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Turning Out the Lights Part Four: Ethics of Closing a Law Firm

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Ethical responsibilities should be one of the most important considerations in the sale, purchase, or dissolution of a law firm.  The Rules of Professional Conduct provide that the practice of law is a profession and not merely a business; clients may not be purchased and sold at will. The Rules also make it clear, while a lawyer may sell or purchase a law practice, the lawyer must uphold certain professional responsibilities. Although not comprehensive, referencing the following rules and ethics opinions is a good starting point if you are selling, purchasing or winding down a law firm:

Duties Owed to Clients

Rule 1.17 of the Rules of Professional Conduct provides a lawyer or law firm may sell or purchase a law practice or an area of law practice as long as several conditions are met: (1) Seller does not continue to engage in the private practice of law from an office that is within a 100 mile radius of the purchased practice. (Note: there is a recent amendment which would permit a lawyer to continue to work for the law practice as an employee after its sale – see blog – “Now You Can Retire…Or Not”) (2) The entire practice or entire area of practice must be sold to a lawyer or law firm; (3) Written notice is sent to each of the seller’s clients; (4) If a client cannot be given notice, an order by the court transferring representation of that client to the purchaser must be obtained; (5) The fees charged to clients may not be increased by reason of the sale; and (6) The seller and purchaser may enter into reasonable finance arrangements as the sales price does not need to be paid in one lump sum; however, the seller may not continue to have control over the practice. The requirements in Rule 1.17 do not apply to the sale of a law practice to lawyers who are current employees of the firm. See 98 FEO 6.

RPC 48 outlines the professional responsibility of lawyers involved in a law firm dissolution.  The dissolution of a firm requires consideration of several principal areas: (1) The continuity of services to clients should be paramount. Any attorney involved in a client representation at the time of dissolution has an obligation to continue the representation until the matter is concluded or the attorney is required or permitted to withdraw; (2) The rights of clients to counsel of their choice and the required notifications; (3) The duty of the firm’s principals to deal honestly with each other and not involve clients in any disputes resulting from the winding down process; and (4) The protection of and accounting for all client property.

Rule 1.16 Whether selling or winding down a practice, the client’s relationship with the departing attorney will end.  When terminating the representation of a client, the lawyer must comply with applicable law requiring notice to or permission from a tribunal. Upon termination of representation, a lawyer must take steps to reasonably protect a client’s interests including: (1) giving notice to the client; (2) allowing time for retention of other counsel; (3) surrendering papers and property to the client to which client is entitled; and (4) refunding any advance fee payments which have not been earned or incurred.

Handling Client Files

RPC 209 The opinion rules an attorney may dispose of closed client files subject to certain requirements. No particular method of destroying files is proscribed but the method used must preserve client confidentiality. With the consent of a client, a closed file may be destroyed at any time.  However, the lawyer should review the file and retain any items in the file that belong to the client or contain information useful in the assertion or defense of the client’s position where the statute of limitations has not expired. Absent the client’s consent, the client file must be retained for a minimum of six years after the conclusion of the representation, and a record must be maintained of all destroyed client files.

Rule 1.15 In addition to retaining the client file for six years after representation has concluded, a lawyer must maintain complete and accurate records of all client property entrusted to the lawyer for a period of six years immediately preceding the lawyer’s most recent fiscal year end.

RPC 234 rules an inactive client file may be stored in an electronic format provided documents with legal significance in their original format are preserved and the electronic documents can be reproduced on paper.

Communication Concerning Change of Status

Rule 7.1 provides communications about a lawyer’s services cannot be misleading, so all ads, websites, directory listings, social media, etc. must reflect the changed status of the law firm.

As suggested in part one of the “Turning Out the Lights” series, the end of a legal career is a certainty for all who practice the law, but despite that, many attorneys reach that point without considering and preparing a succession plan. Hopefully, N.C. lawyers will lead the way and change that.  Although there is no doubt exit planning is a challenge, it is also an opportunity for you to create a plan so your clients and your practice are not left in the dark.