When one lawyer winds down a practice, what does the remaining lawyer owe the founder's former clients, and how long must client files be kept?

Plain-English summary

The inquiry involved a firm in existence since 1989 that retained most client files after matters closed. Lawyer A had been with the firm since its inception and was winding down his career; Lawyer B, hired in 1998, would remain and had no contact with most pre-1998 clients. The questions concerned Lawyer B's duties to Lawyer A's former clients, Lawyer A's file-maintenance duties, how long files must be kept and when they may be destroyed, and whether files should be returned at the close of the practice.

The committee made the answer turn on the structure of the transaction. If Lawyer B purchases the practice under Rule 1.17, the rule presumes the selling lawyer retains the files of inactive clients, and the purchasing lawyer who does not take possession of those files owes no ethical duties to the inactive clients; the continuing duties to inactive clients remain with the selling lawyer. If, instead, Lawyer B continues the existing firm rather than buying it, the inactive clients remain clients of the firm, and Lawyer B's agreement to take over is tantamount to accepting representation of all the firm's clients, so the general duties a firm owes its inactive clients (competence, confidentiality, communication, and conflicts) remain.

On retention, the committee explained that because a client file is the client's property, Rule 1.15 makes it appropriate to retain records for at least six years after the representation ends (citing its Opinions 98-33, 95-18, and 92-19), with longer retention where destruction might prejudice the client, and that an agreement with the client about retention is the surest course. On return, under Rule 1.16(d) and Rule 1.15(b), a file containing the client's property should be returned at the close of the practice if it has not already been returned, no retention agreement governs, and the client has not abandoned the property after reasonable notice; a file containing no client property need not be returned unless failing to do so would prejudice the client.

In practice

The committee concluded that, under the South Carolina rules as they stood at the time of the opinion, a lawyer continuing a firm assumes the firm's ongoing duties to its inactive clients, while a lawyer who buys a practice under Rule 1.17 and leaves the inactive-client files with the seller owes those clients no duties. Client files (the client's property) should be kept at least six years under Rule 1.15, longer where earlier destruction could prejudice the client, and files containing client property should be returned at the close of the practice under Rule 1.16(d) absent a governing agreement or abandonment after notice.

Common questions

Q: If a lawyer buys a departing lawyer's practice, does he owe duties to the seller's old inactive clients?

A: Not if he leaves their files with the seller. The committee concluded that under Rule 1.17 the selling lawyer retains the inactive-client files and the purchasing lawyer who does not take possession owes those clients no ethical duties.

Q: What if the remaining lawyer just continues the existing firm instead of buying it?

A: Then the inactive clients remain firm clients. The committee concluded that taking over the firm is tantamount to accepting representation of all the firm's clients, so the general duties a firm owes inactive clients remain.

Q: How long must client files be kept, and when may they be destroyed?

A: The committee concluded a lawyer should retain files at least six years under Rule 1.15 (and may use electronic media), longer where destruction might prejudice the client; a retention agreement with the client is the surest approach.

Q: Must files be returned when the practice closes?

A: The committee concluded a file containing the client's property should be returned under Rule 1.16(d) if not already returned, no retention agreement governs, and the client has not abandoned it after reasonable notice; a file with no client property need not be returned unless failing to do so would prejudice the client.

Background and rules framework

The opinion interprets South Carolina RPC 1.17 (sale of a law practice), 1.15 (safekeeping property; file retention), and 1.16(d) (returning papers and property on termination), corresponding to the like-numbered Model Rules. The committee relied on its earlier file-retention opinions 98-33, 95-18, 92-19, and 92-37.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 1.17 / Model Rule 1.17: sale of a law practice.
• South Carolina RPC 1.15 / Model Rule 1.15: safekeeping property; file retention.
• South Carolina RPC 1.16(d) / Model Rule 1.16(d): returning papers and property on termination.

Other opinions cited:

• S.C. Bar Ethics Advisory Ops. 98-33, 95-18, 92-19, 92-37 (file retention and contents).

See also

• ABA Formal Op. 468: Facilitating the sale of a law practice
• ABA Formal Op. 92-369: Files of a deceased sole practitioner

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-02-14/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 02-14

Law Firm has been in existence since 1989 and has maintained most client files at the conclusion of the legal matters. Lawyer A has been with the firm since its inception but is now ready to wind down his career. Lawyer B, who was hired in 1998, will remain with the firm. Lawyer B has had no contact with the vast majority of clients of the firm prior to 1998.

Questions:
1. What ethical obligations does Lawyer B owe to the former clients of Lawyer A?
2. What obligations does Lawyer A have in maintaining the files of former clients?
3. How long must a file be maintained? Under what circumstances may a file be destroyed?
4. Should a file be returned to the client at the close of the practice?

Summary:
1. If Lawyer B is purchasing Lawyer A's existing practice, then Rule 1.17 applies and Lawyer A should retain the files of inactive clients and Lawyer B would have no more of an ethical obligation to Lawyer A's inactive clients than he had prior to the purchase. Unless Lawyer B was involved with the inactive client prior to the purchase, Lawyer B would have no ethical obligations to Lawyer A's clients. If Lawyer B is continuing the existing firm, then the inactive clients are still clients of the firm and Lawyer B would have a continuing duty to those clients, including the general duties of competence, confidentiality, communication, and conflicts of interest.

2. If Lawyer B purchases Lawyer A's practice pursuant to Rule 1.17, then Lawyer B should not take possession of the files of Lawyer A's former clients and is not obligated to them. If Lawyer B merely continues the existing firm's practice, then the files remain files of the firm and Lawyer B would be required to maintain those files as he would maintain any other file of the firm.

3. Because a client file is the property of the client, under Rule 1.15 it is appropriate for the lawyer to retain records of the property for a minimum of six years after the end of the representation. File contents should not be disposed of until such time as it is reasonable to believe that their disposal will not prejudice or potentially prejudice the rights of the client.

4. Rule 1.16(d) requires that upon termination of representation, the lawyer shall return papers and property to which the client is entitled.

Opinion:
It would appear from the facts given, that Lawyer A and Lawyer B are the only lawyers in the firm. Lawyer B's ethical obligations relating to the former clients of Lawyer A depend on whether Lawyer B is purchasing Lawyer A's law practice or continuing the representations undertaken by Lawyer A. If a purchase, both Lawyer A and Lawyer B have an obligation to ensure that the requirements of Rule 1.17 are followed. Rule 1.17(a)(4)(iv) presumes that the selling lawyer will retain files of inactive clients unless specific actions are undertaken. It stands to reason, then, that if Lawyer B will not take possession of Lawyer A's inactive files, that he would also owe no ethical duties to the inactive clients to which those files pertain. The Comment to Rule 1.17 makes note of the continuing duties to an inactive client that remain vested in the selling lawyer. In the event of the sale of a law practice, the purchasing attorney owes no ethical obligations to the inactive clients of the selling attorney whose files remain in the possession of the selling attorney.

Conversely, if Lawyer B is not purchasing Lawyer A's practice, but is continuing the existing firm, then the clients are clients of the firm and the firm has an ongoing obligation to them. Inactive clients refer to clients whose files have been closed due to completion or termination of the representation. As a practical matter, Lawyer B's continuing ethical obligations to those inactive clients may be limited. However, Lawyer B's agreement to take over the firm is tantamount to accepting representation of all the clients of the firm, the inactive clients of A become the inactive clients of Lawyer B, and the general duties any law firm owes its inactive clients remain.

If Lawyer B does not wish to take on the responsibilities inherent in an ongoing practice, including the obligations to the inactive clients as well as the responsibility for their files, Lawyer B should purchase Lawyer A's law practice pursuant to Rule 1.17, and insist that Lawyer A retain possession of all his inactive client files.

Separate from the issues regarding Lawyer B's responsibilities to inactive clients and their files is the issue of how long any client file must be kept and under what circumstances may a client file be destroyed. Rule 1.15 deals with the safekeeping of a client's property. In SC Bar Ethics Adv. Op. #98-33, we indicated, in the absence of an agreement with the client, the attorney should retain files for at least six years and may place the files on computer disks or other electronic media. Depending on the nature of the material, retention beyond six years may be necessary if destruction might prejudice the client. See SC Bar Ethics Adv. Op. #95-18. The safest course is to enter into a reasonable agreement with the client regarding file retention. SC Bar Ethics Adv. Op. #92-19.

With regard to returning a file at the close of a law practice, Rule 1.16 (d) of the SCACR provides, "upon termination of representation, a lawyer shall take steps to the extent reasonable and practical to protect a client's interests...surrendering paper and property to which the client is entitled... the lawyer may retain papers relating to the client to the extent permitted by other law." Rule 1.15(b) states, "except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive..."1 If a client file contains property belonging to the client and (1) it has not already been returned to the client, (2) no written agreement governing the file's retention has been entered into between the client and the lawyer, and (3) the client has not abandoned its property after reasonable notice, then the client file should be returned to the client at the close of the practice. If a client file does not contain any property belonging to the client, then there is no duty to return the file to the client at the close of the practice unless the failure to return the file to the client will prejudice the client in any way.

1 For a discussion of what file materials the client is entitled to receive, see SC Bar Ethics Adv. Op. #92-37.