Can a Florida lawyer buy a deceased attorney's practice from the estate and tie the installment payments to future collections?

Plain-English summary

The committee was asked about an agreement to purchase the practice of a deceased attorney for a set price paid in yearly installments, with a contingent "deficiency reduction" lowering the annual installments if the firm's collections fall below an agreed amount in future years. The inquirer was concerned that, under the comment to Rule 4-1.17, fee division between buyer and seller from matters arising after the sale must satisfy the fee-division rule, Rule 4-1.5(g), which an estate (a nonlawyer seller) could not meet because it requires either proportional services or a written client agreement with joint responsibility.

The opinion explains the framework. Before Rule 4-1.17, selling a law practice, including its goodwill, was impermissible (Opinion 87-6, withdrawn). In 1992 the Supreme Court of Florida adopted Rule 4-1.17 and amended Rule 4-5.4 to authorize the sale of a practice: a sale by a lawyer or firm is controlled by Rule 4-1.17, while a sale by the estate or legal representative of a deceased, disabled, or disappeared attorney is sanctioned by Rule 4-5.4. The reasonable value of a practice includes goodwill, the value of expected future business, and the committee recognizes goodwill is difficult to value, so an adjustment of the price based on future revenues is permissible under the plain language of Rule 4-5.4.

The committee notes that treating attorneys' estates differently under the rule against fee sharing with nonlawyers is not new: the rule historically allowed paying a deceased firm member's estate for legal services performed before death and allowed an attorney completing a deceased lawyer's unfinished business to pay a portion of the fee to the estate. Reading the comment to Rule 4-1.17, the committee concludes the portion requiring compliance with Rule 4-1.5 for post-sale fee division governs a sale between lawyers, not a sale by a nonlawyer estate, and the comment itself contemplates that a nonlawyer not subject to the rules might be involved in such a sale. The purchasing lawyer must still comply with the rule's specific requirements, such as notice to clients, court approval, and honoring existing fee contracts. In summary, Rule 4-1.17 read with Rule 4-5.4(a) allows the proposed downward adjustment of the sale price.

In practice

Under the Florida rules as they stood at the time of this 2004 opinion, a lawyer may buy a deceased attorney's practice from the estate and structure the installment payments to drop if future collections fall short. The opinion makes the controlling distinction the source of the sale: a sale by a nonlawyer estate is governed by Rule 4-5.4, not by the Rule 4-1.5(g) fee-division requirements that apply to sales between lawyers, so the estate's inability to meet 4-1.5(g) does not bar the arrangement. It treats goodwill as part of the practice's reasonable value and a collections-based price adjustment as permissible. The opinion conditions the purchase on the buyer's compliance with Rule 4-1.17's specific requirements, including notice to clients, court approval, and honoring existing fee contracts.

Common questions

Q: Can a lawyer base the price of a purchased practice on its future collections?

A: Yes. The opinion concludes the price of a practice purchased from an estate may be adjusted downward based on future revenues under the plain language of Rule 4-5.4, recognizing that goodwill is hard to value.

Q: Doesn't paying an estate from future fees violate the rule against fee sharing with nonlawyers?

A: No, in this context. The opinion treats the sale of a practice by an estate as an exception under Rule 4-5.4, alongside historical exceptions allowing payment to a deceased lawyer's estate for prior services and unfinished business.

Q: Does the fee-division rule, 4-1.5(g), apply to this purchase?

A: Per the opinion, no. The committee reads the Rule 4-1.17 comment requiring 4-1.5 compliance for post-sale fees to govern sales between lawyers, not a sale by a nonlawyer estate.

Q: What must the purchasing lawyer still do?

A: The opinion requires the buyer to comply with the rule's specific requirements, including notice to clients, court approval, and honoring existing fee contracts.

Background and rules framework

The opinion interprets Rule 4-1.17 (sale of a law practice, Model Rule 1.17) and Rule 4-5.4 (professional independence; fee sharing with nonlawyers, Model Rule 5.4) of the Rules Regulating The Florida Bar, and addresses the fee-division requirements of Rule 4-1.5(g) (Model Rule 1.5). It draws on the comment to Rule 4-1.17 and prior Florida practice on payments to deceased lawyers' estates.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.17 / Fla. Rule 4-1.17 (sale of a law practice)
• Model Rule 5.4 / Fla. Rule 4-5.4 (fee sharing with nonlawyers; sale by an estate)
• Model Rule 1.5 / Fla. Rule 4-1.5(g) (division of fees between lawyers in different firms)

Cases:

• Detroit Bank and Trust Co. v. Cooper, 287 N.W.2d 266 (Mich. Ct. App. 1979), goodwill as the value of expected future business
• O'Hara v. Ahlgren, Blumenfeld and Kempster, 537 N.E.2d 730 (Ill. 1989), goodwill as the probability of continued custom

Other opinions cited:

• Fla. Ethics Op. 87-6 [withdrawn] (sale of a practice formerly impermissible)

See also

• No sibling opinions yet indexed.

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-03-1/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-03-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

FLORIDA BAR ETHICS OPINION
OPINION 03-1
January 16, 2004
Advisory ethics opinions are not binding.
A lawyer may purchase a law practice from the estate of a deceased attorney and may make an agreement to make a downward adjustment in the annual payment installments if the firm’s collections are less than an agreed upon amount in future years. RPC: 4-1.5(g), 4-1.17, 4-5.4 Opinions: 87-6 [withdrawn] Cases: Detroit Bank and Trust Co. v Cooper, 287 N.W.2d 266, 286 (Mich. Ct. App. 1979); O’Hara v. Ahlgren, Blumfeld and Kempster, 537 N.e.2d 730 (Ill. 1989) The committee has been asked to provide guidance regarding an agreement to purchase the practice of a deceased attorney. The purchase price is to be made in installments. The agreement includes a contingent “deficiency reduction” based on the amount of actual collections attributable to the practice purchased. The terms provide for a set purchase price payable in yearly installments. The annual installments may be adjusted and reduced if the firm’s collections are less than an agreed upon amount in future years. The inquirer asks whether the arrangement is ethical in light of the comment to Rule 4- 1.17 which states that the division of fees between buyer and seller from matters that arise after the sale must be in compliance with the fee-division provisions of Rule 4-1.5. The inquirer is specifically concerned about the provisions of rule 4-1.5(g) which require a division of fees between lawyers who are not in the same firm either to be in proportion to services performed by each lawyer, or to be pursuant to a written agreement with the client in which each attorney assumes joint responsibility and both the division of fee and basis for the fee division are disclosed. The attorney recognizes that the estate, being a nonlawyer seller of a practice, would not be able to comply with the requirements of this rule. Prior to the adoption of Rule 4-1.17, the sale of a law practice was ethically impermissible. Although an attorney could sell the physical assets of a law office, the firm itself and the intangible asset of “goodwill” could not be sold or purchased. Florida Ethics Opinion 87-6 [withdrawn]. In 1992 the Supreme Court of Florida adopted Rule 4-1.17 and amended rule 4-5.4 to authorize the sale of a law practice. The sale of a practice by a lawyer or a law firm is controlled by Rule 4-1.17 while the sale by an estate or a legally authorized representative of a deceased, disabled, or disappeared attorney is sanctioned by Rule 4-5.4. The comment to Rule 4-1.17 states that the seller may be compensated for the reasonable value of the practice. The reasonable value of a practice includes the firm’s goodwill which is the “value assigned to the expectation of future business.” Detroit Bank and Trust Co. v Cooper, 287 N.W.2d 266, 286 (Mich. Ct. App. 1979). In other words, goodwill has been described as “the probability that old customers of a concern will continue their custom and recommend it to others.” O’Hara v. Ahlgren, Blumfeld and Kempster, 537 N.e.2d 730 (Ill. 1989). The committee

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recognizes that in a sale it may be difficult to determine the value of goodwill and believes that the adjustment of the price of a practice purchased from an estate may be based upon future revenues under the plain language of Rule 4-5.4. Recognition that attorneys’ estates are entitled to different treatment under the rule prohibiting fee sharing with nonlawyers is not without precedent. Even before the amendments to Rule 4-5.4 authorized the sale of a practice by an estate, the rule permitted a law firm to pay a deceased firm member’s estate for the value of legal services performed prior to the death. Additionally, the rule historically allowed an attorney who completed the unfinished legal business of a deceased lawyer to pay a portion of the fee to the estate. Thus, there are historical limited exceptions to the prohibition on sharing fees with nonlawyers to permit the division of fees in a deceased attorney’s estate. Rule 4-5.4 was amended to make the sale of a practice an additional exception. The provision of the rule authorizing the sale of a law practice by an estate should be interpreted to allow the division of fees between the seller estate and a purchasing lawyer from matters that arise subsequent to the sale. The comment to Rule 4-1.17 supports the interpretation that the requirements of Rule 4-1.5(g), regarding dividing a fee between lawyers in different firms, pertains to a sale between lawyers: Lawyers participating in the sale of a law practice 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 client consent after consultation for those conflicts that can be agreed to (see rule 4-1.7); and the obligation to protect information relating to the representation (see rules 4-1.6, 4-1.8(b), and 4-1.9(b)). 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. [emphasis added] It is the opinion of the committee that this section of the comment regarding the applicability of other ethics rules governs a sale between attorneys, and not a sale by a nonlawyer estate. In fact, another section of the comment specifically states: 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. Nevertheless, the attorney who purchases a practice from an estate is obligated to comply with the specific requirements of the rule such as notice to clients, court approval, and honoring existing fees contracts.

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In summary, Rule 4-1.17, governing a sale of a practice, read together with Rule 4-5.4(a), permitting an estate to sell a practice, allows the downward adjustment of the practice’s sale price as proposed.