Opinion #210. Restrictions on the Sale of an Attorney’s Law Practice

Issued by the Professional Ethics Commission

Date Issued: July 14, 2014

Related Opinion(s)

Opinion #143: Disposition of Client Files on Death or Disability of Solo Practitioner

Question (Part I)

Attorney H is a solo practitioner who is reaching the stage in his practice where he would like to start phasing out of the practice of law. He would like to be able to sell the practice, and then come back as an employee or independent contractor without all the headaches and liabilities that are involved with the actual ownership of the firm. May Attorney H sell his practice and then continue to practice law in some limited capacity without running afoul of the Maine Rules of Professional Conduct?

Opinion

The Commission finds that the current version of Maine Rule of Professional Conduct (hereinafter “Rule”) 1.17 explicitly prohibits the sale of all or a part of Attorney H’s solo law practice if Attorney H were to remain in private legal practice within the state of Maine.

Rule 1.17 provides in relevant part:

A lawyer or a law firm may sell or purchase a law practice, including good will, if the parties comply with the other applicable provisions of these rules, and the [following] condition [ is] satisfied.

. . .

(a) [T]he selling attorney or each attorney in the selling firm [must] cease[] to engage in the private practice of law in the State of Maine.

.. . .

(b) If the seller is or was a solo practitioner, then the entire law practice must be sold as a single unit. . . . The entire law practice, for purposes of this rule, shall mean all client files, for open and closed engagements, excepting only those cases in which a conflict-of interest is present or may arise.

As noted in Comment [3] to Rule 1.17, the requirement to exit the private legal arena after the sale of one’s practice is not absolute—one may still practice law within the state (see discussion on Rule 1.17 cmt. 4, infra) in certain, limited capacities. The prohibition on returning to practice within the state of Maine would not preclude Attorney H from working as a lawyer on “the staff of a public agency or a legal services entity that provides legal services to the poor” nor would it bar Attorney H from employment as “in-house counsel to a business.” See Rule 1.17 cmt. [3].2

Further, Comment [4] to Rule 1.17 provides that the Rule “permits a sale of an entire practice attendant upon retirement from the private practice of law within the jurisdiction. Its provisions, therefore, accommodate the lawyer who sells the practice on the occasion of moving to another state.”

Upon its promulgation of the Maine Rules of Professional Conduct in 2009, the Maine Supreme Judicial Court adopted American Bar Association (“ABA”) Model Rule 1.17 in substantially the same form. In the uniform version of Model Rule 1.17, the ABA gave two options:

  1. The seller ceases to engage in the private practice of law, or in the area of practice that has been sold, [in the geographic area] [in the jurisdiction] (a jurisdiction may elect either version) in which the practice has been conducted. . . .

The options given by the ABA contemplate that some states may have different jurisdictions contained within their borders; however, the state of Maine has only a single jurisdiction. As a result, Attorney H would be barred from returning to private practice in Maine, aside from the limited exceptions noted supra, if he were to sell his solo practice.

Comment [6] may provide insight as to why planned returns to practice after a sale are disfavored; that Comment provides in relevant part:

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. 3

The prohibition on partial sales of an attorney’s practice may also reveal its reasoning behind disallowing an attorney’s return to private practice after the sale of his or her firm. As noted in Comment [1] to Rule 1.17, “The practice of law is a profession, not merely a business. Clients are not commodities that can be purchased and sold at will.”4 Based on this language, it appears that allowing the sale of individual clients and particular areas of an attorney’s practice would be adverse to public policy, preventing a practitioner whose clients depend on that attorney from simply cashing out and starting over when challenges arise or to “commoditize” clients. The same holds true for sales of less than the entire practice. The strong desire to protect the clients of solo practitioners is further evinced in Comment [5] to Model Rule 1.3.5 For more on the sale of a practice, see Question (Part II), infra.

It should be noted that Comment [2] to Rule 1.17 provides that, a “[r]eturn to private practice as a result of an unanticipated change in circumstances does not necessarily result in a violation.”6 Thus, when enacting Rule 1.17, the door was left open for a potential return to private practice, albeit in limited circumstances. It is essential that “unanticipated” circumstances must be truly so, confirmed by a showing of good faith meeting the definition set forth in ABA Opinion 90-357, and may not be used as a sham device to avoid compliance with Rule 1.17. Each attorney’s situation will be unique and the determination highly dependent on the specific facts of each case.

We conclude that in order to remain in the practice of law within the state (excepting the limited exceptions noted supra), Attorney H, as a solo practitioner, would have to retain an ownership stake in his practice. This Rule incentivizes the selling attorney to take on and properly mentor or otherwise train a new partner before making a total exit from the practice of law. The goal of such a provision is to ensure competent legal service as well as to aid the clients in the transition by slowly introducing them to, and acquainting them with, the new attorney. Attorney H then seemingly would be free to withdraw as a partner, relieving himself of some of the demands and rigors of ownership, while still practicing law in a more limited capacity.

Question (Part II)

Given that it would be improper under Rule 1.17 for Attorney H to sell his law practice and return to private practice in the state, would it be permissible for Attorney H to continue his practice but (1) begin “farming his or her cases out” under a “fee splitting” arrangement and (2) would he be able to receive percentages of said fees from those clients who, in the future, begin new cases with the lawyer that he referred them to?

Related Opinion(s)

Opinion #175: Lawyer Acting as Solo Practitioner and “of Counsel” to Another Law Firm; Opinion #103: Splitting Fees Without Regard to Responsibility Assumed

Opinion

Fee-splitting arrangements are governed by Rule 1.5 and are not per se disallowed, but are governed by a rather strict set of requirements.7 Rule 1.5(e) provides in relevant part:

A lawyer shall not divide a fee for legal services with another lawyer who is not a partner in or associate of the lawyer’s law firm or office unless:
  1. after full disclosure, the client consents to the employment of the other lawyer and to the terms for the division of the fees, confirmed in writing; and

  2. the total fee of the lawyers does not exceed reasonable compensation for all legal services they rendered to the client.

If Attorney H’s client, after “full disclosure . . . confirmed in writing[,]” “consent[s] to the employment of the other lawyer and to the terms of the division of fees,” then Attorney H may, so long as the fee itself “does not exceed reasonable compensation for all legal services . . . rendered to [that] client[,]” proceed with the fee splitting arrangement.8

It is important to note that in the event Attorney H were to receive referrals from the attorney(s) to whom he previously “farmed” clients in exchange for Attorney H’s referrals, Rule 7.2 could be implicated due to the Maine Rules of Professional Conduct’s prohibition on exclusive reciprocal referral arrangements. 9

Assuming that Attorney H’s clients consent in writing, after full disclosure, to the proposed fee splitting arrangement, would Attorney H be able to receive a percentage of said fees from those clients who, in the future, begin new cases with the lawyer to whom he referred them?

This inquiry implicates both Rule 1.5 and Rule 1.17. Rule 1.5, discussed supra, does not prohibit the splitting of fees with “another lawyer who is not a partner in or associate of the lawyer’s law firm or office[,]” given that particular requirements are fulfilled, but it does necessitate that the fee represent a “reasonable compensation for all legal services [the attorneys] rendered to the client.”10 Though the Rules do not present an absolute bar to Attorney H “farming out” his clients, the Rules do require that the fee be “reasonable.”

Would Attorney H’s receipt of any fee for a matter in which he has had no involvement or performed any work be prima facie “unreasonable?” Though Maine’s current Rules do not provide much guidance on this matter, there is some guidance available from the Maine Supreme Judicial Court. In 2005, the Court requested that the Advisory Committee on Professional Responsibility consider whether Maine should adopt the ABA Model Rule version of the fee division rule. The ABA model rule only allows fee sharing “in proportion to the services performed by each lawyer” or if the referring lawyer “assumes joint responsibility for the representation.”11 The Advisory Committee held an open forum on the issue soliciting suggestions from members of the Bar and ultimately decided that Maine’s existing version of the fee division rule was adequate.

Accordingly, the Commission finds that Maine’s Rules do not create a per se prohibition on the division of fees between Attorney H and the attorney who has received the “farmed out” cases, so long as the fee is reasonable under Rule 1.5(a) and so long as the client has previously consented to the division of fees in writing.12

The Rule does not mention anything about receiving fees after Attorney H has left the practice of law altogether and has ceased to be a “lawyer.”13 However, Rule 5.4 states, in relevant part:

A lawyer or law firm shall not share legal fees with a nonlawyer, except that:

  1. an agreement by a lawyer with the lawyer’s firm, partner, or associate may provide for the payment of money, over a reasonable period of time after the lawyer’s death, to the lawyer’s estate or to one or more specified persons;
  2. a lawyer who undertakes to complete unfinished legal business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer. . . .14

Though the Rule contemplates the transfer of money in limited circumstances upon a lawyer’s death, the Rule otherwise explicitly bars an agreement such as the one proposed by Attorney H. Attorney H may no longer receive any portion of the fees generated by the clients that he or she has “farmed out” once Attorney H has left the practice of law and has ceased to be a “lawyer” while he is still alive.

As for any possibility of Attorney H receiving a portion of the fees generated by his “farmed out” clients inter vivos subsequent to his exit from the practice of law, there exists only one allowable exception. Rule 1.17 allows Attorney H to sell, along with the entirety of his practice, the “good will” associated with said practice.15 The sale of “good will” inexorably includes a particular amount of prospective fees that the buyer expects to receive in the future as a result of the reputation garnered by the selling attorney during his or her tenure in a locale. There is no question that Attorney H could attempt to assign a present value to the prospective fees and include that value in a lump-sum purchase price for the entire firm, though the exact amount may be difficult to estimate. Aside from this limited exception, a non-lawyer would be explicitly precluded under Rules 1.5 and 5.4 from receiving any portion of the fees collected from his or her previously “farmed out” clients for new matters commenced in the future.


1 Rule. 1.17, 1.17(a)-(b) (emphasis added).
2 It should be noted that the Rules are predicated by the following statement “The specific rules of the Maine Rules of Professional Conduct are stated below. To aid in understanding of the rules, a Preamble from the Maine Task Force on Ethics precedes the rules, and the text of each rule is followed by comments and reporter’s notes. The Preamble, comments and reporter’s notes state the history of and reasons for recommending the rules, discuss the relation of the new rules to the current Code of Professional Responsibility, and offer interpretations of the new rules, but the Preamble, comments and reporter’s notes are not part of the rules adopted by the Court.”
3 Rule 1.17 cmt. 6.
4 Rule. 1.17 cmt. 1.
5 Rule. 1.3 cmt. 5 (“To prevent neglect of client matters in the event of a sole practitioner’s death or disability, the duty of diligence requires that each sole practitioner prepare a plan, in conformity with applicable rules, that designates another competent lawyer to review client files, notify each client of the lawyer’s death or disability, and determine whether there is a need for immediate protective action.”); see also Me. Bd. of Overseers of the Bar, Formal Op. 143 (1994) (“Disposition of Client Files on Death or Disability of Solo Practitioner”).
6 Rule. 1.17 cmt. 2 (emphasis added).
7 See Rule. 1.5.
8 Rule. 1.5 cmt. 7.
9 See Rule. 7.2.
10 Rule. 1.5 (e) (emphasis added).
11 Model Rules of Prof’l Conduct R. 1.5(e)(1).
12 See Rule. 1.5 (“A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. A fee or charge for expenses is unreasonable when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee or expense is in excess of a reasonable fee or expense. The factors to be considered in determining the reasonableness of a fee include the following: (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the responsibility assumed, the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; (8) whether the fee is fixed or contingent; (9) whether the client has given informed consent as to the fee arrangement; and (10) whether the fee agreement is in writing.’).
13 Rule. 1.5(e) (“A lawyer shall not divide a fee for legal services with another lawyer who is not a partner in or associate of the lawyer’s law firm or office unless . . .”) (emphasis added).
14 Rule. 1.5(a).
15 See Rule. 1.17.


Enduring Ethics Opinion