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ABA provides guidance on sale of law practice

October 14, 2014

The American Bar Association has issued a formal opinion on the sale of a law practice, specifically as it relates to the seller in terms of “practice” and billing matters.

The ABA’s Standing Committee on Ethics and Professional Responsibility released Formal Opinion 468 on Oct. 8, which was developed after questions arose as to whether a selling lawyer or law firm may continue to “practice” to assist the buyer or buyers in the transition of active client matters, and for how long.

The opinion clarifies ABA Rule 1.17, which outlines the ethical issues raised during the sale of a law practice and the resulting client-lawyer relationship. Before the creation of the rule in 1990, lawyers were unable to sell any part of a law practice except for physical assets, such as furniture.

“The requirement of Rule 1.17(a) that the seller of a law practice or area of practice must cease to engage in the private practice of law, or in the area of practice that has been sold, does not preclude the seller from assisting the buyer or buyers in the orderly transition of active client matters for a reasonable period of time after the closing of the sale,” the opinion states. “However, neither the selling lawyer or the law firm nor the purchasing lawyer or law firm may bill clients for time spent only on the transition of matters.”

The opinion says what is considered a “reasonable” period of time depends on the circumstances, including the rules and rulings of courts or other tribunals in pending matters.

“It is therefore impractical to propose any prescriptive time limitation for when the selling lawyer ‘ceases to engage’ in the private practice of law in the relevant practice area or jurisdiction following the sale of a law practice or area of law practice, as long as the selling lawyer stops accepting new matters in the practice or area of practice that has been sold and also limits his or her activities to acts reasonably necessary to accomplish the orderly transition of active client matters,” the opinion states.

 

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