The case of Baker v Dorfman, 03 Civ 1168, as reported in the New York Law Journal of March 21, 2006, was interesting.
As I read the article, the case confirmed what I’ve been saying for years about the sale of law practices. (more…)
Venice, CA
FOR IMMEDIATE RELEASE
Poll suggested that the revised ABA Model Rule 1.17 currently in place achieves the appropriate compromise between the lawyer’s and the client’s interests and avoids the drafting difficulties currently being examined by the Commission.
This year, Illinois joined the list of states permitting the sale of a law practice. Oregon is the most recent state to modify its rule, following the ABA revised Model rule.
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Question: Are there ethical rules pertaining to the use of “associates” and “affiliates” in a law firm name; it’s my understanding that “associates” refers to associate attorneys within the firm and “affiliates” indicates a firm which outsources or refers some of its cases to independent law firms.
In the case at hand, the primary attorney (the firm is currently called “The Law Firm of ‘John Doe’, Esq.”) is planning to retire in a few years and wants to increase the good will value of the firm name; he’s concerned that a practice in the name of a sole practitioner will not yield a high sale price. (more…)
In the process of buying a law firm, some lawyers do so in the context of leaving their present firm.
There are caveats or ethical considerations, both from the perspective of morality and rules of professional conduct.
See a collection of resources on the ethics side before taking the leap of faith.
Stop the presses!
Illinois, one of the last major States to oppose the selling of a law practice has finally succumbed! You can now sell a law practice in Illinois. The Supreme Court, effective in May 2005 (I just learned of the new rule last Thursday at a meeting of the ABA in Chicago)adopted its own version of Rule 1.17 permitting the sale.
The Court did not adopt the recent modification from the ABA, but rather adopted a modification of the original rule.
Finally! Now lawyers no longer have to play games and create sham partnerships wherein one partner can buy-out the other partner under a retirment plan, this approach having been accepted. Form vs substance. Now lawyers can be above board. And, if the buying lawyer defaults on a pay-out arrangement, the selling lawyer will have standing in court to enforce the agreement.
Congratulations to John Phipps, one of the ardent supporters of the new professional rule. And thanks to Don Rikkli, an Illinois lawyer now deceased, who pushed so hard for this rule but whose widow could not sell Don’s practice when he died several years ago. And, in the background (often the foreground), congratulations to Alan DeWoskin, an attorney in St. Louis who was one of the significant movers to get the ABA to adopt its rule in 1991.
Question:
Can you sell your City #1 law practice, move to City #2, approximately 150 miles away, and then work for a third party in City #2?
Answer: Yes, providing you don’t directly compete with the purchaser.
Question:
Can you sell your City #1 practice and go to work for somebody else in the same city with the same kind of practice that you’re selling.
Answer: Aside from the fact that that probably would be a violation of contract law (especially with a covenant not to compete), I believe this probably would be OK under the rules of professional conduct since you’re selling substantially all your practice. The issue might come up under the guise of retiring from the practice. One’s particular jurisdiction would have to be consulted for the definitive answer to this.
But, if you sell your current practice and then, 10 days later, decide to start back in your own practice, solicit previous clients, I believe this would be violation of both contract law and the rules of professional conduct. The code is relatively clear in that the intent is that you must retire from the practice of law.
Jungle Law #12: After Buying A Business, Do Not Change Anything (At First)!
In general, if the law practice you are buying is profitable, leave it alone while you learn how to manage it in accordance with the status quo. Then, slowly, make changes. Years ago, when I was observing the retail food industry, I saw major East Coast chains buy West Coast chains, until there were no more home-grown chains left. But, many of those folks failed and had to sell the chains back to their original owners or to third parties because they didn’t understand that the Eastern and Western business cultures, even though both American, were different. They didn’t allow themselves sufficient time to acclimate themselves to the new environment and then slowly change that which could/should be changed.
(Taken and adapted from “Strategies for Successfully Buying or Selling a Business” written by Russell L. Brown, a business broker.)
In another context, Russell Brown, a business opportunities broker, suggested several
In another context, Russell Brown, a business opportunities broker, suggested several
In South Africa, banking group Nedcor purchased a law firm, ostensibly for the purpose of growing its business advisory services available for customers of the bank. However, the law firm didn’t perform as expected and lost money for the bank.
Now, the bank is selling the law firm back to its principals at a substantial loss to the bank; the sale price is estimated to be one-fourth of the purchase price, all told.
Nedcor CEO Tom Boardman said yesterday the deal was “fundamentally flawed” because as a Nedcor subsidiary the firm struggled to attract legal talent as it only paid lawyers a set salary not a percentage of profits like other firms.
In addition, the non-compete clause was about to expire, thus leaving many of the firm’s top lawyers free to leave and start up a new, competitive law firm.
The bank, in South Africa, was merely doing what the large accounting firms did (until that profession imploded) by purchasing a law firm to add to its stable of services in an effort to become a “one-stop shop.”
The principle is not dead, just delayed in the United States! It makes sense.
Today, a majority of the States now permit the sale of a law practice though the buyer still must be a lawyer. But, take a look at the insurance industry and its “captive” law firms; they have found a way around this challenge. Where the economics justify the solution, lawyers and third parties will find a way to “merge” their talents and services to offer clients.