Oregon State Bar Bulletin JUNE 2015
Dreaming of Retirement?:
Plan an Exit Strategy
By Helen Hierschbiel
During my 24 years as a lawyer, I have heard many sad stories from clients. One involved a woman, Sara, who was getting a divorce from her abusive husband after 40 years of marriage. Although she was strong in her decision to finally leave her husband, she was insecure and scared about what the future held. She was 65 years old and had never hired a lawyer. With her children’s help, Sara hired Jim, a lawyer with many years of experience, whom she felt understood and would be a strong advocate for her. Sara’s trust in Jim helped build her confidence in herself. Jim filed the petition for dissolution and served the husband. Then, just one month after Sara hired him, Jim told Sara that he would be retiring in a month and his partner Jane would be taking over his practice. Sara was stunned. She met with Jane, but did not feel the same connection or trust that she had with Jim. In the course of a month, Sara went from feeling good about taking the first difficult steps toward beginning her new life to feeling defeated.
With all the planning needed for retirement, it can be easy for lawyers to overlook client needs. In Sara’s case, Jim should have disclosed his intent to retire before undertaking the representation. Lawyers are required to explain matters to the extent reasonably necessary to permit clients to make informed decisions. RPC 1.4(b). One of the most important decisions a client makes is whom to hire, and whether the lawyer plans to withdraw within a couple of months is certainly relevant — if not critical — information for a client to have before making that decision. Understandably, Jim may have been interested in signing on new clients, so that he could pass on a vibrant practice to his partner. Not disclosing material information about the lawyer or the lawyer’s services to a new client, however, may also violate RPC 7.1(a).
Selling a Law Practice
The historical prohibition against selling all or part of a law practice has fallen away, provided that lawyers follow the provisions of Oregon RPC 1.17. The rule carries forward the traditional notions that the practice of law is a profession, not merely a business, and that clients are not commodities. See ABA Model Rule 1.17, Comment (1).
Hence, one critical element of the rule is the requirement to notify current clients. The selling lawyer must send notice, by certified mail, return receipt requested, to all current clients at least 45 days prior to the transfer. (ABA Model Rule 1.17 requires 90 days’ notice.) The notice must include the following information: 1) that a sale is proposed; 2) the name and address of the buyer; 3) a brief description of the size and nature of the buyer’s law practice; 4) that the client may object to the transfer of his or her file, and instead take possession of the file and any other client property, and retain other counsel; 5) that if the client does not object within 45 days, the file and property will be transferred to the buyer, who will then take over representation; and 6) whether the selling lawyer plans to withdraw even if the client objects to the transfer. RPC 1.17(b). If certified mail does not provide effective notice to the client, then the selling lawyer must take reasonable steps to give the client actual notice of the sale and the information required in RPC 1.17(b).
Another key element is that the fees charged to clients cannot be increased as a result of the sale of the law practice unless the client agrees. See RPC 1.17(g).
Oregon RPC 1.17 allows lawyers to do some things in conjunction with the sale of a law practice that they would not otherwise be allowed to do under the rules of professional conduct. For example, the sale of a law practice can be conditioned on the selling lawyer ceasing to engage in the private practice of law for a reasonable period of time within the geographic area the practice has served. RPC 1.17(h). Normally, agreements that restrict a lawyer’s right to practice are prohibited. RPC 5.6.
In addition, the selling lawyer may include in the notice to clients his or her opinion about the buyer’s suitability or competence to represent the client. RPC 1.17(c). This is a specific exception to the general prohibition of lawyers giving something of value to a person for recommending the lawyer’s services. RPC 7.2(b)(3).
Lawyers selling their practice may also disclose information relating to the representation of a client to the extent they reasonably believe is necessary to facilitate the sales transaction. RPC 1.6(b)(6). However, lawyers may only disclose information necessary to detect and resolve conflicts, such as the client’s identity, the identities of any adverse parties, the nature and extent of the legal services involved, and fee and payment information. Moreover, lawyers may not disclose even this information if doing so would compromise privilege or cause some other prejudice to the clients. Disclosure of the file materials themselves requires client consent. See RPC 1.17(b); ABA Model Rule 1.17 Comment (7).
Finally, a lawyer’s estate or representative may sell — and receive payment for — the lawyer’s practice even after his death, disability or disappearance, notwithstanding the general prohibition against sharing legal fees with a nonlawyer. See RPC 5.4(a)(2).
Note that this rule does not apply to retirement from a law partnership and therefore would not have applied to Jim. Model Rule Comment 14.
Several resources exist for lawyers interested in selling their law practices. The Professional Liability Fund has a checklist for lawyers planning to sell their practice, as well as a resource guide, both of which you can find at www.osbplf.org/practice-management/forms.html. In addition, the Oregon State Bar sponsored a CLE program in November 2013 titled Buying, Selling or Transferring a Solo or Small Firm Practice. See also “Succeeding at Succession” by Cliff Collins.
Other Exit Options
Some lawyers may choose not to sell their practices but to wind down and close them. There are ethical considerations for lawyers contemplating this exit option as well. Lawyers in this situation likely will not want to take on new cases that they cannot finish prior to their planned retirement date. To the extent that they do take new cases, they should apprise prospective clients of their future retirement plans. See RPC 1.4.
For existing clients, lawyers will need to decide whether to finish the work the client hired them to do or seek to withdraw from the representation. A lawyer is required to withdraw if the lawyer’s physical or mental condition is such that the lawyer can no longer effectively represent the client. See RPC 1.16(a)(2). But lawyers are also permitted to withdraw for any of the reasons listed in RPC 1.16(b). Although retirement is not specifically listed, RPC 1.16(b)(1) allows withdrawal when it can be accomplished without material adverse effect on the interests of the client. In addition, RPC 1.16(b)(7) allows for withdrawal whenever good cause exists.
Upon withdrawal, RPC 1.16(d) requires that the lawyer take steps to the extent reasonably practicable to protect a client’s interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fees or expenses that have not been earned or incurred.
What notice is reasonable and what steps are reasonably practicable to protect clients’ interests will depend on the particular case. Reasonable notice may not be possible in litigation matters if there are short and sensitive timelines that cannot be extended. In such cases, lawyers may not be allowed to withdraw. On the other hand, if there is sufficient time for the client to hire substitute counsel and any existing deadlines are either far in the future or easily continued without prejudice to the client, then withdrawal is a reasonable option.
While it is easy enough to return files to clients whose matters have just recently closed, what should lawyers do with files that have been closed for years? Can they simply shred them? It depends. If the file contains original documents, such as a deed or will, then those originals must be returned to the client. Ideally, lawyers should deliver all original documents prepared for or received from a client at the termination of the representation. Additionally, lawyers should spell out in either their engagement or disengagement letters how long they will keep the other file materials. If they have done this, then the file can be destroyed at the expiration of the time period identified without further notice to the client. Otherwise, destroying the file without giving the client the option to retrieve materials puts the lawyer at risk of violating responsibilities to safeguard client property. RPC 1.15-1(a).
Trust accounts also must be properly handled. Any money left in the lawyer’s trust account should be returned to its rightful owner. If an owner cannot be identified or does not claim the funds, the lawyer should consider whether the money qualifies as “abandoned” under the Uniform Disposition of Unclaimed Property Act, ORS 98.302-98.436. If so, it should be disbursed to the Oregon State Bar. See ORS 98.386 and OSB Formal Ethics Op No 2005-48. Once all trust account funds are disbursed, the account may be closed; records of trust account funds, however, must be retained five years after termination of the representation. See RPC 1.15-1(a).
Again, the PLF is a great resource for materials on closing a law practice. Search for PLF Forms on the PLF website under the category “Closing Your Law Office.” Among the documents listed is the PLF Retention and Destruction Guide , which provides information about how long files should be retained.
Exiting with No Plan
As good as lawyers may be at counseling their clients about planning for the unexpected, they don’t always plan so well for themselves. Sometimes the sudden death or disability of a lawyer precludes continuation of the law practice. ORS 9.705-9.755 sets forth a process by which a lawyer’s practice may be placed under the jurisdiction of the court and steps taken to protect the interests of the clients. The bar recently sought changes to this statute to streamline the process and provide for custodianship and disposition of wills and trust accounts.
Even though the custodianship process exists, it is best for lawyers to plan for the unexpected in order to minimize harm to clients. Although Oregon does not have a specific rule that requires planning ahead, it is arguable that the duty of competent representation (RPC 1.1) requires lawyers to at least appoint someone to step in and safeguard the clients’ interests in the event the lawyer suddenly dies or becomes disabled. See OSB Formal Op No 2005-129. For help with planning ahead, take a look at the PLF handbook, Planning Ahead: A Guide to Protecting Your Clients’ Interests in the Event of Your Disability or Death.
In the End
Sara’s story had a happy ending. She found a new lawyer, Martina, to represent her. Martina also saw retirement on the horizon, but assured Sara that she would see the case through to the end. Martina stayed true to her promise and was a great advocate for Sara both in and outside the courtroom. Sara now lives a happy life, free from abuse and secure in her future.
ABOUT THE AUTHOR
Helen Hierschbiel is general counsel for the Oregon State Bar. She can be reached at (503) 620-0222, or (800) 452-8260, ext. 413, or by email at hhierschbiel@ osbar.org.
© 2015 Helen Hierschbiel