April 14, 2015 article

ABA Clarifies Inconsistent Interpretation of Sale of Law Practice Rules to the Benefit of Sole Practitioners

By William Knight

Should attorneys ever break a professional rule in order to comply with its spirit? Thankfully, Formal Ethics Opinion 468, published in October 2014, resolved one such ethical Catch-22 to the benefit of sole practitioners selling their practices under Rule 1.17 of the Model Rules of Professional Conduct. The recent opinion clarifies that selling attorneys may assist buyers for a reasonable period of time despite Rule 1.17's clear contemporaneous retirement clause.

Rule 1.17 was originally promulgated both to remedy another disparate treatment of sole practitioners and to protect their clients. Prior to 1990, the concept of sellinga law practice was unheard of. At the time, attorneys could benefit from goodwill of their careers with ethically permissible retirement plans, drawing from their former partners' assumption of their practice without running afoul of the rules prohibiting fee splitting with "non-lawyers." See Stocc M. Schoenwald, Model Rule 1.17 and the Ethical Sale of Law Practices: A Critical Analysis, 7 Geo. J. Legal Ethics 395, 402 (1994); 1 Geoffrey C. Hazard, J.r. & W. William Hodes, The Law of Lawyering § 21.2 (3d ed. 2013). Sole practitioners, on the other hand, were without recourse because they did not have partners and could not sell their practices. Naturally, many clients of sole practitioners who retired or passed away during representation were abandoned.

Enter Rule 1.17, breaking with tradition to permit the sale of law practices, but only if the lawyer retires from the practice in its entirety (in that geographical area or in that specific practice area). The rationale for the retirement clause was to protect clients from becoming commoditized. See Rule 1.17, cmt. 6 ("The prohibition against sale of less than an entire practice area protects those clients whose matters are less lucrative and who might find it difficult to secure other counsel if a sale could be limited to substantial fee-generating matters."); see also Nina Fields, The Sale of a Law Practice in South Carolina: The Impact of Model Rule 1.17 on Sole Practitioners and Their Clients, 50 S.C. L. Rev. 1029, 1029 (1999) ("A general premise of legal ethics was, and still is, that '[t]he practice of law is a profession, not merely a business. Clients are not commodities that can be purchased and sold at will.'" (quoting Rule 1.17, cmt. 1)).

Accordingly, Rule 1.17 attempts to strike a balance between protecting clients from becoming commoditized and granting sole practitioners the same access to the "asset value" of client loyalty as their associated colleagues. Fields, supra, at 1031 (citing Robert W. Hillman, Law Firm Breakups: The Law and Ethics of Grabbing and Leaving 44 (Supp. 1993)). As these rules developed, however, they put some sole practitioners in an even tighter spot than before—the clear mandate to cease practicing often conflicted with clients' interests, particularly for attorneys in niche practices. Specifically, the conflict between the black letter cessation of practice requirement and the competence requirement of Rule 1.1 (requiring that buyer possesses all "legal knowledge, thoroughness and preparation reasonably necessary for the representation" (emphasis added)) frustrates the client protection purpose of Rule 1.17 by making it nearly impossible for niche practitioners to find a competent buyer without some additional "law practice."

Prior to Opinion 468, if a sole practitioner chose to train a successor in order to ensure an orderly transition of his clients to a competent advocate, the selling attorney could have faced disciplinary action. Compare Neb. Ethics Op. 12-01 (2012) (firm may purchase solo practitioner's practice and retain him as of counsel without violating Rule 1.17 provided that the firm meaningfully clarifies the relationship) with Ill. Ethics Op. 07-02 (2007) (plain language of Rule 1.17 prohibits sale followed by of counsel period). Opinion 468 now gives disciplinary authorities clear guidance by interpreting Rule 1.17 to harmonize with the rules governing attorney competence, fee splitting, and the best interests of the clients:

The requirement of Rule 1.17(a) that the seller of a law practice or area of practice must cease to engage in the private practice of law, or in the area of practice that has been sold, does not preclude the seller from assisting the buyer or buyers in the orderly transition of active client matters for a reasonable period of time after the closing of the sale.

If you are considering winding down a niche solo practice, bear in mind that ethics opinions, even those published by the American Bar Association, are non-binding authority. Courts do, however, "often look to them for guidance in interpreting the Model Rules of Professional Conduct." Babineaux v. Foster, No. CIV.A. 04-1679, 2005 WL 711604, at *2 (E.D. La. Mar. 21, 2005) (citations omitted). In any event, with more and more jurisdictions modeling their ethical rules after the Model Rules—for example, Massachusetts recently enacted several amendments "designed to align the Massachusetts rules more closely with the Model Rules," See Perlman, Andrew, Massachusetts Adopts Changes to Rules of Professional Conduct, Legal Ethics Forum (March 27, 2015)— retiring sole practitioners across the country can rest a little easier.

Keywords: solo and small firm, litigation, sale of law practice, niche practice, retirement, Rule 1.17, Formal Ethics Opinion 468

William Knight is an associate at Ballard Spahr LLP in Phoenix, Arizona.

Copyright © 2015, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).