1974, September, Pg. 495. ETHICS.

3 Colo.Law. 495

Colorado Lawyer

1974.

1974, September, Pg. 495.

ETHICS

495Vol. 3, No. 11, Pg. 495ETHICSOpinions of the Ethics Committee of the Colorado Bar Association are published here for the information of the members of the Association. Formal opinions are given on matters of general and continuing interest to the Bar. Informal opinions are given in response to specific inquiry.

Opinion No. 53 Adopted June 29, 1974

Syllabus

Appropriate arrangements for a responsible successor or successors may be made by lawyers whether they are practicing as sole practitioners, as partners or as members of a professional corporation provided that necessary safeguards are observed and payments from the successor or successors are limited to payments for tangible assets and accounts receivable. In no event may payments be measured by future earnings, and it is ethically improper to sell or attempt to sell good will or the right to represent clients.

Facts

The question with which this opinion is concerned arose when an advertisement appeared in a national business newspaper circulated widely in the Denver metropolitan area, indicating that the practice of a Denver lawyer was for sale. In addition, there exist various other means of making known the desire for the sale of the practice of a given lawyer or law firm, including practice brokers. Frequently older lawyers desiring to retire from the practice or representatives of estates of attorneys who have died while having an active practice desire to sell a law practice.

Question

May a lawyer ethically sell his practice to another lawyer or may a lawyer ethically agree to pay the estate of a deceased lawyer for the practice of that deceased lawyer?

Discussion

Sale of more than tangible assets is improper. It has been widely concluded that no sale of clients' files or good will is ethically proper, and that any sale of more than the tangible assets is improper. Such sales appear to violate a number of Canons, including 2, 3, 4, 5, and 7, and have been condemned by all ethics committees considering the matter (e.g., ABA Committee on Professional Ethics, Opinions No. 300 (1961) and 266 (1945); Association of the Bar of the City of New York, Committee on Professional Ethics, Opinions No. 633 (1943) and 588 (1941), printed in Opinions of the Committees on Professional Ethics of the Association of the Bar of the City of New York and the New York County Lawyer's Association (1956)).

496Such sales will ordinarily not be enforced by the courts (O'Rear v. Commissioner, 80 F.2d 473, 474--75 (6th Cir. 1935) (dictum); Little v. Caldwell, 101 Cal. 533, 36 P. 107, 109 (1894);

Lyon v. Lyon, 246 Cal. App.2d 519, 54 Cal. Rptr. 829 (1966); In re Martin's Estate, 178 Misc. 43, 33 N.Y.S.2d 81 (Sup. Ct. 1941)).It has been considered proper, however, for a lawyer who is a member of a partnership or his estate to receive, by making appropriate advance arrangements, compensation on his death or retirement or separation from the law partnership of which he is a member, which compensation is for his interest in the partnership (DR 2--107(B) and DR 3--102(A)(1)).

This distinction has had the effect of allowing lawyers practicing in a partnership ethically to achieve in part what sole practitioners may not achieve at all. Heretofore, justification for this distinction has been based on the existence of safeguards present in a partnership but absent from a sole proprietorship. We believe, however, that the propriety of arrangements should be determined by whether the actual transaction, regardless of the form of practice, affords the clients and the public substantial protections which meet the tests of the Code of Professional Responsibility.

A sale of practice involves certain aspects beyond the sale of tangible assets. These typically include, in order to make the sale effective: (a) turning over client files to the successor, (b) advising the clients of the change, which advice includes either direct or indirect suggestions or recommendations that the successor is a worthy replacement, (c) restrictive convenants on the selling lawyer, if he is alive, and (d) payment of an amount of money which, whether it is a fixed sum or percentage of fees, reflects a value for the right to represent or to in effect solicit the clients of the selling lawyer.

A clear case can be made that such a transaction threatens the...