Rule 1.17. Sale of Law Practice.
A lawyer or a law firm may sell or purchase a law practice or an
area of practice, including good will, if the following conditions are
satisfied:
(a) The seller ceases to engage in the private practice of law, or
in the area of practice that has been sold in the geographic area in which the
practice has been conducted;
(b) The entire practice, or the entire area of practice, is sold
to one or more lawyers or law firms;
(c) The seller gives written notice to each of the seller's
clients regarding:
(c)(1) the proposed
sale and the identity of the purchaser;
(c)(2) the client's
right to retain other counsel or to take possession
of the file; and
(c)(3) the fact that the client's
consent to the transfer of the client’s files will be presumed if the client
does not take any action or does not otherwise object within ninety (90) days
of sending written notice; and
(d) The fees charged clients are not increased by reason of the
sale.
Comment
[1] The practice of law is a profession, not merely a business.
Clients are not commodities who can be
purchased and sold at will. Pursuant to this Rule, when a lawyer or an entire
firm ceases to practice, or ceases to practice in an area of law, and other
lawyers or firms take over the representation, the selling lawyer or firm may
obtain compensation for the reasonable value of the practice as may withdrawing partners of law firms. See Rules 5.4
and 5.6.
Notification
In complying with this Rule, a seller must undertake reasonable
steps in locating the clients who would be subject to the sale of the practice
or area of practice. Typically, this would require attempts to contact the
client at the last known address.
Termination of Practice by the Seller
[2] The requirement that all of the private practice, or all of an
area of practice, be sold is satisfied if the seller in good faith makes the
entire practice or the area of practice available for sale to the purchasers.
The fact that a number of the seller’s clients decide not to be represented by
the purchasers but take their matters elsewhere, therefore, does not result in
a violation. Return to private practice as a result of an unanticipated change
in circumstances does not necessarily result in a violation. For example, a
lawyer who has sold the practice to accept an appointment to judicial office
does not violate the requirement that the sale be attendant to cessation of
practice if the lawyer later resumes private practice upon being defeated in a
contested or a retention election for the office or resigns from a judicial position.
[3] The requirement that the seller cease to engage in the private
practice of law in the geographic area does not prohibit employment as a lawyer
on the staff of a public agency or a legal services entity that provides legal
services to the poor, or as in-house counsel to a business.
[4] The Rule permits a sale of an entire practice attendant upon
retirement from the private practice of law within the geographic area. The
remaining language of the Model Rule Comment [4] has been intentionally omitted
as unnecessary.
[5] This Rule also permits a lawyer or law firm to sell an area of
practice. If an area of practice is sold, the law firm or the lawyer remaining
in the active practice of law must cease accepting any matters in the area of
practice that has been sold, either as counsel or co-counsel or by assuming
joint responsibility for a matter in connection with the division of a fee with
another lawyer as would otherwise be permitted by Rule 1.5(e). Selling a law
practice or an area of practice is distinct from selling an ownership interest
in a law firm, and nothing in this Rule prohibits the latter even when the
divesting lawyer remains active in the practice of law as a non-owning
associate or in an of counsel capacity. For example, a lawyer or law firm with
a substantial number of estate planning matters and a substantial number of
probate administration cases may sell the estate planning portion of the
practice but remain in the practice of law by concentrating on probate
administration; however, that practitioner or law firm may not thereafter
accept any estate planning matters. Although a lawyer who leaves a geographical
area typically would sell the entire practice, this Rule permits the lawyer to
limit the sale to one or more areas of the practice, thereby preserving the
lawyer’s right to continue practice in the areas of the practice that were not
sold.
Sale of Entire Practice or Entire Area of Practice
[6] The Rule requires that the seller’s entire practice or an
entire area of practice be sold. The prohibition against sale of less than an
entire practice area protects those clients whose matters are less lucrative
and who might find it difficult to secure other counsel if a sale could be
limited to substantial fee-generating matters. The purchasers are required to
undertake all client matters in the practice or practice area, subject to
client consent. This requirement is satisfied, however, even if a purchaser is
unable to undertake a particular client matter because of a conflict of
interest.
Client Confidences, Consent and Notice
[7] Negotiations between seller and prospective purchaser prior to
disclosure of information relating to a specific representation of an
identifiable client no more violate the confidentiality provisions of Rule 1.6
than do preliminary discussions concerning the possible association of another
lawyer or mergers between firms, with respect to which client consent is not
required. Providing the purchaser access to client-specific information
relating to the representation and to the file, however, requires client
consent. The Rule provides that before such information can be disclosed by the
seller to the purchaser, the client must be given actual written notice of the
contemplated sale.
[8] Intentionally omitted as unnecessary.
[9] All elements of client autonomy, including the client's
absolute right to discharge a lawyer and transfer the representation to another,
survive the sale of the practice or area of practice.
Fee Arrangements Between Client
and Purchaser
[10] The sale may not be financed by increases in fees charged the
clients of the practice. Existing arrangements between the seller and the
client as to fees and the scope of the work must be honored by the purchaser.
Other Applicable Ethical Standards
[11] Lawyers participating in the sale of a law practice or a
practice area are subject to the ethical standards applicable to involving
another lawyer in the representation of a client. These include, for example,
the seller’s obligation to exercise competence in identifying a purchaser
qualified to assume the practice and the purchaser’s obligation to undertake
the representation competently (see Rule 1.1); to charge reasonable fees (see
Rule 1.5); to protect client confidences (see Rule 1.6); to avoid disqualifying
conflicts and secure the client's informed consent for those conflicts for
which there is agreement (see Rules 1.7; 1.9 and Rule 1.0(f) for the definition
of informed consent); to releases of liability (see Rule 1.8(h); and to
withdrawal of representation (see Rule 1.16)).
[12] If approval of the substitution of the purchasing lawyer for
the selling lawyer is required by the rules of any tribunal in which a matter
is pending, such approval must be obtained before the matter can be included in
the sale (see Rule 1.16).
Applicability of the Rule
[13] This Rule applies to the sale of a law practice by
representatives of a deceased, disabled or disappeared lawyer. Thus, the seller
may be represented by a nonlawyer representative
not subject to these Rules. Since, however, no lawyer may participate in a sale
of a law practice which does not conform to the requirements of this Rule, the representatives of the seller as well as the
purchasing lawyer can be expected to see to it that they are met.
[14] Admission to or retirement from a law partnership or
professional association, retirement plans and similar arrangements, and a sale
of tangible assets of a law practice, do not constitute a sale or purchase
governed by this Rule.
[15] This Rule does not apply to the transfers of legal
representation between lawyers when such transfers are unrelated to the sale of
a practice or an area of practice.
[15a] This Rule does not prohibit a lawyer from selling an
interest in a law firm and thereafter continuing association with the firm or
in an of-counsel capacity.
[15b] The body of the ABA Model
Rule 1.17 does not provide for inclusion of the identity of the purchaser in
the written notice; however, Comment [7] to the ABA Model Rule does indicate
that the identity of the purchaser should be given in writing to clients.
Utah’s Rule 1.17 departs from the ABA Model Rule by requiring only one written
notice and enumerating in the body of the rule all required content of the
notice.
[15c] Section (c)(3) of Utah’s Rule 1.17 deviates from the ABA
Model Rule by providing that the 90-day client objection period begins to run
from the mailing of the notice rather than from receipt of the notice. The only
practical way to prove receipt would be by commercial courier or
certified/registered mail. Proving receipt of notice could therefore be
cost-prohibitive, especially to the small sole practitioner. Often when a
lawyer does not have a viable address for a client, it is because the
subject-matter of the representation has become stale or the client has failed
to keep in touch with the lawyer presumably due to a loss of interest in the
matter. Both the Utah Rules of Civil Procedure and the Utah Rules of Criminal
Procedure allow for notices to be given by regular U.S. mail at the last-known
address for the client and provide a presumption of service upon deposit of the
notice in the mail, postage pre-paid. There does not appear to be good reason
to place a more onerous burden upon a lawyer selling a law practice or area of
practice. Whether the client received actual notice of the proposed sale of a
practice or area of practice, the client is not abandoned; there is new counsel
to protect the client’s existing rights. The last paragraph of Model Rule
1.17(c)(3) has been intentionally omitted as
unnecessary.
[15d] The Utah version of Rule 1.17 deletes the provision of the
ABA Model Rule (c)(3) relating to obtaining court
order for transfer of representation in those instances where the lawyer cannot
give and prove actual notice of the proposed sale of a law practice or area of
practice to a client. As discussed above, Utah’s version of Rule 1.17 does not
require proof of actual notice of the sale of a law practice or area of
practice before the 90-day client objection period begins to run; therefore, it
is impossible to know which clients received actual notice and which did not.
[15e] The Utah version of Rule 1.17 changes the context of the ABA
Model Rule 1.17(d) regarding fees from "shall not" to "are" because the ABA wording seemed to be in the nature
of a mandate and out of place with the conditional language of the Rule.
Effective November 1, 2017