Reporter’s Explanation of Changes
TEXT:
1. Paragraph (b): Eliminate requirement that sale be to single buyer
Paragraph (b) of the current Rule requires that the practice be sold "as an entirety" to a single lawyer or firm. The justification offered is that purchasers would otherwise take only a seller’s profitable cases and leave some clients unrepresented.
The Commission believes that the present requirement is unduly restrictive and potentially disserves clients. While it remains important to ensure the disposition of the entire caseload, it is not necessary to require that all cases must be sold to a single buyer. For example, it may make better sense to allow the sale of family-law cases to a family lawyer and bankruptcy cases to a bankruptcy lawyer. Common sense would suggest the lawyer should sell the cases to the most competent practitioner and not be limited by such a "single buyer" rule, and paragraph (b) has been redrafted accordingly.
2. Paragraphs (c)(2) and (d): Eliminate buyer’s right to refuse representation unless seller’s clients agree to pay increased fee
Paragraph (d) of the current Rule states that the fees charged clients shall not be increased by reason of the sale. However, it also allows the buyer of a practice to tell the seller’s clients that the buyer will not work on their cases unless they agree to pay a greater fee than they had agreed to pay the seller. The only limit is that the buyer may not charge the seller’s clients more than the buyer charges the buyer’s other clients for "substantially similar services." This is problematical because the seller could not unilaterally abrogate the fee agreement as a matter of contract law. The seller could have withdrawn as permitted under Rule 1.16, but the seller certainly could not have refused to continue the representation unless the client agreed to a modification of the fee contract. In this regard, the Commission thinks the buyer should stand in the shoes of the seller and has modified paragraph (d) accordingly. This proposal is in accord with the rules of California, Colorado (written contracts only), Florida, Iowa, Minnesota (must honor for one year), New Jersey, New York, North Dakota, Oregon, Tennessee (proposed rule), Virginia and Wisconsin.
The Commission proposes to delete paragraph (c)(2) in light of the modification in paragraph (d). Its only purpose was to require that notice be given to the seller’s clients of the buyer’s right to require increased fees under paragraph (d), which right has now been eliminated.
COMMENT:
[1] Minor wording changes have been made as part of the proposed change permitting sale of a practice to more than one lawyer or firm.
[2] Minor changes have been made as part of the proposed change permitting sale of a practice to more than one lawyer or firm and to clarify the third sentence.
[5] This Comment has been changed to explain the rationale for requiring that an entire practice be sold, albeit not to a single purchaser.
[6] Material has been deleted from the Comment because of the Commission's decision to prohibit purchasers from stating they will not continue the representation except at their usual fee.
[9] In accord with the change in the Rule text, the language explaining the right to a unilateral fee increase has been deleted. See discussion of paragraphs (c)(2) and (d).
[10] Given the change in the Rule text, current Comment [10] is no longer necessary and has been deleted.
[10] The Commission is recommending that throughout the Rules the phrase "consent after consultation" be replaced with "gives informed consent," as defined in Rule 1.0(e). No change in substance is intended.
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