An Attorney’s Guide To Closing A Law Firm
Just like any other professional, sometimes lawyers choose to close their practices. The decision to close a firm is matched in difficulty by the evaluative process that leads to coming to that conclusion. Whether it be due to relocation, career rerouting, revenue challenges, or another of the various reasons why businesses close, it’s a process that can often feel more like a problem than a solution.
Primary among these concerns is that the exiting lawyer must take care of clients above all else, which includes taking care of their property. Tell your clients that you are closing the practice and give referrals to other lawyers who can take over their cases. Hand over all files and property to the client or the lawyer who will be handling their case.
Reconcile all funds that are held in trust accounts. If there are unclaimed funds in any accounts, determine if they need to be refunded to a client or turned in to your state’s unclaimed property agency.
In addition to taking care of clients, a lawyer must also take care of staff. As well as being the right thing to do, this monumental task is something that would be considerably more difficult to accomplish without your trusted employees or with only temporary employees if your staff departs hastily. Once you decide the date that you will close the firm, let your employees be the first to know. Notify your staff about who will be let go immediately and those who will be asked to stay and help prepare for closing. Offer severance packages to your employees according to seniority. Be sure to contact neighboring law firms and your bar association referral service to help place your staff members.
To begin closing a practice, first develop a carefully thought-out checklist of tasks that must happen and when they must be carried out, and be sure to sort the list by urgency. Taking a good look at your cases will help you establish a reasonable date on which you can close the firm. If a particular case will reach far into the future, find a local lawyer who will agree to take it over.
Finally, notify your bar association that you have closed your trust account. You must keep your trust records for five years, according to the ABA Model Rule 1.15 (a), “Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of [five years] after termination of the representation.”
Will you need to refund money to your clients? If you or the firm has taken any advance fees, return the fee or pay another qualified lawyer to complete the work. This is in accordance with the ABA Model Rule of Professional Conduct 1.5, Comment 4, which states: “A lawyer may require advance payment of a fee, but is obliged to return any unearned portion.”
Other matters that you must address include insurance policies, bank or other financial obligations, utility company issues, vendor agreements, and your lease or office property. You also need to meet with your accountant to discuss closing your firm, taxes, and other financial matters related to the firm.
Make sure to have your mail forwarded for at least a year after the firm has closed. Have the phones go to a recorded message that gives a phone number where callers may make contact. Set your website to a static page explaining the situation and leave contact information that will be valid for at least a year.
If you are a partner in a firm, then you need to look closely at the Unfinished Business doctrine and Jewel v. Boxer, 156 Cal. App. 3d 171, 203 Cal. Rptr. 13 (Cal. Ct. App. 1984) (“Jewel”). The issue was the proper allocation of attorney fees from cases that former partners had worked on after the dissolution of the original law firm under which the cases were first taken.
The court applied the unfinished business doctrine of the Uniform Partnership Act in its findings, where it held that “In this case we hold that in the absence of a partnership agreement, the Uniform Partnership Act requires that attorneys’ fees received on cases in progress upon dissolution of a law partnership are to be shared by the former partners according to their right to fees in the former partnership, regardless of which former partner provides legal services in the case after the dissolution. The fact that the client substitutes one of the former partners as attorney of record in place of the former partnership does not affect this result.”
To work around Jewel, lawyers began to insert “Jewel waivers” in partnership agreements. These waivers allow law partners to complete unfinished business and without being obligated to disgorge profits to the dissolved firm’s partners.
On March 2018, the California Supreme Court issued a ruling in Heller Ehrman LLP v. Davis Wright Tremaine LLP. The court held that “Under California law, a dissolved law firm has no property interest in legal matters handled on an hourly basis, and therefore, no property interest in the profits generated by its former partners’ work on hourly fee matters pending at the time of the firm’s dissolution.”
The court spoke: clients own their legal matters and lawyers have no ongoing interest in the matter. Still, in spite of Heller Ehrman, Jewel remains intact for contingent fees in several jurisdictions, so it’s still a good idea to include a Jewel waiver in these jurisdictions.
Closing a law firm is no easy feat, both in terms of morale and practicality. In such an overwhelming time, it is paramount to keep in mind that the obligations that a firm owner has to his or her own financial responsibilities, employees, and clients are not terminated alongside the firm. However, the end of a law firm should by no means be synonymous to the end of a law practice if you do not wish it to be so. Now more than ever before, it is altogether possible (and entirely convenient) to start up and maintain a successful and lucrative legal business remotely. With the use of cloud-based software, outsourced assistance, and various platforms that allow quality work to be completed remotely, being a fully automated lawyer, whether practicing out of a skyscraper or a local coffee shop, has never been easier. Don’t hold your dreams, or your professional potential, hostage between the four walls of an office; explore the numerous automation avenues available to you!