When buying a retiring lawyer's practice, can the purchase price include a share of future fees from that lawyer's current, former, and newly referred clients?

Plain-English summary

A lawyer asked whether, in buying the practice of a lawyer retiring under S.J.C. Rule 4:02, the purchase price could be set as a percentage of future fees from the retired lawyer's current and former clients, and whether it could also include fees from new clients the retired lawyer referred. The opinion answers yes to the first and no to the second.

The opinion explains that when the Supreme Judicial Court adopted Rule 1.17 in 1998, permitting the sale of a law practice including good will, it left other rules in place. Rule 4:02(5) makes a retired lawyer ineligible to practice law except in a supervised pro bono setting, which the committee reads to mean a retired lawyer may not receive compensation for legal services. Rule 5.4(a) bars sharing legal fees with a nonlawyer, with an exception allowing a purchaser to pay the agreed price for the practice of a deceased, disabled, or disappeared lawyer under Rule 1.17.

Applying these rules, the opinion concludes the price may be measured by future fees from the retiring lawyer's existing client base because that is part of selling the practice and its good will. But fees from new clients the retired lawyer refers after retirement would amount to paying a non-practicing lawyer a share of fees for ongoing referrals, which the opinion treats as impermissible fee sharing under Rule 5.4(a).

In practice

Under the Massachusetts rules as they stood at the time of the opinion, the purchase price for a retiring lawyer's practice under Rule 1.17 may be calculated to include a portion of future fees from the seller's current and former clients. The opinion holds that the price may not include a portion of fees from new clients the retired lawyer refers, because a retired lawyer is not eligible to practice and Rule 5.4(a) bars sharing legal fees with a nonlawyer outside the recognized exceptions.

The opinion grounds the line it draws in Rule 4:02(5)'s treatment of retired lawyers and Rule 5.4(a)'s fee-sharing prohibition, rather than in Rule 1.17 alone.

Common questions

Q: Can the price be a percentage of future fees from the selling lawyer's existing clients?

A: Yes. The opinion concludes the purchase price may include a portion of future legal fees from the retiring lawyer's current and former clients as part of the sale of the practice and its good will.

Q: Can it include fees from new clients the retired lawyer refers later?

A: No. The opinion concludes that would be sharing fees with a non-practicing lawyer in violation of Rule 5.4(a), since a retired lawyer under Rule 4:02 is not eligible to be compensated for legal services.

Q: Why does Rule 5.4(a) apply to a retired lawyer?

A: Per the opinion, Rule 4:02(5) makes a retired lawyer ineligible to practice, so the lawyer is treated as a nonlawyer for fee-sharing purposes, and Rule 5.4(a) prohibits sharing legal fees with a nonlawyer except as Rule 1.17 allows.

Background and rules framework

The opinion interprets Massachusetts Rule of Professional Conduct 1.17 (sale of a law practice, adopted in 1998) together with Rule 5.4(a) (sharing fees with a nonlawyer) and S.J.C. Rule 4:02 governing retirement status. Rules 1.17 and 5.4 correspond to the like-numbered ABA Model Rules.

Citations and references

Rules of Professional Conduct:

• MR 1.17 / Mass. R. Prof. C. 1.17 (sale of a law practice)
• MR 5.4 / Mass. R. Prof. C. 5.4(a) (sharing legal fees with a nonlawyer)

Other authority:

• S.J.C. Rule 4:02 (retirement status; retired lawyer ineligible to practice)

See also

• ABA Ethics Op. 468: facilitating the sale of a law practice
• ABA Ethics Op. 464: fee division with firms that share fees with nonlawyers

Source

• Landing page: https://www.massbar.org/publications/ethics-opinions/ethics-opinion-article/ethics-opinions-2014-opinion-14-4/opinion-14-4