May a retiring lawyer sell his practice to another lawyer for a fixed price paid as a percentage of fees later received from his clients?

Plain-English summary

A lawyer retiring from practice and moving from New Jersey asked about selling his practice to another attorney for a stipulated, fixed price, payable in installments based on a percentage of fees received from his clients, with the aggregate not to exceed the fixed price and the price unrelated to services he rendered.

The Committee concluded the proposed transaction was improper and violated Canon 34, which provides that a division of fees for legal services between lawyers is proper only when based exclusively on a division of service or responsibility, citing its Opinion 48. It added that the arrangement would also violate Canon 37 unless the consent of the clients involved were secured. Quoting Drinker, the Committee stated that a lawyer's clients are not merchandise and a law practice is not the subject of barter, and that paying for a practice and its goodwill by a percentage of the receipts from the business is improper because it would constitute a division of fees with laymen forbidden by Canon 34.

Currency note

This opinion was issued in July 1965, before New Jersey's September 13, 1971 adoption of the Disciplinary Rules (Code of Professional Responsibility), and well before the 1984 Rules of Professional Conduct and all later revisions. It applied Canon 34 (division of fees) and Canon 37 (confidences) of the Canons of Professional Ethics. The sale of a law practice is now addressed by RPC 1.17, which did not exist when this opinion issued and permits such sales on stated conditions, and fee division by RPC 1.5. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific requirement mentioned here.

Common questions

Q: Could a retiring lawyer sell his practice for a percentage of future fees from his clients?

A: No. The Committee held the arrangement improper under Canon 34, because paying for the practice through a share of fees received from the seller's clients was a division of fees not based on a division of service or responsibility.

Q: Why did the opinion treat the price as a forbidden fee division?

A: The Committee reasoned that the price was tied to receipts from the seller's clients and unrelated to services he rendered, which (quoting Drinker) amounted to dividing fees with one who performed no service, forbidden by Canon 34.

Q: Did client consent matter?

A: The Committee said the arrangement would also violate Canon 37 unless the consent of the clients involved were secured.

Background and rules framework

The opinion applied Canon 34 (division of fees only on a division of service or responsibility) and Canon 37 (client confidences) of the Canons of Professional Ethics, together with the Committee's Opinion 48 and Drinker's statement that a law practice is not merchandise. The sale of a law practice is now permitted on conditions under RPC 1.17, a rule adopted long after this opinion; fee division is governed by RPC 1.5.

Citations and references

Other authorities:

• Canons of Professional Ethics, Canon 34 (division of fees) and Canon 37 (confidences of a client)
• Drinker, Legal Ethics 189 (1953)

Other opinions cited:

• NJ ACPE Opinion 48, 87 N.J.L.J. 459 (1964): division of fees must rest on a division of service or responsibility

See also

• NJ ACPE Op. 87: Dividing Fees With a Deceased Forwarding Attorney's Estate
• NJ ACPE Op. 273: Fee Sharing With a Suspended Forwarding Attorney
• NJ ACPE Op. 220: Of Counsel, a Nonresident, and Division of Fees

Source

• Landing page: https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp80-1.html

Original opinion text

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

88 N.J.L.J. 460
July 15, 1965

OPINION 80

Sale of Practice Division of Fees

Inquiry has been made by an attorney who is retiring from practice and moving from New Jersey as follows:

I would like to sell my practice for a stipulated and fixed price to an attorney in __ County, who has agreed to purchase the same, payable in installments based upon a percentage of fees received from my clients, the aggregate of which shall not exceed the fixed price, and which price is unrelated to services rendered by me.

The proposed transaction is improper and violates Canons of Professional Ethics, Canon 34, which provides that the division of fees for legal services between lawyers is proper only when based exclusively upon "a division of service or responsibility." N.J. Advisory Committee on Professional Ethics, Opinion 48, 87 N.J.L.J. 459 (1964). It would also be a violation of Canon 37, unless the consent of the clients involved were secured.

The applicable principle is clearly enunciated in Drinker, Legal Ethics 189 (1963):

A lawyer's clients are not merchandise nor is a law practice the subject of barter. The purchase of a lawyer's practice and good will and the payment therefore to him or to his estate by a percentage of the receipts from his business is improper, since this would constitute a division of his fees with laymen, forbidden by Canon 34.