dealing with the death of a solo practitioner ©james … · 2013. 10. 17. · a solo practitioner...

DEALING WITH THE DEATH OF A SOLO PRACTITIONER

©JAMES E. BRILLJames E. Brill, P.C.3636 Westheimer

Houston, Texas 77027713/626-7272

713/626-3606 (FAX)[email protected]

11TH ANNUALADVANCED DRAFTING: ESTATE PLANNING AND PROBATE COURSE

Houston, TexasOctober 26-27, 2000

This article is reprinted from the:24 Annual Advanced Estate Planning and Probate Courseth

Chapter 14

Dealing With The Death Of A Solo Practitioner Chapter14

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DEALING WITH THE DEATH OF A SOLO PRACTITIONERCHAPTER 14

TABLE OF CONTENTS

I. OVERVIEW 1A. Scope of Article 1B. Potential Effect 1C. Potential Conflicts 1D. Civil Liability 1E. Primary Focus 1F. Delicate Balance 1G. The Existing Situation 1H. The Most Significant Issues 1

II. JURISDICTION 1A. In General 1B. District Court Jurisdiction 1C. Statutory Courts Exercising Probate Jurisdiction 2

III. DISCIPLINARY PROCEDURE RULE 13.01 2A. Notification of Attorney’s Cessation of Practice 2B. Application of the Rule 2C. Selected Compliance Problems 2D. Misconduct 3

IV. RESTRICTIONS ON ATTORNEY WHO WANTS TO “TAKE OVER THE FILE” 3A. In Person or Telephone Contact 3B. Prohibited Written Solicitations 3C. Filing Requirements For Public Advertisements And Written Solicitations 3D. Prohibited Employment 3

V. DEALING WITH A CLIENT’S FILES AND OTHER PROPERTY 4A. Confidentiality 4B. Safekeeping Property 4C. Funds or Other Property Held For Clients 4D. Attorney’s Lien 4


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VI. HANDLING PROBATE OF DECEASED LAWYER’S ESTATE 5A. General Problems 5B. Standard Operating Procedure For Estates of All Lawyers 6C. When Client Desires Referral To Other Counsel 6D. When Client Has Obtained New Counsel 6

VII. GOOD OFFICE PROCEDURES THAT PROVIDE INCREASED PROTECTION FOR OUR CLIENTS 6A. Fee Agreements 6B. Docket Control 6C. Separate Files 6D. Action Plan 6E. Current Filing 6F. Trust Account6G. Time Records 6H. Billing And Receivables 7I. Keep Up With Workload 7J. File Review 7K. Closure Letter7L. Client Lists 7M. Don’t Hold Original Documents 7N. Don’t Take On Non-Lawyer Responsibilities 7O. Create Referral List 7P. Back-Up Attorney 7

VIII. GOOD PROCEDURES THAT INCREASE PROTECTION FOR YOURSELF AND YOUR FAMILY 7A. Written Employment Agreements 7B. Concluding Representation 8

IX. SALE OF A LAW PRACTICE 8A. Overriding Concern 8B. The Major Issues: Confidentiality, Solicitation, and

Fee Sharing With Non-Lawyers 8C. ABA Model Rule 1.17 10D. Arguments Against Permitting Sale of Law Practice 10E. Arguments In Favor of Permitting Sale of Law Practice 10F. Valuation And Payment 11G. Is Sale Permitted If Not Specifically Prohibited? 11


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X. THE FUTURE 11

APPENDIX A. Has The Parade Passed Us By 12APPENDIX B. Excerpts From Rules of Disciplinary Procedure 13APPENDIX C. Excerpts From Texas Disciplinary Rules of Professional Conduct 15APPENDIX D. Advertising Form 16APPENDIX E. Texas Penal Code §38.12 (Barratry) 18APPENDIX F. Special Provisions For Attorney’s Will 19APPENDIX G. ABA Model Rule 1.17 21APPENDIX H. Acknowledgments 26


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DEALING WITH THE DEATH OF ASOLO PRACTITIONER

I. OVERVIEW

A. Scope of Article. This paper deals exclusively withissues arising due to the unexpected and unplanned death ofa solo practitioner . To some extent, many of the sameconsiderations could apply if the solo was disabled,disbarred, suspended, or simply abandoned the practice.

B. Potential Effect. According to a 1995 report of theAmerican Bar Foundation, almost 47% of all lawyers inprivate practice were solo practitioners. In April 2000,approximately 36% of Texas lawyers in private practicewere solos.

C. Potential Conflicts. In the nature of law practice,conflicting responsibilities are encountered. Virtually alldifficult ethical problems arise from apparent conflictbetween a lawyer’s responsibilities to clients, to the legalsystem and to the lawyer’s own interests. Section 7,Preamble to Texas Rules of Professional Conduct (Article10, §9 of the State Bar Rules).

D. Civil Liability. These rules do not undertake todefine standards of civil liability of lawyers for professionalconduct. Section 14, Preamble to Texas Rules ofProfessional Conduct. Violation of a rule does not give riseto a private cause of action nor does it create anypresumption that a legal duty to a client has been breached.Section 15, Preamble to Texas Rules of ProfessionalConduct.

E. Primary Focus. The overriding considerationshould be to protect the client’s best interests and to do soas promptly, efficiently, and inexpensively as reasonablypossible.

F. Delicate Balance. As will be seen, some of theTexas Disciplinary Rules of Professional Conduct (“DR”)tend to complicate things involving clients, leave many openissues for the lawyer’s family, and raise serious potential

problems for attorneys who are involved in winding downthe practice of a deceased solo practitioner.

G. The Existing Situation. Few lawyers have actuallyhandled the estates of solo practitioners and portions of thispaper are based on anecdotal remarks from those few whocould be located and interviewed.

H. The Most Significant Issues. When it all sorts outthere are four main questions.

1. What can a solo do to protect the interestsof the solo’s clients?

2. What can a solo do to enhance the value ofthe solo’s practice?

3. What guidance and instructions can thesolo provide to the solo’s executor and family?

4. What changes could or should be made toremove the uncertainties inherent in existing Rules?

II. JURISDICTION.

A. In General. At first glance, if would appear that aprobate or county court would have exclusive jurisdictionin dealing with issues relating to the winding up of thepractice of a deceased solo practitioner (Probate Code,Section 4).

B. District Court Jurisdiction. However, underSection 13.02 of the Rules of Disciplinary Procedure[Reprinted in Tex. Gov’t Code Ann., tit. 2, subtit. G, App.A-1 (Vernon 1998)], when an attorney has died, any“interested person may petition a district court in the countyof the attorney’s residence to assume jurisdiction over theattorney’s law practice.”

Section 13.03 provides that following the filing ofthe petition, the court shall set a hearing and issue an orderto show cause, directing the attorney or his or her personalrepresentative, or if none exists, the person having custodyof the attorney’s files, to show cause why the court shouldnot assume jurisdiction of the attorney’s law practice. If thecourt finds that the attorney has died and that supervisionof the court is required, the court shall assume jurisdictionand appoint one or more attorneys to examine files, contactclients and others who are affected by the death of the


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attorney, apply for extensions of time, and deliver files and This Rule states that written notice of deathother property to clients. No bond is required of the (together with information identifying the matter) shall beappointed lawyers and they are not to incur any liability mailed to all clients, former clients, opposing counsel,except for intentional misconduct or gross negligence. See courts, agencies with which the attorney has mattersalso Appendix B for text of Sections 13.02 and 13.03. pending, malpractice insurers, and any other person orNotice that these Rules do not address compensation for the entity having reason to be informed of the death of theappointees or the responsibility for its payment. attorney. The notice is to be given by the personal

C. Statutory Courts Exercising Probate Jurisdiction. the attorney’s files and records.In counties where there is a statutory probate court, countycourt at law, or other statutory court exercising the B. Application of the Rule. Although this rule doesjurisdiction of a probate court, all applications, petitions not apply to non-lawyers, a lawyer serving as an executorand motions regarding probate and administrations shall be or administrator seemingly would be required to complyfiled and heard in such courts rather than in the district with its provisions.courts, unless otherwise provided by the legislature.Probate Code, Section 5 (c). C. Selected Compliance Problems.

Notwithstanding other provisions of the Probate 1. State of Decedent’s Files. Rule 13.01Code, statutory probate courts may hear all applications assumes that the deceased lawyer maintains meticulousfiled against or on behalf of any decedent’s estate, including records, has well-organized files, and has a current addressestates administered by an independent executor. All for every client that was ever represented during thestatutory probate courts shall have the same powers over lawyer’s career. This may not always be the case.independent executors that are exercisable by the district 2. Personalized Written Notice. Since noticecourts. In situations where the jurisdiction of a statutory under Rule 13.01 must include “information identifying theprobate court is concurrent with that of a district court, any matter”, a generic or boiler plate type notice would notcause of action appertaining to estates or incident to an comply with the requirement and thus much effort must beestate shall be brought in a statutory probate court rather expended in locating and describing all matters in eachthan in the district court. Probate Code, Section 5A (b). notice, even those handled decades ago. This appears to be

1. Query. Can a statutory probate court hear an unnecessary burden and expense to impose on thea petition that follows Section 13.02 of the Rules of deceased lawyer’s family, staff, and personalDisciplinary Procedure and if so, can it act on that petition representatives.in such a way as to provide the same protection to the 3. Content of Notice. The notice shouldappointed attorneys? identify the deceased attorney, indicate the date of death,

2. Query. Is a temporary administration a state that the attorney-client relationship ended with thatworkable alternative? death, identify all matters that had been handled by the

III. DISCIPLINARY RULE 13.01.

A. Notice of Attorney’s Cessation of Practice, As an legend such as “Address Service Requested” and certifiedalternative to filing a petition in the district court, Rule mail should be considered. Undoubtedly some notices will13.01 spells out certain notification requirements when an be returned as undeliverable.attorney dies and no other attorney, with client consent, has 5. Barratry Issues Arising Out Of Personalagreed to assume responsibility. See Appendix B for Or Telephone Contact. The criminal offense of barratry iscomplete text. committed when a person, with intent to obtain an economic

representatives or by any person having lawful custody of

attorney, advise of the location of the files, and recommendthat the client obtain other counsel.

4. Mailing. The envelope should include a

benefit, solicits employment, either in person or by


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telephone, for himself or for another. Texas Penal Code from instituting in-person or telephone contact with the§38.12(a). deceased attorney’s former clients when a significant motive

A professional who knowingly accepts employment for the lawyer’s doing so is the lawyer’s pecuniary gain.within the scope of the person’s license also commits theoffense of barratry if the employment is the result of B. Prohibited Written Solicitations. DR 7.05 (b) setspersonal or telephone solicitation. Texas Penal Code forth certain other requirements for the content of this§38.12(b). “solicitation” including compliance with DR 7.04 (a)

An offense under either of these provisions is a through (c) relating to advertisements in the public media.felony of the third degree (imprisonment for a term of not 1. Contingent fees. DR 7.04 (h) applies ifmore than 10 years or less than 2 years with a possible fine services are to be rendered on a contingent fee basis and DRnot to exceed $10,000). Texas Penal Code §12.34. 7.04 (i) through (o) may also apply.

It is an exception to prosecution under the 2. Special Marking. The solicitation shall beforegoing paragraphs if such conduct is authorized by the plainly marked “ADVERTISEMENT” on the first page andTexas Disciplinary Rules of Professional Conduct or any on the envelope. DR 7.05 (b) (2).rule of court. Texas Penal Code §38.12(c). 3. Retaining Copies. A copy of each written

6. Query. Is specific authorization in the solicitation communication, the relevant approval thereof,Rules required or is it enough if it is not prohibited? and a record of the date of each such communication; the

7. Barratry Issues Arising Out Of Written name and address to which each such communication wasCommunications. An attorney commits the offense of sent; and the means by which each such communicationbarratry if, with the intent to obtain professional was sent shall be kept by the lawyer or firm for four yearsemployment for himself or for another, sends a written after its dissemination. DR 7.04 (d).communication that concerns a lawsuit of any kind, 4. Additional Requirements. See Appendix Cincluding an action for divorce, in which the person to for excerpt from Rule 7.05.whom the communication is addressed is a defendant or arelative of that person, unless the lawsuit has been on file C. Filing Requirements For Public Advertisements andfor more than 31 days before the date on which the Written Solicitations. A copy of the written solicitationcommunication was mailed. Texas Penal Code §38.12(a). being sent, together with a representative sample of the

An offense under this provision is a Class A envelopes and the fee ($50 as of April 27, 2000) must bemisdemeanor (a fine not to exceed $4,000, confinement in filed with the Lawyer Advertisement and Solicitationjail for a term not to exceed one year, or both). Texas Penal Review Committee of the State Bar of Texas, either beforeCode §12.21. or concurrently with the mailing. DR 7.05 (b) and 7.07 (a).

8. Texas Penal Code §38.12 is reproduced in See Appendix C for excerpts of these Rules. The State Barits entirety in Appendix E. has a form for this purpose. See Appendix D.

D. Misconduct. A lawyer shall not fail to comply with D. Prohibited Employment. A lawyer shall not acceptsection 13.01 of the Texas Rules of Disciplinary Procedure or continue employment when the lawyer knows orrelating to notification of an attorney’s cessation of reasonably should know that the person who seeks thepractice. DR 8.04 (a) (10). lawyer’s services does so as a result of conduct prohibited

IV. RESTRICTIONS ON ATTORNEY WHOWANTS TO “TAKE OVER FILE”.

A. In-Person or Telephone Contact. DR 7.03 (a)prohibits an attorney who seeks professional employment

by these rules. DR 7.06.


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V. DEALING WITH A CLIENT’S FILE ANDOTHER PROPERTY.

A. Confidentiality. A lawyer should keep in accounts, designated as such, into which funds of clients orconfidence information relating to representation of a client other fiduciary funds must be deposited, shall furtherexcept so far as disclosure is required or permitted by the maintain and preserve for a period of five years after finalTexas Disciplinary Rules of Professional Conduct or other disposition of the underlying matter, the records of suchlaw. Section 3, Preamble to Texas Rules of Professional accounts, including checkbooks, canceled checks, checkConduct. stubs, check registers, bank statements, vouchers, deposit

1. “Confidential information” includes both slips, ledgers, journals, closing statements, accountings, and“privileged information” and “unprivileged client other statements of receipts and disbursements rendered toinformation”. “Privileged information” refers to the clients or other parties with regard to client trust funds orinformation of a client protected by the lawyer-client or other similar records clearly reflecting the date, amount,attorney-client privilege. “Unprivileged client information” source and disbursements of the funds or other property ofmeans all information relating to a client or furnished by the a client. Rules of Disciplinary Procedure 15.12. client, other than privileged information, acquired by thelawyer during the course of or by reason of the D. Attorney’s Lien. A lawyer shall not acquire arepresentation of the client. DR 1.05 (a). proprietary interest in the cause of action or subject matter

2. A lawyer shall not knowingly reveal of litigation the lawyer is conducting for a client, exceptconfidential information of a client or former client to that the lawyer may acquire a lien granted by law to secureanyone other than the client, the client’s representatives, or the lawyer’s fee or expenses. DR 1.08 (h).the members, associates, or employees of the lawyer’s law 1. Upon termination of representation, afirm. DR 1.05 (b) (ii). lawyer shall take steps to the extent reasonably practicable

3. A lawyer may reveal confidential to protect a client’s interests, such as giving reasonableinformation when the lawyer has been expressly authorized notice to the client, allowing time for employment of otherto do so in order to carry out the representation; counsel, surrendering papers and property to which thewhen the client consents after consultation; or to the client, client is entitled and refunding any advance payments of feethe client’s representatives, or the members, associates, and that has not been earned. The lawyer may retain papersemployees of the lawyer’s firm, except when otherwise relating to the client to the extent permitted by other lawinstructed by the client. DR 1.05 (c) (1), (2), (3). only if such retention will not prejudice the client in the

B. Safekeeping Property. A lawyer shall hold funds 2. There is no statutory attorney’s lien inand other property belonging in whole or in part to clients Texas. To the extent that the lien exists, it is a passive,or third persons that are in a lawyer’s possession in common law, possessory lien. Burnett v. State, Tex. Cr.connection with a representation separate from the lawyer’s App., 642 S.W. 2d 765. A demand for payment is a preown property. Such funds shall be kept in a separate requisite to the lien. Smith v. The State of Texas, Tex Civ.account, designated as a “trust” or “escrow” account, App., Corpus Christi, 490 S.W. 2d 902 (1972) rehearingmaintained in the state where the lawyer’s office is situated, denied.or elsewhere with the consent of the client or third person. 3. Ethics Opinion 118, September 1955. AnOther client property shall be identified as such and attorney should not be required to deliver his entire set ofappropriately safeguarded. Complete records of such files to his client upon termination of the professionalaccount funds and other property shall be kept by the relationship. An attorney should retain within his files alllawyer and shall be preserved for a period of five years matters purely personal to him and should turn over to theafter termination of the representation. DR 1.14 (a). client only those papers which would affect either the rights

C. Funds Or Other Property Held For Clients. Everyattorney licensed to practice law in Texas who maintains,or is required to maintain, a separate client trust account or

subject matter of the representation. DR 1.15 (d).

http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=tx_caselaw&volume=642&edition=S.W.2d&page=765&id=19102_01


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or the exercise of the rights of the client. An attorney is Any lawyer who contemplates retaining possessionprivileged to delay delivering items to the client until he has of his client’s property and papers should be aware of thehad an opportunity to make an inventory of his files and possibility that his action may be determined to be unethicaldetermine what should be turned over to the client. because the attorney’s lien is legally unenforceable or

Note: The Professional Ethics Committee of the enforcement of the lien results in damage or prejudice to hisSupreme Court is, a statutorily created committee, charged client’s rights. A jury could find that the attorney was notwith the task of issuing written opinions on ethical questions trying to establish a possessory lien but was willfully andraised by Texas attorneys. The full text of all of the wrongfully refusing to relinquish a client’s documents.opinions is available at www.txethics.org. Thus, an attorney refuses to relinquish his client’s files at

4. Ethics Opinion 395, May 1979. The his risk. existence and enforceability of an attorney’s lien with 5. Ethics Opinion 411, January 1984. Havingrespect to a client’s property, papers and files is a question first made demand for payment and in the absence ofof law. In Texas, an attorney’s lien is recognized by the limiting circumstances, an attorney may withhold thecommon law under certain circumstances. The Code of papers, money or property of a client until the outstandingProfessional Responsibility (the “Code”), however, does fees and disbursements have been paid.place restrictions upon the lawyer’s right to assert a Actual, foreseeable prejudice of a client’s rights, aspossessory lien with respect to the client’s property, papers distinguished from mere inconvenience or annoyance,and files. creates an ethical violation in contravention of the

The Code [former DR 2-110 (A) (2)] provides that Disciplinary Rules. An attorney who has once beena lawyer must take reasonable steps to avoid foreseeable retained to represent a client’s rights may not laterprejudice to the rights of his client, including delivering to precipitate actual harm to those rights merely to collect athe client all the papers and property which the client is fee. The retaining lien does not constitute an absolute shield“entitled”. Thus, a lawyer ethically may assert his against the charge of unethical conduct.attorney’s lien with respect to a client’s papers and property 6. Query. Is the possessory nature of the lienonly where the attorney’s lien is enforceable under the law extinguished when a solo practitioner dies?and, in any event, may not refuse to deliver the client’s 7. Query. Does the non-lawyer executor orpapers and property to the client if retention of the file heir have the right to the lien?would prejudice the rights of the client.

Common law possessory attorney’s lien has beenheld to be unenforceable if the lawyer voluntarilywithdraws, is justifiably discharged because of misconduct,relinquishes possession of the client’s property, or has not A. General Problems. demanded payment of the debt. 1. All of the other probate procedures are

EC 2-32 requires a lawyer “to minimize the applicable to a lawyer’s estate. These are just a few of thepossibility of harm”. “extras”.

While the Code does not expressly prohibit the 2. Deceased lawyer practiced in areas whereassertion of an attorney’s lien where recognized under probating lawyer lacks expertise.applicable law, it places severe ethical restrictions on an 3. Deceased lawyer’s records may beattorney’s right to assert his lien where the client’s legal disorganized making it extremely difficult to determinerights would be jeopardized. critical dates and responsibilities.

The assertion of an attorney’s lien will present both 4. Someone, presumably a lawyer, must takeethical and legal questions which must be decided under the time to review files, contact clients, and meet with clients tofacts and circumstances of each case. answer their questions. Where clients have obtained other

VI. HANDLING PROBATE OF DECEASEDLAWYER’S ESTATE.

counsel, arrangements must be made to transfer their files.


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Should the client pay or be expected to pay for these 1. Is there a duty to recommend a lawyer?services? Can the probating attorney afford to do this at a 2. Should more than one be recommended?reduced rate? Can the estate afford to pay for these 3. What about recommending the barservices? association referral service?

5. Notify malpractice carrier to obtain 4. Is there liability for negligent referral?extended reporting period endorsement (commonly known 5. What if a review of the file contains clearas “tail policy”). This is not a new policy. It simply evidence of malpractice or malfeasance? Is there a duty forextends the time to report a claim under the existing policy a non-lawyer executor to make a disclosure? What aboutwith its existing restrictions, limits, and deductibles. The the lawyer/executor?tail policy should cover applicable statutes of limitation thatare typically two years. Texas Civil Practice & Remedies D. When Client Has Obtained New Counsel.Code §16.003. 1. Obtain written authorization from client to

7. However, the Texas Supreme Court has deliver files to new counsel.held that the statute relating to an attorney’s malpractice 2. Make copies of original documentsdoes not begin to run until the discovery of the act or returned to clients.omission. Willis v. Maverick, 760 S.W.2d 642 (Tex. 3. Arrange for substitution of counsel in1988). litigated matters and be sure of filing and approval.

B. Standard Operating Procedures For All Estates OfAll Lawyers.

1. The first priority is to check calendar andactive files to determine deadlines and due dates.

2. Open and review all unopened mail.3. Review all unfiled documents and match to A. Fee Agreements. Have written engagement

appropriate files. agreement for all client matters. See Section VIII.A of this4. Contact clients to advise of situation and paper.

need for prompt action.5. Contact courts and opposing counsel for B. Docket Control. Maintain current calendaring

matters involving pressing deadlines. system with built in redundancies and enter all deadlines6. Review files to determine which files are into calendaring system.

open and which are closed and the extent to which copies orother materials should be retained. C. Separate Files. Create a separate file for each

7. Maintain detailed records of disposition of client matter.all client files.

8. Review all undeposited checks and either D. Action Plan. Create a plan of action for each clientreturn them to payor or deposit them. matter and keep it updated.

9. Send final bills to clients.10. Analyze funds in trust account and return E. Current Filing. Maintain filing on a current basis.

unearned portion to clients.11. Notify bar associations of attorney’s death. F. Trust Account. Maintain separate trust account12. Notify malpractice carrier and consider with subsidiary ledger for each client whose funds you hold.

“tail coverage”.

C. When Client Desires Referral To Other Counsel. records.

4. Deliver files and obtain receipt for each.

VII. GOOD OFFICE PROCEDURES THATPROVIDE INCREASED PROTECTION FOR OURCLIENTS.

G. Time Records. Maintain current time and service



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H. Billing And Receivables. Bill regularly and A. Written Employment Agreements. A propermaintain records of aged accounts receivable. employment agreement or engagement agreement can go a

I. Keep Up With Workload. Complete work 1. A lawyer may limit the scope, objectivespromptly and try to close as many files as possible. and general methods of the representation if the client

J. File Review. Review each file when closing it to 2. When the lawyer has not regularlyreturn original documents to the client, destroy extraneous represented the client, the basis or rate of the fee shall bematerial, note any unusual circumstance or problems, and communicated to the client, preferably in writing, before orset a destruction date for the file. within a reasonable time after commencing the

K. Closure Letter. Send client a closure letter and shall be in writing. DR 1.04 (d).return all original documents. See Section VIII. B. of this 3. Suggested language to include inpaper agreement.

L. Client Lists. Create and maintain a current listing protect Client’s interests in theof all present and past clients, their addresses, and a event of disability or death ofdescription of all matters handled for them. Lawyer, it may be necessary or

M. Don’t Hold Original Documents. Refrain from personal representative (includingserving as the repository of clients’ original wills and other someone acting under a power ofdocuments. attorney), or another lawyer who

N. Don’t Take On Non-Lawyer Responsibilities. by Lawyer to have access toRefrain from serving as registered agent of a corporation or Client’s files and records in orderas an executor or trustee for a client. to contact Client, to determine

O. Create Referral Lists. Create a list of competent matters and of Client’s files, andattorneys to whom referrals can be made in all practice to make referrals with Client’sareas. subsequent approval to counsel

P. Back-Up Attorney. Make an effort to locate one or permission and waives allmore lawyers who can back you up in emergencies. Courts privileges to the extent necessaryare beginning to require lawyers to designate at least one or appropriate for such purposes.attorney who has consented to act while the original lawyeris on vacation. Eg. Rule 9.1 of Trial Division of Family Furthermore, in the event ofDistrict Courts of Harris County, Texas. That rule requires Lawyer’s death or disability, ifclient consent to that representation and the designated further services are required inattorney’s participation is limited to emergencies. connection with Client’s

VIII. GOOD PROCEDURES THAT INCREASEPROTECTION FOR YOURSELF AND YOURFAMILY.

long way in avoiding many problems.

consents after consultation. DR 1.02 (b).

representation. DR 1.04 (c). A contingent fee agreement

Client understands that in order to

appropriate for a staff member, a

is retained by any such person or

appropriate handling of Client’s

for future handling. Client grants

representation and another lawyeris subsequently engaged byClient, Client expressly authorizesa division of fees based on theproportion of work done or the


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responsibilities assumed During our representation of you,by each. Such division we have created one or more filesspecifically authorizes containing notes and documentsthe payment of fees and relating to this matter. Allexpenses to Lawyer’s original documents and otheres ta te , personal materials furnished by you haverepresentatives, and been returned to you previously,heirs. sent to other appropriate parties,

Lawyer shall return all documentsprovided by Client as well as all It is our firm policy to destroyoriginal documents generated in files when we no longer needconnection with the them. We invite you to examinerepresentation. your files during our normal

Lawyer may destroy any of would like copies of any of theirClient’s files at any time with contents. Please consider doingClient’s written consent and in so as soon as possible while thisany event, after five years from is fresh in our minds. We remindthe conclusion of the you that it is our policy to destroyrepresentation. During that five most files after five yearsyear period, Lawyer shall make following the conclusion of oursuch files available to Client for services and that our initialcopying. agreement confirmed this

B. Conclude Representation. Upon conclusion of thelawyer’s responsibility with respect to a particular matter,it is a good idea to send a “termination letter”.

1. This may have the effect of identifying the A. Overriding Concern. The overriding concern thatcommencement of an applicable limitations period. The inhibits the sale of a law practice is protection of the clients’general rule is that malpractice claims must be brought not confidences, rights, and property. One of the concernslater than two years after the day the cause of action relating to the issue of multi-disciplinary practice (“MDP”)accrues. Texas Civil Practice and Remedies Code §16.003. is the sale of a law practice. In that context, the issueBut note that Texas has adopted the rule that the limitations involves the sale to a non-lawyer. This paper does not dealperiod commences upon discovery of the attorney’s actions with that issue.or omissions. Willis v Maverick, 760 S.W.2d 642 (Tex.1988). B. The Major Issues: Confidentiality, Solicitation, and

2. The letter should state that the lawyer’s Fee Sharing With Non-Lawyers.services have been completed and should specify any 1. Confidentiality. Every lawyer’s filesactions to be taken by the client. Original documents and contain confidential information from clients which neitherother materials furnished by the client should be returned. he nor his heirs or personal representatives may properly

3. This is a good time to review the file to disclose without the clients express permission.determine if there are any items that should be disposed of. 2. Ethics Opinion 464, August 1989. A

4. Suggested language to include. lawyer may not sell accounts receivable to a third party

or are enclosed with this letter.

office hours to determine if you

procedure.

IX. SALE OF A LAW PRACTICE.



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factoring company unless each client involved has practice with “established clientele”. The Committeepreviously given consent, after consultation with the lawyer, concluded that while a non-lawyer heir is not bound byto the disclosure of confidential information incident to such these ethical restraints, no Texas lawyer could purchase orsale. accept advertisement for publication in the Bar Journal.

In some cases, the fact that the lawyer was engaged Although it was proper to advertise for sale the library,by the client may be confidential; in many cases, the nature office equipment, and unexpired lease, it was a violation ofof the legal services resulting in the fee statement would be old Canon 24 to solicit “established clientele” to continueconfidential; in most cases, the amount of the fee owing and their business with the purchaser.the fact that the fee has not been paid would be confidential. c. Listing In Yellow Pages. Ethical

Consent of the client based on informed Opinion 185, October 1958, regarded it as a violation forcommunication is the only permissible basis for the any attorney to list in the yellow pages of the telephonedisclosure of confidential information. That consent can be directory the name of a deceased attorney.a part of the engagement letter as a condition to the d. Query. Does this restrictionlawyer’s accepting employment. protect or harm the clients who are searching for their

3. Ethics Opinion 479, August 1991. DR documents previously entrusted to their now deceased solo1.05 prohibits the disclosure of the names of the firm’s practitioner?clients and the amounts owed by each client. e. Firm Names And Letterhead.

An attorney is an agent for the client and an agent Ethics Opinion 375, October 1974, referred to thenmay not disclose or use information relating to the principal applicable DR 2-102 (A) (4) providing that a letterhead ofwhere such information is obtained during the course of the a law firm may also give the names of members andagent’s employment. The protections afforded under associates and names and dates relating to deceased andagency law exceed those which arise solely from an retired members.attorney-client privilege. This conclusion was formalized into the current

Confidential information includes both privileged Disciplinary Rules which provide that a lawyer in privateinformation as well as unprivileged client information and practice shall not practice under a trade name, or a nameboth types are confidential in nature. DR 1.05 (a) states in that is misleading as to the identity of the lawyer or lawyerspertinent part that a lawyer shall not knowingly reveal practicing under such name, or a firm name containingconfidential information of a client or a former client to names other than those of one or more lawyers in the firmanyone else, other than the client, the client’s . . . . and if otherwise lawful, a firm may use as, or continuerepresentatives, or the members, associates, or employees to include in, its name the name or names of one or moreof the lawyers law firm. deceased or retired members of the firm or of a predecessor

4. Query. How could a practice be described, firm in a continuing line of succession. DR 7.01 (a).valued, or sold in light of that restriction? f. Query. Are clients properly

5. Query. Does that restriction result in protected by permitting larger firms to operate under whatunequal protection of the law as to solo practitioners? in essence is a trade name while prohibiting it for solos?

6. Solicitation. 7. Fee Sharing With Non-Lawyers. Here, thea. For more details, refer to Sections debate rages, not only with respect to barratry, ambulance

III and IV of this paper. chasers, runners, and the like, but also regarding the keyb. Advertising “Established barriers to multi-disciplinary practice – confidentiality,

Clientele”. In Ethics Opinion 266, October 1963 (Texas), conflicts of interest, and control and encouraging non-a widow proposed to advertise in the Texas Bar Journal: lawyers to engage in the unauthorized practice of law.For sale: library, furniture, good lease, and established Lost in the shuffle are the concerns of the familiesclientele. The opinion concluded that it was unethical for a of deceased lawyers and their need to realize value from thelawyer to purchase, to sell, or to advertise for sale a law practice of their now deceased solo practitioner.


10

There is an obstacle course in DR 5.04 that must D. Other Arguments Against Permitting Sale of Lawbe traversed in order to obtain the permitted benefits. The Practice.Rule provides, in part, that a lawyer or law firm shall not 1. Clients are not commodities that can beshare or promise to share legal fees with a non-lawyer, purchased and sold at will.except that a lawyer who undertakes to complete unfinished 2. The clients have no control over thelegal business of a deceased lawyer may pay to the estate of selection of the purchaser.a deceased lawyer that proportion of the total compensation 3. The seller would be motivated to pointwhich fairly represents the services rendered by the clients to the firms that pay the highest referral fees ratherdeceased lawyer. DR 5.04 (a). than to the best lawyers.

The foregoing is in addition to DR 1.04 (f) relating 4. Purchasers would pay less attention to filesto requirements for division of fees between living lawyers where they had to split fees.who are not in the same firm. DR 1.04 (g) expands that 5. If a value can be placed on goodwill, forrule by stating that it does not prohibit payments to a this purpose, it would be an additional asset subject to deathformer partner or associate pursuant to a separation or taxes.retirement agreement.

Note that DR 1.04 (f) emphasizes that the division E. Arguments In Favor Of Permitting Sale Of Lawof fees between lawyers not in the same firm shall not be Practice.made unless the division is in proportion to the professional 1. Although clients cannot be bought andservices performed by each lawyer. sold, what is valuable is the potential opportunity to handle

The evil to avoid is not the collecting of funds by their affairs.the solo’s estate or heirs, but rather the payment by the 2. There are two elements being transferred -purchasing lawyer. Atkins v. Tinning. 965 S.W.2d 533 the hard assets of the practice and a system for generating(Tex Civ App 1993) future revenues.

C. ABA MODEL RULE 1.17. mutually beneficial interests. The buyer wants an ongoing1. This rule permits the sale of a law practice, stream of income from an established client base and

including its goodwill. This Rule, or some variation, has referral source. The seller wants to benefit from abeen adopted in at least 28 jurisdictions (Alaska, Arkansas, reputation built over a lifetime of serving clients, contacts,California, Colorado, Florida, Hawaii, Idaho, Indiana, referral sources, current files, and an infrastructure forIowa, Massachusetts, Michigan, Minnesota, Mississippi, delivering legal services. Clients want solutions toMissouri, New Jersey, New York, North Carolina, North problems and issues, consistent advice and counsel, and theDakota, Oklahoma, Oregon, South Carolina, South Dakota, convenience of not having to shop for another lawyer.Utah, Vermont, Virgin Islands, Virginia, West Virginia, and 4. Clients benefit because someone with aWisconsin). Three others (Kansas, Tennessee, and vested interest takes over the practice. Who is better to helpWashington) have allowed the sale of law practice by other the clients than someone who has paid for the privilege ofmeans. serving them?

2. The supreme court of Illinois has 5. When one lawyer takes over the practice ofconsidered but rejected the sale of an attorney’s goodwill. another lawyer, the selling lawyer (or the estate or heirs)O’Hara v. Ahlgren, Blumenfeld and Kempster et al. 537 should be able to obtain compensation for the reasonableN.E. 2 730 (Ill. 1989). value of the practice just as withdrawing partners of lawnd

3. The full text of the rule together with firms may do.explanations and rationale is set forth in Appendix G. 6. Negotiations between the buyer and seller

3. The buyer, seller, and clients all have

relating to specific representation of identifiable clients nomore violates confidentiality than do discussions concerning


11

firm mergers, lateral hires, or admission of new partners as well as de facto, a thorough examination of our rules andand their respective “books of business”. some major revisions will be necessary.

7. Sale to a lawyer who was not pre-approvedby the clients is no different for the clients than a law firmhiring new associates or admitting new partners who werenot pre-approved by the clients.

8. All elements of client autonomy survive thesale.

F. Valuation And Payment. The valuation of thepractice presents many challenges. The computer, library,and other tangible assets are of rapidly depreciating value.What is of value is the potential for keeping the practicealive.

1. The seller wants to be assured that theclients have access to quality legal services, that the risk ofseller’s malpractice is minimized, that seller receives a fairprice for the opportunity being afforded to the buyer, andthat the seller is paid by the buyer.

2. The buyer wants a ready-madeopportunity, an established clientele, the existing telephonenumber and perhaps an office building or favorable lease,and the ability to pay for this when, as, and if fees arecollected.

G. Is Sale Permitted If Not Specifically Prohibited?1. Washington State Bar Association Rules

of Professional Conduct Committee, Formal Opinion 192.,May 1996. This opinion concluded that in the absence ofa specific prohibition in the Rules, a sale was permittedthough the seller could not affirmatively recommend thepurchasing lawyer.

2. Texas rule is not clear. Even if permitted,there are many hurdles to jump and some serious ethicalrisks are imposed on the purchaser.

X. THE FUTURE. This paper has attempted todescribe the current situation and to stimulate discussion ofthe issues. Some changes should be made in our rules tofacilitate the disposition of the practice of a solopractitioner. Whether a sale of an ongoing law practiceshould be permitted is an issue for another presentation.However, if multi-disciplinary practice is permitted de jure


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APPENDIX A

HAS THE PARADE PASSED US BY?

It’s a familiar story. There is a parade. The band renaissance man and be all things to all people at all timesis playing. The soldiers are marching. Suddenly, a lady while remaining omni-competent.cries out, “They’re all out of step except for Johnny.”

Like Johnny, most solo practitioners march to a people predict the disappearance of solo practitioners?different drummer. Are we out of step with the rest of the Even Darwin might have expected natural selection to haveprofession? Is the parade passing us by? Can a lawyer favored group practice and the extinction of the solo.singlehandedly cope with the demands of law practice in thelate 20 century? But wait a minute. There is an independent spiritth

Will the shrapnel from the information explosion be solos that you sense that these people will be able tothe ultimate weapon ultimate weapon that will bring about withstand the winds of change that batter the profession.he demise of the solo practitioner? That confidence is combined with a burning need for

For years the prognosticators have said that it was a difference in the lives of others, and the firm belief thatjust a matter of time before solo practitioners would be a this can be done best in the entrpreneurial ambience of solorelic of the past. practice.

But an American Bar Foundation demographic The fabric of solo practice is woven in ingenuity,study indicates otherwise. It shows that in 1988, independence, flexibility and strong self-images. Here andapproximately 46 percent of all practicing lawyers were there, snags made by misgivings and loneliness can besolo practitioners. As Mark Twain once said, “The news of found, but the solo practitioner presents a dashing figuremy death is somewhat exaggerated.” when clothed in the uniform made of this fabric.

There is confusion among the troops. Just what is Imagine a giant army of lawyers. Soloa solo practitioner? Is it the same thing as a sole practitioners, corporate counsel, government lawyers,. Andproprietor? What if the solo employs other lawyers? Or is the partners and associates form firms of all sizes line up,it the sole shareholder of a professional corporation? And close ranks, and wait for their marching orders. The drumswhat about those quasi-solo practitioners who parade in begin to roll and the band begins to play. Here they comepartners’ clothing? Does any of it matter? Perhaps now. As they parade before you, look again. Is JohnnyProverbs 23:7 provided the answer with “For as a man really out of step?thinketh in his heart, so is he.”

Whatever a solo practitioner may be, the lawyer publication of the Law Practice Management Section of thewho chooses this life quickly learns that a solo is in charge American Bar Association and was reprinted in the Januaryof planning, business development, administration, 1992 issue of the Journal of the American Bar Associationmarketing, managing, accounting, and yes, production. as the first of the author’s Solo Network articles.Among lawyers, the solo must emulate the qualities of the

Viewed from this angle, it is any wonder that most

of self-confidence that runs so deep and is so strong in most

personal involvement with their clients, the desire to make

This article first appeared in Flying Solo, a 1984

Dealing With the Death of a Sole Practitioner Chapter14

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APPENDIX B

RULES OF DISCIPLINARY PROCEDURET.2, Subt.G, App.A-1

PART XII. CESSATION OF PRACTICE

13.01 Notice of Attorney’s Cessation of Practice B. That cause exists to believe that court

When an attorney licensed to practice law in Texasdies, resigns, becomes inactive, is disbarred, or issuspended, leaving an active client matter for which noother attorney licensed to practice in Texas, with theconsent of the client, has agreed to assume responsibility,written notice of such cessation of practice (together withinformation identifying the matter) shall be mailed to allclients, former clients, opposing counsel, courts, agencieswith which the attorney has matters pending, malpracticeinsurers, and any other person or entity having reason to beinformed of the cessation of practice. If the attorney dies,or has a mental or emotional Disability, the notice shall begiven by the personal representatives of the attorney or byany person having lawful custody of the files and records ofthe attorney. In all other cases, notice shall be given by theattorney, a person authorized by the attorney, a personhaving lawful custody of the files of the attorney, or byChief Disciplinary Counsel.

13.02 Assumption of Jurisdiction

A client of the attorney, Chief DisciplinaryCounsel, or any other interested person may petition adistrict court in the county of the attorney’s residence toassume jurisdiction over the attorney’s law practice. Thepetition must be verified and must state the facts necessaryto show cause to believe that notice of cessation is requiredunder this part. It must state the following:

A. That an attorney licensed to practice law inTexas has died, disappeared, resigned, become inactive,been disbarred or suspended, or become physically,mentally or emotionally disabled and cannot provide legalservices necessary to protect the legal interests of clients.

supervision is necessary because the attorney has left clientmatters for which no other attorney licensed to practice lawin Texas has, with the consent of the client, agreed toassume responsibility.

C. That there is cause to believe that the interestsof one or more clients of the attorney or one or moreinterested persons or entities will be prejudiced if theseproceedings are not maintained.

13.03 Hearing and Order on Application to AssumeJurisdiction

The court shall set the petition for hearing and issuean order to show cause, directing the attorney or his or herpersonal representative, or if none exists, the person havingcustody of the attorney’s files, to show cause why the courtshould not assume jurisdiction of the attorney’s lawpractice. If the court finds that one or more of the eventsstated in Section 13.02 has occurred and that thesupervision of the court is required, the court shall assumejurisdiction and appoint one or more attorneys licensed topractice law in Texas do one or more of the following asspecified in the court’s written order:

A. Examine the client matters, including files andrecords of the attorney’s practice, and obtain informationabout any matters that may require attention.

B. Notify persons and entities that appear to beclients of the attorney of the assumption of the law practice,and suggest that they obtain other legal counsel.

C. Apply for extension of time before any court orany administrative body pending the client’s employment ofother legal counsel.


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D. With the prior consent of the client, file suchmotions and pleadings on behalf of the client as are requiredto prevent prejudice to the client’s rights.

E. Give appropriate notice to persons or entitiesthat may be affected other than the client.

F. Arrange for surrender or delivery to the clientof the client’s papers, files, or other property.

The custodian shall observe the attorney-client relationshipand privilege as if the custodians were the attorney of theclient and may make only such disclosures as are necessaryto carry out the purposes of this part. Except forintentional misconduct or gross negligence, no person actingunder this part may incur any liability by reason of theinstitution or maintenance of a proceeding under this PartXIII. No bond or other security is required.


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APPENDIX CEXCERPTS FROM TEXAS DISCIPLINARY RULES OF PROFESSIONAL CONDUCT

7.05. Prohibited Written Solicitations Rule 7.07. Filing Requirements for Public

(b) [A] written solicitation communication toprospective clients for the purpose of obtaining professional (a) [A] lawyer shall file with the Lawyeremployment: Advertisement and Solicitation Review Committee of the

(1) shall conform to the provisions of Rule State Bar of Texas, either before or concurrently with the7.04 (a) through (c) [relating to Advertisements in the mailing or sending of a written solicitation communication:Public Media]. (1) a copy of the written solicitation

These provisions include the requirement communication being sent or to be sent to one or morethat the lawyer may include a statement relating to Board prospective clients for the purpose of obtaining professionalcertification in the practice area in question, and in each employment, together with a representative sample of theother area, shall state ”Not Certified by the Texas Board of envelopes in which the communications are enclosed; andLegal Specialization” or if in an area not covered by (2) payment of the fee set by the Board ofcertification, the lawyer may also state “No designation has Directors [$50.00 as of April 26, 2000].been made by the Texas Board of Legal Specialization fora Certificate of Special Competence in this area.”

Rule 7.04 (h) applies if services are to berendered on a contingent fee basis. Subsections (i) through(o) may also apply.

(2) shall be plainly marked“ADVERTISEMENT” on the first page and on theenvelope.

(d) A copy of each written solicitationcommunication, the relevant approval thereof, and a recordof the date of each such communication; the name andaddress to which each such communication was sent; andthe means by which each such communication was sentshall be kept by the lawyer or firm for four years after itsdissemination.

Advertisements and Written Solicitations


16


17


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APPENDIX ETEXAS PENAL CODE §38.12

Barratry and Solicitation of Professional Employment

(a) A person commits an offense if, with intent to obtain an (B) concerns a specific matter and relateseconomic benefit the person: to legal representation and the person knows or reasonably

(2) solicits employment, either in person or by directed is represented by a lawyer in the matter;telephone, for himself or for another;

(b) A person commits an offense if the person: summons to the person to whom the communication is

(1) knowingly finances the commission of an before the 31 day after the date on which the arrest oroffense under Subsection (a); issuance of the summons occurred;

(3) is a professional who knowingly accepts (D) concerns a lawsuit of any kind,employment within the scope of the person’s license, including an action for divorce, in which the person toregistration, or certification that results from the solicitation whom the communication is addressed is a defendant or aof employment in violation of Subsection (a). relative of that person, unless the lawsuit in which the

(c) It is an exception to prosecution under Subsection (a) or than 31 days before the date on which the communication(b) that the person’s conduct is authorized by the Texas was mailed;Disciplinary Rules of Professional Conduct or any rule ofcourt. (f) An offense under Subsection (a) or (b) is a felony of the

(d) A person commits an offense if the person:

(1) is an attorney, chiropractor, physician, surgeon, Subsection(d) is a Class A misdemeanor. [A fine not toor private investigator licensed to practice in this state or exceed $4,000; confinement in jail for a term not to exceedany person licensed, certified, or registered by a health care one year; or both such fine and confinement. Texas Penalregulatory agency of this state; Code §12.21].

(2) with the intent to obtain professional (h) An offense under Subsection (d) is a felony of the thirdemployment for himself or for another, sends or knowingly degree if it is shown on the trial of the offense that thepermits to be sent to an individual who has not sought the defendant has previously been convicted under Subsectionperson’s employment, legal representation, advice, or care (d). [Imprisonment for a term of not more than 10 years ora written communication that: less than 2 years. In addition, a fine not to exceed $10,000

(A) concerns an action for personal injuryor wrongful death or otherwise relates to an accident ordisaster involving the person to whom the communicationis addressed or a relative of that person and that was mailedbefore the 31 day after the date on which the accident orst

disaster occurred;

should know that the person to whom the communication is

(C) concerns an arrest of or issuance of a

addressed or a relative of that person and that was mailedst

person is named as a defendant has been on file for more

third degree

(g) Except as provided by Subsection(h), an offense under

may be imposed. Texas Penal Code §12.34].


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APPENDIX FSPECIAL PROVISIONS FOR ATTORNEY’S WILL

INSTRUCTIONS REGARDING MY LAW PRACTICE (g) Obtain client consent to transfer clientI currently practice law as a solo practitioner. In property and assets to other counsel.

order to provide a smooth transition for my clients and to (h) Provide clients with their property andassist my family, I am providing these guidelines to my assets and copies of material in their files and returnExecutor and any attorney(s) representing my Executor and unearned retainers and deposits.beneficiaries under this Will. (i) Notify courts, agencies, opposing counsel,

If my practice can be sold to a competent lawyer, and other appropriate entities of my death and, with clientI authorize my Executor to make such sale for such price consent, seek and obtain extensions of time.and upon such terms as my Executor may negotiate, (j) File notices, motions, and pleadings onsubject, however, to compliance with the Texas behalf of clients who cannot be contacted prior toDisciplinary Rules of Professional Conduct and other immediately required action.applicable provisions of law. If such sale is possible, I (k) Contact my malpractice carrier concerningbelieve that it will provide maximum benefits for my clients claims or potential claims, to notify of my death, and toas well as for my employees and family. obtain extended reporting or “tail” coverage.

If my practice cannot be sold and I have client files, (l) Dispose of closed and inactive files byI recommend that, subject to consent of my clients, estate delivery to clients, storage, and arranging for destruction,planning and probate files be referred to (name); real estate remembering that records of my trust account are to befiles to (name); corporation, partnership, and limited preserved for at least five years after my death as requiredliability company files to (name); family law matters to by Texas Disciplinary Rule of Professional Conduct 1.14(name); and personal injury files to (name). and Rule 15.12 of the Texas Rules of Disciplinary

In either instance, I recognize that my practice has Procedure or other provisions of law, and files relating todeveloped because of personal relationships with my clients minors should be kept for five years after the minor’sand that they are free to disregard my suggestions. eighteenth birthday.

Regardless of the method of disposing of my (m) Engage one or more attorneys to wind uppractice, I authorize my Executor to take all actions my law practice, make arrangements to complete work onnecessary to close my law practice and dispose of its assets. active files and to allocate compensation for past and futureIn doing so and without limiting the foregoing, my Executor services.may do each of the following: (n) Send statements for unbilled services and

(a) Enter my office and utilize my equipment expenses and assist in collecting receivables.and supplies as helpful in closing my practice. (o) Continue employment of staff members to

(b) Obtain access to my safe deposit boxes and assist in closing my practice and arrange for their payment.obtain possession of items belonging to clients. (p) Pay current liabilities and expenses of my

(c) Take possession and control of all assets of practice, terminate leases, and discontinue subscriptions,my law practice including client files and records. listings, and memberships.

(d) Open and process my mail. (q) Rent or lease alternative space if a smaller(e) Examine my calendar, files, and records to office would serve as well as my present office.

obtain information about pending matters that may require In performing the foregoing, my Executor is toattention. preserve client confidences and secrets and the attorney-

(f) Notify clients and those who appear to be client privilege and to make disclosure only to the extentclients of my death and that it is in their best interests to necessary for such purposes.obtain other counsel.


20

My Executor shall be indemnified against claimsof loss or damage arising out of any omission where suchacts or omissions were in good faith and reasonablybelieved to be in the best interest of my estate and were notthe result of gross negligence or wilful misconduct, or, ifmy Executor is an attorney licensed to practice in Texas,such acts or omissions did not relate to my Executor’srepresentation of clients as an attorney retained by thoseclients. Any such indemnity shall be satisfied first fromassets of my law practice, including my malpracticeinsurance coverage.


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APPENDIX G

ABA MODEL RULE 1.17American Bar Association Rules of Professional Conduct

SALE OF LAW PRACTICE

A lawyer or a law firm may sell or purchase a law lawyer or an entire firm ceases to practice and anotherpractice, including good will, if the following conditions are lawyer or firm takes over the representation, the sellingsatisfied: lawyer or firm may obtain compensation for the reasonable

I. The seller ceases to engage in the private value of the practice as may withdrawing partners of lawpractice of law [in the geographic area] [in the jurisdiction] firms. See Rules 5.4 and 5.6.(a jurisdiction may elect either version) in which thepractice has been conducted;

(a) The practice is sold as an entirety to anotherlawyer or law firm; The requirement that all of the private practice be

(b) Actual written notice is given to each of the sold is satisfied if the seller in good faith makes the entireseller’s clients regarding: practice available for sale to the purchaser. The fact that a

(1) the proposed sale; number of the seller’s clients decide not to be represented (2) the terms of any proposed change in the by the purchaser but take their matters elsewhere, therefore,

fee arrangement authorized by paragraph (d); does not result in a violation. Neither does a return to (3) the client’s right to retain other counsel or private practice as a result of an unanticipated change in

to take possession of the file; and circumstances result in a violation. For example, a lawyer (4) the fact that the client’s consent to the sale who has sold the practice to accept an appointment to

will be presumed if the client does not take any action or judicial office does not violate the requirement that the saledoes not otherwise object within ninety (90) days of receipt be attendant to cessation of practice if the lawyer laterof the notice. resumes private practice upon being defeated in a contested

If a client cannot be given notice, the representation or a retention election for the office.of that client may be transferred to the purchaser only upon The requirement that the seller cease to engage inentry of an order so authorizing by a court having the private practice of law does not prohibit employment asjurisdiction. The seller may disclose to the court in camera a lawyer on the staff of a public agency or a legal servicesinformation relating to the representation only to the extent entity which provides legal services to the poor, or as in-necessary to obtain an order authorizing the transfer of a house counsel to a business.file. The Rule permits a sale attendant upon retirement

(c) The fees charged clients shall not be increased from the private practice of law within the jurisdiction. Itsby reason of the sale. The purchaser may, however, refuse provisions, therefore, accommodate the lawyer who sells theto undertake the representation unless the client consents to practice upon the occasion of moving to another state.pay the purchaser fees at a rate not exceeding the fees Some states are so large that a move from one locale thereincharged by the purchaser for rendering substantially similar to another is tantamount to leaving the jurisdiction in whichservices prior to the initiation of the purchase negotiations. the lawyer has engaged in the practice of law. To also

COMMENT

The practice of law is a profession, not merely a should be indicated by selecting one of the two provided for

business. Clients are not commodities that can bepurchased and sold at will. Pursuant to this Rule, when a

TERMINATION OF PRACTICE BY THE SELLER

accommodate lawyers so situated, states may permit thesale of the practice when the lawyer leaves the geographicarea rather than the jurisdiction. The alternative desired


22

in Rule 1.17(a). determine whether reasonable efforts to locate the client

SINGLE PURCHASER

The Rule requires a single purchaser. The representation. Preservation of client confidence requiresprohibition against piecemeal sale of a practice protects that the petition for a court order be considered in camera.those clients whose matters are less lucrative and who might (A procedure by which such an order can be obtained needsfind it difficult to secure other counsel if a sale could be to be established in jurisdiction in which it presently doeslimited to substantial fee-generating matters. The purchaser not exist.)is required to undertake all client matters in the practice, All elements of client autonomy, including thesubject to client consent. If, however, the purchaser is client’s absolute right to discharge a lawyer and transfer theunable to undertake all client matters because of a conflict representation to another, survive the sale of the practice.of interest in a specific matter respecting which thepurchaser is not permitted by Rule 1.7 or another rule torepresent the client, the requirement that there is a singlepurchaser is nevertheless satisfied.

CLIENT CONFIDENCES, CONSENT AND NOTICE

Negotiations between seller and prospective the work must be honored by the purchaser, unless thepurchaser prior to disclosure of information relating to a client consents after consultation. The purchaser may,specific representation of an identifiable client no more however, advise the client that the purchaser will notviolate the confidentiality provisions of Model Rule 1.6 than undertake the representation unless the client consents todo preliminary discussions concerning the possible pay the higher fees the purchaser usually charges. Toassociation of another lawyer or mergers between firms, prevent client financing of the sale, the higher fee thewith respect to which client consent is not required. purchaser may charge must not exceed the fees charged byProviding the purchaser access to client-specific the purchaser for substantially similar service renderedinformation relating to the representation and to the file, prior to the initiation of the purchase negotiations.however, requires client consent. The Rule provides that The purchaser may not intentionally fragment thebefore such information can be disclosed by the seller to the practice which is the subject of the sale by chargingpurchaser the client must be given actual written notice of significantly different fees in substantially similar matters.the contemplated sale, including the identity of the Doing so would make it possible for the purchaser to avoidpurchaser and any proposed change in the terms of future the obligation to take over the entire practice by chargingrepresentation, and must be told that the decision to consent arbitrarily higher fees for less lucrative matters, therebyor make other arrangements must be made within 90 days. increasing the likelihood that those clients would notIf nothing is heard from the client within that time, consent consent to the new representation.to the sale is presumed.

A lawyer or law firm ceasing to practice cannot berequired to remain in practice because some clients cannotbe given actual notice of the proposed purchase. Since Lawyers participating in the sale of a law practicethese clients cannot themselves consent to the purchase or are subject to the ethical standards applicable to involvingdirect any other disposition of their files, the Rule requires another lawyer in the representation of a client. Thesean order from a court having jurisdiction authorizing their include, for example, the seller’s obligation to exercisetransfer or other disposition. The Court can be expected to competence in identifying a purchaser qualified to assume

have been exhausted, and whether the absent client’slegitimate interests will be served by authorizing thetransfer of the file so that the purchaser may continue the

FEE ARRANGEMENT BETWEEN CLIENT ANDPURCHASER

The sale may be financed by increases in feescharged the clients of the practice. Existing agreementsbetween the seller and the client as to fees and the scope of

OTHER APPLICABLE ETHICAL STANDARDS


23

the practice and the purchaser’s obligation to undertake the A.2d 1(N.J. 1983) (concluding that goodwill exists in a lawrepresentation competently (see Rule 1.1); the obligation to practice, but cannot be sold because of the Model Codeavoid disqualifying conflicts, and to secure client consent prohibition, thereby diminishing its value; that payments toafter consultation for those conflicts which can be agreed to a retiring partner representing goodwill are acceptable(see Rule 1.7); and the obligation to protect information under the Code; and that therefore good will can berelating to the representation (see Rules 1.6 and 1.9). equitably distributed as an intangible asset of the marital

If approval of the substitution of the purchasing estate).attorney for the selling attorney is required by the rules of Rule 1.17 is similar to a California rule that tookany tribunal in which a matter is pending, such approval effect in 1989. California Rules of Professional Conduct,must be obtained before the matter can be included in the Rule 2-300, West’s Ann. Cal. 23, Pt. 2, Rule 2-3000sale (see Rule 1.16). (Supp. 1991)

APPLICABILITY OF THE RULE INDIRECT METHODS OF TRANSFERRING GOOD

This Rule applies to the sale of law practice byrepresentatives of a deceased, disabled or disappeared Unofficially, goodwill has been part of the businesslawyer. Thus, the seller may be represented by a nonlawyer of law for some time. Two common methods ofrepresentative not subject to these Rules. Since, however, transferring good will existed before Rule 1.17.no lawyer may participate in a sale of a law practice which One way coupled an inflated value for the physicaldoes not conform to the requirements of this Rule, the assets of a law practice with the seller’s agreement to referrepresentatives of the seller as well as the purchasing clients to the purchaser. See, e.g., Geffen v. Moss, 125lawyer can be expected to see to it that they are met. Cal. Rptr. 687, 53 Cal. App. 3d 215, 78 A.L.R.3d 1232

Admission to or retirement from a law partnership (1975) (sales contract terms, though not mentioning goodor professional association, retirement plans and similar will, expressed seller’s intention to encourage clients to usearrangement, and a sale of tangible assets of a law practice buyer’s services in the future and called by payments to thedo not constitute a sale or purchase governed by this Rule. seller in excess of the stated value of the physical assets; the

This Rule does not apply to the transfers of legal court invalidated contract terms for those payments).representation between lawyers when such transfers are The second method was the formation of aunrelated to the sale of the practice. “quickie” partnership from which one partner would soon

MODEL CODE COMPARISON

There is no counterpart to this Rule in the Model violations of related ethical considerations. See e.g., In reCode. Laubenheimer, 113 Wis. 2d 680, 3354 N.W.2d 624 (1983)

LEGAL BACKGROUND

Rule 1.17 recognizes the potential existence of and Some commentators questioned whether amarket for the good will of a law practice and establishes proscription against the sale of goodwill survived theguidelines to protect clients when a law practice is sold. adoption of the Model Rules. See Kalish, The Sale of a

Goodwill, long recognized in the sale of other Law Practice: The Model Rules of Professional Conductbusiness assets, first gained official recognition and Point in a New Direction, 39 U. Miami L. Rev. 471(1985)acceptance in the context of a law practice in divorce (arguing that although judicial decisions indicated such aproceedings. See, e.g., Dugan v. Dugan, 92 N.J. 423, 457 proscription existed, cases were infrequent and unless a

WILL

retire and receive compensation, leaving the remainingpartner with the client base. Some lawyers who attemptedto use variations of this method faced sanctions for

(a supposed employer-employee contract providing for thetransfer of files without prior client notification held to bea breach of some duty of confidentiality).

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problem arose between the seller and purchaser, there was necessarily represent the same proportion to the total fees asno great concern about the use of one of the indirect that of the services rendered, thereby allowing for themethods described above). But see also G.C. Hazard, Jr., concept of good will.& W.W. Hodes, The Law of Lawyering 1:17:102 at 489 Rule 7.2(c) was also amended to allow payment to(2d ed. 1990) identifying a “rule of tradition”) against the the seller of a law practice in return for client referrals tosale of law practice on the basis of the “public interest” and the practice purchaser.the fact that law is a profession that deals with people, not The Comment to Rule 5.6 was expanded to makemerchandise). it clear that right-to-practice restrictions are permissible

Passage of Rule 1.17 removed any doubt, negated when a practice is sold.the need for the indirect methods, and helped to ensure that The seller must act competently in accordance withprocedures to protect clients would be created and followed. Rule 1.1 in selecting a qualified purchaser.

HISTORICAL JUSTIFICATIONS FORPROHIBITING SALE OF GOODWILL

EC 4-6 of the ABA Model Code of Professional practice purchaser who contacts these clients is not engagedResponsibility stated that “a lawyer should not attempt to in prohibited solicitation.sell a law practice as a going business because, amongother reasons, to do so would involve the disclosure ofconfidences and secrets.” However, no disciplinary ruledirectly addressed this issue. Two justifications were initially advanced for

Further justification for the prohibition was found permitting a lawyer to sell a law practice that included goodin DR 2-108, stating “a lawyer shall not be party to or will.participate in a partnership or employment agreement withanother lawyer that restricts the right of a lawyer to practicelaw after the termination of a relationship created by theagreement, except as a condition to payment of retirementbenefits.”

The underlying public policy considerations for theprohibition found in DR 3-102(A) against sharing fees withnonlawyers have also been used as a basis for striking downattempted sale of good will of deceased lawyers. See, e.g.,O’Hara v. Ahlgren, Blumenfeld & Kempster, 158 Ill. App.3d 562, 511 N.E.2d 879, aff’d, 127 Ill.2d 333, 537 N.E.2d730 (1989).

RELATED ETHICAL OBLIGATIONS revised so that not only individual lawyers but also law

The seller of a law practice must comply with Rule1.6 by not revealing any client confidences when discussingthe practice with the prospective purchaser.

With the adoption of Rule 1.17, Rule 5.4(a)(2) wasamended to allow the purchaser of a law practice to pay adeceased lawyer’s estate an amount that does not

Though Rule 7.3 was not amended, it is implicitthat clients who are notified pursuant to Rule 1.17(c) anddo not object or take any action are not “prospectiveclients” within the context of Rule 7.3, and that the law

BASED OF REGULATION

• Client Protection: The first justification wasclient protection. See Report to the ABA House ofDelegates No. 8A, at 204 (1990 Midyear Meeting). Somecommentators suggested a disparity existed between thetreatment afforded clients of retiring sole practitioners andthat afforded clients of law firms when the individualattorney handling the client matter leaves the firm. The newrule reflects solicitude for the clients of a retiring solepractitioner.

Between the time that Rule 1.17 was first proposedto the House of Delegates at the 1988 Annual Meeting andits adoption at the 1990 Midyear Meeting, the Rule was

firms were allowed to sell a law practice. If an entire firmceases to practice, its clients are left without representationjust as if they has been represented by a single lawyer.Though neither Rule 1.17 nor its Comment specificallystates it, the logical reading of the rule in this context is thateach individual member of the firm must cease to engage inthe private practice of law in that jurisdiction or

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geographical area, not just the firm as an entity. Under thisreading, the justification for the rule premised upon client It has been suggested that the sale of a law practiceprotection would survive the change in wording before by an estate be treated differently from the sale by a lawyerpassage. leaving private practice. See Minkus, The Sale of a Law

• Sole Practitioners in Unfair Financial Position:Retiring members of law firms and estates of deceasedlawyers have been able to receive benefits including anallotment for that lawyer’s share of the firm’s good will.Before the passage of Rule 1.17, sole practitioners and theirestates could not ethically obtain the same benefit. The ruleeliminated this inequality, although at least onecommentator had suggested that valid reasons existed fortreating sole practitioners differently from partnerships.See Sterrett, The Sale of a Law Practice, 121 U.Pa.L. Rev.306 (1972).

FURTHER SUGGESTIONS

Practice: Toward a Professionally Responsible Approach,12 Golden Gate U. L. Rev. 353 (1982) (suggesting thatestate representative may have a duty to obtain the bestprice for the practice regardless of the quality of thesuccessor counsel, thereby creating a potential conflict withthe duty of competence under Rule 1.1).

It has also been suggested that the purchase pricefor the law practice should not be in the form of a lumpsum. See Minkus, supra (reasoning that if the sale is basedupon a percentage of fees, the seller will be encouraged tofind a purchaser wh will do the quality of work that willresult in the retention of the clients).#


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APPENDIX HACKNOWLEDGMENTS

Resources relating to the death of a solo practitioner are limited but have been drawn upon unashamedly. They include thefollowing:

“Retirement of A Solo Practitioner’s Law Practice” by Thomas G. Bousquet, Houston, Texas, first published in 29 Law OfficeEconomics and Management 428 (1989) and updated in 33 The Houston Lawyer 37, January/February (1996)

“Preparing For Retirement, Disability And Death” by Wesley P. Hackett, Jr., Michigan Lawyer’s Manual, September 1994Revision, Lawyers Cooperative Publishing.

Articles by Laura Gatland (“Sunsetting A Law practice”), Robert L. Ostertag (“Sale of A Law Practice”), James D. Cotterman(“Valuation of A Law Practice”), GP Solo Magazine January/February 2000, General Practice, Solo and Small Firm Section,American Bar Association.

“What Will Happen to Your Practice If You Die” by Leigh P. Perkins, Lawyers Weekly USA, November 21, 1994.

“A Solo’s ‘Back-Up Lawyer’: How to Set Up a Relationship That Works” by Michael M. Bowden, Lawyers Weekly USA,September 22, 1997.

“What Happens When A Lawyer Dies” by Stephen N. Maskaleris and Vivienne K. Cooperman, Experience Magazine, Summer1997, Senior Lawyers Division, American Bar Association.

“Big Shoes To Fill: The Job of the Inventory Attorney” by J. R. Phelps and Terri Olson, The Florida Bar Journal, January 1991.

“When I Die . . . “ by Ross A Sussman, Chapter 51, Flying Solo, Law Practice Management Section, American BarAssociation.

“Why Shouldn’t Solos Be Able To Sell Their Practices” by Barry S. Martin and Frank Babb, American Bar AssociationJournal, April 1984.

“Purchase or Sale of a Solo Practice” by Demetrios Dimitriou, Law Practice Management Magazine, November/December1993, Law Practice Management Section, American Bar Association.

“A Death Shutters A Law Firm” by Mark Hansen, American Bar Journal, October 1994

“The Toolkit For Buying or Selling a Law Practice” by Ed Poll, 1995 LawBiz Publishing Company.

“Checklist for Closing Another Attorney’s Office”, “Death of a Sole Practitioner: Special Considerations”, “Checklist:Protecting Clients’ Interests in the Event of the Lawyer’s Death, Disability, Impairment, or Incapacity” by Barbara S. Fishlederreprinted in GP Solo Magazine, January/February 2000, General Practice, Solo and Small Firm Section, American BarAssociation.


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“Planning Ahead: A guide to Protecting Your Clients’ Interests in the Event of your Disability or Death - A Handbook andForms”, copyright 1999 by Barbara S. Fishleder, Oregon State Bar Professional Liability Fund. NOTE: Certain materialsadapted from that publication have been modified in this paper to conform with Texas practice but have been used withpermission. All rights were reserved except that permission is granted for law firms and sole practitioners to use and modifythose documents in their own practices. Those documents may not be republished, sold, or used in any other form without thewritten consent of the Oregon State Bar Professional Liability Fund.

The Legal Malpractice Self-Audit from Texas Lawyers’ Insurance Exchange by Jett Hanna and TLIE, 1995

Rodney C. Koenig, Houston, Texas, provided a memorandum dealing in general with cessation of practice and in particular withthe procedures in Texas Rules of Disciplinary Procedure 13.01, 13.02, 13.03 and Texas Disciplinary Rules of ProfessionalConduct 1.14 (a).

Wesley P. Hackett, Jr., Saranac, Michigan, Steven N. Maskalaris, Morristown, New Jersey, and Robert L. Ostertag,Poughkeepsie, New York, were interviewed regarding the sale of a law practice.

Roy W. Moore, Houston, Texas, was interviewed regarding the valuation of a law practice in the context of a divorce.