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General Advice for Lawyers in Transition

Not that many years ago, it was rare to find lawyers moving from one law firm to the other. Today, lawyers are frequently in transition. Associates leave law firms to open their own offices or form partnerships. Partners leave to form new partnerships or go solo. Law firms merge. Law firms dissolve. Since this extreme mobility is such a recent phenomenon, there is a lot of confusion as to the proper way to effect the transitions. The biggest problems are who gets the clients, how to divide the money and potential conflicts of interest.

First and foremost, all lawyers involved should remember that they are professionals and that the interest of the clients come first. Moreover, firms should bear in mind that the clients are ultimately the ones who decide which lawyers will handle their cases.

Second, and just as important, every law firm should make provisions for the future. The solo practitioner should provide for someone to take over the practice at his or her death, retirement or disability. Law firms should make sure each partner, associate, and other principal signs an agreement spelling out, inter alia, severance issues, including who keeps the file.

To help make provisions for the future, check out the succession planning resources along with important planning resources specifically for solo practitioners, associate attorneys, and partners:

Solo Practitioners

Lawyer Dies, Becomes Incapacitated, Is Suspended, Disbarred, Disappears, Retires or Quits Practice

Prior Planning. 

It is hard to think about events that could render you unable to continue practicing law. Unfortunately, freak accidents, unexpected illness, and untimely death do occur, and if they happen to you, your clients' interests may be unprotected. If the sole practitioner has not properly provided for such events, obvious consequences would include client complaints, delays, staff confusion, and misdirection. In turn, these circumstances might lead to grievances, breaches of duty, and malpractice claims.

For this reason, a lawyer's duty of competent representation includes arranging to safeguard the clients' interest in the event of the lawyer's death, disability, impairment, or incapacity. These instructions are designed to help you fulfill these ethical responsibilities and to reduce future malpractice claims against you and your estate. Most commercial malpractice carriers require the lawyers they insure to make similar arrangements.

Written Plan.

Sole practitioners should have a written plan addressing what will happen to client matters upon the lawyer's death, disability, impairment, or incapacity. The plan should be stored in a safe, readily available location and shared with all firm members, including support staff, lawyers of counsel, and associates.

Rule 1.4 SCRPC, requires that lawyers keep clients reasonably informed about their cases and explain matters to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

Client Notice.

A lawyer contemplating a transition arrangement should incorporate notice to current clients. One way to handle client notice is to include a statement in the Engagement Letter or fee agreement.

Conflicts. 
Be mindful of conflict issues. Be sure your backup counsel is sensitive to conflict issues. Agreements with backup counsel may not unilaterally allow access to client information since ethics rules require lawyers to protect client confidences and secrets. A lawyer may not disclose confidences and secrets or use confidences and secrets to the benefit of a third party or for the lawyer's own interests, without the client's consent. Partners and employees are bound by the lawyer's duty to protect confidences and secrets within a law firm. The solo practitioner's personal representative is not. The best way to deal with this problem is to be sure to add a paragraph to the retainer letter or fee agreement providing that, in the event of the lawyer's disability or death before the conclusion of the matter, a backup lawyer will have access to the client's name, address, and representation file in order to notify the client so the client may obtain substitute counsel. Rules 1.6,1.7, 1.9, and 1.10.

Rule 31 of Rule 413, SCACR, provides where no partner, personal representative, or other responsible party capable of conducting the lawyer's affairs are known to exist, disciplinary counsel shall petition the Supreme Court for the appointment of a lawyer to inventory the files of the inactive, disappeared, deceased, suspended, or disbarred lawyer and to take action as appropriate to protect the interest of the lawyer and the lawyer's client. The rule sets forth the duties of the appointed lawyer, the period of appointment, the representation of clients, the termination of appointment, the compensation and expense due the appointed lawyer, and the lawyer's duty to protect client information.

Ethics Issues.
5 Areas of Concern:

  1. The continuity of service to clients
  2. The right of clients to counsel of their choice
  3. The obligation of the principals to deal honestly with each other
  4. The involvement of clients in the disputes of the principals
  5. The protection of the property of clients entrusted to the firm

Lawyer Sells Practice

If selling a law practice, see Rule 1.17, SCRPC.

(a) A lawyer or a law firm may sell or purchase a law practice, including good will, if the following conditions are satisfied:

1. The seller ceases to engage in the private practice of law in the geographical area in which the seller's practice has been conducted;

2. The practice is sold as an entirety to another lawyer or law firm;

3. Written notice is given each of the seller's active clients regarding:

(i) the proposed sale;
(ii) the terms of any proposed change in the fee arrangement authorized by paragraph (b);
(ii) the client's right to retain other counsel or to take possession of the client's file;
(iv) the fact that the client's consent to the sale will be presumed if the client does not take any action or does not otherwise object within forty-five (45) days of the date of the mailing of the notice; and

4. A notice is published in a newspaper of general circulation in the geographical area in which the practice has been conducted regarding:

(i) the proposed sale;
(ii) the client's right to retain other counsel or to take possession of the client's file;
(iii) the fact that active clients will be or have been given written notice regarding the proposed sale and that their consent to the sale will be presumed if they do not take any action or object within forty-five (45) days of the date of mailing of the written notice;
(iv) the fact that the selling lawyer will retain the files of inactive clients unless those clients give permission for the transfer of their files or, if the parties to the sale elect to give written notice to an inactive client in the manner provided by paragraph (a)(3) above, the inactive client's consent to the sale will be presumed if the client does not take any action or does not otherwise object within forty-five (45) days of the date of the mailing of the notice.

(b) The fees charged clients shall not be increased by reason of the sale. The purchaser may, however, refuse to undertake representation unless the client consents to pay the purchaser fees at a rate not exceeding the fees charged by the purchaser for rendering substantially similar service prior to the initiation of the purchase negotiations.

(c) The agreement for the sale of a law practice may include reasonable restrictions on the seller's rights to practice without violating Rule 5.6.


Sample Letters, Forms, and Helpful Checklists for Solo Practitioners

Authorization to Transfer Client File Checklist for Closing Your Office Client Checklist for Lawyer Retiring or Quitting the Practice of Law Letter Advising Clients that Lawyer is Unavailable Letter Advising Clients of Lawyer's Retirement Notifications Checklist Sample Letter to Clients Advising that Lawyer is Closing His/Her Office Sample Letter of Understanding with the Holder of a Power of Attorney

Associate Attorneys

Associate Leaves: Problem Preventative Measures

  • A law firm should have a written agreement with its associates addressing what will happen to client matters upon the departure of an associate.
  • Rule 1.4 SCRPC, requires that lawyers keep clients reasonably informed about their cases and explain matters to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.
  • A law firm in contemplation of lawyer transitions into and out of the firm should incorporate notice to current clients. One way to handle client notice is to include a statement in the engagement letter or fee agreement.
  • It's a good idea for law firms to have technology transition policies and procedures in place to address a departing lawyer's email account and access to other firm hardware, software, and services. 

Associates Friendly Departure

Associates are generally employed on a salary with some bonus incentive. When he or she leaves, the associate generally does not have any ownership in the accounts receivables or other assets of the firm and is not entitled to any additional compensation unless it is something like unused vacation.

To determine whether to transfer files to a departing associate, abide by the Associate Employment Agreement or by the clients' directions. Clients have the ultimate right to decide who will handle their cases.

Within a law firm, partners and employees are bound by a departing lawyer's duty to protect confidences and secrets. See Rule 1.6 and Rule 1.8(b) of the SCRPC.

The departing associate should confide in a partner he or she is close to or trusts to ease the transition.

The firm must inform departing associate's clients of the imminent departure in writing and explain that the clients have the right to choose which lawyers will continue with their cases. It is best if these letters are Joint Letters from the law firm and the departing associate. The letters must inform clients of time limitations and time frames and where they can pick up files. See Rule 1.4 SCRPC.

For all files to be kept by associates, if any, prepare accounts for work-in-progress and, with the accountant's assistance, prepare outstanding disbursements to date for all files for the departing associate to the date of termination.

If imminent deadlines or other crucial matters are coming up, discuss how to proceed with the client and the lawyer who will be assuming the file. Where appropriate, obtain continuances, extensions, or motions to substitute counsel and notify client and opposing counsel.

Legal Aid (Judicare) cases are not transferrable. If the departing associate is the lawyer handling the Judicare case and the lawyer is not taking the case with him or her, contact legal aid, which will make a new referral.

Change letterhead and business cards.

Change signs if necessary.


Associates Unfriendly Departure

  • Cool Heads Must Prevail: It behooves all the members of the firm, partners and associates, to keep cool heads and to act ethically and graciously when a member is departing and to keep any disagreements within the confines of the law firm. This type of behavior minimizes the problems and quickly ends controversy.
  • Grabbing clients and leaving: Don't do it! Neither the firm nor the associate has a "right" to a client. The decision is the client's.
  • Client Notification: While the firm should jointly with departing associate inform departing associate's clients of the imminent departure in writing and explain that the clients have the right to choose which lawyers will continue with their cases, it is possible that the firm will refuse to do so.  This leaves the departing associate in a ticklish situation. The departing associate must decide whether or not to contact the clients he or she represented in his or her old firm.  Rule 1.16 provides that an associate must act to protect his or her client's interests, including giving notice when leaving a firm. Furthermore, Rules 7.2 and 7.3 allow an associate to directly solicit business from his or her current and former clients.  However, Rule 4.2 prohibits communication with a party the associate knows to be represented by another lawyer, who technically could include clients of the former firm, and Rule 7.3 prevents the attorney from soliciting clients with which the associate did not have a prior professional relationship.  The ABA has said that working on a legal matter with a client in conjunction with other firm attorneys, entailing little or no direct contact with the client is insufficient to meet the standards of Rule 7.3.  See ABA, Formal Opinion 99-414 (1999).  Improper notice may result in a disciplinary action under Rule 8.4 against the associate. As a word of caution, to avoid causes of action sounding in other areas of law, a departing associate must be careful to limit the notice to his or her clients to mere notification of the associate's departure and the ability of the client to either remain with the firm or leave with the associate.  See Graubard Mollen v. Moskovitz, 86 N.Y.2d 112, 653 N.E.2d 1179 (1995) (where the court approved of the notification to former clients that informed the client of the attorney's withdrawal and told the client of their right to choice of counsel).  Compare Siegel v. Arter & Hadden, 85 Ohio St. 3d 171, 707 N.E.2d 853 (Ohio. Sup. Ct. 1999) (showing the attorney's conduct in giving notice may result in unfair competition and trade secret counts), Pa. Bar Ass'n Comm. on Legal Ethics and Prof. Resp. Joint Op. No. 99-100 (advising that an attorney's conduct in giving notice may result in a breach of fiduciary duty and tortious interference with the former firm's relationship with their clients).
  • Mediation or Arbitration: Ideally, upon hiring an associate, the law firm and associate would have executed an employment contract providing for mediation or arbitration in the event of a disagreement when the associate departs. However, in the absence of an employment contract, if the law firm and departing associate cannot agree on issues, such as the fee arrangements regarding the files the departing associate is taking with him or her, the parties should consider mediation or arbitration.

Sample Letters, Forms, and Helpful Checklists for Associate Attorneys

Associate Agreement Authorization to Transfer File to Departing Attorney Contract for Legal Services Joint Letter to Client - Departing Attorney & Managing Partner Notice to Client of Lawyer Leaving for New Law Firm Sample Engagement Letter Sample Notice to Client of Attorney Departure

Partners

Transitions in Partnerships: Problem Preventative Measures

Prior Planning. All lawyers owe their clients a duty to make arrangements to provide for the clients' interests in the event of the lawyer's death, disability, impairment, or incapacity. If the partnership has not properly provided for such events, obvious consequences would include client complaints, delays, staff confusion, and misdirection. In turn, these circumstances might lead to grievances, breaches of duty, and malpractice claims.

Most commercial malpractice carriers require lawyers to make prior arrangements, and prior planning can reduce future malpractice claims against the lawyer or the lawyer's estate.

A partner may voluntarily withdraw from the partnership. Two examples of language covering timing and client transfer are as follows:

1. A partner may voluntarily withdraw from the partnership. In such event the partner shall give written notice of intention to do so no fewer than sixty (60) days prior to the effective date of withdrawal. Thereafter, the partner shall cooperate fully in completion and turnover of all matters in which he or she is involved and generally assist in diminishing any adverse effects to the clients or the partnership by reason of such withdrawal. The partner further agrees not to advise the firm's clients of his or her withdrawal, but will permit the firm to first notify such clients. The partner also agrees that all files belong to the firm and will comply with the procedures for withdrawal established by the management committee.

The payment of the basic payment applicable to such withdrawing partner shall be made within one hundred twenty (120) days after such amount has been determined.

A withdrawing partner agrees that he or she will not solicit or cause or permit others to solicit on his or her behalf any of the firm's active clients or accept engagement from such clients without first notifying the firm. If such active client or clients owe fees to the firm, the withdrawing partner shall cooperate with the firm in effecting payment of such accounts. The partner further agrees that upon departure from the firm, he or she will not take any client lists, schedules, files, or other property of the firm.

2. A partner may withdraw from the firm at any time, provided that he or she give ninety (90) days written notice of the intention to do so. The firm, at its sole discretion, may accelerate such notice to the date it is received by the firm.

All client files are the property of the continuing law firm and will be released to a withdrawing partner only upon written authorization of the client.

Rule 1.4 SCRPC, requires that lawyers keep clients reasonably informed about their cases and explain matters to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

A lawyer contemplating a transition arrangement should incorporate notice to current clients. One way to handle client notice is to include a statement in the Client Engagement Letter or fee agreement.

Execute Employment Agreements spelling out division of fees at dissolution.

Conflicts. Be mindful of conflict issues. A lawyer may not disclose confidences and secrets or use confidences and secrets to the benefit of a third party or for the lawyer's own interests, without the client's consent. Partners and employees are bound by the lawyer's duty to protect confidences and secrets within a law firm. Rules 1.6, 1.7, 1.9, and 1.10.

The firm must inform departing partner's clients of the imminent departure in writing and explain that the clients have the right to choose which lawyer will continue with their cases. It is best if these letters are Joint Letters from the law firm and the departing partner. The letters must inform clients of time limitations and time frames and where they can pick up files. See Rule 1.4, SCRPC


Friendly Partner Departure Checklist

  • Review Partnership Agreement for fee arrangements and abide by the agreement.
  • Within a law firm, partners and employees are bound by a departing lawyer's duty to protect confidences and secrets. See Rules 1.6 and 1.8(b), SCRPC.
  • The firm must inform departing partner's clients of the imminent departure in writing and explain that the clients have the right to choose which lawyer will continue with their cases. It is best if these letters are Joint Letters from the law firm and the departing partner. The letters must inform clients of time limitations and time frames and where they can pick up files. See Rule 1.4, SCRPC.

Work with an accountant.

  • Prepare accounts for work-in-progress and, with the accountant's assistance, prepare outstanding disbursements to date for all files for the departing partner to the date of termination.
  • Refer to the provisions in the contingency fee agreement if the billing is on a contingency fee basis.
  • If the contingency fee does not provide for the departure of the partner, try to make arrangements with the client and the new lawyer.
  • If arrangements cannot be made, quantum meruit arguments will have to be made.
  • For files not billed on a time or contingency basis, an agreement must be reached on the division of the work-in-progress up to the time of the partner's departure and the work-in-progress thereafter.
  • Note any outstanding accounts and accounts receivable generated by the departure of the partner. These outstanding accounts will necessarily be collected over a period of time - consider how these will be collected, by whom, what records will be kept and by whom, who has access to the records and how the proceeds, less costs of collections, are to be distributed.

Miscellaneous

  • For each active file being transferred to another lawyer, the departing partner must prepare a detailed memo on the nature of the file and the work that remains to be done on it, prominently noting upcoming activity and deadlines.
  • If imminent deadlines or other crucial matters are coming up, discuss how to proceed with the client and the lawyer who will be assuming the file. Where appropriate, obtain continuances, extensions, or motions to substitute counsel and notify client and opposing counsel.
  • Legal Aid (Judicare) cases are not transferrable. If the departing partner is the lawyer handling the Judicare case and the lawyer is not taking the case with him or her, contact legal aid, which will make a new referral.
  • Change letterhead, business cards, and signs, if necessary.
  • Mediate or arbitrate any issues that cannot be resolved. It is best to keep disagreements within the confines of the law firm if at all possible.

Unfriendly Partner Departures

Cool Heads Must Prevail: It behooves the partners of the firm to keep cool heads and to act ethically and graciously when a member is departing and to keep any disagreements within the confines of the law firm. This type of behavior minimizes the problems and quickly ends controversy. 
Grabbing clients and leaving: Don't do it! Neither the firm nor the partner has a "right" to a client. The decision is the client's.

Notification of Clients:While the firm should inform departing partner's clients of the imminent departure in writing and explain that the clients have the right to choose which lawyers will continue with their cases, it is possible that the firm will refuse to do so. This leaves the departing partner in a ticklish situation. The departing partner must decide whether or not to contact the clients he or she represented in his or her old firm. Rule 1.16 provides that a partner must act to protect his or her client's interests, including giving notice when leaving a firm. 

Furthermore, Rules 7.2 and 7.3 allow a partner to directly solicit business from his or her current and former clients. However, Rule 4.2 prohibits communication with a party the partner knows to be represented by another lawyer, who technically could include clients of the former firm, and Rule 7.3 prevents the attorney from soliciting clients with which the partner did not have a prior professional relationship. The ABA has said that working on a legal matter with a client in conjunction with other firm attorneys, entailing little or no direct contact with the client is insufficient to meet the standards of Rule 7.3. See ABA, Formal Opinion 99-414 (1999). Improper notice may result in a disciplinary action under Rule 8.4 against the partner. As a word of caution, to avoid causes of action sounding in other areas of law, a departing partner must be careful to limit the notice to his or her clients to mere notification of the partner’s departure and the ability of the client to either remain with the firm or leave with the partner. See Graubard Mollen v. Moskovitz, 86 N.Y.2d 112, 653 N.E.2d 1179 (1995) (where the court approved of the notification to former clients that informed the client of the attorney's withdrawal and told the client of their right to choice of counsel). Compare Siegel v. Arter & Hadden, 85 Ohio St. 3d 171, 707 N.E.2d 853 (Ohio. Sup. Ct. 1999) (showing the attorney's conduct in giving notice may result in unfair competition and trade secret counts), Pa. Bar Ass'n Comm. on Legal Ethics and Prof. Resp. Joint Op. No. 99-100 (advising that an attorney's conduct in giving notice may result in a breach of fiduciary duty and tortuous interference with the former firm's relationship with their clients). 

Mediation or Arbitration: If the firm and departing lawyer cannot agree on the which files the departing lawyer is taking or the fee arrangements regarding the files the departing lawyer is taking with him or her, the parties should consider mediation or arbitration.

ECONOMICS:
Methods for Settling Economic Affairs: There are two general methods for settling the partner's economic affairs.

1. A departing partner receives a percentage interest in the firm's profits earned as of the date of withdrawal. The partner also receives his or her capital account. Normally, the share of profits will be paid within 30 days. These shares will be reduced by any cash withdrawals made by the partner prior to the withdrawal date. Capital accounts are normally paid over a longer period time, ranging from 30 days to three years. 

2. The second method provides for the following payments:

1. the partner's share of profits or losses to date of withdrawal;
2. the partner's capital account; and
3. the partner's share of work-in-progress and accounts receivable.

Valuation: If payments are made under the second method, a practice valuation may be required. Essentially, this means that the firm must prepare an accrual basis financial statement. The major differences between cash- and accrual-basis financial statements are as follows:

(a) work-in-progress and accounts receivable are included in the assets of the firm;
(b) accounts payable, e.g. unpaid vendor bills, are included as liabilities; and
(c) unfunded vested retirement obligations are included as liabilities.

Work-in-progress: Work-in-progress is defined as the firm's unbilled time and expenses. Initially, most firms simply multiply the time expended on a particular matter by the timekeeper's assigned billing rate. This number may or may not be realistic depending on how much the matter will be billed for in the future. (See Problem Preventive Measures for sample partnership agreements and sample language.)


Partnership Dissolution

  • If a sufficient number of partners withdraw from the firm so that it is impractical for the remaining partners to continue to operate the firm, dissolution may be necessary. The following suggestions apply to both friendly and unfriendly law firm dissolutions. Some matters will not apply if there is a surviving firm.
  • Appoint an inventory attorney or qualified custodian(s) to oversee the dissolution and serve as liaison with the accountant, collect receivables, etc.
  • Conclude Active Cases - Conclude as many active files as possible prior to closing office.
  • Determine where files will be stored and in what medium.
  • Determine who will pay for the storage and retrieval.
  • Determine how long the files will be kept. 
  • Provide written notice to clients with active files, letting them know departing lawyer will no longer be a member of the firm and that the clients have the option of retaining the departing lawyer or the law firm or another lawyer of the client's choice.
  • Inform clients of time limitations and time frames.
  • Inform clients where they can pick up files. See Rule 1.4, SCRPC, Communication.
  • Phone calls and inquiries. Ensure that the receptionist and other support staff know how to field phone calls after the announcement.
  • Discuss with clients how to proceed where cases have pending court dates, depositions, or hearings. Request extensions, continuances, and resetting of hearing dates if appropriate and notice all parties involved.
  • Obtain clients' permission to submit motions and orders to withdraw as attorney of record for cases before administrative bodies and courts.
  • For clients obtaining new lawyers, be certain that Notices Substituting Counsel are filed.
  • At the appropriate time, check all files to make sure that either an Order allowing departing lawyer to withdraw as counsel or an Order Substituting Counsel has been filed.
  • Retain the original files and make copies for the clients. If there are original documents in the files which should be returned to the clients, make copies for the retained files and give the originals to the clients.
  • Inform clients as to where their closed files will be stored and whom they should contact in order to retrieve them. Obtain permission to destroy the files after 10 years. If another lawyer is storing the files, get the clients’ permission to allow the lawyer to store the files. Provide the clients with the lawyer's name, address, and telephone number.
  • If the law firms from which the partners are withdrawing do not survive, consider maintaining email address and telephone number on voice mail for several months to one year to ease transition.
  • Reconcile trust account and return any property to clients. If funds are transferred to another lawyer chosen by the client, the check should be made payable jointly to the client and to the new lawyer when disbursed from the trust account.

Sample Letters, Forms, and Helpful Checklists for Partners

Sample Client Engagement Letter Sample Partner Employment Agreement Partner Leaves Checklist