"Clients are not commodities that can be purchased and sold at will" Except They Are

While Comment [1] to ABA Model Rule 1.17 notes that "Clients are not commodities that can be purchased and sold at will," the reality is that they are bought and sold every day.

A common scenario involves a lawyer or law firm purchasing a law firm from the estate of a deceased lawyer. While solo practitioners are obligated to prepare a succession plan, even in the rare circumstances where this occurs - there are usually huge gaps that must be filled.

There are several crucial steps to follow to ensure compliance with legal and ethical obligations and it is paramount that the purchaser remember the estate representative (often a spouse), is likely not an attorney:

1. Review the Rules

Rule 1.17: Sale of Law Practice governs the sale of a law practice, including provisions for selling to another lawyer. It specifies that the sale must include the entire practice or an area of the practice and that clients must be notified.

The purchasing attorney should ensure they comply with Rule 1.6: Confidentiality and other ethical obligations related to protecting client information during the transition.

Other key Rules:

Rule 1.1: Competence

Rule 1.3: Diligence

Rule 1.4: Communication

Rule 1.7: Conflict of Interest – Current Clients

2. Inventory and Evaluate the Practice

Conduct a thorough inventory of the practice to assess its value, including client lists, ongoing cases, physical and digital assets (such as office space, computers, and legal software), and the law firm’s reputation and good will.

The purchasing attorney should also review outstanding liabilities, such as debts or unresolved claims, and evaluate the client base for conflicts of interest or areas of legal expertise needed.

3. Notify Clients and Obtain Consent

Under Rule 1.17, clients must be given written notice about the proposed sale, their right to retain other counsel, and any implications for their ongoing representation. This notification should include: The terms of the sale that affect the client The client’s right to object to the transfer of their representation Any impact on their fee obligations

If a client does not consent within 90 days of receiving the notice, their consent to the sale is generally presumed.

4. Maintain Client Confidentiality

• In reviewing the deceased lawyer’s files and client information, the purchasing attorney must be careful to maintain client confidentiality per Rule 1.6. This may involve reviewing files without revealing sensitive details, especially during due diligence before the sale.
• Limit the attorneys and nonlawyers involved in the review to the absolute minimum. This is a great task to outsource to independent attorneys or paralegals.

5. Obtain Court or Bar Approval

In some jurisdictions, the purchasing attorney may need to seek approval from the probate court or bar association before finalizing the transaction. This may involve petitioning the court or filing paperwork with the bar to ensure that the sale complies with relevant rules.

For active litigations, there's often an automatic stay of the deceased lawyer's cases and strict timelines for filing new appearances.

6. Finalize the Purchase Agreement

Draft a detailed purchase agreement outlining the terms of the sale, including the transfer of assets, liabilities, client lists, ongoing cases, and financial considerations.

Ensure that the purchase agreement addresses issues like the continuation of legal malpractice insurance and the allocation of fees for ongoing matters.

Stress the estate representative's right to independent counsel review, even if they're an attorney.

While many jurisdictions allow nonlawyer estate representatives to share in the winding up legal fees, consider a cleaner payment in exchange for the entire practice not tied to any specific legal work.

7. Transition the Practice and Integrate Clients

Develop a clear plan for transitioning clients, including how to handle ongoing cases, communicate with courts, and ensure a smooth transfer of legal responsibilities.

If necessary, collaborate with the estate and any remaining staff to manage the transition process smoothly, providing continuity of service to clients.

By following these steps and adhering to the ethical guidelines outlined in the Rules of Professional Conduct, attorneys can ethically and legally purchase a law firm from the estate of a deceased lawyer.

Let's chat about better practice, less stress.