Arthur J. Ciampi

“A good name is more desirable than great riches; to be esteemed is better than silver or gold.” —Proverbs 22:1

Retiring from the practice of law and selling one's law firm to a third party pursuant to Rule 1.17 of the New York Rules of Professional Conduct (Rule 1.17) can be a complex process fraught with legal and economic difficulties.

In May, the New York State Bar Association Committee on Professional Ethics issued Opinion 1168 (May 13, 2019) which revisited and addressed some important issues related to the sale of a law firm. In short, the opinion found that a lawyer affiliated with a firm may purchase a firm consistent with Rule 1.17 and may use the name of the seller's firm provided that doing so is not misleading. In addition, Opinion 1168 clarified some confusion concerning the application of the term “retired” as used in Court of Appeals rules and in Rule 1.17, and, as discussed below, concluded that, for purposes of a sale of a law firm, the term “retired” is that used in Rule 1.17.

Before discussing Opinion 1168, let's consider some background concerning retirement and the sale of a law practice.

Retirement, Sale, and Rule 1.17

Rule 1.17, entitled, “Sale of Law Practice,” primarily addresses the sale of a law practice upon retirement.

Rule 1.17 states in pertinent part:

A lawyer retiring from a private practice of law; a law firm, one or more members of which are retiring from the private practice of law with the firm; or the personal representative of a deceased, disabled or missing lawyer, may sell a law practice, including goodwill, to one or more lawyers or law firms, who may purchase the practice. The seller and the buyer may agree on reasonable restrictions on the seller's private practice of law, notwithstanding any other provision of these Rules. Retirement shall include the cessation of the private practice of law in the geographic area, that is, the county and city and any county or city contiguous thereto, in which the practice to be sold has been conducted.

Rule 1.17.

A New York Court of Appeals rule (Court of Appeals Rule) that requires attorney certification and registration has, in the past, been used in defining the “practice of law” and “retirement,” and provides a different and stricter definition of “retirement.” See, e.g., N.Y. State 850 (2011). The rule states:

For purposes of this section, the “practice of law” shall mean the giving of legal advice or counsel to, or providing legal representation for, a particular body or individual in a particular situation in either the public or private sector in the State of New York or elsewhere; it shall include the appearance as an attorney before any court or administrative agency. An attorney is “retired” from the practice of law when, other than the performance of legal services without compensation, he or she does not practice law in any respect and does not intend ever to engage in acts that constitute the practice of law.  

22 NYCRR §118.1(g) (emphasis added).

As set forth above, Rule 1.17 defines “retirement” to include “the cessation of the private practice of law in the geographic area, that is, the county and city and any county or city contiguous thereto, in which the practice to be sold has been conducted.” Rule 1.17 (emphasis added). Thus, Rule 1.17 permits retirement to be limited to certain geographical limitations whereas the Court of Appeals' registration rule requires the complete cessation of the practice of law to qualify as retirement.

For example, pursuant to Rule 1.17, a real estate lawyer cannot sell his real estate practice in Manhattan and then commence a real estate practice anywhere in New York City or any county or city contiguous thereto, such as Westchester or Nassau Counties, and still be considered to be retired. At the same time, pursuant to Rule 1.17, the retired lawyer could continue to have a private practice in Albany County, and nonetheless be considered a retired lawyer who permissibly sold their practice. The Court of Appeals Rule, on the other hand, would require the complete cessation of the practice of law. Accordingly, there is tension between Rule 1.17 and the Court of Appeals Rule.

Law Firm Name

Among the important commercial considerations for those buying and selling a law firm is the continued use of the old firm's name. Such continued use may be important to establish a “brand” that continues the old firm's practice areas and strengths. Whether a name can be used after a sale is, in part, determined by whether the selling lawyer is deemed to be “retired.” This determination can be reached by applying Rule 1.17 and/or the Court of Appeals Rule, as well as Rule 7.5(b) of the New York Rules of Professional Conduct (Rule 7.5(b)) regarding law firm names.

Rule 7.5(b) states: “A lawyer in private practice shall not practice under a trade name, a name that is misleading as to the identity of the lawyer or lawyers practicing under such name, or a firm name containing names other than those of one or more of the lawyers in the firm, except that…a firm may use as, or continue to include in its name the name or names of one or more deceased or retired members of the firm or of a predecessor firm in a continuing line of succession.” (emphasis added).

Thus, determining whether a lawyer is “retired” can be determinative of whether a firm can continue to use the lawyer's name. Complicating this analysis is the aforementioned tension between Rule 1.17 and the Court of Appeals attorney registration rules concerning what constitutes “retirement.”

Opinion 1168

Opinion 1168 attempts to address and resolve these issues.

The potential seller or “owner” in Opinion 1168 intended to cease practicing law in one geographic area, and to commence practicing law thereafter in counties not contiguous to, but distant from, New York City, where the owner's offices were located prior to the sale. NYSBA Opinion 1168. Accordingly, as stated above, the owner would comply with Rule 1.17 and could sell his practice.

The opinion states, however, that “[t]he use of the owner's name in the purchased entity presents a closer question owing to a tension between Rule 1.17 and Rule 7.5(b).” Id. at ¶8. The opinion also notes that Rule 1.17 specifically permits the purchase of a law firm's good will, which includes, among other things, a firm's name. Opinion 1168 states that “[w]e have long recognized that the name of a law firm is central to its good will.” Id. at ¶10.

Opinion 1168 concludes that Rule 1.17 “suggests that any lawyer, whether or not previously affiliated with the acquired firm, is free to adopt some or all of the acquired firm's name as its own.” Id. at ¶11. The opinion then properly identifies the problem: “Therein lies the rub with Rule 7.5(b)….” Id.

Rule 7.5(b), Opinion 1168 states, “serves to protect the public from being deceived about the identity, responsibility, or status of those who use the firm name.” Id. at ¶12. The opinion continues: “[w]e think it is important to address a potential tension between Rules 1.17 and 7.5(b), because we can envision circumstances in which, without full disclosure, the entry of a stranger to a firm, operating under the firm's name, could generate the public confusion that Rule 7.5(b)…is intended to prevent. Rule 7.5(b) is explicitly addressed to firm names, whereas Rule 1.17 is intended to facilitate the sale of a law business.” Id. at ¶13.

Opinion 1168 then finds: “We believe that a lawyer with a pre-existing and bona fide affiliation with a law firm—reflective of a continuation of the practice—may acquire that law firm and use its name provided that all the other requirements of Rule 1.17, including notice to clients and maintenance of client confidences, are respected.” Id.

The opinion further suggests applying Rule 1.17, and not the Court of Appeals Rule, to determine whether, in the context of a sale, the selling lawyer is retired. The opinion, in drawing a distinction between Rule 1.17 and the Court of Appeals Rule, states: “The Court Rule on the registration of lawyers has a different purpose from Rules 7.5(b) and Rule 1.17. The Court Rule determines when a lawyer is required to pay registration fees to the Office of Court Administration and when a lawyer must comply with the rules on continuing legal education – not when a law firm name should be considered misleading or a trade name.” Id. at ¶16.

The opinion concludes by opining: “A lawyer affiliated with firm wholly owned by another lawyer may purchase the firm consistent with Rule 1.17 and may use the name of the seller's firm provided that doing so is not misleading.” Id. at ¶17.

Finally, it is worth noting that, in reaching its conclusion, the opinion revisited two prior opinions of the committee, which were modified. The first modified opinion, N.Y. State 148 (1970), had opined that an associate could not continue the use of a firm name that included the name of a deceased partner. The second modified opinion, N.Y. State 850 (2011), had opined that a firm could not use the name of a partner who left the firm to act as general counsel of a corporation.

Conclusion

Selling and buying a law practice can be a significant transaction. Ensuring that the law firm name can be continued affects not only one's ethical obligations, but also the firm's value, for the continued use of the old name may be a valuable asset of a law firm. In contemplating such a transaction, a lawyer would be well advised to consider the requirements of the New York Rules of Professional Conduct and to consult with trusted financial and legal advisors about the viability of retiring as provided for in the rules and applicable case law.

Arthur J. Ciampi is the coauthor of the treatise 'Law Firm Partnership Agreements' and is the managing member of Ciampi LLC. Maria Ciampi, of counsel to Ciampi LLC, assisted in the preparation of this article.