Okla. Stat. tit. 5, Rule 1.17
Oklahoma Rules of Professional Conduct
Chapter 1, App. 3-A
Client-Lawyer Relationship
(g) The custody of inactive files representing matters which have been concluded, or with respect to which no current activities are occurring or contemplated, shall only be transferred in accordance with the applicable provisions of paragraphs (b) and (c) or (f), as the case may be.
Comments
Introduction. This Rule is primarily intended to address a serious problem affecting the large number of sole practitioner lawyers in Oklahoma. The purchase and sale of law practices has been occurring in the context of law partnerships (and more recently, professional corporations) almost since the dawn of the modern profession. However, sole practitioners, and perhaps more significantly, the heirs of deceased sole practitioners, have remained subject to a prohibition against the sale of their law practices. The practice of law is a profession, not merely a business. Clients are not commodities that can be purchased and sold at will. However, as in the case of medical, dental and other professional practices, a prospective purchaser may regard a law practice as possessing independent value, even though each client must expressly consent to the transfer of the representation of that client. Therefore, pursuant to this Rule, when a lawyer ceases to practice in Oklahoma and, with the consent of the clients affected, another lawyer or firm takes over the representation, the selling lawyer may obtain compensation for the reasonable value of the practice, just as in the case of withdrawing partners of law firms. See Rules 5.4 and 5.6. It is believed that the availability of appropriate, optional contractual arrangements in the case of law firms makes it unnecessary to permit the sale of a practice by a law firm as such. In the limited number of cases where no equity owner of the law firm will continue to practice in Oklahoma, the Rule would permit the equity owners, acting as individuals, to sell the Oklahoma practice formerly conducted by the firm. Termination of Practice by the Seller. The requirement that all of the private practice be sold is satisfied if the seller in good faith makes the entire practice available for sale to the purchaser. Although some of the seller's clients may decide not to be represented by the purchaser but take their matters elsewhere, or ethical considerations may prevent the transfer of particular matters to that purchaser, this will not result in a violation. Neither does a return to private practice as a result of an unanticipated change in circumstances result in a violation. For example, a lawyer who has sold a practice to accept judicial or other public office does not violate the requirement that the sale be attendant to cessation of practice if the lawyer later resumes private practice upon leaving office. The requirement that the seller cease to engage in the private practice of law does not prohibit full-time employment as a lawyer on the staff of a public agency or a legal services entity which provides legal services to the poor, or as in-house counsel to a business or full-time employment as a lawyer by an individual or group. The Rule permits a sale attendant upon retirement from the private practice of law within Oklahoma. Its provisions, therefore, accommodate the lawyer who sells a practice upon the occasion of moving to another state. Single Purchaser. The Rule requires a single purchaser. The prohibition against piecemeal sale of a practice protects those clients whose matters are less lucrative and who might find it difficult to secure other counsel if a sale could be limited to substantial fee-generating matters. The purchaser is required to undertake all client matters in the practice, subject to client consent. If, however, the purchaser is unable to undertake all client matters because of a conflict of interest in a specific matter respecting which the purchaser is not permitted by Rule 1.7 or another rule to represent the client, or because the purchaser lacks the requisite knowledge and skill to handle a particular matter, the requirement that there be a single purchaser is nevertheless satisfied. Client Confidences, Consent and Notice. Negotiations between seller and prospective purchaser prior to disclosure of information relating to a specific representation of an identifiable client no more violate the confidentiality provisions of Model Rule 1.6 than do preliminary discussions concerning the possible association of another lawyer or mergers between firms, with respect to which client consent is not required. Providing the purchaser access to client-specific information relating to the representation and to the file, however, requires specific, written client consent. The Rule provides that before such information can be disclosed by the seller to the purchaser the client must be given actual written notice of the contemplated sale, including the identity of the purchaser and any proposed change in the terms of future representation, and the client must signify by written consent to the transfer of representation. A lawyer or law firm ceasing to practice cannot be required to remain in practice because some clients cannot be given actual notice of the proposed purchase, although the Rule requires reasonable efforts to be made to locate all clients. This could include notice by publication and in any event should include notice to the Bar Association office of the sale of the practice and the identity of the purchaser. Since those clients not receiving actual notice cannot themselves consent to the purchase or direct any other disposition of their files, the Rule also requires that appropriate arrangements be made with another lawyer or law firm to assume such representation, which may or may not be the purchaser of the practice. However, in such circumstances there must also be compliance with the applicable requirements of Rule 1.16. The considerations described in Part II of ABA Formal Opinion 92-369 (Dec. 7, 1992) as applicable in the case of custodians of files of deceased sole practitioners may also have relevance in this connection. The Rule also provides for the safekeeping of inactive files for which client consent to transfer cannot be obtained. Fee Arrangement between Client and Purchaser. The sale may not be financed by increases in fees charged the clients of the practice. Existing agreements between the seller and the client as to fees and the scope of the work must be honored by the purchaser, unless the client consents after consultation. The purchaser may, however, advise the client that the purchaser will not undertake the representation unless the client consents to pay the higher fees the purchaser usually charges. To prevent client financing of the sale, the higher fee the purchaser may charge must not exceed the fees charged by the purchaser for substantially similar service rendered prior to the initiation of the purchase negotiations. Furthermore, the purchaser may not require a client to agree to change from a contingent fee to another fee basis or from another fee basis to a contingent fee, as a condition for accepting the representation, and "rate" as used in the Rule is intended to refer to contingent fee percentages as well as hourly, per diem, or flat fee rates. Where a client has retained the lawyer paying in advance a set fee charged to complete the representation, the client is entitled to a refund of any unearned fee from the selling lawyer. See Rule 1.16 (d). The amount of the refund should be calculated pro rata on the basis of the remaining work to be done. In cases of doubt, the calculations should give due regard for the client's expectation of having the legal work completed for the amount originally fixed by the selling lawyer. The purchaser may not intentionally fragment the practice which is the subject of the sale by charging significantly different fees in substantially similar matters. Doing so would make it possible for the purchaser to avoid the obligation to take over the entire practice by charging arbitrarily higher fees for less lucrative matters, thereby increasing the likelihood that those clients would not consent to the new representation. Other Applicable Ethical Standards. Lawyers participating in the sale of a law practice are subject to the ethical standards applicable to involving another lawyer in the representation of a client. These include, for example, the seller's obligation to exercise competence in identifying a purchaser qualified to assume the practice and the purchaser's obligation to undertake the representation competently (see Rule 1.1); the obligation to avoid disqualifying conflicts, and to secure client consent after consultation for those conflicts which can be agreed to (see Rule 1.7); and the obligation to protect information relating to the representation (see Rules 1.6 and 1.9). If approval of the substitution of the purchasing attorney for the selling attorney is required by the rules of any tribunal in which a matter is pending, such approval must be obtained before the matter can be included in the sale (see Rule 1.16). Applicability of the Rule. This Rule applies to the sale of a law practice by representatives of a deceased, disabled or disappeared lawyer. Thus, the seller may be represented by a nonlawyer representative not subject to these Rules. Since, however, no lawyer may participate in a sale of a law practice which does not conform to the requirements of this Rule, the representatives of the seller as well as the purchasing lawyer can be expected to see to it that they are met. It should also be noted that the disposition of the practice of a disappeared lawyer is subject to the provisions of Rule 9.3 of the Oklahoma Rules Governing Disciplinary Proceedings. Admission to or retirement from a law partnership or professional association, retirement plans and similar arrangements, and a sale of tangible assets of a law practice do not constitute a sale or purchase governed by this Rule. This Rule does not apply to the transfers of legal representation between lawyers when such transfers are unrelated to the sale of a practice. Code Comparison There was no counterpart to this Rule in the Model Code, but see EC 4-6. Oklahoma Modification Oklahoma Rule 1.17 is generally derived from ABA Model Rule 1.17, but contains substantial modifications designed to enhance the protection of the interests of the clients affected, one of the most significant being a requirement for written consent by the client whose representation is proposed to be transferred. See subparagraph (a)(1), and paragraphs (c) and (d). Other provisions not found in the ABA Rule are requirements reasonably designed to assure competence on the part of the transferee lawyer(s) to handle the matter in question (subparagraph (a)(2)); assure that no conflicts of interest would result (subparagraph (a)(3)); and provide for custody of "orphan" and inactive files (paragraphs (f) and (g)). The Oklahoma Rule 1.17 also eliminates any reference to the sale of a practice by a law firm, for the reason stated in the Introduction to the Comment. Historical Data Adopted December 14, 1995.
Rule 1.17. Sale Of Law Practice
A lawyer (or the authorized representative of a lawyer) who ceases to engage in the private practice of law in Oklahoma may sell the law practice of such a lawyer to a lawyer or law firm, and a lawyer or law firm may purchase that law practice, if the following conditions are satisfied: