December 17, 1968
Ethics Opinon 1968-5
SUBJECT: PURCHASE OF PRACTICE AND GOODWILL OF A DECEASED ATTORNEY
Can an attorney purchase the goodwill and probate practice of a deceased lawyer who had no partner by payment to his heirs or personal representatives of a lump sum or an agreement to pay a stated percentage of future gross or net receipts from his clients?
It is the opinion of this Committee that an attorney may not purchase the practice and goodwill of a deceased attorney from the deceased attorney's estate, whether by lump sum or by agreement to pay a stated percentage of the future receipts, gross or net, from his client. An attorney may pay to the deceased attorney's estate a share of the total compensation received from the client which fairly represents the proportion of the service rendered by the deceased attorney up to the time of his death only.
STATUTES AND CANONS
Formal Opinion No. 266 of the American Bar Association states that Canon 34 prohibits any agreement for the payment to the widow and the heirs either gross or net, of the fees received from the future business of the deceased lawyer's clients both because the recipients of such division are not lawyers and because such payments will not represent service or responsibility on the part of the recipient. The latter, according to the American Bar Association Opinion, would also preclude the purchase by one lawyer of the practice of another who has retired, on the basis of a percentage of future receipts based on future services.
The Committee on Professional Ethics of the New York County Lawyer's Association in Opinion No. 109 stated:
"Clients are not merchandise. Lawyers are not tradesmen. They have nothing to sell but personal service. An attempt, therefore, to barter in clients, would appear to be inconsistent with the best concepts of our professional status."
Canon 37 provides that:
"It is the duty of a lawyer to preserve his client's confidences. This duty outlasts the lawyer's employment . . ."
As pointed out in Formal Opinion No. 266, Canon 27 which prohibits solicitation also precludes a lawyer from soliciting by arrangement with the estate of a deceased lawyer the latter's clients to continue their business with him, or from permitting the widow or heirs of the deceased to urge such clients to continue their business with him. The Opinion goes on to state that the inevitable result in allowing such a transaction would in effect be to give a preferred position to the highest obtainable bidder of the deceased attorney's practice which is not the basis on which an attorney should be retained.
In addition to the above statutes and canons, Henry S. Drinker at Page 61 in his work, "Legal Ethics" states that:
"A lawyer's practice and goodwill may not be offered for sale."
At Page 189, Mr. Drinker states that:
"While it is proper for a fellow lawyer to care for the practice of a deceased colleague, this should be done primarily in the interests of the client until the client can make a desired substitution.
"A lawyer's clients are not merchandise nor is a law practice the subject of barter. The purchase of a lawyer's practice and goodwill and the payment therefor to him or to his estate by a percentage of the receipts from his business is improper, since this would constitute a division of fees with laymen, forbidden by Canon 34. It would seem, however, that a reasonable agreement to pay the estate a proportion of the receipts for a reasonable period is a proper practical settlement for the lawyer's services to his retirement or death."
Every lawyer's files contain confidential information from clients which neither he nor his heirs or personal representatives may properly disclose without the client's express permission.
It is therefore the Opinion of this Committee that neither an attorney's practice nor goodwill can be sold on a lump sum, percentage or on any other basis. The estate may sell the library furniture and fixtures, and office fixtures as well as his office lease if it has value. In addition, the estate of the deceased lawyer has a claim against his clients for the agreed or fair value of whatever services he may have performed for them up to the time of his death.
This opinion is advisory only and is not binding upon the State Bar, the Board of Governors, their agents or employees.
EDITOR'S NOTE 9/12/76: Subsequent to this opinion of the San Diego County Bar Association, the Committee on Professional Ethics of the State Bar of California, in Formal Opinion 1975-34, June 30, 1975, considered the similar issue of whether probate fees could be divided between the estate of one attorney partner and the surviving partner, even if such a provision had been included in a written partnership agreement. Based on Rule 3-102, which prohibits the unauthorized practice of law by lay persons, it was the Committee's opinion that such a division was impermissible, except to the extent of the fees earned prior to death. Since the underlying question in the San Diego County Bar Association Opinion 1968-5 did not even involve a contractual agreement, but an outright purchase from the estate, it would seem that the opinion by the Committee on Professional Ethics of the State Bar of California really affirms Ethics Opinion 1968-5 of the San Diego County Bar Association.
The subject matter of A.B.A. Canon 37 is now covered by Canon 4 and DR 4-101 of the A.B.A. Code of Professional Responsibility. Also see DR 2-107 regarding the division of fees among lawyers.
Disclaimer: This opinion was issued by the Legal Ethics Committee of the San Diego County Bar Association. It is advisory only and is not binding upon any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors, or any persons or tribunals charged with regulatory responsibilities. The SDCBA, its officers, directors, agents, and the Legal Ethics Committee members assume no responsibility or liability in rendering this opinion.