Law firm goodwill value “knocked” by New York Bar

New York’s DR 2-101 (22 NYCRR 1200.7) states: "… (b) A lawyer in private practice shall not practice under a trade name…"

If lawyers’ names must be used in the title of a firm, as seems to be the case under the new advertising rules in NY, any lawyer that would be interested in purchasing the law firm (permitted in New York) would either have to "retire" the selling lawyer (and keep the name in the firm "trade name" since the rule enables the name of a deceased or retired member of the firm to be retained) or change the firm name.

If the firm name is changed, deleting the previous lawyer’s name, one might question whether the value of the firm’s goodwill is decreased if not actually destroyed. Many buyers assert that clients will not remain with the firm once its proprietor leaves. With this assertion is an offer that is much lower than otherwise would be the case.

The selling lawyer then is left to assert that goodwill infers that the reputation of the firm continues beyond the removal of any one individual.  In other words, the client list (and access to these clients), the phone number and the on-going nature of the practice (with staff and systems in place). And thus the negotiation begins.

But New York’s provision mandates greater persuasiveness from the seller and/or creativity to work around the rule.

Categorized in: Buying & Selling a Practice