Succession Planning

By Timothy J. Gephart

The staff thought they were doing exactly the right thing. After all, it was the least they could do for the lawyer who had employed them and had been a friend to them and their families for nearly 20 years. They had enough collective experience to shepherd the cases in need of attention through the system. They were not taking on any new cases. They knew most, if not all, of the clients, and they were the ones who had always drafted the documents, reviewed and summarized medical records, and at times even helped draft motions. Granted, the lawyer always reviewed and signed the work, but they were the ones who did the work, and it was very seldom any changes were made by the lawyer. No one had ever discussed with the staff what to do should the lawyer become incapacitated. Alzheimer’s disease had been gradually robbing the lawyer of his ability to perform his job. But it progressed slowly, and the subtle changes went unnoticed until it was too late.

Then came the malpractice claim.

The most common method of reporting legal malpractice claims is for the involved lawyer to phone or write his or her professional liability insurance carrier and relay the facts giving rise to the claim. In the case involving this lawyer, the claim was reported by the client’s new attorney. That attorney contacted the carrier after repeated attempts to speak with the client’s former lawyer failed. His many calls to the lawyer’s office were not returned. The only person he ever spoke with was the lawyer’s office manager.

The claim attorney assigned to investigate the case met with the same treatment. The client and the client’s new attorney finally grew impatient with the claim attorney’s inability to complete the investigation, and they sued the case out. The claim attorney was actually relieved when suit was filed, believing that although a lawyer might ignore inquiries from a disgruntled client and a representative of the insurance company, the lawyer certainly would cooperate fully in his own defense—an incorrect assumption in this case. The defense lawyer met with the same resistance and lack of cooperation as the others.

Plaintiff’s interrogatories were sent to the lawyer, and draft answers were sent back to the defense lawyer. The draft answers were incomplete and mostly unresponsive. The defense lawyer again contacted the office, insisting that he speak with his client, as the answers to interrogatories were inadequate. The office manager, who had been the defense lawyer’s only contact, stated she knew the answers were adequate, because she had drafted them. At that point, the claim attorney and defense lawyer agreed that the defense lawyer would make a trip to his client’s office and not leave until he met personally with the lawyer. He was finally advised, when he arrived at the client’s office, of the situation regarding the client’s illness. A guardian was eventually appointed, the lawyer’s file was produced, and once a small amount of discovery was completed, the case was dismissed.

The ethical and malpractice implications of this scenario can be catastrophic. Although no one wants to think about dying or becoming disabled to a point where working is impossible, planning for such an eventuality is an ethical requirement for lawyers. In 1992 the ABA Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 92-369. That opinion states, in part,

The death of a sole practitioner could have serious effects on the sole practitioner’s clients. . . . Important client matters, such as court dates, statutes of limitations, or document filings, could be neglected until the clients discover that their lawyer has died. As a precaution to safeguard client interests, the sole practitioner should have a plan in place that will ensure insofar as is reasonably practicable that client matters will not be neglected in the event of the sole practitioner’s death. (emphasis added)

The Opinion goes on to state:

According to Rule 1.1, competence includes “preparation necessary for representation,” which when read in conjunction with Rule 1.3 would indicate that a lawyer should diligently prepare for the client’s representation. Although representation should terminate when the attorney is no longer able to adequately represent the client, the lawyer’s fiduciary obligations of loyalty and confidentiality continue beyond the termination of the agency relationship.

The March 2006 “Eye on Ethics” column from the ABA e-newsletter YourABA notes that ABA Formal Opinion 92-369 (1992) speaks to the fact that lawyers have been disciplined for the neglect of client matters owing to the ill health or personal problems of the lawyer. The article goes on to state that lawyers who have failed to make preparations to protect their client’s interests in the event of the lawyer’s death or disability should be sanctioned, “both in the hope of encouraging other lawyers to make such preparations, and to restore confidence in the bar, though the sanctions would obviously have no deterrent effect on deceased lawyers.”

The recently revised ABA Model Rules of Professional Responsibility also address the issue in its Comment to Rule 1.3:

To prevent neglect of client matters in the event of a sole practitioner’s death or disability, the duty of diligence may require that each sole practitioner prepare a plan, in conformity with applicable rules, that designates another competent lawyer to review client files, notify each client of the lawyer’s death or disability, and determine whether there is a need for immediate protective action.

In addition to the ethical issues involved in failing to develop and implement a plan to protect clients’ interests in the event of death or disability, the failure to do so can result in increased exposure to malpractice. Missed deadlines and failing to complete tasks in a timely matter will certainly lead to claims. The same problems that lead to those missteps can also lead to a failure to timely pay insurance premiums, leaving the lawyer uninsured.

Because of the ethical obligations to clients, and the malpractice exposure, the time to develop and implement a plan is now. The first place to look for direction in plan development is ABA Formal Opinion 92-369, mentioned above. Next, a thorough review of applicable state ethical rules and opinions should be undertaken. Many states have adopted the language from the ABA Model Rules. The ethics opinions from most state bar associations are available through their websites.

Listed below are some examples of materials from state bar associations that address succession planning. If your state is not listed, you may try contacting your local bar association for further guidance.

The New York State Bar Association’s Committee on Law Practice Continuity has placed a publication entitled Planning Ahead: Establish an Advance Exit Plan to Protect Your Clients’ Interests in the Event of Your Disability, Retirement or Death online at www.nysba.org/content/contentgroups/planning_ahead/book.pdf. This online book includes checklists and sample forms for attorneys who are engaged or interested in succession planning. It is an excellent resource.

The Oregon State Bar Professional Liability Fund created a handbook to assist lawyers in the process of creating a plan to aid in compliance with these ethical obligations and reduce the attendant risk of malpractice. Planning Ahead: A Guide to Protecting Your Clients’ Interests in the Event of Your Disability or Death was published in April 1999.

The handbook suggests that the first step in the planning process is to find someone, preferably an attorney, to close the practice in the event of your death or disability. Often, lawyers will enter into reciprocal agreements with other attorneys they know, each agreeing to take on the role of assisting attorney for the other. Local bar associations can also be a source for locating an assisting attorney. The agreement between the lawyers should be memorialized and should document detailed information about the arrangement, including the scope of the assisting attorney’s duties. Remember, if the assisting attorney represents you, he or she could be conflicted out of representing your clients. The conflict issue is crucial to understand, especially in view of the fact that the assisting attorney will most likely have to review confidential information when transferring files.

Trust account issues also must be addressed in the agreement. Care should be taken to ensure compliance with the rules regarding the handling of trust funds.

Clients must be made aware of the plan. The Oregon handbook suggests that once arrangements with the assisting attorney have been finalized, a paragraph be inserted in the retainer agreement including information about the plan.

The handbook goes on to list seven more steps to the process:

1. Make sure your office procedural manual explains how to produce a client list including addresses;

2. Calendar all important dates diligently;

3. Thoroughly document all client files;

4. Keep your time and billing records up to date;

5. Familiarize the assisting attorney with your office;

6. Renew your written agreement with the assisting attorney annually; and

7. Do not keep any of your clients’ original documents.

An office with solid procedures set out in a document that is regularly updated will not only be able to undergo a smooth transition should the death or disability of the attorney occur, it also will be a better risk in terms of malpractice exposure. Had the lawyer in the story above implemented and documented a succession plan, the staff would have known exactly what to do. The client and the client’s new attorney would have known who to go to for answers to their questions. Most likely, no lawsuit would have been commenced, sparing the lawyer and client the issues associated with being involved in litigation.

The key to avoiding the problems associated with an unexpected disability or the death of an attorney is to have a plan. Start devising your plan now. It’s never too early.

Timothy J. Gephart is vice president of claims at Minnesota Lawyers Mutual in Minneapolis. He may be reached at .

Copyright 2007

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