Can a lawyer who is joining the bench sell a collection practice, including its forms and systems, to another lawyer?

Plain-English summary

A lawyer preparing to assume the bench wanted to divest a collection practice serving seven active and eight to ten occasional clients. The proposed method would let prospective purchasers review only general forms, techniques, automated systems, and past fee production by numbered (not named) clients; reach an agreement in principle with the price contingent on client response; disclose the prospective purchaser's identity and background to each client (noting the purchaser knew neither the client's identity nor confidences); and obtain each client's written election to have files sent to the purchaser, returned to the client, or sent elsewhere.

The committee identified DR 2-108(D) (reasonable steps to protect a client's interests on termination), DR 2-103(D) (no payment for recommending another lawyer), and DR 4-101(B) (preserving client confidences and secrets) as controlling. It confirmed that on terminating a practice a lawyer may notify clients that a new attorney is taking over and let clients designate where their files go (LE Op. 321, 934, 956). It stressed, however, that while LE Op. 956 found no impropriety in selling a firm's physical assets, it found the sale of a firm's goodwill patently improper, and that buying another lawyer's active client files, pending litigation as "accounts receivable," or the work in progress of a lawyer who has become a full-time judge is improper (LE Op. 321, 368).

The committee concluded that the sale of a law firm as a going business or of work in progress is improper. The proposed sale of the collection forms, manuals, and automated systems would be a sale of physical assets, permissible only if the clients' confidences and choice of attorney were protected as described, and only if the price was not inflated above fair market value; inflating the price would disguise an improper sale of the practice as a sale of assets (citing Kentucky Legal Ethics Opinion 324). It added that the contingent price tied to client acceptance would itself render the arrangement improper, since no such contingency would ordinarily attach to buying systems as a physical asset, and it noted the separate impropriety, flagged in LE Op. 368, of an attorney's business transactions with a judge before whom the attorney intends to practice regularly.

Currency note

This opinion was issued in 1989, under Virginia's former Code of Professional Responsibility (the disciplinary rules it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. As the committee note observes, current Rule 1.17 now permits the purchase or sale of a law firm's practice, including goodwill, under certain conditions, a significant change from this opinion's prohibition. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Could the lawyer sell the practice's forms and automated systems?

A: Under this 1989 opinion, yes, but only as a sale of physical assets, and only if client confidences and the client's choice of attorney were protected and the price was not inflated above fair market value.

Q: Why was the contingent price improper?

A: The committee concluded that tying the price to the degree of client acceptance rendered the arrangement improper, because no such contingency would ordinarily attach to buying collection systems as a physical asset.

Q: Could the lawyer sell the practice's goodwill?

A: No. The committee, following LE Op. 956, treated the sale of a firm's goodwill as patently improper and the sale of a going business or work in progress as improper.

Background and rules framework

The opinion interpreted former Virginia DR 2-108(D) (protecting client interests on termination), DR 2-103(D) (no payment for recommendations), and DR 4-101(B) (client confidences and secrets). The sale of a law practice is now governed by Virginia Rule 1.17, with confidentiality under Rule 1.6 and termination duties under Rule 1.16; Rule 1.17 permits sales this opinion prohibited.

Citations and references

Rules of Professional Conduct:

• Former Virginia DR 2-108(D); DR 2-103(D); DR 4-101(B)
• ABA Model Rule 1.17 (sale of law practice); Model Rule 1.6 (confidentiality); Model Rule 1.16 (terminating representation)

Other opinions cited:

• Virginia LE Op. 321; LE Op. 934; LE Op. 956: client notice on termination and the bar on selling goodwill.
• Virginia LE Op. 368: business transactions with a judge before whom the lawyer practices.
• Kentucky Legal Ethics Opinion 324: inflated asset prices disguising a practice sale.

See also

• ABA Formal Op. 468: Facilitating the Sale of a Law Practice
• CA COPRAC Op. 2024-209: Succession Planning
• FL Bar Op. 03-1: Purchasing a Law Practice From a Deceased Attorney's Estate
• VA LEO 1332: Conduct on Law-Firm Dissolution

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1234.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Committee Opinion
April 19, 1989
LEGAL ETHICS OPINION 1234

CONFIDENTIALITY AND SECRETS –
SALE OF LAW FIRM – TERMINATION
OF REPRESENTATION: PROPRIETY OF
SALE OF COLLECTION PRACTICE TO
ASSUME BENCH.

You have advised that in preparation for assuming the bench, you are planning to divest yourself of your collection practice which services seven active clients and eight to ten occasional clients.

You have inquired as to the propriety of a proposed method of disposing of this practice, which method would include:

1. Reviewing the practice with prospective purchasers, completely protecting clients' identities, confidences and secrets by reviewing only general forms and techniques, automated systems, and past fee production by numbers assigned to each client;

2. Reaching agreement in principle with a prospective purchaser with price being contingent on client response;

3. Disclosing to each client the name of the prospective purchaser, factual background information about prospective purchaser and your personal opinion of his ability to handle the client's matter, along with an indication that the prospective purchaser knows neither the client's identity nor any of his confidences and secrets, and that the client has an absolute right to direct that his files go to whomever he chooses or to himself; and

4. Requesting each client's written permission to disclose his confidences and secrets to the prospective purchaser including a stamped, self-addressed envelope and a form including the choices: (a) Yes, deliver my files to prospective purchaser; (b) No, return my files to me; and (c) No, deliver my files to _, with a place for the client's signature.

Since the issues involved in such a transaction include matters of a lawyer's appropriate conduct upon termination of client representation, payment for one lawyer's recommendation of another to the former's previous clients, and revelation/use of client's confidences and secrets, the appropriate and controlling Disciplinary Rules are DR:2-108(D), DR:2-103(D), and DR:4-101(B).

Disciplinary Rule 2-108(D) requires that, upon termination of representation, a lawyer shall take reasonable steps for the continued protection of a client's interests. The Committee has previously opined that upon terminating a law practice, it is proper for an attorney to give notice to his clients that a new attorney is taking over the law practice while allowing clients to designate, if they choose to designate, that their files go to that new attorney or to another attorney. (See LE Op. 321, LE Op. 934, and LE Op. 956)

Although LE Op. 956 does not find any impropriety in an attorney's sale of the physical assets of a law firm, it emphatically found that the sale of the goodwill of a law firm is patently improper. Furthermore, the Committee has also previously opined that it is improper for an attorney to purchase another attorney's active client files or pending litigation as "accounts receivable" or to purchase work in progress of an attorney who has been designated a full-time judge. (See also LE Op. 321 and LE Op. 368)

It continues to be the opinion of the Committee that the sale of a law firm as a going business, or the sale of an attorney's work in progress, is improper. In the proposal you have presented, the sale of the collection forms, procedures manuals and automated systems would be considered a sale of the physical assets of the firm and would thus be permissible under the Virginia Code of Professional Responsibility only if the client's secrets, confidences and choice of attorney were protected as you have described. Of primary importance, the price of such systems and manuals must not be improperly inflated above the fair market value of such materials. To improperly inflate those prices would be to circumvent the prohibition against the sale of a law practice by disguising the sale of the practice as the sale of physical assets. (See Kentucky Legal Ethics Opinion 324)

The Committee is also of the view that the contingent price arrangement you have described, as directly tied to the degree of client acceptance of the new attorney, would further render the arrangement improper since no such contingency would ordinarily apply to the purchase of the collection systems as a physical asset.

Although advisory opinions on the Canons of Judicial Conduct are beyond the purview of the Committee, it directs your attention to that portion of LE Op. 368 which also comments on the impropriety of an attorney's business transactions with a judge before whom the attorney intends to practice regularly.

Committee Opinion
April 19, 1989

Legal Ethics Committee Notes. – Rule 1.17 permits the purchase or sale of a law firm’s practice, including good will, under certain circumstances.