Once You Sell, You Cannot Bill

The American Bar Association has just released Formal Opinion 468, which discusses the historical background and intent behind Model Rule of Professional Conduct 1.17. Specifically, this Opinion was written to address whether the seller of a law firm may continue to “practice law” to assist the buyer or buyers of the law firm in the orderly transition of active client matters.

Until 1990 the sale of a law practice was strictly prohibited. This prohibition was based on beliefs that: (1) there was no legally or ethically recognized “goodwill” in a law practice that a lawyer could sell because clients are not merchandise, (2) when an estate or the survivor of a deceased sole practitioner sells a law firm there is an impermissible sharing or division of legal fees, (3) a lawyer cannot make payment to another person for recommending them, and (4) confidential client information would be disclosed as a result of the sale.

Then, in 1990, Model Rule 1.17 was adopted to govern the sale of a law practice. Sponsors of the rule indicate that the rule was designed to accomplish two goals. The first was to ensure that “client matters of sole practitioners are attended when the sole practitioner leaves practice. Second, “the new rule put sole practitioners in a financial position equal to partners of law firms.”

Rule 1.17 requires the selling attorney to cease engaging in the private practice of law, or in the area of practice that has been sold, but does not address whether the selling lawyer may continue to be involved in the practice to assist in the orderly transition of active client matters. The Opinion states, “neither the selling lawyer or law firm nor the purchasing lawyer or law firm may bill clients for time spent on transition activity that does not advance the representation or directly benefit the client.” Further, if the selling lawyer wants to be compensated for transitional matters this should be negotiated and be included in the consideration for the sale.

The Formal Opinion 468 can be found here.

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