Sale or Closure of a Law Practice and Proper Handling of Aged Client Files
Adopted: April 21, 2023
Opinion clarifies a lawyer’s professional responsibility when closing and/or selling a law practice and when handling aged client files.
Background:
Lawyer A is a solo practitioner with a general practice focused primarily on real estate, estate planning, and small business matters. After 40 years of practice, Lawyer A has decided to retire. Lawyer B, a solo practitioner in Lawyer A’s town with a practice similar to Lawyer A’s practice, approached Lawyer A about purchasing Lawyer A’s practice. After negotiations, Lawyer A agrees to sell his entire practice to Lawyer B. The sale includes Lawyer A’s entire book of business, encompassing both current clients and former clients, but does not include Lawyer A’s office space. Lawyer A plans to provide Lawyer B with the client files for all current clients as well as all former clients, which will be stored in Lawyer B’s office. Lawyer A did not dispose of any client files created during his 40 years of practice.
Inquiry #1:
Considering Lawyer B’s experience and current practice, is Lawyer B an appropriate purchaser of Lawyer A’s practice?
Opinion #1:
Yes.
A lawyer who sells his or her practice must do so in a way that protects the interests of the lawyer’s clients and complies with all of the lawyer’s obligations under the Rules of Professional Conduct. Rule 1.17, cmt. [11]. These protections include selecting a purchasing lawyer who is competent to assume the representation of the seller’s clients and who is willing to undertake the entirety of the representation. Rule 1.1; Rule 1.17, cmt. [11]. Such protections also include selecting a purchaser who is not disqualified from participating in the representations transferred via the sale due to a conflict of interest. See Rules 1.7 & 1.9; Rule 1.17, cmt. [11]. If a conflict exists, the seller should attempt to obtain the client’s informed consent to any conflict to ensure continuous representation of the client. Rule 1.17, cmt. [11]. If a conflict exists that would prevent the purchaser from assuming the representation of the seller’s client, the seller must notify the client to obtain new counsel as a result of the sale. Rule 1.17(d).
Here, Lawyer B has a practice concentrated in similar areas of law to that of Lawyer A’s practice. Lawyer B also practices in the same geographic area as Lawyer A, contributing to Lawyer B’s potential to smoothly and successfully assume the representations of Lawyer A’s clients. Accordingly, and presuming no other concerns relative to Lawyer B’s competency exist, Lawyer A’s decision to sell his practice to Lawyer B satisfies Lawyer A’s duty to provide competent representation to his clients through the sale of his practice. Lawyer A and Lawyer B must also review the clients whose representations will be transferred to Lawyer B to detect and resolve any conflicts of interest. During such a review, confidential client information may be disclosed to the extent reasonably necessary to detect conflicts of interest. Rule 1.6(b)(8).
Inquiry #2:
Despite his retirement and sale of practice to Lawyer B, Lawyer A hopes to offer limited legal services to a few of his long-term clients, family members, and friends in the area (for example, Lawyer A might perform an occasional residential closing transaction or draft a simple will).
May Lawyer A offer these limited services after selling his practice to Lawyer B?
Opinion #2:
No, unless the service is offered pro bono to indigent persons or members of the seller’s family. Rule 1.17(a) requires that a lawyer selling a law practice must “cease[] to engage in the private practice of law, or in the area of practice that has been sold, from an office that is within a one-hundred (100) mile radius of the purchased law practice[.]” As an exception to this general prohibition, Rule 1.17(a) allows the seller to continue practicing law with the purchaser, provide pro bono legal services to indigent persons, and/or provide legal services to members of the seller’s family.
Upon completing the sale of his practice, Lawyer A must cease practicing law within a 100-mile radius of the purchased practice’s location. Should Lawyer A want to provide any legal services within this radius, Lawyer A is restricted to only providing legal services a) through Lawyer B’s practice, or b) to indigent persons or family members at no charge. See Rule 1.17, cmt. [3]. The requirement to cease practice under Rule 1.17(a) also does not prohibit Lawyer A from being employed as a staff member of a public agency or legal services entity that provides legal services to the poor, or as in-house counsel to a business. Id.
Inquiry #3:
In preparing the sale and transfer of his practice to Lawyer B, including all of Lawyer A’s client files, Lawyer A plans to mail written notice of the sale to all current clients impacted by the sale pursuant to Rule 1.17(c).
Does written notice of the sale only to Lawyer A’s current clients satisfy Lawyer A’s obligation under the Rules?
Opinion #3:
No. Rule 1.17(c) requires the seller of a law practice to send written notice “to each of the seller’s clients” prior to the sale informing them of the proposed sale (including the identity of the purchasing lawyer), the client’s right to retain other counsel and take possession of the client’s files before and after the sale, and that the client’s consent to the transfer of the client’s files and representation will be presumed if the client does not object to the transfer within 30 days of receipt of the notice. Rule 1.17(c)(1) – (3) (emphasis added). The comment to Rule 1.17 clarifies, “Written notice of the proposed sale must be sent to all clients who are currently represented by the seller and to all former clients whose files will be transferred to the purchaser.” Rule 1.17, cmt. [6] (emphasis added).
Clients impacted by the sale of a law practice and whose information and/or client property1 is subject to transfer to a new lawyer are entitled to know about the intended transfer and have a reasonable opportunity to redirect their information and/or property as they deem appropriate. This is particularly important for client files containing original documents of legal significance, such as original wills and other estate planning documents. The purpose of notifying both current clients and former clients whose files are transferred to the purchaser is to ensure clients are aware of the location of their files and provide those clients with the opportunity to exercise control over the location and possession of their files.
What constitutes sufficient written notice will depend upon the circumstances and the information available to the lawyer, but a lawyer must make reasonable efforts to provide the required notice to the affected clients using the contact information available to the lawyer. Reasonable efforts may include sending a letter to the client’s last known address, sending an email to the client’s last known email address, and/or attempting to call the client using the last known telephone number to facilitate the provision of the written notice. Comment 6 to Rule 1.17 adds, “Although it is not required by this rule, the placement of a notice of the proposed sale in a local newspaper of general circulation would supplement the effort to provide notice to clients as required by paragraph (c) of the rule.” In the event a lawyer is uncertain of whether a client received the written notice sent specifically to the client, a lawyer should publish a notice of the proposed sale in the local newspaper. If these reasonable efforts are made, and if the client does not communicate his or her objection to the transfer of the client’s information,2 the client’s consent to the transfer of client information will be presumed pursuant to Rule 1.17(c).
Accordingly, Lawyer A must make reasonable efforts to provide the written notice described in Rule 1.17(c) to all current clients and all former clients whose information, client files, and/or client property will be transferred to the possession of Lawyer B.
Inquiry #4:
Upon making reasonable efforts to provide written notice of the proposed sale as described in Opinion #3, may Lawyer A transfer a former client’s information, client file(s), and/or client property to Lawyer B if the client fails to communicate an objection to the transfer within 30 days of receiving the notice?
Opinion #4:
Yes. See Opinion #3.
Inquiry #5:
Upon making reasonable efforts to provide written notice of the proposed sale as described in Opinion #3, may Lawyer A transfer the active representation of a current client, including the client’s information, client file(s), and/or client property, to Lawyer B if the client fails to communicate an objection to the transfer within 30 days of receiving the notice?
Opinion #5:
No, unless authorized by a court order. Rule 1.17(e) states, “If a client cannot be given notice, the representation of that client may be transferred to the purchaser only upon entry of an order so authorizing by a court having jurisdiction.” Unlike the transfer of information concerning a former client, Rule 1.17 requires the extra step of obtaining a court order to authorize the transfer of an active representation of a client as a means of protecting the client’s interests in a pending matter. The comment to Rule 1.17 explains,
Since these clients cannot themselves consent to the purchase or direct any other disposition of their files, the Rule requires an order from a court having jurisdiction authorizing their transfer or other disposition. The Court can be expected to determine whether reasonable efforts to locate the client have been exhausted, and whether the absent client's legitimate interests will be served by authorizing the transfer of the file so that the purchaser may continue the representation. Preservation of client confidences requires that the petition for a court order be considered in camera.
Rule 1.17, cmt. [7].
Once Lawyer A obtains a court order authorizing the transfer of the active representation to Lawyer B, and presuming Lawyer A has otherwise complied with the written notice requirement set out in Rule 1.17(c) (see Opinion #3), Lawyer A may transfer the current client's client file and prospective responsibility for the representation to Lawyer B. If a court does not grant the petition to transfer the client/representation to the purchaser, the matter must be excluded from the sale of the practice.
Alternatively, if Lawyer A cannot successfully communicate with his current client regarding the proposed transfer of the representation to Lawyer B, Lawyer A may consider withdrawing from the representation pursuant to Rule 1.16.
Inquiry #6:
Considering Opinion #3, must Lawyer A provide notice of the sale of his practice to former clients whose files are not transferred to Lawyer B?
Opinion #6:
No. Lawyer A may, however, inform former clients of his retirement and sale of his practice to Lawyer B should Lawyer A desire to do so. Lawyer A should include language in such notice clarifying that no action is required of these former clients.
Inquiry #7:
Many of Lawyer A’s former client files contain original documents of legal significance for his clients, such as executed original wills and original stock certificates. Given the age on some of the files, Lawyer A anticipates it will be extremely difficult to locate a number of these former clients.
Must Lawyer A attempt to contact all former clients whose files contain original documents of legal significance to facilitate the return of the client file or provide notice of the sale and transfer of the client’s files to Lawyer B?
Opinion #7:
Yes.
“Original documents of legal significance” are documents generated during the representation of a client that have an ongoing legal value to the client. Such documents have an inherent value, and their continued existence is necessary to achieve the client’s goal for the representation. Conversely, the destruction or absence of such documents prior to the termination of the document’s value could thwart the purpose of the representation, damage the client’s legal position, cause the client to experience a material loss. For example, client files stemming from estate planning work—including the drafting of wills, powers of attorney, and the like—may contain original documents that must be returned to the client if the lawyer did not provide these documents to the client at the conclusion of the representation. Similarly, an original contract drafted by a lawyer and executed by the lawyer’s client and other relevant parties may qualify as an original document of legal significance if the parties remain subject to the terms of the contract; upon the conclusion or fulfillment of the contract, the contract may lose its legal significance. On the other hand, client files stemming from real property closings will likely not contain original documents of legal significance that must be returned to the client, largely due to the documents’ availability in the public record or because the documents need not be preserved to carry out the goals of the representation.3
Original documents of legal significance are property belonging to the client that cannot be destroyed or otherwise disposed of regardless of age. RPC 209. As a general rule, lawyers must return client property—including original documents of legal significance—at the conclusion of the representation. Rule 1.16(d) (“Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as...surrendering papers and property to which the client is entitled[.]”). Although lawyers may retain a client’s original documents as a method of safekeeping, lawyers and their practices are subject to a variety of interruptions and changes that threaten the client’s awareness, the client’s control, and the preservation of these significant documents. Clients and lawyers are best served by having the client’s original documents of legal significance provided to them upon the conclusion of the representation to ensure the client is in control of the documents’ safekeeping. Relatedly, if a lawyer provides a client with his or her original document(s) of legal significance and retains a duplicate of the original document in the lawyer’s client file, the duplicate is presumptively not legally significant.
If a lawyer and client agree to have the lawyer serve as the repository for the client’s original documents, the lawyer must take steps to safeguard the client property in accordance with the Rules of Professional Conduct. Specifically, Rule 1.15-2(d) provides:
All entrusted property received by a lawyer that is not deposited in a trust account or fiduciary account (such as a stock certificate) shall be promptly identified, labeled as property of the person or entity for whom it is to be held, and placed in a safe deposit box or other suitable place of safekeeping.
The Rule goes on to require the lawyer entrusted with such client property to “disclose the location of the property to the client or other person for whom it is held.” Id. A lawyer’s duty to properly safeguard the client’s property—including original documents of legal significance—remains intact until the lawyer returns the entrusted client property to the client or to the person for whom the property is held pursuant to the client’s instructions. Rule 1.15-2(n).
In the present scenario, Lawyer A has an ongoing obligation to safeguard the property entrusted to him by his clients, to wit: the original documents of legal significance contained in his client files. Retirement does not terminate Lawyer A’s professional obligation. Thus, Lawyer A must review all of his files to determine which have client property that must be returned and must contact all impacted clients to either facilitate the return of the client property or notify the clients of the impending sale of his practice and proposed transfer of the client property to Lawyer B. See Opinion #3; Rules 1.17(c) and 1.15-2(d). Doing so is the only fair way to ensure clients are aware of the location of their property and are provided the opportunity to retrieve their property as they see fit.
It must be noted, however, that transferring such client property to Lawyer B is not ideal due to the client’s eventual need to access or obtain the document. Rather, returning the property to the client should be prioritized to avoid potential confusion regarding the location of the property.
Returning the client property, however, is not always possible, and thus transferring the property to Lawyer B is permissible if done in compliance with Rules 1.17 and 1.15-2(d). If transferring the property to Lawyer B is necessary, Lawyer A should strongly consider supplementing his efforts to notify a client about the impending sale with a public notice to the community—such as an advertisement in a local newspaper of general circulation in the community, a posted notice at the courthouse, or a notice posted on a website relevant to the community—to reach a wider audience or to serve as a potential archive of where the property will be located should the client desire to retrieve the property. to serve as a potential archive of where the property will be located should the client desire to retrieve the property. Rule 1.17, cmt. [6]. Additionally, if the client does not retrieve the property and Lawyer A does not transfer the property to a subsequent lawyer via the purchase of Lawyer A’s practice, Lawyer A may attempt to locate a “suitable place of safekeeping” to safeguard the property, such as the identified executor of a client’s will, the named holder of the client’s power of attorney, or the clerk’s office in the county where the lawyer’s practice was located pursuant to N.C. Gen. Stat. § 31-11 (lawyers should contact the clerk’s office to confirm the ability to safeguard such documents prior to bringing the documents to the clerk’s office). If the client property is not retrieved, if Lawyer A does not transfer the property to Lawyer B in accordance with the Rules, and if Lawyer A cannot identify an alternative suitable place of safekeeping that preserves the property for the client and makes the property appropriately identifiable and accessible, Lawyer A retains his obligation to safeguard the property despite his retirement and the sale of his practice.
This opinion does not speak to any legal obligations imposed on Lawyer A’s retention and/or production of a client’s original document, as such obligations are outside the scope of the Rules of Professional Conduct. Lawyer A should take steps to identify and comply with any applicable legal obligations concerning the client property. Rule 1.1.
Inquiry #8:
Instead of transferring his former clients’ files to Lawyer B, may Lawyer A destroy the former client files without notice to the former clients?
Opinion #8:
Yes, provided that the files are more than six years old, except that any client property, such as original documents of legal significance, contained in the client files must be securely retained or returned to the client regardless of age. RPC 209, RPC 234. Any file less than six years old should be retained by Lawyer A or returned to the client. Id. Lawyer A may only destroy a client file less than six years old if the client consents. Id. The applicable statute of limitations may require Lawyer A to retain a closed file for more than six years. RPC 209. Lawyer A should also maintain a record of all destroyed client files. Id.
Inquiry #9:
Lawyer A sold his practice to Lawyer B. In completing the sale, Lawyer A transferred some of his former client files containing original documents of legal significance to Lawyer B without providing notice to those former clients about the sale of his practice and transfer of the client’s file.
Is Lawyer A still professionally responsible for those former client files despite them being in Lawyer B’s possession?
Opinion #9:
Yes. Lawyers may not ordinarily transfer their professional responsibility concerning a client to another person. The Rules of Professional Conduct, however, recognize an exception to this general maxim via the sale of a law practice, but this exception can only be realized if the selling lawyer complies with the entirety of Rule 1.17. Here, Lawyer A failed to provide notice of the transfer of the client files to the affected former clients. Accordingly, Lawyer A did not comply with Rule 1.17(c), and has not relieved himself of his professional responsibilities towards those clients. Lawyer A must promptly inform the affected clients of the sale and transfer of those client files to Lawyer B to fulfill his professional responsibility under Rule 1.17.
Because Lawyer B has accepted the transfer of the former client files containing client property, Lawyer B shares professional responsibility with Lawyer A to properly safeguard the client property, to ensure that the clients and/or individuals for whose benefit the property is held are aware of the property’s location, and to provide an opportunity for retrieval of the property.
Inquiry #10:
Same scenario, but instead of selling his practice to Lawyer B, Lawyer A decided to close his law practice and retire. Must Lawyer A comply with the same written notice obligations and attempt to return client property to former clients as outlined above?
Opinion #10:
It depends. For current clients, Lawyer A must determine if he can resolve the client’s pending matter prior to closing his practice. If so, Lawyer A need not send notice of his intent to retire and close his practice to those clients. If Lawyer A cannot resolve a current client’s matter prior to closing his practice, Lawyer A must notify the client of his intention to terminate/withdraw from the representation. Rule 1.16. Lawyer A’s withdrawal must be accomplished without material adverse effect on the interests of the client, and Lawyer A must “take steps to the extent reasonably practicable to protect a client's interests,” including giving the client reasonable notice and sufficient time to obtain new counsel, as well as returning to the client all property to which the client is entitled (e.g., the client’s file, any unearned fees, etc.). Rules 1.16(b) & (d). If necessary, Lawyer must also seek permission from the court prior to withdrawing. Rule 1.16(c).
Former clients, however, need not be notified of Lawyer A’s retirement and law office closure, though Lawyer A is permitted to send such a notice. If Lawyer A is still in possession of client files at the time of closing his practice, Lawyer A may notify clients to retrieve their files or Lawyer A may destroy the client files if the files are older than six years. See Opinion #8. If the files are not older than six years, Lawyer A must retain the files for the requisite period of time or return the file to the client. Id. If Lawyer A possesses property belonging to the client, including original documents of legal significance, Lawyer A must either return the property to the client or safeguard the property in a suitable place of safekeeping for future client retrieval. See Opinion #7.
Inquiry #11:
May Lawyer A transfer entrusted client funds to Lawyer B or any other third party in connection with the sale or closure of his practice?
Opinion #11:
No, unless the client consents or the court approves the transfer. If a client does not expressly consent to the transfer of entrusted funds, Lawyer A must either retain and continue to safeguard the funds until returned to the client, or Lawyer A must escheat the funds pursuant to Rule 1.15-2(r).
Endnotes
1. “Client property” as referenced in this opinion does not include entrusted client funds. See Opinion #11 for analysis of handling entrusted client funds when selling or closing a law practice. Additionally, client information or client property referenced in this opinion refers to both physical and/or electronically stored information. See RPC 234, 2013 FEO 15 for guidance on electronic storage of client information.
2. Rule 1.17(c)(3) requires a client to note his or her objection to the proposed transfer of the client’s file within 30 days of receipt of the written notice. When receipt may be presumed to occur, thus triggering the 30-day period, will depend on the method of notice. For example, if the lawyer sends written notice to a client via email to the client’s last known email address, and the email does not “bounce back” or otherwise indicate the email was undeliverable, the lawyer can reasonably presume receipt occurred on the day the email was sent. If the notice was mailed to the client’s last known mailing address, the lawyer can reasonably presume the notice was received three days after the notice was deposited in the mail as set out in Rule 6(e) of the North Carolina Rules of Civil Procedure.
3. The inclusion of a particular document in the public record does not determine whether the original document is “legally significant.” Each document must be evaluated on its own to determine if the original document is legally significant, i.e., if destruction of the original document would harm the client or thwart the purpose of the representation that produced the document.