaser will either acquire such knowledge and skill or associate with another lawyer having such competence;
  3. matters shall not be transferred to a purchaser who would not be permitted to assume such representation by reason of restrictions contained in Rules 1.7 through 1.10 or other Rules; and
  4. where matters in litigation are involved, any necessary judicial approvals of the transfer of representation must be obtained.

(c) The seller or the seller’s representative shall give written notice to each client whose representation is proposed to be transferred, stating:

  1. a sale of the entire practice, or the entire area of practice, is proposed;
  2. a transfer of the representation of such client to a specified lawyer, lawyers or law firm is contemplated;
  3. the client has the right to take possession of the file and retain other counsel;
  4. the existence and status of any funds or property held for the client, including but not limited to retainers or other prepayments; and
  5. the fact that the client’s consent to the transfer of the client’s files will be presumed if the client does not take any action or does not otherwise object within 90 days of the date of the notice.

The signed written consent of each client whose representation is proposed to be transferred to a purchaser must be obtained; provided that the client’s consent to the transfer of the client’s files shall be presumed if the client does not take any action or does not otherwise object within 90 days of the date of the notice. 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 must disclose to the court in camera information relating to the representation only to the extent necessary to obtain an order authorizing the transfer of the file.

(d) The purchaser may, however, refuse to undertake the representation unless the client consents to pay the purchaser fees at a rate not exceeding the fees charged by the purchaser for rendering substantially similar services prior to the initiation of the purchase negotiations.

These amended rules permit the sale of all of the private practice or all of an area of practice. The seller must cease to engage in the private practice of law or in the area of practice that has been sold. There is also a “geographic” restriction in that the seller must cease to practice in the geographic area in Oklahoma in which the practice has been conducted. Therefore, an attorney might sell her divorce practice while maintaining her probate practice. She could remain in the same jurisdiction, but could not continue a divorce practice after the sale. Or, for example, an attorney could sell his entire practice composed of primarily criminal defense clients. He could then move to a different geographical area of the state and open another practice which included the defense of criminal matters.

The sale of a practice may be to one or more attorneys. It is not required that one attorney or one firm purchase all the files. The new rule permits individual buyers. Therefore, you can target an attorney who does primarily criminal work for purchase of that area of your practice while selling another area to a different buyer.

These sale provisions are also available to the authorized representative of a lawyer such as the personal representative of an estate. In the event of an untimely or unexpected death, the deceased’s practice may be sold for the benefit of the estate.

Ethical considerations when selling a practice include what information may be disclosed to the prospective buyer, notification of clients of the potential sale, consent of the clients and whether the purchaser may change the fee agreement with the client.

Rule 1.17 requires the seller to have a reasonable belief that the purchaser has the skill and knowledge to handle the matters and does not have a conflict that would preclude the representation. Notice must be given to the client of the proposed sale. The client has the option to continue with the representation with the buyer or to pick up the file and hire other counsel. The client must be given information on the existence and status of any client funds in the possession of the attorney. It is best to get written consent for the transfer of the file to the purchasing attorney. Consent may be presumed if no action is taken by the client within 90 days of the notice. The sale may not be financed by increases in fees charged to the clients of the practice. However, the purchaser may decline the representation of any client who chooses not to pay the purchaser’s normal presale rates for handling similar cases.

FORMATION OF A PARTNERSHIP

Another option for the attorney planning an exit strategy from the practice of law is the formation of a partnership with another attorney or group of attorneys. Law partnerships are governed by the provisions of the Uniform Partnership Act. The act gives partners a great deal of freedom to vary its standard provisions on such subjects as cause and consequence of dissolution. A partner(s) can pay you for your share in the partnership assets and can protect your interests in your cases. Through the partnership agreement you can control buy/sell terms, asset purchases and valuation of partnership shares. Ethical issues to be considered during the discussions of such a formation primarily include questions of confidentiality and potential conflicts of interest. Attorneys should be wary of divulging detailed information about the representation of specific clients to prospective partners. The potential partners should compare client lists in order to identify conflicts of interest that such a formation may produce. If conflicts arise, then informed consent may cure same. If not, mutual termination of the representations may be necessary.

ASSOCIATE COUNSEL AND/OR REFER CASES

Another option is to associate counsel or refer your cases to other attorneys. Either option requires the consent of the client to the association. You should prepare a written agreement signed by yourself, associated counsel, and the client memorializing the agreement and reflecting the client’s consent to same. The pertinent section on referrals is Oklahoma Rule of Professional Conduct 1.5(e):

“(e) A division of a fee between lawyers who are not in the same firm may be made only if:

  1. the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;
  2. the client agrees to the arrangement and the arrangement is confirmed in writing; and
  3. the total fee is reasonable.”

Paragraph (e) permits the lawyers to divide a fee either on the basis of the proportion of services they render or if each lawyer assumes responsibility for the representation as a whole.

WITHDRAWAL OF CLIENT REPRESENTATION AND CLOSING OF THE PRACTICE

If you opt not to turn the file over to another attorney whether by sale or association, you should attempt to complete all representations prior to closing your practice. If completion is not practicable, assist your clients with the location of other counsel. You may be able to work out a fee split pursuant to Rule 1.5(e) or, at the least, a return of advanced costs.

If the matter has been filed, a substitution of counsel should be filed with the court clerk.

If no counsel has been retained, then you will need to file a motion to withdraw and follow the applicable statutory requirements for same. Title 12 of the Oklahoma Statutes provides as follows:

C. WITHDRAWAL OF COUNSEL. A motion to withdraw may be filed at any time. All motions to withdraw shall be accompanied by a proposed order. No counsel may withdraw from a pending case without leave of the court. The counsel filing the motion shall serve a copy of the motion on the client and all attorneys of record. All motions to withdraw shall be signed by the party on whose behalf counsel has previously appeared or contain a certificate by counsel that:

1. The client has knowledge of counsel’s intent to withdraw; or

2. Counsel has made a good faith effort to notify the client and the client cannot be located.

In civil actions, the court may grant a motion to withdraw where there is no successor counsel only if the withdrawing attorney clearly states in the body of the motion the name and address of the party. The order allowing withdrawal shall notify the unrepresented party that an entry of appearance must be filed either by the party pro se or by substitute counsel within 30 days from the date of the order permitting the withdrawal and that a failure of the party to prosecute or defend the case may result in dismissal of the case without prejudice or a default judgment against the party. If no entry of appearance is filed within 30 days from the date of the order permitting withdrawal, then the unrepresented party, other than a corporation, is deemed to be representing himself or herself and acting pro se. In all cases, counsel seeking to withdraw shall advise the court if the case is currently set for motion docket, pretrial conference, or trial. 12 O.S. 2005.2

When withdrawing from representation, you should provide the client a complete copy of his file, identification and information on any upcoming deadline or statute of limitations.

Oklahoma Rule of Professional Conduct 1.16 delineates the circumstances under which a lawyer must or may withdraw from the representation of a client. You should refer to the rule and cite the applicable section in your motion to withdraw filed with the court.

RETENTION OF DOCUMENTS

Even though you have packed the mini van and locked the doors, you still must maintain some closed client documents. Most state ethics committees agree that lawyers are not obligated to keep client files indefinitely. However, most jurisdictions concur that “clients and former clients reasonably expect from their lawyers that valuable and useful information in the lawyer’s files, and not otherwise readily available to the clients, will not be prematurely and carelessly destroyed.” ABA Standing Committee on Ethics and Professional Responsibility, Informal Op. 1384 (1977).

The Oklahoma Rules of Professional Conduct (ORPC) do not provide specific direction or guidelines on the subject of file retention. However, ORPC 1.15(a) does require that complete records of client account funds and other client property be kept for five years after termination of the representation. A good general office policy for file retention would be the five-year rule imposed on trust account records. However, the length of time that a file should be retained may depend on the type of case or the contents of the file or both. For example:

  • Files pertaining to claims of minors should be maintained until the child is beyond the age of majority and any statutes of limitations have expired.
  • Some probate, estate and guardianship matters may require an indeterminate retention period.
  • Real estate title opinions and title insurance work may require a far more lengthy retention of work product.

Ultimately, the decision should be based on factors such as statutes of limitations, substantive law, the nature of the particular case and the client’s needs. A lawyer should also consult his or her malpractice carrier for any specific requirements it has on document retention.

Have an ethics question? It’s a member benefit, and all inquiries are confidential. Contact Ms. Hendryx at ginah@okbar.org or (405) 416-7083; (800) 522-8065.

Closing a Practice Checklist

  • Employee final payroll, 1099s, and W2s
  • Operating account
  • Trust account
  • Firm credit cards and auto pays
  • Change of address with bar association/post office
  • Telephone number forwarding
  • Advertising
  • Insurance
  • Building lease
  • Equipment (owned vs. leased)
  • Legal status of law firm
  • Storage of closed files/trust account record

Originally published in the Oklahoma Bar Journal -- Feb.9, 2008 -- Vol. 79; No.4.