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Florida Rule 4-1.17 Sale of Law Practice
A lawyer or a law firm may sell or purchase a law practice provided that:
(a) Sale of Practice or Area of Practice as an Entirety. The entire practice,
or the entire area of practice, is sold to 1 or more lawyers or law firms authorized
to practice law in Florida.
(b) Notice to Clients. Written notice is served by certified mail,
return receipt requested, upon each of the seller's clients of:
(1) the proposed sale;
(2) the client's right to retain other counsel; and
(3) the fact that the client's consent to the substitution of counsel
will be presumed if the client does not object within 30 days after being served
with notice.
(c) Court Approval Required. If a representation involves pending
litigation, there shall be no substitution of counsel or termination of
representation unless authorized by the court. The seller may disclose, in
camera, to the court information relating to the representation only to the
extent necessary to obtain an order authorizing the substitution of counsel or
termination of representation.
(d) Client Objections. If a client objects to the proposed
substitution of counsel, the seller shall comply with the requirements of rule
4-1.16(d).
(e) Consummation of Sale. A sale of a law practice shall not be
consummated until:
(1) with respect to clients of the seller who were served with written
notice of the proposed sale, the 30-day period referred to in subdivision (b)(3)
has expired or all such clients have consented to the substitution of counsel or
termination of representation; and
(2) court orders have been entered authorizing substitution of counsel
for all clients who could not be served with written notice of the proposed sale
and whose representations involve pending litigation; provided, in the event the
court fails to grant a substitution of counsel in a matter involving pending
litigation, that matter shall not be included in the sale and the sale otherwise
shall be unaffected. Further, the matters not involving pending litigation of
any client who cannot be served with written notice of the proposed sale shall
not be included in the sale and the sale otherwise shall be unaffected.
(f) Existing Fee Contracts Controlling. The purchaser shall honor the
fee agreements that were entered into between the seller and the seller's
clients. The fees charged clients shall not be increased by reason of the sale.
COMMENT
The practice of law is a profession, not merely a
business. Clients are not commodities that can be purchased and sold at will. In
accordance with the requirements of this rule, when a lawyer or an entire firm
sells the practice 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 4-5.4 and 4-5.6.
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 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. Similarly, a violation does not occur merely because a court declines
to approve the substitution of counsel in the cases of a number of clients who
could not be served with written notice of the proposed sale.
Sale of entire practice or entire area of practice
The rule requires that the seller's entire practice, or an
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 or
court authorization. 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
Negotiations between seller and prospective purchaser prior
to disclosure of information relating to a specific representation of an
identifiable client do not violate the confidentiality provisions of rule 4-1.6
any more than do preliminary discussions concerning the possible association of
another lawyer or mergers between firms, with respect to which client consent
ordinarily is not required. Providing the prospective purchaser access to
client-specific information relating to the representation and to the file,
however, requires client consent or court authorization. See rule 4-1.6. Rule
4-1.17 provides that the seller must attempt to serve each client with written
notice of the contemplated sale, including the identity of the purchaser and the
fact that the decision to consent to the substitution of counsel or to make
other arrangements must be made within 30 days. If nothing is heard within that
time from a client who was served with written notice of the proposed sale, that
client's consent to the substitution of counsel is presumed. However, with
regard to clients whose matters involve pending litigation but who could not be
served with written notice of the proposed sale, authorization of the court is
required before the files and client-specific information relating to the
representation of those clients may be disclosed by the seller to the purchaser
and before counsel may be substituted.
A lawyer or law firm selling a practice cannot be required to
remain in practice just because some clients cannot be served with written
notice of the proposed sale. Because these clients cannot themselves consent to
the substitution of counsel or direct any other disposition of their
representations and files, with regard to clients whose matters involve pending
litigation the rule requires an order from the court authorizing the
substitution (or withdrawal) of counsel. The court can be expected to determine
whether reasonable efforts to locate the client have been exhausted, and whether
the absent client's legitimate interests will be served by authorizing the
substitution of counsel so that the purchaser may continue the representation.
Preservation of client confidences requires that the petition for a court order
be considered in camera. If, however, the court fails to grant substitution of
counsel in a matter involving pending litigation, that matter shall not be
included in the sale and the sale may be consummated without inclusion of that
matter.
The rule provides that matters not involving pending
litigation of clients who could not be served with written notice may not be
included in the sale. This is because the clients' consent to disclosure of
confidential information and to substitution of counsel cannot be obtained and
because the alternative of court authorization ordinarily is not available in
matters not involving pending litigation. Although such matters shall not be
included in the sale, the sale may be consummated without inclusion of those
matters.
If a client objects to the proposed substitution of counsel,
the rule treats the seller as attempting to withdraw from representation of that
client and, therefore, provides that the seller must comply with the provisions
of rule 4-1.16 concerning withdrawal from representation. Additionally, the
seller must comply with applicable requirements of law or rules of procedure.
All the 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 an area of practice.
Fee arrangements between client and purchaser
The sale may not be financed by increases in fees charged the
clients of the practice. Existing agreements between the seller and the client
as to fees and the scope of the work must be honored by the purchaser. This
obligation of the purchaser is a factor that can be taken into account by seller
and purchaser when negotiating the sale price of the practice.
Other applicable ethical standards
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 for all matters pending at the
time of the sale. These include, for example, the seller's ethical 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 4-1.1); the obligation to avoid disqualifying conflicts, and to secure the
client's informed consent for those conflicts that can be agreed to (see rule
4-1.7 regarding conflicts and see the terminology section of the preamble for
the definition of informed consent); and the obligation to protect information
relating to the representation (see rules 4-1.6, 4-1.8(b), and 4-1.9(b) and (c)). If the
terms of the sale involve the division between purchaser and seller of fees from
matters that arise subsequent to the sale, the fee-division provisions of rule
4-1.5 must be satisfied with respect to such fees. These provisions will not
apply to the division of fees from matters pending at the time of sale.
If approval of the substitution of the purchasing attorney for the selling
attorney 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 4-1.16).
Applicability of this rule
This rule applies, among other situations, to the sale of a
law practice by representatives of a lawyer who is deceased, disabled, or has
disappeared. It is possible that a nonlawyer, who is not subject to the Rules of
Professional Conduct, might be involved in the sale. When the practice of a
lawyer who is deceased, is disabled, or has disappeared is being sold, the
notice required by subdivision (b) of this rule must be given by someone who is
legally authorized to act on the selling lawyer's behalf, such as a personal
representative or a guardian. This is because the sale of a practice and
transfer of representation involve legal rights of the affected clients.
Bona fide admission to, withdrawal from, 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
If approval of the substitution of the purchasing attorney for the
selling attorney 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 4-1.16).
Applicability of this rule
This rule applies, among other situations, to the sale of a law practice
by representatives of a lawyer who is deceased, disabled, or has disappeared. It
is possible that a nonlawyer, who is not subject to the Rules of Professional
Conduct, might be involved in the sale. When the practice of a lawyer who is
deceased, is disabled, or has disappeared is being sold, the notice required by
subdivision (b) of this rule must be given by someone who is legally authorized
to act on the selling lawyer's behalf, such as a personal representative or a
guardian. This is because the sale of a practice and transfer of representation
involve legal rights of the affected clients.
Bona fide admission to, withdrawal from, 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.
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