Oklahoma Bar Journal
ORPC 1.17 and the Ethical Sale of a Law Practice
By Richard Stevens
When I speak to groups of lawyers, I often remind them that while there are very few things in this life that are certain, one thing is: Someday, we will not be practicing law. If that day comes because of careful thought and planning, then you, your friends and your family will be better served. If that day comes because of illness, incapacity or death, it is imperative that you have taken the time to plan for a smooth transition or termination of your practice.
I suggest you consult the OBA Management Assistance Program page at www.okbar.org/map. There are links to articles about closing a law practice and one to the Planning Ahead Guide: Attorney Transition Planning in the Event of Death or Incapacity, A Handbook and Forms. Lawyers should take advantage of these resources to make plans and anticipate the day that – either by design or happenstance – will come to us all. There is significant, useful information contained in the handbook, particularly regarding a smooth transition of trust accounts and trust funds.
When a lawyer decides to retire, one option that presents itself is the sale of a law practice. While not all law practices are candidates for sale, many may be. Most large firms continue to exist after a partner or partners leave the firm, but many solo and small practices may be candidates for sale. A case in point is the small-town sole practitioner who is planning to retire and seeks a young lawyer to take over the practice. Small firms in desirable locations may be prime targets for acquisition by larger firms.
WHAT IS THE RULE?
The sale of a law practice is governed by the Oklahoma Rules of Professional Conduct (ORPC) 1.17. The rule sets ethical limits on the sale of a law practice.
ORPC 1.17 makes clear that a lawyer may buy or sell a law practice or a particular area of practice including “good will.” Up until the latter 20th century, the sale of a law practice was considered unethical. The inability to sell a law practice advantaged law firms over sole practitioners. While members of a law firm were able to make agreements to pay retiring members, sole practitioners were unable to do so. Similarly, clients who used sole practitioners were left on their own when their lawyer died or retired. ORPC 1.17, allowing the sale of a law practice, was adopted in 1995. The rule was amended in 2008 to expressly permit the sale of “good will.”
Required Conditions for the Sale of a Law Practice
To ethically sell a law practice in Oklahoma, certain conditions must be met. ORPC 1.17(a) requires that “[t]he 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.” The comments to this portion of the rule make clear that a seller need not cease to practice law forever. A seller may, for example, take judicial office or employment as in-house counsel to a business or with a public agency, including Legal Aid Services. Further, the selling lawyer may assist the purchaser with matters relating to the orderly transition of cases between the two lawyers.
ORPC 1.17(b) seeks to protect clients of the seller when a law firm is sold. These sections prevent lawyers from treating clients as property to be divided. Section (b) (1) makes clear that lawyers must have a client’s consent before any representation may be transferred to the purchasing lawyer. Section (b) (2) further protects clients by requiring that the seller reasonably believes or has reasonable assurances that the purchasing lawyer is competent to handle the matters transferred in the sale. Section (b) (3) prohibits the transfer of any cases or representations to a lawyer who is not able to take those cases or representations by virtue of the conflict rules ORPC 1.7 through 1.10 or any other rule. Section (b) (4) requires the necessary judicial approval of any transfer of representation.
Paragraph (c) contains the requirements for the seller’s notice to each client whose representation is proposed to be transferred. The written notice to clients given by the seller or a representative on the seller’s behalf must contain the following information:
- a sale of the entire practice, or the entire area of practice, is proposed;
- a transfer of the representation of such client to a specified lawyer, lawyers, or law firm is contemplated;
- the client has the right to take possession of the file and retain other counsel;
- the existence and status of any funds or property held for the client, including but not limited to, retainers or other prepayments; and
- 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 ninety (90) days of the date of the notice.
Paragraph (c) further provides:
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 ninety (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.
Finally, paragraph (d) allows the purchaser to refuse to undertake representations in which the client does not consent to pay the purchaser’s fees, which may not exceed the fees charged for similar services prior to purchase negotiations. Those lawyers considering purchasing a law practice should review comment [10], which states, “[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.” It is also worth comparing ABA Model Rule 1.17(d), which states, “The fees charged clients shall not be increased by reason of the sale.” The language of the Oklahoma paragraph (d) was dropped in favor of the present Model Rule’s language in 2002.
Not all law practices are good candidates for sale, but Oklahoma lawyers who are considering selling their practices must comply with ORPC Rule 1.17. The rule provides protection for clients and, by requiring written notice, also provides protection to lawyers from claims of overreaching and unfair dealing.
OKLAHOMA RULES OF PROFESSIONAL CONDUCT
CHAPTER 1, APP. 3-A
CLIENT-LAWYER RELATIONSHIP
RULE 1.17. SALE OF LAW PRACTICE
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:
- the representation of any client who does not consent as provided in paragraph (c) shall not be transferred;
- 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;
- 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
- 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:
- a sale of the entire practice, or the entire area of practice, is proposed;
- a transfer of the representation of such client to a specified lawyer, lawyers, or law firm is contemplated;
- the client has the right to take possession of the file and retain other counsel;
- the existence and status of any funds or property held for the client, including but not limited to retainers or other prepayments; and
- 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 ninety (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 ninety (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.
Additional information on Rule 1.17 can be found at https://bit.ly/3EUTK6X.
ABOUT THE AUTHOR
Richard Stevens has served as OBA ethics counsel since September 2019. Previously, he was a solo practitioner following his retirement from the District 21 District Attorney’s Office after 33 years as a prosecutor. Mr. Stevens is a member of the OBA Criminal Law Section and the Rules of Professional Conduct Committee. He served as the 2018 OBA vice president, on the Board of Governors from 2013 to 2015 and as a member of the Professional Responsibility Commission.
Originally published in the Oklahoma Bar Journal – OBJ 94 Vol 4 (April 2023)
Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.