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You Can’t Bill for Transitioning Matters When Selling Your Law Practice: ABA

10/10/14

You Can't Bill for Transitioning Matters When Selling Your Law Practice: ABA


Summary: ABA's new Formal Opinion 468 says 'neither the selling lawyer or law firm nor the purchasing lawyer or law firm may bill clients for time spent only on the transition of matters.' The requirements of Rule 1.17 (a) stipulating the seller cease private practice in the relevant area that has been sold does not relieve the seller from the responsibility of orderly transition of pending matters into the hands of the purchaser. But no time may be billed for work related only to such 'transition.'

You Can’t Bill for Transitioning Matters When Selling Your Law Practice: ABA


This week, the American Bar Association Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 468, clarifying several ethics issues in the sale and purchase of a law practice. One of the principal issues considered was that of the length of time the seller may continue to 'practice' to assist the purchaser in transitioning matters and how such services are to be billed. The new ethics opinion removed confusion from this area by clarifying that "neither the selling lawyer or law firm nor the purchasing lawyer or law firm may bill clients for time spent only on the transition of matters."

Another issue that has long concerned sellers and purchasers of law practices is that the uniform position of courts and bar associations until 1990 had been that there is no legally or ethically recognized 'good will' in a law practice that a lawyer might sell, pledge, assign, or even give away. However, to the relief of all, the ABA House of Delegates adopted the new Model Rule 1.17 in 1990 permitting the sale of "good will."

Formal Opinion 468 mentions in its body several amendments to the ethics rules that have made selling a law practice more realistic than it was previously. For example, with respect to the prohibition of the sharing of legal fees with a nonlawyer, Rule 5.4(a)(2) now permits a lawyer who purchases the practice of a deceased, disabled, or disappeared lawyer to pay, pursuant to the provisions of Rule1.17, the agreed upon purchase price to the estate or other representative of that lawyer.

An exception to the general ban expressed in Rule 7.2(b) on payments for recommending a lawyer to clients was adopted that permits a lawyer to "pay for a law practice in accordance with Rule 1.17." Comment [13] to Rule 1.6 now recognizes that lawyers may need to disclose limited information to each other to detect and resolve conflicts of interest in various situations, including when considering the purchase of a law practice. And Comment [3] to Rule 5.6, which generally prohibits agreements that restrict the right of a lawyer to practice, explains that the rule does not apply to "restrictions that may be included in the terms of the sale of a law practice pursuant to Rule 1.17."

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