Ethical Succession Planning for Solo Firms: Exit Stage Right

Three years ago, after over two decades of practicing in small firms, medium sized firms and big firms, I decided to open a solo practice. A solo practice offers two things critical to work satisfaction: flexibility and autonomy. With that come other attractions: there is no billable hours requirement and a book of business can be scaled very comfortably when it only supports one attorney. The downside of solo practice is there is no one to share the responsibility for clients or revenue generation. It’s all you.

In this world of “inter-connection” there are ways to ameliorate the solitude. As our PACDL members know, joining an association of lawyers in your field of practice can be a lifesaver, especially if it hosts a helpful listserv. For example, the PACDL listsery provides its members with access to emergency advice, help with court appearances, crowd-sourced brainstorming of legal issues, and updates on new decisions and their consequences.

But what about the solo practitioner who is reaching the end of his or her career? The issue of succession was brought to every lawyer’s attention during last year’s registration period. The attorney registration form included a new section regarding succession planning, requiring each lawyer to indicate whether they had designated a successor. While filling out the form was required, failure to have a designated successor is NOT a violation of the Rules of Professional Conduct or the Pennsylvania Rules of Disciplinary Enforcement. The additional question was intended to encourage “each Pennsylvania attorney to begin seriously contemplating the need for succession planning.”(1)

One could argue that the duties to represent a client competently and diligently, as laid out, respectively, in Rules of Professional Conduct 1.1 and 1.3, require an attorney to have a succession plan in the event of an unexpected event that prevents the attorney from protecting his client’s interests. The Philadelphia Bar Association Professional Guidance Committee has stated “that the continuing nature of the ethical duties imposed by the Rules weighs heavily in favor of lawyers taking steps to anticipate the closure of their practices due to death or disability even if that closure is not imminent.” (2)

This article provides criminal defense attorneys in solo practices with guidance on options for succession planning in both exigent and non-exigent circumstances and some basic steps that you should start thinking about long before these plans need to be executed.

First Act: Planning the Process

Some steps in the planning process should already be in place. For example, one of the challenges at the end of a practice is the disposition of closed files. Every attorney should have a document destruction/file retention policy, communicated and agreed to by the client through incorporation into your engagement letters. This policy should inform clients of how long you will retain their files after their matter ends and provide the client with option to obtain the file or agree to its destruction at the end of that time period.

Another step that should now be in place is the maintenance of a business continuity memorandum that documents your standard operating procedures and permits others to protect your clients and your practice if you are unavailable or unable to do so. The memo should describe your filing system, your calendar and docketing system, your vendor obligations including any space or other leases, your financial information including payroll, payables and receivables, your document management system, your computer and phone passwords, your client list, and any claims pending against you. This document will also be useful if you choose to retire, merge or sell your practice.

If you do not have a successor attorney chosen to take over your practice in the event of death or disability, Subchapter C of the Pennsylvania Rules of Disciplinary Enforcement provides for the appointment of a conservator to assume responsibility for your practice. (3) A conservator is obligated to contact your clients and inform them of the conservatorship. The conservator will also take control of your bank accounts, and in the event of death, charge your estate for your services. The easiest way to avoid this happening after death is to use your Will to appoint a lawyer as a Personal Representative with the power to continue to operate the business during the administration of the Estate. (4)

Second Act: Which Exit to Choose?

The next vital step in the planning process is determining what form your exit will take. Will you gradually retire by limiting your intake of cases until you stop taking any new cases at all? This is the route many solos choose. However, this gradual winding down of your practice may be a missed opportunity to benefit from the value of your current practice. Several alternatives to this option exist: recruit a successor lawyer to take over your practice, merge with a small firm or another solo, get acquired by a big firm or sell the practice.

As you consider the options, remember, this is not a one-size-fits-all solution: each practice is as individual as the lawyer who owns it. Criminal practices have their own unique attributes: while some criminal defense lawyers may have “repeat” customers, many represent individuals who never get into criminal trouble again. The first question in assessing whether to try to transfer the value of your practice through some form of sale or merger is analyzing how your practice creates value. Are your clients referred by former clients or other lawyers? Do you obtain clients through advertising? Do you have a specific criminal niche that reliably provides a stream of income? It is never too early to ask yourself these questions. This type of business analysis can guide your marketing efforts and improve your business at any stage in your career. Also, the sooner you start gathering this data, the more powerful your position will be in any future negotiations to continue your business past your retirement.

Let’s turn now to the options. If you are winding down the practice, you will simply start by not accepting new matters and then completing all your client projects. For a litigator, this means that your practice will be extended until your last case is concluded. As you begin this process, focus on how to prepare for your eventual closing. One thing you should do is purchase an extended reporting endorsement for your malpractice insurance, also known as tail insurance. This endorsement attaches to the final policy that is in force at the time you close your practice. It provides an attorney the right to report claims to the insurer after the final policy has expired for claims that are made after the practice is closed but that occurred during the firm’s lifetime.’

One alternative to winding down a practice is recruiting a successor who has the talent and temperament to take over your practice when you step away. The benefit of this approach is that it can cushion and extend the winding-down of your own practice without requiring the dissolution of the infrastructure of your firm. The detriment of this approach is that it might take time and patience to find the right person. For that reason, this is a process that should be started a few years before you are ready to retire. If you are lucky, you might find a mentee or protégé who would be just the right fit!

In a similar vein, you may be able to merge your practice with another established solo or a small firm. A successful merger can also take several years to accomplish as you search for the right firm and the right situation, with a good fit as to both financial goals and culture. The optimal situation may provide you with an “Of Counsel” position with appropriate compensation and continued involvement with clients as your matters are transitioned to other lawyers within the firm.

For an alternative path, some solo practitioners may seek to move to a larger firm. While this may be lucrative, it is likely only going to be successful in limited circumstances as many solos will not be happy adapting to the bureaucracy and culture of a large firm.

The Rules of Professional Conduct also permit a lawyer to sell a law practice, if certain conditions are met. First, the lawyer must cease engaging in the “private practice” of law but may assist in the transition of the clients for “a reasonable period.” The seller must give written notice to each of the seller’s clients, which includes notice of the proposed transfer, including the identity of the buyer and a statement that the client has the right to choose other counsel. The client’s terms of engagement cannot be changed by the sale and the fees cannot be raised. If the client does not object to the transfer within 60 days, their consent is presumed, and the purchaser assumes the duty to the client.

Third Act: Retirement

If you want to retire, you cannot just stop filling out your annual registration fee and paying your dues. This will lead to an administrative suspension. An attorney who wants to retire must file a special form with the Office of Attorney Registration. The form is found at the Disciplinary Board website. Also, in 2018, the Court adopted Pennsylvania Rule of Disciplinary Enforcement 403, creating an emeritus status for attorneys who retire from the practice of law and wish to provide pro bono services to legal aid organizations. The retired attorney must complete six hours of continuing legal education within one year prior to the application date as a prerequisite to transferring to emeritus status. The emeritus applicant must verify that in the pro bono position, the attorney is not permitted to handle client funds or receive compensation. The legal aid organization must be approved by the Disciplinary Board. An emeritus attorney may renew the status on an annual basis between January 1 and January 31 of each year and has a CLE requirement of 8 credits: 6 substantive and 2 ethics.

In conclusion, there many ways to leave the stage of lawyering, and as with so much in our professional lives, preparation and planning are the keys to success. And just like in your solo practice, there are resources and help available to you — you don’t have to go it alone.

NOTES:

(1) Succession Planning – Is It Mandatory for Pennsylvania Lawyers? http://www. padisciplinaryboard.org/news-media/news-article/68/ succession-planning—is-it-mandatory-for-lawyers-in-pennsylvania. Former Disciplinary Board Chair, Dion G. Rassias, Esq. wrote this informative article, posted on the Board’s website, explaining the impetus for this question and surveying other states’ requirements.

(2) Opinion 2014-100 (Dec. 2015).

(3) See Pa.R.D.E. §§321-329.

First published by the Pennsylvania Association of Criminal Defense Lawyers, For The Defense, Vol. 5, Issue 2 (May 2020)

With over 25+ years experience, Ellen C. Brotman began her career as a law clerk in the United States District Court, Southern District of New York. She has served as an Assistant Federal Defender in Philadelphia, PA and practiced in small, medium and large firms with a focus on criminal defense, appellate advocacy, professional responsibility and ethics. She has defended a wide variety of high-profile criminal cases, including political and public corruption, securities fraud, tax fraud, money laundering, currency structuring and other white-collar crimes involving complex trial, sentencing and appellate issues. Ms. Brotman also has extensive experience representing lawyers before the Disciplinary Board of Pennsylvania. She has been recognized as a Best Lawyer and SuperLawyer since 2007 in the area of criminal defense and has served on the boards of the National Association of Criminal Defense Lawyers and the Pennsylvania Association of Criminal Defense Lawyers. She is the founder and owner of BrotmanLaw, Philadelphia, PA.

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