Can a lawyer who is being suspended or disbarred sell their law practice to another attorney under Rule 1.17?

Plain-English summary

Under the Rules for Lawyer Disciplinary Enforcement (SCACR 413), when a lawyer is suspended or disbarred and no partner, personal representative, or other responsible party can run the lawyer's affairs, the Supreme Court appoints a trustee to inventory files and protect the interests of the lawyer and clients. The committee was asked whether a lawyer subject to such discipline could sell the practice under Rule 1.17.

The committee explained that Rule 1.17 lets a lawyer or firm sell a practice, including goodwill, only if its conditions are met: the seller stops practicing in the area, the practice is sold as an entirety, written notice goes to active clients (with a 45-day window in which consent is presumed if the client does not object), and notice is published. It concluded that timing is critical because it determines whether there is a practice to sell. Once a lawyer is suspended or disbarred and a trustee is appointed under Rule 31 of Rule 413, the trustee steps into the lawyer's shoes and is charged with disposition of the practice; because the disciplined lawyer no longer has active clients, the lawyer cannot satisfy Rule 1.17(a)(3)'s active-client notice condition. So a suspended or disbarred lawyer may not sell the practice, although the tangible assets (building, library, office materials) are not governed by these rules and may be transferred regardless.

Before final sanctions are imposed, the committee concluded, the lawyer may properly sell the practice if the Rule 1.17 timing requirements (including completing the 45-day written and published notice) are met before suspension or disbarment. The committee added that the selling lawyer may be required to disclose pending disciplinary charges to the purchaser (which may affect the practice's value), presumably providing a waiver under Rule 12(c)(3) of Rule 413, and that failure to disclose could violate Rule 8.4. The sale must also satisfy other standards: competence in choosing a qualified purchaser and the purchaser's competence to take over (Rule 1.1), avoiding or obtaining consent to conflicts (Rule 1.7), and protecting client information (Rules 1.6 and 1.9). The committee cautioned that the most prudent course may be for the lawyer or trustee to petition the Supreme Court for an order allowing the sale.

In practice

Under the South Carolina rules as they stood at the time of the opinion, the committee held that a lawyer who is already suspended or disbarred cannot sell the practice under Rule 1.17, because a trustee assumes control and the lawyer has no active clients to give the required notice, while tangible assets remain transferable. It held that a lawyer facing but not yet sanctioned for discipline may sell if all Rule 1.17 conditions and the 45-day notice are completed before sanctions, the pending charges are disclosed to the buyer (failure to do so risking a Rule 8.4 violation), and the competence, conflict, and confidentiality duties of Rules 1.1, 1.7, 1.6, and 1.9 are met, with a petition to the Supreme Court being the most prudent course. South Carolina revised its Rules of Professional Conduct effective 2005; verify the current text of Rule 1.17 and Rule 413 before relying on the specific provisions cited.

Common questions

Q: Can a suspended or disbarred lawyer sell their practice?

A: The committee concluded no: once a trustee is appointed and the lawyer has no active clients, the lawyer cannot meet Rule 1.17's active-client notice condition, so the practice cannot be sold (though tangible assets can still be transferred).

Q: Can a lawyer sell the practice before discipline is final?

A: The committee concluded yes, if the Rule 1.17 conditions, including the 45-day written and published notice, are completed before suspension or disbarment is imposed.

Q: Does the seller have to tell the buyer about pending disciplinary charges?

A: The committee concluded the lawyer may be required to disclose pending charges, because they may affect the practice's value; failure to disclose may violate Rule 8.4, and the seller would presumably give a waiver under Rule 12(c)(3) of Rule 413.

Q: What other duties apply to the sale?

A: The committee concluded the sale must also satisfy competence in selecting a qualified purchaser and the purchaser's competence to take over (Rule 1.1), conflict avoidance or consent (Rule 1.7), and protection of client information (Rules 1.6 and 1.9).

Background and rules framework

The opinion interprets South Carolina RPC 1.17 (sale of a law practice), along with Rules 1.1 (competence), 1.7 (conflicts), 1.6 and 1.9 (confidentiality and former clients), and 8.4 (misconduct), corresponding to the like-numbered Model Rules, against the Rules for Lawyer Disciplinary Enforcement (SCACR 413), including Rule 31 (trustee appointment) and Rule 12(c)(3) (disclosure waiver).

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 1.17 / Model Rule 1.17: sale of a law practice, including goodwill, and the active-client notice conditions.
• South Carolina RPC 1.1, 1.6, 1.7, 1.9, 8.4 / Model Rules: competence, confidentiality, conflicts, former clients, and misconduct.

Other authority:

• Rules for Lawyer Disciplinary Enforcement, Rule 413, SCACR, Rule 31 (trustee) and Rule 12(c)(3) (disclosure waiver).
• Nina Fields, The Sale of a Law Practice in South Carolina, 50 S.C. L. Rev. 1029 (1999).

See also

• SC Bar Ethics Op. 02-14: Client files when a lawyer winds down a practice
• ABA Formal Op. 468: Facilitating the sale of a law practice

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-03-06/

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 03-06

FACTUAL SUMMARY
Under the Rules for Lawyer Disciplinary Enforcement (SCACR 413), when a lawyer is subject to discipline which would require him or her to cease the practice of law (i.e., suspension or disbarment), the Supreme Court appoints an attorney as trustee to inventory the files of that lawyer and take all action necessary to protect the interests of the lawyer and the lawyer’s clients. Such a trustee is appointed if there is no partner, personal representative, or other responsible party capable of conducting the lawyer’s affairs.

QUESTION PRESENTED
May the attorney subject to discipline sell his or her practice to another attorney under the provisions of Rule 1.17, Rules of Professional Conduct?

SUMMARY
A suspended or disbarred attorney may not sell his or her practice. The tangible assets of the practice, such as buildings, library materials and office materials, are not subject to these Rules, and may be transferred regardless of the status of the disciplined lawyer. Otherwise, under Rule 1.17, a Lawyer may sell his practice so long as all of the conditions under Rule 1.17 are satisfied. Further, such sale must comply with all other applicable ethical standards.

OPINION
The sale of the law practice is governed by Rule 1.17. Subsection (a) of this rule provides:

(a) A lawyer or a law firm may sell or purchase a law practice, including goodwill, if the following conditions are satisfied:

1. The seller ceases to engage in the private practice of law in the geographical area in which the seller’s practice has been conducted;

2. The practice is sold as an entirety to another lawyer or law firm;

3. Written notice is given to each of the seller’s active clients regarding:
   i. the proposed sale;
   ii. the terms of any proposed change in the fee arrangement authorized by paragraph (b);
   iii. the client’s right to retain other counsel or take possession of the client’s files;
   iv. the fact that the clients consent to the sale will be presumed if the client does not take any action or does not otherwise object within forty-five (45) days of the date of the mailing of the notice; and,

4. a notice is published in a newspaper of general circulation in the geographical area in which the practice has been conducted regarding:
   i. the proposed sale;
   ii. the client’s right to retain other counsel or to take possession of the client’s files;
   iii. the fact that active clients will be or have been given written notice regarding the proposed sale and that their consent to the sale will be presumed if they do not take any action or object within forty-five (45) days of the date of the mailing of the written notice;
   iv. the fact that the selling lawyer will retain the files of inactive clients unless those clients give permission for the transfer of their files or, if the parties to the sale elect to give written notice to an inactive client in the manner provided by paragraph (a)(3) above, the inactive client’s consent to the sale will be presumed if the client does not take any action or does not otherwise object within forty-five (45) days of the date of the mailing of the notice.

A law practice consists of both tangible and intangible assets. Such tangible assets may include a building, a law library, and office equipment. Individual client files belong to the clients. The primary intangible asset associated with the sale of a law practice is the goodwill associated with the practice. Goodwill has been defined as “the ‘going concern value of a business’ or the ‘tendency of satisfied clients to give the lawyer their future legal business.’ More specifically, goodwill is defined as ‘the expectation of continued public patronage, and a client base that can hopefully be transferred to the purchasing attorney’ or something that is ‘evidenced by general public patronage and is reflected in the increase in profits beyond those that may be expected from the mere use of capital.’” Nina Fields, The Sale of a Law Practice in South Carolina: The Impact of Model Rule 1.17 on Sole Practitioners and Their Clients, 50 S. Car. L. Rev. 1029, 1032 (1999) (citations omitted). Rule 1.17 specifically identifies goodwill as an asset of a law practice that may be sold.

Under the facts presented above, the timing of the sale of the law practice is critical. The timing of the sale will determine whether there exists a law practice to sell. First, if a lawyer has already been disciplined and is subject to suspension or disbarment, and no partner, personal representative, or other responsible party capable of conducting the lawyer’s affairs is known to exist, Rule 31(a) of the Rules of Lawyer Disciplinary Enforcement, Rule 413, SCACR, provides that a trustee shall be appointed to take possession of and inventory client files. The trustee must take possession of client files, notify clients, and publish notice of discontinuance or interruption of the disciplined lawyer’s law practice.

Upon appointment of a trustee under Rule 31, Rules of Lawyer Disciplinary Enforcement, Rule 413, SCACR, the trustee steps in the shoes of the attorney, and it is the trustee, rather than the attorney, charged with the disposition of the law practice. Further support for this view is found in the language of Rule 1.17 which requires satisfaction of the following condition: “(3) Written notice is given to each of the seller’s active clients regarding: (i) the proposed sale....” Rule 1.17(a)(3), SCRPC (emphasis added). Because the disciplined attorney no longer has any active clients, attorney is unable to satisfy this condition. Accordingly, a suspended or disbarred attorney may not sell his or her practice. The tangible assets of the practice, such as buildings, library materials and office materials, are not subject to these Rules, and may be transferred regardless of the status of the disciplined lawyer.

Prior to final sanctions being assessed against a disciplined lawyer, however, that lawyer may properly sell his or her law practice. First, the lawyer must comply with the timing requirements of Rule 1.17. Notice of forty-five (45) days must be given, both written and through publication, to all of attorney’s clients regarding the proposed sale. In order to be timely under Rule 1.17, the lawyer to be disciplined must properly complete sale of the law practice (including satisfaction of the forty-five (45) day notice provision) prior to suspension or disbarment being imposed. Further, it is the opinion of this Committee that the lawyer selling his or her practice may be required to disclose to the purchasing attorney that disciplinary charges are pending. Existence of such proceedings may affect the value of the law practice being sold. The selling lawyer presumably would provide the purchasing lawyer with a waiver allowing disclosure of confidential disciplinary information pursuant to Rule 12(c)(3), Rules of Lawyer Disciplinary Enforcement, Rule 413, SCACR. Failure to disclose such pending charges may be a violation of Rule 8.4, SCRPC.

Lastly, in addition to the conditions set forth in Rule 1.17, SCRPC, the selling lawyer must also comply with other applicable standards. These include the selling lawyer’s obligation to exercise competence in identifying a purchaser qualified to assume the practice and the purchaser’s obligation to undertake the representation competently (Rule 1.1, SCRPC); the obligation to avoid disqualifying conflicts, and to secure client consent after consultation for those conflicts which can be agreed to (Rule 1.7, SCRPC); and the obligation to protect information relating to the representation (Rule 1.6 and 1.9, SCRPC). Accordingly, it is the opinion of the Committee that the attorney with pending disciplinary proceedings may sell his or her law practice as long as all of the conditions and requirements of the Rules of Professional Conduct are satisfied. The Committee cautions that the most prudent course may be for the attorney or the appointed trustee to petition the Supreme Court for an order allowing sale of the attorney’s practice.