THE COURTS
Title 204--JUDICIAL SYSTEM GENERAL PROVISIONS
PART V. PROFESSIONAL ETHICS AND CONDUCT
[204 PA. CODE CHS. 81 AND 83]
Amendments to the Rules of Disciplinary Enforcement and the Rules of Professional Conduct; No. 13; Disciplinary Rules Doc. No. 1
[31 Pa.B. 3728]
Order Per Curiam:
And Now, this 28th day of June, 2001, it is ordered, pursuant to Article V, Section 10, of the Constitution of Pennsylvania, that:
1. Rules 218 and 219 of the Pennsylvania Rules of Disciplinary Enforcement are hereby amended to read as set forth in Annex A.
2. The Pennsylvania Rules of Professional Conduct are amended by adding a new Rule 1.17 and Rules 1.6, 5.4, 5.6 and 7.2 are amended to read as set forth in Annex B.
3. This Order shall be processed in accordance with Pa.R.J.A. 103(c). New Rule 1.17 and these amendments shall take effect upon publication of this Order in the Pennsylvania Bulletin and shall govern matters thereafter commenced and, in so far as just and practicable, matters then pending.
Annex A
TITLE 204. JUDICIAL SYSTEM GENERAL PROVISIONS
PART V. PROFESSIONAL ETHICS AND CONDUCT
Subpart B. DISCIPLINARY ENFORCEMENT
CHAPTER 83. PENNSYLVANIA RULES OF DISCIPLINARY ENFORCEMENT
Subchapter B. MISCONDUCT Rule 218. Reinstatement.
(a) No attorney suspended for a period exceeding one year, transferred to inactive status more than three years prior to resumption of practice or transferred to inactive status as a result of the sale of his or her practice pursuant to Rule 1.17 of the Pennsylvania Rules of Professional Conduct, or disbarred may resume practice until reinstated by order of the Supreme Court after petition therefor pursuant to these rules.
* * * * * (g) Attorneys who have been on inactive status for three years or less may be reinstated pursuant to Enforcement Rule 219(h) or (j) (relating to periodic assessment of attorneys) as appropriate. This subdivision (g) does not apply to any attorney who has sold his or her practice pursuant to Rule 1.17 of the Pennsylvania Rules of Professional Conduct.
* * * * * Rule 219. Periodic assessment of attorneys; voluntary inactive status.
* * * * * (i) An attorney who has retired [or], is not engaged in practice or who has sold his or her practice pursuant to Rule 1.17 of the Pennsylvania Rules of Professional Conduct shall file with the Administrative Office a notice in writing that the attorney desires voluntarily to assume inactive status and discontinue the practice of law. Upon the transmission of such notice from the Administrative Office to the Supreme Court, the Court shall enter an order transferring the attorney to inactive status, and the attorney shall no longer be eligible to practice law but shall continue to file the statement required by this rule for six years thereafter in order that the formerly admitted attorney can be located in the event complaints are made about the conduct of such person while such person was engaged in practice. The formerly admitted attorney, however, will be relieved from the payment of the fee imposed by this rule upon active practitioners and Enforcement Rule 217 (relating to formerly admitted attorneys) shall not be applicable to the formerly admitted attorney unless ordered by the Court in connection with the entry of an order of suspension or disbarment under another provision of these rules.
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Annex B
TITLE 204. JUDICIAL SYSTEM GENERAL PROVISIONS
PART V. PROFESSIONAL ETHICS AND CONDUCT
Subpart A. PROFESSIONAL RESPONSIBILITY
CHAPTER 81. RULES OF PROFESSIONAL CONDUCT
Subchapter A. RULES OF PROFESSIONAL CONDUCT § 81.4. Rules of Professional Conduct.
The following are the Rules of Professional Conduct:
CLIENT-LAWYER RELATIONSHIP * * * * * Rule 1.6. Confidentiality of Information.
* * * * * (c) A lawyer may reveal such information to the extent that the lawyer reasonably believes necessary:
* * * * * (2) to prevent or to rectify the consequences of a client's criminal or fraudulent act in the commission of which the lawyer's services are being or had been used; [or]
(3) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim or disciplinary proceeding against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer's representation of the client[.]; or
(4) to effectuate the sale of a law practice consistent with Rule 1.17.
* * * * *
Comment: * * * * * Disclosures Otherwise Required or Authorized
* * * * * It is recognized that the due diligence associated with the sale of a law practice authorized under Rule 1.17 may necessitate the limited disclosure of certain otherwise confidential information. However, as stated above, the lawyer must make every effort practicable to avoid unnecessary disclosure of information relating to a representation, to limit disclosure to those having a need to know it, and to obtain appropriate arrangements minimizing the risk of disclosure.
Former Client
* * * * * (Editor's Note: The following rule is new and is printed in regular type to enhance readability.)
Rule 1.17. Sale of Law Practice.
The personal representative or estate of a deceased lawyer or a lawyer disabled from the practice of law may, for consideration, transfer the client representations of the deceased or disabled lawyer and sell the good will of the deceased or disabled lawyer's practice if the following conditions are satisfied:
(a) The seller sells the practice as an entirety to a single lawyer. For purposes of this Rule, a practice is sold as an entirety if the purchasing lawyer assumes responsibility for all of the active files except those specified in paragraph (f) of this Rule.
(b) Actual written notice is given to each of the seller's clients, which notice must include at a minimum:
(1) notice of the proposed transfer of the client's representation, including the identity and address of the purchasing lawyer;
(2) a statement that the client has the right to representation by the purchasing lawyer under the preexisting fee arrangements;
(3) a statement that the client has the right to retain other counsel or to take possession of the file; and
(4) a statement that the client's consent to the transfer of the representation will be presumed if the client does not take any action or does not otherwise object within 60 days of receipt of the notice.
(c) The fees charged clients shall not be increased by reason of the sale. Existing agreements between the seller and the client concerning fees and the scope of work must be honored by the purchaser, unless the client consents in writing after consultation.
(d) The agreement of sale shall include a clear statement of the respective responsibilities of the parties to maintain and preserve the records and files of the seller's practice, including client files.
(e) In the case of a sale by reason of disability, if a proceeding under Enforcement Rule 301 has not been commenced against the selling lawyer, the selling lawyer shall file the notice and request for transfer to voluntary inactive status, as of the date of the sale, pursuant to Enforcement Rule 219(i).
(f) The sale shall not be effective as to any client for whom the proposed sale would create a conflict of interest for the purchaser or who cannot be represented by the purchaser because of other requirements of the Pennsylvania Rules of Professional Conduct or rules of the Pennsylvania Supreme Court governing the practice of law in Pennsylvania, unless such conflict, requirement or rule can be waived by the client and is in fact waived by the client in writing.
(g) For purposes of this Rule:
(1) the term ''single lawyer'' means an individual lawyer or a law firm that buys a law practice, and
(2) the term ''seller'' means both the personal representative or estate of the deceased or disabled lawyer and the deceased or disabled lawyer, as appropriate.
(h) Admission to or withdrawal from a partnership or professional corporation, retirement plans and similar arrangements or a sale limited to the tangible assets of a law practice is not a sale or purchase for purposes of this Rule 1.17.
Comment: The practice of law is a profession, not merely a business. Clients are not commodities that can be purchased and sold at will. Pursuant to this Rule, when a lawyer dies or is disabled and another lawyer or firm takes over the representation of the clients of the deceased or disabled lawyer, the heirs of the seller or the seller may obtain compensation for the reasonable value of the practice similar to withdrawing partners of law firms. See Rules 5.4 and 5.6.
Sale of Entire Practice
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. The fact that a number of the seller's clients decide not to be represented by the purchaser but take their matters elsewhere, therefore, does not result in a violation of this Rule.
Single Purchaser
This 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 nonwaivable conflicts of interest, other requirements of these Rules or rules of the Supreme Court governing the practice of law in Pennsylvania, 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 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 the client-specific information relating to the representation and to the file, however, requires 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 and file transfer including the identity of the purchaser and any proposed change in the terms of future representation, and must be told that the decision to consent or make other arrangements must be made within 60 days. If actual notice is given, and the client makes no response within the 60 day period, client consent to the sale will be presumed.
The Rule provides the minimum notice to the seller's clients necessary to make the sale effective under the Rules of Professional Conduct. The person responsible for notice is encouraged to give sufficient information concerning the purchasing law firm or lawyer who will handle the matter so as to provide the client adequate information to make an informed decision concerning ongoing representation by the purchaser. Such information may include without limitation the buyer's background, education, experience with similar matters, length of practice, and whether the lawyer(s) are currently licensed in Pennsylvania.
No single method is provided for the giving of actual written notice to the client under paragraph (b). It is up to the person undertaking to give notice to determine the most effective and efficient means for doing so. For many clients, certified mail with return receipt requested will be adequate. However, with regard to other clients, this method may not be the best method. It is up to the person responsible for giving notice to make this decision.
The party responsible for giving notice is likewise not identified in the Rule. In many cases the seller will undertake to give notice. However, the Rule permits the purchasing lawyer or law firm to fulfill the notice requirement.
All of the elements of client autonomy, including the client's absolute right to discharge a lawyer and transfer the representation to another, survive the sale of the practice.
Fee Arrangements Between Client and Purchaser
The sale may not be financed by increases in fees charged to the clients of the practice. This protection is underscored by both paragraph (b)(2) and paragraph (c). Existing agreements between the seller and the client as to the fees and the scope of the work must be honored by the purchaser, unless the client consents after consultation.
Other Applicable Ethical Standards
Lawyers participating in the sale of a law practice are subject to ethical standards applicable to involving another lawyer in the representation of a client. These include, for example, the obligation to avoid disqualifying conflicts, and to secure client consultation for those conflicts which can be waived by the client (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
The seller may be represented by a non-lawyer representative not subject to these Rules. In such circumstances, the purchasing lawyer shall be responsible for compliance with these Rules.
This Rule does not apply to transfers of legal representation between lawyers when such transfers are unrelated to the sale of a practice.
LAW FIRMS AND ASSOCIATIONS * * * * * Rule 5.4. Professional Independence of a Lawyer.
(a) A lawyer or law firm shall not share legal fees with a nonlawyer, except that:
* * * * * (2) a lawyer who undertakes to complete unfinished legal business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer; [and]
(3) a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement[.]; and
(4) a lawyer or law firm may purchase the practice of another lawyer or law firm from an estate or other eligible entity consistent with Rule 1.17.
* * * * * Rule 5.6. Restrictions on Right to Practice.
A lawyer shall not participate in offering or making:
(a) a partnership, shareholders, operating, employment or other similar type of agreement that restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement or an agreement for the sale of a law practice consistent with Rule 1.17; or
* * * * *
INFORMATION ABOUT LEGAL SERVICES * * * * * Rule 7.2. Advertising.
* * * * * (c) A lawyer shall not give anything of value to a person for recommending the lawyer's services, except that a lawyer may pay:
(1) the reasonable cost of advertising or written communication permitted by this rule [and may pay];
(2) the usual charges of a not-for-profit lawyer referral service or other legal service organization; and
(3) for a law practice in accordance with Rule 1.17.
* * * * *
Comment * * * * * Paying Others to Recommend a Lawyer
Subject to the limitations set forth under paragraph (j), a lawyer is allowed to pay for advertising permitted by this Rule and for the purchase of a law practice in accordance with the provisions of Rule 1.17, but otherwise is not permitted to pay another person for channeling professional work. This restriction does not prevent an organization or person other than the lawyer from advertising or recommending the lawyer's services. Thus, a legal aid agency or prepaid legal services plan may pay to advertise legal services provided under its auspices. Likewise, a lawyer may participate in not-for-profit lawyer referral programs and pay the usual fees charged by such programs. Paragraph (c) does not prohibit paying regular compensation to an assistant, such as a secretary, to prepare communications permitted by this Rule.
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[Pa.B. Doc. No. 01-1266. Filed for public inspection July 13, 2001, 9:00 a.m.]
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