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| Winding
Down, Closing Up or Selling Out There
are many reasons why an attorney may decide to wind down, close or
sell his or her practice. The
attorney may be moving, retiring or entering a new line of work.
There is also the possibility that the need to wind down, close
up or sell the practice may not be voluntary.
An attorney’s unexpected death or disability may require others
to handle closing the practice.1 PLANNING
FOR THE UNEXPECTED Rule
1.3, Minnesota Rules of Professional Conduct (MRPC) (diligence), requires
attorneys to make reasonable preparations to protect clients in the
event of their unexpected inability to practice law.2 Attorney partnership agreements or assisting
attorney agreements for solo practitioners should be negotiated to
designate who will wind down and close up the practice. The agreements should define the nature and
scope of that attorney’s responsibilities and determine the amount
and method for compensation. A
well-organized practice with documented procedures is critical to
a smooth and easy closing up of a practice by another.
A written office manual should contain key details such as: (a) names, addresses, phone numbers and job
descriptions of support and other key personnel (office sharers, of
counsel attorneys, office manager, secretary, bookkeeper, accountant,
landlord, malpractice carrier and other insurance brokers — disability,
life and property), the personal representative and other important
contacts; (b) location, account numbers and signatory name(s) for
business and trust accounts; (c) location and access information for
safety deposit box and/or storage facilities; (d) computer and voice
mail access codes; and (e) location of important business documents such as leases,
maintenance contracts, business credit cards, client ledgers and other
books and records relating to the business and trust accounts,3 etc.
The
office manual should also have an explanation and description of the
conflicts system, calendaring system and backup, time billing records,
accounts receivable/payable, active client file inventory, and closed
file storage location and inventory.
The manual should be complete enough for the attorney closing
up the practice to be able to promptly identify those client matters
needing immediate attention and any matter on which the attorney might
have a conflict of interest. If an attorney does not plan for unexpected
practice interruption the court may have to appoint a trustee to windup
and close out the practice.4 SELLING
A PRACTICE If
an attorney or the representative of a deceased, disabled or disappeared
lawyer is selling a practice Rule 1.17, MRPC, will be of particular
importance. An attorney may not sell only the most lucrative
matters and leave the remaining clients unrepresented. The buyer must accept all of the currently active
files except those in practice areas that deal with matters that the
buying lawyer or firm of lawyers would not be competent to handle,
those that the buying lawyer or firm of lawyers would be barred from
handling because of a conflict of interest, or those from which the
selling lawyer is denied permission to withdraw by a tribunal in a
matter subject to Rule 1.16(c), MRPC. The buying lawyer may not increase attorney
fees charged to the selling attorney’s clients for a period of at
least one year from the date of the sale. When
negotiating the sale of a practice, an attorney should note that the
amount and type of information the selling lawyer may give to a potential
buyer is limited by the client confidentiality requirements of Rule
1.6, MRPC. A prospective buyer may not see the client file
unless the selling lawyer has obtained a waiver of confidentiality
from the affected client. After
the sale, the selling attorney must send written notification to all
clients with active or inactive files to be taken over by the buying
lawyer or firm of lawyers. That notification must include (1) a statement
that the practice, including the client’s file has been sold, (2)
a summary of the buying lawyer’s or law firm’s professional background,
including education and experience and the length of time that the
buying lawyer or members of the buying law firm have been in practice,
and (3) a statement that the client has the right to continue with
the new firm under the same fee arrangement as with the selling attorney
or the right to have the complete file returned to the client or forwarded
to another attorney of the client’s choosing.
If the notification is sent by certified mail or personally
served, the notification may state that if the client does not contact
the buying attorney within 90 days, the client’s silence may be considered
a waiver of confidentiality and consent to representation.
The buying attorney should obtain a new representation agreement
and file an appropriate substitution of counsel.
The selling lawyer should consider extending malpractice insurance
for some reasonable period of time following the sale to insure against
losses arising from errors that might come to light after the sale. GENERAL
OBLIGATIONS An
attorney winding down, closing up or selling the practice has an obligation
to return or properly refer all unsold active files and to dispose
of all remaining inactive files appropriately.
An attorney may not, without client consent, simply turn a
client matter over to another attorney.
The Director’s Office issued an admonition to an attorney who
failed to properly close down her practice.
Instead of refunding the client a portion of the fee and providing
the client with the opportunity to retain new counsel, the attorney
retained the fee and transferred the file without the client’s consent.
By doing this, the attorney remained responsible for the new
attorney’s neglect of the matter. DISPOSING
OF CLOSED FILES It
is a good practice to explain the firm’s file retention/destruction
policy in an engagement letter, retainer agreement or letter at the
close of the representation. A lawyer should not destroy or dispose of a
client file without screening it.
Before archiving a file the attorney should make sure that
all client property of any value such as stock certificates, abstracts,
executed but unfiled documents, original
wills, unrecorded deeds, etc., has been returned or permanently safeguarded.
Clients
and former clients have a reasonable expectation that useful information
in the lawyers’ files, and not otherwise readily available to them
will not be prematurely and carelessly destroyed.
An attorney should obtain a client’s consent before destroying
items that clearly or probably belong to the client such as those
items furnished to the lawyer by or on behalf of the client that the
client might reasonably want returned.5 The attorney
should also retain any information in the file that may have future
utility to the client.6 The
remainder of the closed files should be retained for a reasonable
time. What is reasonable will depend in part on the
nature of the representation. It
is probably prudent for an attorney to keep client files at least
until the applicable statute of limitations on malpractice has run. Settlement documents and trust account books
and records must be kept for six years after completion of the representation.7 An
attorney may dispose of the files at the end of the retention period
by shredding (sensitive materials) or bagging (non-sensitive) files
in heavy duty opaque bags. c NOTES (a)
Except as stated in paragraph (c), a lawyer shall not represent
a client or, where representation has commenced, shall withdraw from
the representation of a client if: * * * (2)
the lawyer’s physical or mental condition materially impairs
the lawyer’s ability to represent the client.
2.
A new proposed comment to Rule 1.3 provides: [5]
To prevent neglect of client matters in the event of a sole practitioner’s
death or disability, the duty of diligence may require 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. Cf.
Rule 28 of the American Bar Association Model Rules for Lawyer Disciplinary
Enforcement. 3.
Rule 1.15(h), MRPC, requires, “Every lawyer engaged in private practice
of law shall maintain or cause to be maintained on a current basis,
books and records sufficient to demonstrate income derived from, and
expenses related to, the lawyer’s private practice of law, and to
establish compliance with paragraphs (a) through (f).
The books and records shall be preserved for at least six years
following the end of the taxable year to which they relate or, as
to books and records relating to funds or property of clients or third
persons, for at least six years after completion of the employment
to which they relate.” 4.
Rule 27, Rules on Lawyers Professional Responsibility, provides: “(a) Upon a showing that a lawyer is unable
to properly discharge responsibilities to clients due to disability,
disappearance or death, or that a suspended, disbarred, or resigned
or disabled lawyer has not complied with Rule 26, and that no arrangement
has been made for another lawyer to discharge such responsibilities,
this Court may appoint a lawyer to serve as the trustee to inventory
the files of the disabled, disappeared, deceased, suspended, disbarred
or resigned lawyer and to take whatever other action seems indicated
to protect the interests of the client and other affected parties.
(b) The trustee shall not disclose any information contained
in any inventoried file without the client’s consent, except as necessary
to execute this Court’s order appointing the trustee.” 5.
aba Informal Opinion 1384 ( 6.
“Some files must be retained longer than others, such as those relating
to will preparation, which may include materials that may need to
be referred to 20 years after the will is prepared.”
New Mexico Opinion 1988-1 (undated). 7.
Rule 1.15(h), MRPC. |
