Ethics Advisory Opinion 02-19
“A, B, C, D & E, P.A.” (Firm 1) is a law firm currently organized and governed under the laws of the State of South Carolina as a professional association under the name “A, B, C, D & E, P.A.” and its tradename is “AB P.A.”
Firm 1 has been in existence for many years and has several offices across the state. At one time, lawyers A, B, C, D, and E all practiced law together. Lawyers D and E are no longer shareholders of Firm 1, but still practice law there. Firm 1 has several other shareholders whose names do not appear in the firm name.
Lawyer A previously worked at Firm 1 but has since retired and died. Lawyer C left Firm 1, along with other lawyers, and they have started a new firm (Firm 2) that includes lawyer C's name in its letterhead. Apart from lawyer C, there are no names in common between the two firm names. B, D, and E have remained with Firm 1. The remaining shareholders of Firm 1 wish to wind up the firm’s business over the next several years in order to conclude its affairs and collect outstanding accounts receivable for fees due for the past performance of legal services which are not assignable without adverse tax consequences. During the wind up period, Firm 1 will primarily perform the following: (i) pay operating expenses and accounts payable; (ii) collect accounts receivable that are owed to the law firm (and the lawyers associated with that law firm); and (iii) file tax returns, pay fees, and handle other related matters. It is expected that Firm 1 will have minor expenses associated with the wind up of business operations and will be required to satisfy existing indebtedness, which will be paid from its financial assets.
Despite the continued existence of Firm 1 as an active professional association registered with the Secretary of State's office, though not actively pursuing new business or providing legal services, the current shareholders of Firm 1 desire to establish a new law firm in continuation of Firm 1. The new law firm will be organized and governed under the laws of the State of South Carolina as a limited liability company and will be called: “AB LLC”. In addition, the new “AB LLC” law firm wants to use the tradename “AB”.
“AB LLC” will be comprised of approximately seventy percent (70%) of the lawyers who previously practiced with Firm 1 and will retain and employ over eighty-five percent (85%) of that firm’s staff. “AB LLC” will operate in the same location with the same general practice focus and business operations as Firm 1. Certain, but not all, of Firm 1’s assets will be conveyed to “AB LLC”. Some assets related to Firm 1’s accounts receivable and certain contractual rights, which cannot be assigned for legal reasons, will not be conveyed to “AB LLC”. As stated earlier, the primary operations of Firm 1 will be limited to winding up its business. “AB LLC” will be dedicated to the practice of law, including those previous clients who choose to retain its services (via a formal substitution of counsel with the consent of those clients or via a designated co-counsel arrangement with the consent of those clients), and pursuing business opportunities with prospective clients. The proposed arrangement does not satisfy the requirement for the sale of a law practice pursuant to Rule 1.17.
At the clients’ request, cases and related file information currently being handled by Firm 1 will be transferred for fair value to “AB LLC”. Following the proper transfer of all cases and related file information currently being handled by Firm 1, it will not continue to practice law or provide legal services, and Firm 1 will not serve as co-counsel of record with “AB LLC.” Importantly, it appears that prior to the transfer of certain cases, Firm 1 intends to serve as co-counsel of record and provide legal services in that entity’s name for a significant period of time.
There will be several lawyers who will be owners of both Firm 1 and “AB LLC”. “AB LLC” will have a number of additional owners who are lawyers but not shareholders in Firm 1. All ongoing legal matters and all new legal matters will be performed solely by lawyers employed by, or otherwise contracted under, “AB LLC”.
1. Is it permissible for the law firm currently organized and governed under the laws of the State of South Carolina as “A, B, C, D & E, P.A.” to do business necessary to wind up its current operations over a significant period of time under the trade name “AB P.A.”?
2. Is it permissible for the law firm “A, B, C, D & E, P.A.” to change its legal name to "AB P.A." during its wind up period? (The reason “A, B, C, D & E, P.A.” desires to change its legal name is because it wants to be clear to the public that C is no longer associated with the firm.)
3. If the answers to questions 1 and 2 are yes, is it permissible for the law firm “AB P.A.” to use the trade name “AB”?
4. If the answers to questions 1 and 2 are yes, may the remaining owners of the law firm “A, B, C, D & E, P.A.”, who have changed that firm's name to “AB P.A.”, form a new South Carolina limited liability company doing business as “AB LLC”?
5. Is it permissible for lawyers to be owners of two (2) existing law firms which are active organizations under the laws of South Carolina, i.e., “A, B, C, D & E, P.A.” and “AB LLC”, if one of the firms is not actively engaged in the practice of law?
6. Is it permissible for “AB LLC” to perform legal services related to matters formerly handled by “A, B, C, D & E, P.A.” if the client of “A, B, C, D & E, P.A.” consents to the new representation and formal substitution of legal counsel?
7. Is it permissible for “A, B, C, D & E, P.A.” and “"AB LLC” to structure an arrangement through which legal fees, some of which have already been earned by “A, B, C, D & E, P.A.” and some of which will be earned through work performed by “AB LLC” in on-going cases, can be properly apportioned among those lawyers-- a majority of whom will practice with “AB LLC”?
8. Is it permissible for “AB LLC” to state on its letterhead and in its marketing materials that it “formerly” conducted business as “AB, P.A”? Please note that as described above “AB LLC” will perform the legal services previously performed by “AB, P.A”, in addition to unrelated legal services. There will be no references to the former firm “A, B, C, D & E, P.A.” on the letterhead. In marketing materials describing the history of “AB LLC”, all three firm names will be referenced to show the evolution of the firm and in some cases reflect individual lawyers who have from time to time been associated with the firm.
Summary of Opinion
A. Under Rule 7.5, as interpreted in Advisory Opinions 75-01 and 79-06, a law firm may continue to use the name of deceased or retired partners in its name if the firm is the bona fide successor of the firm in which the deceased or retired person was a member. The use of the deceased or retired person’s name could also be used in an amended or abbreviated firm name so long as the public is not misled.
The potential to mislead is present in this case, however, given the proposed concurrent lives of two entities with very similar names. To the extent that the old firm’s activities could be considered the continued practice of law, the proposed name and trade name of the new firm is likely impermissible because the deceased partner’s name cannot be used in connection with two separate law firms, each currently engaged in the practice of law. As such, AB LLC would not be considered a continuation of “AB, P.A.” Nevertheless, if the activities associated with AB, PA merely constitute a winding up of AB, P.A.’s business operations and it is not considered to be practicing law, the proposed name and trade name of the new firm is likely permissible because AB LLC can be viewed as a successor or continuation of AB, P.A. Similarly, under the proposed plan, it appears that at least during the overlap period while AB, P.A. is winding up, it could be misleading to designate that the firm was formerly AB, P.A., with the potential to mislead stemming from the continued existence of the old firm. Accordingly, the proposed firm letterhead and marketing materials could be misleading.
B. It is ordinarily permissible for an attorney to associate with two different law firms. The dual association proposed here, however, could be confusing and misleading to the public because the firms have confusingly similar names and are apparently located in the same place. On the other hand, if one of the firms is not considered to be engaged in the practice of law, the dual association would be permissible.
C. The new firm may represent the former clients of the old firm after the clients are informed of the change of firm names and entities, consent to formal substitution of legal counsel and the Rule of Professional Conduct are otherwise followed. The proposed fee splitting arrangement appears permissible so long as the requirements of Rule 1.5(e) are followed.
A. Use of Deceased Lawyer's Name (Questions 1-4, 8)
1. Name of Firm 1 During its Wind Up Period
A review of the Rules of Professional Conduct, the Comments that follow them, and several South Carolina Bar Ethics Advisory Opinions (“Advisory Opinions”) reveals that the prospective conduct at issue in questions 1 through 3 should be deemed permissible.
Advisory Opinion 79-06, which focuses on the issue of “succession” of a law firm name following the death of a named partner, states that, "[t]he continued use of a firm name by one or more of the surviving partners after the death of a member of the firm whose name is in the firm title is expressly permitted by the Canon of Ethics." The rationale for this position is:
All of the partners have by their joint and several efforts over a period of years contributed to the good will attached to the firm name. In the case of a firm having wide-spread connections, this good will is disturbed by a change in the firm name every time a partner dies, and that reflects a loss in some degree of the good will to the building up of which the surviving partners have contributed their time, skill and labor through a period of years. To avoid the loss, the firm name is continued, and to meet the requirements of the Canon, the individuals constituting the firm from time to time are listed.
However, Advisory Opinion 75-01 emphasizes that lawyers who desire to use a firm name that includes the names of deceased or retired partners, may do so only "if the firm is a bona fide successor of a firm in which the deceased or retired person was a member, if the use of the name is authorized by law or by contract, and if the public is not misled thereby." The Committee there reiterated that the use of a deceased partner's name as part of a continuing line of succession was permissible; however, if there is a contemporaneous separation of lawyers practicing in that firm, and one or more members of that firm withdraw from it, only those who stay with the firm may continue to use the deceased partner's name.
The above-described Advisory Opinions are consistent with the current Comments to Rule 7.5 which explain that, “A firm may be designated by the names of all or some of its members, by the names of deceased members where there has been a continuing succession in the firm's identity or by a trade name such as the ‘ABC Legal Clinic.’” Thus, continued use of the name “A” in the proposed law firm of “AB P.A.” and trade name “AB” seems to satisfy Rule 7.5, and the various Advisory Opinions interpreting this Rule.
2. Use of Deceased Lawyer’s Name for Successor Firm
Although the Committee does not pass on questions of substantive law as to whether “AB LLC” is in fact a continuation of Firm 1, it appears that the Proposed Plan regarding the use of lawyer A’s name could be misleading as prohibited by Rule 7.1. In Advisory Opinion 75-01, the Committee expressly addressed the issue of whether a deceased partner’s name could be used by a majority of the old firm after the formal dissolution of the old partnership. In resolving the issue, the Committee found,
The reversion to the use of the firm name of A, C and D would mislead the general public and such use of the name is a privilege available only to the firm. Had B merely withdrawn from the firm, the remaining members who continue the firm might have continued to use the name of A as a former member of the firm. But, after his death, the firm consisted of B, C and D and when B refused to withdraw, the partnership was dissolved and the firm ceased to exist. Hence, C and D's use of the firm name A, C and D would not be in accord with the facts, is misleading and deceptive and accordingly, improper.
In this case, the potential to mislead the public is present given the proposed concurrent lives of the two entities. To the extent that “AB P.A.”’s activities could be considered the continued practice of law, the proposed name and trade name of the new firm is likely impermissible because the deceased partner’s name cannot be used in connection with two separate law firms, each currently engaged in the practice of law. As such, AB LLC would not be considered a continuation of “AB P.A.” Nevertheless, if the activities associated with “AB P.A.” merely constitute a winding up of “AB P.A.”’s business operations and “AB P.A.” is not considered to be practicing law, the proposed name and trade name of the new firm is likely permissible because “AB LLC” can be viewed as a successor or continuation of “AB P.A.”
3. Firm Letterhead and Marketing Materials
Firm letterhead is governed by Rule 7.5 and subject to the limitation that any representations thereon may not be misleading pursuant to Rule 7.1. Under the proposed plan, it appears at least during the overlap period while “AB P.A.” is winding up, it could be misleading to designate that the firm was formerly “AB P.A.”, with the potential to mislead stemming from the continued existence of the old firm.
With respect to tracing the evolution of the firm in marketing materials, those materials should be permissible provided they are not misleading pursuant to Rule 7.1.
B. Use of Similar Names of “AB P.A.” and “AB LLC” (Question 5)
A second issue warranting brief attention involves the fact that if the Proposed Plan described above goes forward, there will be two law firms in the state that will, for legal purposes, use the same name, including the name of a deceased lawyer. As discussed earlier, one of these firms will be engaged in providing legal services, while the other law firm will ultimately be engaged in the wind up of its business operations and will not be engaged in the provision of legal services except for those existing cases where Firm 1 will remain as co-counsel with “AB LLC”.
However, at least initially Firm 1 will necessarily, even if only to a nominal degree, be engaged in the practice of law until all client files have been transferred for fair value to “AB LLC”. It is also noteworthy that the continued presence of Firm 1 as co-counsel on pleadings suggests the continued practice of law. In such cases where Firm 1 remains as co-counsel, “AB LLC” will provide all of the legal services. On pleadings, the references to the different firms will be different in that the new “AB LLC” law firm will use its full name and LLC designation and Firm 1 will use only its trade name (“AB”) or new legal name “AB P.A.” so that third parties will know there are two (2) separate legal entities.
No Advisory Opinions were located on this issue. Advisory Opinion 82-01, assessing the creation of a second law firm in a city by lawyers who already practice together in that city, deals primarily with trade names and does not specifically address whether the lawyers could practice in two separate law firms in the same city. In short, Advisory Opinion 82-01 rejects the use of a trade name that failed to include the names of the lawyers who would be associated with it and instead used the name of the firm’s home city in the firm's name. The Committee found this name to be misleading. However, Advisory Opinion 82-01 does not appear to actually prohibit the proposed creation of two firms in one city by the same lawyers.
Advisory Opinion 95-15, in its interpretation of Rule 7.1, found it permissible for a lawyer to practice as a sole practitioner in one city and with a partnership in another city if the lawyer actually practiced in both locations and fully complied with all conflict of interest rules. The import of this Advisory Opinion, however, was that a lawyer may be associated with more than one law firm if various precautions are properly taken. If the lawyers involved in the Proposed Plan will only be associated with one law firm that is actually engaged in the practice of law, the requirement noted above that the lawyer must practice in both locations does not appear applicable. Advisory Opinion 95-15 also cites several other ethics advisory opinions from other jurisdictions, including one from the American Bar Association, that say, in essence, that a lawyer may be associated with more than one law firm.
Provided the concerns about the use of Lawyer A’s name are not a bar and Firm 1 is in fact not engaged in the practice of law, the facts outlined in the Proposed Plan should be permissible.
C. Attorney Substitution and Fee-Splitting Arrangement between “AB LLC” and Firm 1 (Questions 6 & 7)
“AB LLC” may represent the former clients of Firm 1 provided the clients are fully and fairly apprised of the change and consent to formal substitution of legal counsel and the Rules of Professional Conduct are otherwise followed.
With respect to fee splitting, Advisory Opinion 98-32A analyzes a fee-splitting arrangement between a firm and a lawyer who withdrew from that firm. This Advisory Opinion cites Rule 1.5(e), which governs a division of legal fees between lawyers who are not in the same law firm. Rule 1.5(e) allows lawyers in different firms to split a fee only if: (i) the division is in proportion to the services performed by each lawyer or, by written agreement with the client, each lawyer assumes joint responsibility for the representation; (ii) the client is advised of, and does not object to, the participation of all the lawyers involved; and (iii) the total fee is reasonable. The Comment to Rule 1.5 adds that, “[Rule 1.5(e)] does not require disclosure to the client of the share that each lawyer is to receive.”
With these requirements in mind, the Committee assessed the facts presented in Advisory Opinion 98-32A and concluded that, “Rule 1.5(e) fits poorly in application to the current circumstance.” Despite this, the Committee found that Rule 1.5(e) should apply "whenever two (2) lawyers not in the same firm split a fee." The Committee emphasizes that whenever lawyers contemplate a fee-splitting arrangement, the client must be informed, preferably in writing, as soon as possible.
Under the Proposed Plan, clients will be notified of the existence of a fee-splitting arrangement where a transfer of the legal work is being accomplished. Unlike most fee-splitting arrangements, as contemplated by Rule 1.5(e), Firm 1 will not be providing legal services to existing or new clients of that firm. Instead, “AB LLC” law firm will provide such services with the client’s consent. Moreover, according to Rule 1.16(d), because of a lawyer’s duties to his client upon withdrawal, an inference is created that such a lawyer is entitled to retain the fee that he has earned upon termination of representation. It is thus assumed that fees already earned by lawyers associated with Firm 1 may be properly paid to that firm and then divided according to the arrangements made between, and among, those lawyers. Fees earned by lawyers associated with the “AB LLC” law firm from on-going work, formerly performed by Firm 1, can be paid out to “AB LLC” law firm assuming Rule 1.5(e) has been fully met.
 Ethics Advisory Opinion 79-06 (quoting Opinions on Professional Ethics; Formal Opinion No. 267 (June 21,1945) at 595).
 Ethics Advisory Opinion 75-01 (quoting Section EC 2-11 of Canon 2).
 Rule 1.5(e) is normally applied in circumstances where the client retains a certain lawyer who, in turn, associates another lawyer to assume or assist in the representation of that client. Such an arrangement is not contemplated under the Proposed Plan.
 See Ethics Advisory Opinion 90-13.