Can a New York law partner sell part of his partnership interest, including a share of future fees, to an incoming partner?

Plain-English summary

A partner in an active firm asked whether he could sell part of his partnership interest to an incoming partner, including a share of fees from new matters, for a price based in part on a percentage of the firm's average annual fees over the last three years. The committee answered that the sale could not be made with ethical propriety on the terms proposed.

As structured, the proposed sale split the partnership interest into tangible assets and future billings, pricing each separately, so the arrangement contemplated transferring the right to represent the firm's clients in return for cash. The committee noted that selling tangible assets of a law firm presents no ethical problem, but that the sale of a law practice itself had consistently been deemed improper, citing N.Y. State 366 (1974) and a line of older opinions. It identified three concerns. First, given the nature of the attorney-client relationship, it is impossible to avoid the appearance of impropriety when the right to represent clients is acquired by sale, a violation of Canon 9; the committee quoted the principle that "clients are not merchandise" and lawyers have nothing to sell but personal service. Second, DR 2-103(B) and (E) require that a recommendation of a lawyer be free of pecuniary influence, and making someone a partner carries an implicit and strong recommendation, so accomplishing partnership by sale would violate the rule that recommendations be disinterested. Third, fiduciary principles bar a lawyer from profiting on the sale of a position of trust, because paying more than the value of the tangible assets amounts to compensation for transferring clients' loyalties.

The committee concluded the proposed transaction would contravene DR 2-103(B) and (E), Canon 9, and fiduciary obligations, and answered the question in the negative. In a note it disagreed with Brooklyn 126 (1979), explaining that N.Y. State 366 had approved only the purchase of an interest in tangible assets and that the traditional rule against selling a law practice had not been undermined by the Supreme Court's lawyer-advertising decisions.

Currency note

This opinion was issued in 1984, before New York replaced the Code of Professional Responsibility with the Rules of Professional Conduct in 2009. New York later adopted a rule (the analogue of Model Rule 1.17) permitting the sale of a law practice under defined conditions, so the categorical bar this opinion applied no longer reflects current New York law. Subsequent rule amendments or later opinions have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Could the partner sell a share of the firm's future fees to an incoming partner?

A: No. The committee held that selling the right to represent the firm's clients for a payment tied to future billings transfers the practice itself, which it deemed improper.

Q: Could the firm's tangible assets be sold?

A: Yes. The committee said the sale of all or part of a firm's tangible assets presents no ethical problem; the difficulty was with selling the practice.

Q: Why was selling the practice itself a problem?

A: The committee identified three reasons: the appearance of impropriety in buying the right to represent clients (Canon 9), the implicit non-disinterested recommendation that accompanies admitting a partner by sale (DR 2-103(B) and (E)), and the fiduciary bar on profiting from a position of trust.

Background and rules framework

The opinion applied Canon 9 (avoiding the appearance of impropriety) and DR 2-103(B) and (E) (compensating others for recommendations and accepting employment resulting from prohibited conduct), along with fiduciary principles, to a proposed sale of a partnership interest. The closest current Model Rule analogues are Rule 1.17 (sale of a law practice, which now permits such sales under conditions) and Rule 7.2 (advertising; payment for recommendations).

Citations and references

Rules of Professional Conduct:

• MR 1.17 (sale of law practice)
• MR 7.2 (advertising; payment for recommendations)
• NY DR 2-103(B), (E); Canon 9

Cases:

• Geffen v. Moss, 53 Cal. App. 3d 215 (Ct. App. 1975), sale of a law practice held against public policy

Other opinions cited:

• N.Y. State 366 (1974): purchase of tangible-asset interest permissible; purchase of future executorships improper
• ABA 266 (1945): against giving a preferred position to the highest bidder for clients

See also

• NY State Bar Op.: Sale of a portion of a law practice
• NY State Bar Op.: Sale of a practice by a newly elected judge
• NY State Bar Op. 954: Succession-planning services to other lawyers and fee sharing

Source

• Landing page: https://nysba.org/opinion-561/