Can a lawyer sell his law practice to an associate and then keep practicing as 'of counsel' to the buyer's new firm in the same area?

Plain-English summary

A sole owner of a law practice plans to "retire" and sell the assets of his practice to an associate, who will start his own firm. The owner would remain "of counsel" to that new firm for at least two years, keep his name on the letterhead, and be compensated under a separate of-counsel agreement. He asks whether he must notify current clients of the change and whether the new firm must be substituted for his old firm in pending litigation.

The Committee splits the analysis by what is actually being sold. If the lawyer is selling the legal practice including its goodwill, Rule 1.17 (adopted in Illinois effective May 23, 2005) governs. That rule permits a sale only when the selling lawyer ceases to engage in the private practice of law on a fee-representation basis in the geographic area, whether by retirement, inactive status, judicial office, government employment, an in-house move, or a decision to stop practicing on a fee basis in that area. Because this lawyer intends to keep practicing as of counsel in the same location for two years, he does not meet that condition, so Rule 1.17 would not permit the sale. The opinion notes that a permissible Rule 1.17 sale carries its own procedures, including 90-day certified-mail notice to clients of the proposed sale, their right to retain other counsel or take their files, presumed consent if they do not object, and a bar on raising fees because of the sale.

If instead only the tangible assets are sold, Rule 1.17(e) makes the rule inapplicable, and nothing bars the seller from continuing as of counsel. In that case the lawyer must still notify clients under Rule 1.4 of his changed status and the need to retain the new firm, and the new firm must be substituted for the old firm in pending litigation. The opinion also cautions that putting the lawyer's name in the new firm's name would be misleading under Rules 7.1 and 7.5(d) unless an actual partnership exists, though listing him on the letterhead as "of counsel" is permissible if accurate.

Currency note

This opinion was issued in 2007, before Illinois adopted its current Rules of Professional Conduct effective January 1, 2010. The cited rules use the pre-2010 numbering; the opinion was affirmed by the ISBA Board of Governors in January 2010 by reference to 2010 Rules 1.4, 1.17, 7.1, and 7.5(d). Verify against current rules before relying on any specific procedure or notice period cited here.

In practice

Under the Illinois rules as they stood at the time, the opinion holds that selling a practice with goodwill and continuing to practice on a fee basis in the same area are mutually exclusive under Rule 1.17. It treats a sale of only tangible assets as outside Rule 1.17, leaving the seller free to stay on as of counsel if clients are notified under Rule 1.4 and the new firm is substituted in pending cases. The opinion ties any use of the seller's name in the firm name to the accuracy requirements of Rules 7.1 and 7.5(d).

Common questions

Q: Can a lawyer sell his practice and keep working as 'of counsel' to the buyer's firm?

A: Not if he is selling the practice's goodwill under Rule 1.17. The opinion concludes that rule requires the seller to stop practicing on a fee basis in the geographic area, which this arrangement does not do.

Q: Is there any way to sell and keep practicing?

A: The opinion concludes a sale of only the tangible assets is not governed by Rule 1.17, so the lawyer may stay on as of counsel, provided he notifies clients under Rule 1.4 and substitutes the new firm in pending litigation.

Q: What notice does a Rule 1.17 sale require?

A: The opinion explains the rule requires 90-day written notice by certified mail telling each client of the proposed sale, the right to retain other counsel or take the file, presumed consent if no objection within 90 days, and the expected closing date.

Q: Can the seller's name go in the new firm's name?

A: Only if a partnership actually exists. The opinion concludes putting his name in the firm name otherwise would be misleading under Rules 7.1 and 7.5(d), though listing him as "of counsel" on the letterhead is permissible if accurate.

Background and rules framework

The opinion interprets Illinois Rule 1.17 (sale of a law practice), Rule 1.4 (communication with clients), and Rules 7.1 and 7.5(d) (firm names and letterhead). The corresponding Model Rules are MR 1.17, MR 1.4, MR 7.1, and MR 7.5. It notes that before Rule 1.17's 2005 adoption, Illinois law (per O'Hara v. Ahlgren, Blumenfeld & Kempster, 127 Ill. 2d 333 (1989)) did not allow a sole practitioner to sell the goodwill of a practice.

Citations and references

Rules of Professional Conduct:

• MR 1.17 (sale of a law practice) / IL Rule 1.17
• MR 1.4 (communication) / IL Rule 1.4
• MR 7.1 (communications about services) / IL Rule 7.1
• MR 7.5 (firm names and letterhead) / IL Rule 7.5(d)

Cases:

• O'Hara v. Ahlgren, Blumenfeld & Kempster, 127 Ill. 2d 333, 537 N.E.2d 730 (1989), sole practitioner could not sell practice goodwill before Rule 1.17

Other opinions cited:

• ISBA Op. 03-02: a firm name may not imply a partnership that does not exist

See also

• ABA Formal Op. 468: Facilitating the Sale of a Law Practice
• CA COPRAC Op. 2024-209: Succession Planning
• ABA Formal Op. 06-444: Restrictive Covenants and Retirement Benefits

Source

• Landing page: https://www.isba.org/ethics/opinions/0702