Why Sales Are Permitted

Sale of a Law Practice

Why Sales Are Permitted

Rule 1.17 allows a lawyer or a law firm to sell or purchase a law practice, or an area of law practice, including its good will, as long as the rule's conditions are met.¹ Two older instincts stood against that permission. One held that a practice is not merchandise, and that selling one treats clients as goods. The other held that no one will pay for a practice if the seller may reopen the next day. Rule 1.17 answers the first with safeguards for clients and the second with a cessation requirement for the seller.

The first instinct was strong enough to decide a case. In Fraser v. Bogucki, decided in 1988, the court rejected the sale of good will in a law practice because it would treat clients as a commodity. The rules of professional conduct have since been amended expressly to permit the sale of good will in certain circumstances, as the court observed in Howard v. Babcock.² The amended rule keeps a client-protective core: it requires notice to clients that the practice has been sold and that they have the right to hire new counsel. Even so, the court recognized that the change undercuts the pristine view that clients are not deemed to be assets with a financial value.³

Rule 1.17 carries the same concern into its own text. When a client cannot be given notice, the representation may be transferred to the purchaser only on a court order authorizing the transfer. The seller may disclose to the court in camera only as much information relating to the representation as is needed to obtain that order.⁴

The old ban also fell unevenly. The court in May v. Petersen described the distinction drawn in Richmond between solo practitioners and multi-lawyer firms as an artifact of ethical rules that prohibited the sale of solo practices but effectively permitted multi-lawyer firms to be sold.⁵ Rule 1.17 speaks of “a lawyer or a law firm,” so its permission does not stop at the walls of a firm.⁶

The second instinct explains why the seller must leave. A buyer pays for good will, and good will does not survive a seller who sets up shop in the same field and place. Rule 1.17 therefore conditions every sale on the seller ceasing to engage in the private practice of law, or in the area of practice sold, in the geographic area or the jurisdiction in which the practice has been conducted. A jurisdiction may elect either version.⁷

That condition creates an apparent conflict with Rule 5.6, which bars agreements restricting a lawyer's right to practice. A sale contract may well carry a promise not to compete, and that promise is the kind of restriction Rule 5.6 targets. The comment to Rule 5.6 resolves the conflict by excluding restrictions included in the terms of a Rule 1.17 sale. The exclusion costs Rule 5.6 nothing, because the covenant only confirms what Rule 1.17 already demands of the seller.

Rule 1.17 adjusts a second prohibition as well. Rule 5.4(a) bars a lawyer or law firm from sharing legal fees with a nonlawyer, a limit intended, in the words of Comment 1, “to protect the lawyer’s professional independence of judgment.” Its second exception allows a lawyer who purchases the practice of a deceased, disabled, or disappeared lawyer to pay the agreed-upon purchase price to that lawyer's estate or other representative, pursuant to Rule 1.17.⁸ Both adjustments follow one pattern: the sale is the exception, and the exception extends only to a transaction that satisfies Rule 1.17. Later sections take up the conditions one at a time.

An exam fact pattern in which a lawyer promises to stay out of a market therefore turns on one threshold question: is a practice or an area of practice actually being sold? If it is, the promise sits inside the exception.

When the answer is no, a promise of the same kind loses that protection.

In the first scene the seller's departure is what the buyer is paying for, so the covenant protects a bargain that Rule 1.17 permits. In the second scene nothing is sold in return, and the clause serves only to keep a lawyer away from clients who might want to choose him. The difference is the presence of a genuine sale, and the remaining conditions of Rule 1.17 decide whether the sale is genuine.