Closing a sell for Legal Services

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hello and welcome i see that we have people joining us and we're going to give everybody a chance to get on before we get started i'm lisa from the library and with me today is joanne cohen from the east county san diego bar association and our speaker for the day david carr thank you so much for joining us today i i know that we have probably some members of east county san diego bar with us today and we're so happy to have you east county san diego bar association did co-sponsor this program today and help us promote it so we're very very happy to have you a couple of housekeeping things before we get started i know some of you are interested in getting cle credit for today's session especially since we're offering ethics credit today um if you're on the verified attendees list that is generated by zoom you'll be getting a certificate by email this afternoon so be looking out for that in your email we will have a survey at the end as always so we ask that you take a minute or two to fill that out please and give us feedback on our program and then finally this is an interactive presentation today we will be able to ask questions of david we're going to reserve a few minutes at the end for that if you'd like to submit a question we ask that you use the q a icon if you see that on your screen that's the one with two speech bubbles and to not use the chat icon so everything's in one place and it's easy for us to see when we get to questions so q and a please and we'll try to get to as many of those as we can all right so um as i mentioned this program today is co-sponsored by the east county san diego bar association and if you're not familiar with that organization you really should be especially if you live or work in east county san diego it is our bar association for east county san diego it's a very wonderful welcoming group i know i'm a member and i always am so feeling so welcomed when i go to events for for this organization they do great cle programs including their annual hard to get credit seminar that is discounted for members it where you can get all the specialty credits in one seminar so again i really highly recommend you look into this if you're not already a member um and our speaker today i'll introduce really quickly and then i'll turn things over to joann our speaker is david cameron cart today we're so happy to have him he's been a frequent speaker for the library and his practice focuses on legal ethics and the law of lawyering so he is the perfect person that we reached out to when we decided we wanted to cover this topic today of the ethics involved in closing a legal practice and with that i'm going to disappear myself and turn things over so joanne can make a quick remark yes it's a pleasure to have you all here today i am the estate planning section um chair for the formerly foothills bar association now the east county san diego bar association we changed our name slightly to make it more clear because some people did not know what the foothills were in san diego area we have a number of sections including criminal civil family law et cetera each will have their own mcle programs membership is only 65 for a year our year starts in july and ends in the following july uh if you could um if you want to check us out go to foothills bar association as online website or follow the link from there the next program i'll be offering is an estate planning laws practice management roundtable which will be held on october 22nd and we're going to get a roundtable discussion dealing with operation issues and some tech solutions to those as well as our requirements and duties under the new state bar rules and i'm come prepared to talk about what law practice management program you use well looking forward to hearing you mr carr thank you so much for speaking for um both our organization and the san diego county law library today thank you uh well thank you joanna thank you for that kind introduction um we're going to spend the next hour more or less talking about ethical issues in closing a law practice that is our identified topic and of course we're since i'm a legal ethics ethics lawyer i'm going to talk about uh the sort of ethical framework surrounding that sort of change and there may be other aspects of closing law practice where other specialties may be necessary uh change in the form of the business entity for instance uh you might need a lawyer who specializes with of in business entities i'm certainly the last person in the world who could give you advice on the tax consequences of anything um but i'm i do know legal ethics and i've been involved in studying legal ethics working in legal ethics for the last 30 years and i am starting to get good at it so hopefully i'll have some some important information to impart today some of this may be familiar to you but some of it may be new so on the chance that uh you're gonna learn something you didn't know about i'm happy you chose to join me today for uh list for a session listening to me talk about what i know which is legal ethics uh first off i want to say word about authorities and i call them essential authorities here uh we're gonna i'm gonna refer to the rules of professional conduct the california rules professional contact and i'm also going to refer to a couple of california formal ethics opinions come that come to you courtesy of the state bar's standing committee on professional responsibility and conduct uh fondly known as coprac and in your materials we have urls so you can access these materials on your own and i'm a big fan of lawyers reading the rules and i'm a big fan of lawyers reading the rules not just once but on a continuing basis because the rules do change we enacted a completely new set of professional rules in november of 2018 and even almost three years later it's it's disheartening to for me to report that there are a number of lawyers who still don't kind of missed that and they don't really know what the law is that governs their law practice and that's what the rules of professional conduct are all about we have new rules they are different in many aspects and they really do merit your attention and if you had a hard time with legal ethics in law school and don't want to revisit it i can certainly understand that but it's important that you know these rules the sapphire's going to assume that you know them ignorance of the rules is not an excuse i would say over 30 years i've probably handled 10 000 state bar complaints or state bar matters at in various complexity and my guess guesstimate is that probably 25 of those matters resulted because the lawyer was ignorant of the rules and it's not very satisfying to be the subject of a discipline complaint that you could have avoided by being up to speed on this stuff so i'll commend them to your reading in terms of guidance the coprac formal ethics opinions are a very good source of guidance on all kinds of issues and the co-practice works very hard to write these opinions and make them useful sometimes they may be kind of a long read but on certain topics they will give you authoritative answers so i'm going to commend those also to your scrutiny uh you might just browse through them and see if there's something there that catches your interest with that let me jump into the presentation as i said i'm going to talk about the general legal ethics framework surrounding the closing of law practice and by closing of a law practice that could mean a number of things that could mean a transition um from a diff from one practice environment let's say a small from solo practice to to a large law firm or maybe government service that might also include a lawyer approaching retirement and looking at how to wind down and ultimately conclude what hopefully has been a long and successful career i i'm approaching that point myself and i i plan on semi-retiring next year legal ethics is the kind of thing that you could never really get away from it kind of gets in your blood but at least some winding down of my law practice is going to occur in the next few years as i reach retirement age i've already reached it but many lawyers are with the retirement of baby boomers many lawyers are in the position where they are now at the point where they're going to wind up a law practice and that create that has created some some interesting issues all those things could be part of closing the law practice and we're going to start our first topic is going to be the topic of notifying clients opposing counsel on courts regarding that your change in status and closing a law practice essentially amounts to terminating your employment or might amount to terminating your employment unless you're in the kind of practice scenario where you can take clients with you that typically doesn't work with government service but sometimes lawyers who are transitioning between a small firm environment a solo lawyer practice environment they may be in a position where they can take clients into the new practice environment association associating with a larger firm that's a possibility but in most cases you're going to be looking at terminating your representation of one or more clients in the process of closing a law of practice and for that reason it's essential uh that you be familiar with the the rule on turbination of employment that's california rule of professional conduct 1.16 uh the rules of professional conduct are organized in a series of chapters and for most lawyers the most significant chapter is chapter one which are the rules that govern the attorney-client relationship rules one through 1.1 through 1.18 if you're new to the rules that's a good place to start most lawyers represent clients in private practice and those are the rules that are going to be the most significant to you although at some point i think you should look at all the rules because there's there are many important aspects to the rules beyond the attorney-client relationship 1.16 governs termination of employment and it specifically governs uh when you can withdraw from employment some lawyers are surprised to learn that they can't just walk away from a client or a case and i've seen language in some lawyers fee agreements that purports to give them the right to do so language that says something like a lawyer reserves the right to withdraw from clients employment upon 30 days notice language like that appears in fee agreements and it to my view that language isn't exactly compatible with the rules on withdrawal 1.16 talks about termination of employment and it really talks about scenarios where you can terminate your employment both situations where you must terminate your employment that's rule 1.16a and situations where you uh what's called permissive withdrawal where you have the option of terminating your employment and that's now in rule 1.16b uh there's an awful lot to unpack in rule 1.16 and we're going to talk about a lot of it some of the most important principle aspects of the role but there's a there's a lot here we're not going to talk about so 1.16 is a rule that you need to be familiar with uh if certainly if you're in private practice you need to be familiar with it because it really discusses what your duties are when the attorney-client relationship ends and the two most the two most important sections i think for our purposes we're talking about closing a law practice are the situa our rule 1.16 b6 which is in the permissive withdrawal section it provides that you may withdraw from client representation with the permission of the client the other point the other rule that's important and may be important if you're going to wind down or close a law of practice is rule 1.16a which is in the mandatory withdrawal section you must withdraw from employment if the client terminates your employment the attorney-client relationship as we know is a relationship that is a fiduciary relationship the essence of a fiduciary is one who puts your interest ahead of their own and when it comes to the attorney-client relationship it is not a level playing field and then the existence of all these rules of professional conduct are really ways of fleshing out that fiduciary relationship and putting some bones on that uh concept which can seem somewhat amorphous in terms of specifying exactly what your duties are you serve at the pleasure of the client and the client has an absolute right to terminate your employment for any reason whatsoever a good reason a bad reason or no reason at all the attorney-client relationship is considered a personal kind of relationship at least the rules are written that way although more and more we talk about attorneys as being legal service providers the rules of professional conduct especially title one are written to discuss aspects of a relationship and not just the provision of services i think that's a good way of thinking about the attorney-client relationship it's a way that sometimes gets lost especially in certain types of practices practices involving large numbers of similar cases or practices that really focus on areas like personal injury or other aspects where honestly some lawyers view clients as being basically walking assets as opposed to clients again that's the wrong way to look at it but sometimes that can create blind spots especially when it comes to closing a practice you can't withdraw from representation without the permission of the client conversely you must withdraw from representation if the client chooses to terminate your employment so that's the starting point for our analysis uh in the process of of closing your law practice uh we should hope that you should have the luxury of time that this would be a process that you can plan on and certainly in the retirement scenario you're going to have a period of time to contemplate exactly how you're going to wind down the practice some lawyer retiring lawyers do it through attrition at some point they simply stop accepting new cases and they work off the remaining inventory until those matters are complete and uh hopefully at the end of their process they have few if any remaining clients which makes this whole process of withdrawing from client representation a lot smoother in other scenarios you're not going to have that luxury and i'm thinking of transitions in employment if you suddenly are presented with an opportunity to work for a government agency or a in-house council position or maybe even a position with a larger or large big law law firm you might have less of a luxury in terms of time to wind down your practice this is a difficult problem but however you approach it it has to be done from the point of view that the client's interest comes first and that means that you give clients as much notice as possible of the transition and you actively work with the clients to accomplish that transition if you have four cases or you have 400 cases you owe each of those clients the same duty obviously the 400 cases are a lot more challenging than the 40. but as we work through this we'll get a sense of general principles and then maybe some of the questions we can focus on if you have questions we can focus on the challenges with larger law firms with many many cases an important part of this fiduciary duty and deeply and i think related to the notice requirements uh and an essential principle of termination is that you cannot terminate your employment before you take reasonable steps to avoid reasonably foreseeable prejudice to the client you may have grounds to withdraw permissive grounds some of the permissive grounds are familiar may be familiar the client isn't paying you the client is making the representation unreasonably difficult the client wishes to pursue a course of action that is inconsistent with the law we're not going to talk about those scenarios but those are all grounds for for for either permissive or mandatory withdrawal um the client wants you to assist in the commissioner requirement fraud these are all grounds for withdrawal but in every single instance regardless of what the ground is you owe that client the duty not to withdraw until you take reasonable steps to avoid reasonably foreseeable prejudice now anytime you have two reasonables of the same sentence you could expect trouble because it basically means that you're going to have to perform an analysis in each case on the individual facts of that case and and determine well what at this point in the case what are reasonable steps that i need to take to avoid reasonable foreseeable prejudice and the scenario that's the the clearest is where the transition in employment or and the determination of the attorney-client relationship is close in time to a significant event like a trial or some other court appearance an important statute of limitations or some other deadline where the attorney's abrupt departure would prejudice the client in that scenario you have a duty to avoid reasonable reasonably foreseeable prejudice even if you're going to accept a job and and transition and and eventually stop representing that client you may be in a situation where you can't stop representing the client at that point and you may have to continue to represent that client even after you made the transition and this is something depending on the nature of the transition that has to be discussed with your you know let's say you're moving to the government agency or uh a in-house council position that has to be discussed with your new employer you there there you can't just say i've got a new job and i'm leaving good luck you you have to do much more than that and exactly that scenario where lawyers have essentially said uh it's been great uh it's been fun but it hasn't been great fun i'm to go work for x goodbye without taking those steps that has generated more than a share of state bar complaints so it's possible that you may have to go through this process in a hurry but you can't shortchange this important aspect of the rules of professional conduct 16d says that that duty includes sufficient notice to the client so they can obtain other counsel this is consistent with rule 1.4a the rule regarding your duty to communicate with the client uh and the bnp code section 6068m we are doubly blessed in california we have not only rules we also have statutes that govern attorney behavior and many of these statutes cover some of the same ground as the rules but we can't really forget completely about the statutes communication early and often and sufficient to allow the client to make the transition after you've analyzed whether you have some duty to remain in the case and what reasonably foreseeable measures you may have to take to avoid prejudice those might include seeking a continuance for instance of a trial date or other other kinds of relief the analysis has to be done the client has to be told and then there has to be a timely withdrawal from matters before a tribunal or a court in other words you can't just leave courts might not let you out it's possible that that under some circumstances you may have to make a motion to be relieved if you have a discussion with your client and your client says hey i'm really counting on you to be my lawyer sure trial six months from now but you can't just leave and let me and and and leave me hanging you may have to explore whether you have the basis to make a motion to to withdraw from the case uh whether the clients is making your representation unreasonably difficult by not agreeing to be subbed out you may have to take steps like actually beating the bushes finding other lawyers for for clients it's a lot easier for the client to make a transition if you can essentially facilitate that to a lawyer who's familiar with the area of law a lawyer you know and can trust and who could take over the client's case with a minimum of um friction if you will you may have to pay the client back some of the fees that the client paid in order to facilitate that process and and as a practical matter that's something you need to recognize that it's a possibility uh that it where the client is not going to let you out easy uh you may have to take all of these steps to facilitate your transition to the new employment finally you may have to notify opposing counsel in a litigation matter it's not clear under what circumstances but you may have a duty to them in the interest of fairness to let them know that you're going to be making that transition coprac has a very good formal opinion 2014-190 available on the state bar's website it talks about duties on dissolution of a law firm uh its focus is a little bit different than what we're talking about today but it's the same basic territory and there's an excellent discussion in this ethics opinion uh about the duties that lawyers owed to their clients to avoid reasonably foreseeable prejudice when a law firm dissolves and a significant part of what the opinion talks about is what duty do subordinate lawyers owe the client when a law firm dissolves uh closing of law practice you you as an employee of a law firm or maybe even as a partner you may find yourself involved in the closing of a law practice more or less against your will if a decision is taken that the firm is going to dissolve and 2014 190 talks a lot about essentially the lawyer who's an involuntary participant in the closing of a law practice and it treats the it treats the subject very well the upshot is that every lawyer the the fiction is that in a law firm every lawyer has an attorney-client relationship with every client of the law firm so when a law firm dissolves even a subordinate lawyer has to analyze their relationships with the client and determine what their duty to avoid reasonably foreseeable prejudice entails now obviously that's going to differ in a law firm depending on size depending on organization and it's going to differ depending on whether you're a managing or supervisory lawyer or whether you're merely an associate an employee or maybe an independent contractor but at the same time the opinion stresses that the analysis has to be done even if you're an involuntary participant in the closure of a law firm so i commend that opinion to your to your reading another significant part of the framework regarding uh surrounding the closure of a law firm uh is the the necessity under 1.16c uh to obtain the permission of a court to withdraw from a matter if it's a litigation matter maybe if it's an arbitration matter the rule talks about a tribunal which could include an arbitration form couldn't could include a court if you are involved in a matter like this and the rules of the tribunal maybe triple a maybe superior court require uh permission of the court to withdraw then you have to obtain that permission before you withdraw uh the best example well and and i think in the civil realm coda civil procedure 284 basically says you obtain that permission in one of two ways you either have the client sign a substitution of attorney or you have a court order permitting withdrawal uh 284 suggests there's only two ways out either the client lets you out or the court lets you out now obtaining that substitution of attorney may be a process inquiring requiring quite a bit of labor depending on the client depending on the state of the client's case as we discussed and accommodations may be necessary in order to get the client to allow you to withdraw from a case a litigation matter so that's something that if you're you you need to be prepared for if uh you need to make the transition in a big hurry under some circumstances you may as discussed have to ask the court for permission to withdraw so that's something to keep in mind um again the client's interests come first the court's interest in a sense comes second because the court is charged with ensuring that justice is done to the litigants and uh the there may be scenarios where you need to get out of a case but the court won't let you out and in that case then that's a problem that needs to be discussed especially if you're in that scenario where you're moving to do employment we're going to turn now from uh clients and courts and the people who essentially have to bless the closing of your law practice in some sense but they have to give them you they have to give you their permission in a sense um even in a transactional sense where prejudice is less apparent um you can't merely withdraw from a transactional matter though it may be much easier to withdraw we're going to turn to the discussion of money because this is another big and this is another big topic that comes up when the law practice is going to be closed and especially if it's a law practice that has a client trust account client trust accounts are are big news now because of some of the scandals that have reached the mainstream press regarding celebrity lawyers who maintain client trust accounts and apparently didn't do a good job of maintaining them very well because monies have gone missing so this may be an area where we have a renewed emphasis uh those of you who maintain client trust accounts maybe it may be news to you it may not be news to you that the state bar of california in the wake of these scandals is discussing instituting random client trust account audits of client trust accounts so that is something that you need to be aware of uh other states have random client trust account audits new jersey is a prominent example um the state bar about 10 years ago was considering this move and they studied the new jersey system very closely in new jersey they have an actual team of forensic auditors who will show up at your law practice unannounced and who will ask to see your books and uh as they detect they find a certain amount of uh client trust account misconduct uh when they make that unannounced visit which uh i can assume i'm pretty sure it would be a very uncomfortable event if the state bar institutes that kind of safeguard then it may be a very good idea for those of you who have client trust accounts to be doubly triply quadruply sure that you're maintaining those client trust accounts in ance with the rules i hate to be one of little faith but and it's true in my practice i see the worst case scenarios but i will tell you that it from my viewpoint there's an extraordinary extraordinary amount of non-compliance with the client trust accounting rules much of that non-compliance is innocent non-compliance and the bulk of it is not complying with the record-keeping requirements which are somewhat meticulous and somewhat tedious many lawyers i've had this said to me many times i went i didn't go to law school to be an accountant and the other thing i hear many times is well i'm a really good lawyer but i'm a terrible manager i'm a terrible business person i'm not organized i'm a good lawyer but i'm not organized and those are all i understand all of that but the problem is when you look at the rules of professional conduct and especially the client trust accounting rules these rules basically are telling you when it comes to this stuff you need to either be an accountant or have an account and to the extent this requires a level of business acumen and organization when it comes to this aspect of your business handling other people's money we're going to expect a certain amount of of um what's the right word a certain amount of dedication to this that you may not be by nature inclined to do so trust accounting i've heard many stories many excuses offered for why the trust accounts records weren't kept i've seen many record-keeping systems both as a state bar prosecutor and a defense lawyer uh my all-time favorite though i don't know favorites the right word is the lawyer who showed up uh with a a shoe box an actual tom mccann shoe box only old-timers like me remember tom mccann an actual shoebox filled with scraps of paper when asked to produce his client trust accounting records and that's a worst case example and i've seen many other examples of accounting systems that weren't much better or were completely useless from the point of view of the state bar there's only one way to do it and that's the right way and that means complying with the client trust accounting rules but first off you have to be sort of familiar with the fundamentals and and most of them most of you are probably familiar with if you have client trust accounts you're probably familiar with the fundamentals and i'll just i'm just going to reiterate four of them here the first fundamental is advanced fees and this is a change in the law advanced fees must now be held in trust that's a change some lawyers have not come up to speed on uh that's one of the 2018 changes costs and fees held for clients must be held in trust until they're earned that's a fundamental principle another fundamental principle is the duty to maintain records and in a way this is a pretty easy duty to to fulfill at least conceptually because the bar tells you what kind of client trust accounting records they want you to keep they even show you how to keep them in their client trust accounting handbook uh a third cardinal principle you have a duty to account to the client for client money and that's something to keep in mind when you reach the point at which you may have a client trust account that you need to wind down and close as part of closing your law practice and another cardinal rule that you have a duty to promptly distribute client funds as directed by the client and by promptly a good rule of thumb is promptly means within say 30 days i can say that's probably a fair statement of the case law if you looked at it you've got to keep in mind that all these these duties aspects of your fiduciary duty to the client uh are involved in the client in in maintaining the client trust account as background they form the matrix of rules pursuant to your fiduciary duty that you you need to sort of keep in mind as background principles uh when it comes to when you move from background principles would you come down from the mountain and look at you know the ground so to speak uh as i said the the state bar in a sense makes it easy for you because they have a client trust accounting handbook that is literally i mean the scripture the bible chapter and verse on how you maintain the client trust account and that is published and that's easily available at the state bar website calbar.ca.gov just go on there and type in client trust accounting handbook or send me an email and i'll email it to you it's a pdf document it's not an easy read by any means it is meticulous it includes exemplars it's about 160 pages of less than acetylanine text but it is it is really something you need to be familiar with if you have a client trust account and and you need to be sure you're keeping all the required client trust accounting records because the scenario you don't want is the scenario that clients have come to be with on more than one occasion it's something like this we've had a very successful um personal injury business litigation practice for the last 30 years we are now we now want to retire and we looked at our client trust account records and we have no idea whose money is in the client trust account or who it belongs to whether it's fees whether we owe it to clients because we have we have we've always been so successful we've always had such cash flow that we we're never in the habit of keeping meticulous records we just money came in clients got paid everybody's happy but at the end of the day now we've got 10 15 20 30 000 in the client trust account we have no idea of what to do with it presents a presents a conundrum to say the least uh what do you do with those funds and the answer is not clear um if you pay yourself those funds it's possible you might be misappropriating client money but how would you ever know if you didn't keep meticulous records at the end of the day after you have withdrawn earned fees from trust including earned fees from settlements pursuant to a contingent fee or earned fees uh from an advanced fee deposit that you put into trust there should be all that should be left in terms of settlement funds would be funds that you may be holding pending negotiation of of liens and i've seen scenarios where there was there were funds being held to pay lien holders but no serious effort had been made to negotiate the liens what do you do with the funds in that case um and the other scenario which you might be left over with are are unearned advanced fees that you haven't earned and in both these situations if you've kept meticulous client trust accounting records you're going to know what these numbers are if not necessarily how to resolve each scenario under advanced fees are a little easier you contact the client and you say we're closing the law practice we're closing on the trust account we're holding x amount of dollars and we want to return these unearned fees to you now if that's hasn't been done properly after termination of the employment that might be a problem but it's a little bit easier to approach than the situation where you may have ten thousand dollars in fees that is ostensibly subject to a lien by by one or more medical providers and it's not clear how to go about resolving that um that's a situation truly a situation where you need to to call someone like me to help you navigate through the process of of potentially contacting lien holders negotiating liens resolving those potential claims against you and your client before you wind down the law of practice and make a final distribution of whatever money in the account that might be yours uh something to keep in mind though and so it's a warning to keep again to keep these records um diligently so that you're not caught in a situation where you have no idea what to do with the money we move on now to uh this scenario the banished client and this i hear a lot we have we have uh money in the trust account uh we need to pay it out but we've lost we can't find our client what do we do um though the overall principle is that if you cannot locate the client after three years the trust funds will achieve to the state under the unclaimed property law there's a url here to the secretary of state's website and it's worth it's it's worth looking at and uh there's a nice handbook they published on the california unclaimed property law essentially you pay the money to the state it goes on the state's unclaimed property list that comes out every year and presumably perhaps the clients will see their name on it or perhaps the clients will be contacted because there are people that make a living going through the unclaimed property list and essentially facilitating the delivery of those funds it's a fascinating little industry to to the people that they belong to part of how you can short-circuit this is making sure that your fee agreement has a clause that requires the client to update their address with you and that you in fact maintain some kind of ongoing communication with the client like a monthly statement or some kind of written communication so that you don't lose track of clients lawyers to work on contingent fee cases occasionally they overlook the value of a statement of some kind or some kind of communication every month and in fact if you're holding clients money and trust you should be telling the client about that at regular interviews intervals because of your duty to account to the client accounting you're not required to send bills to the client but you have a duty to account for client property and the case law says that that duty under rule 1.15 is not doesn't in other words it doesn't doesn't go away you all you have a duty to account whether or not uh it's the subject of a complaint or the client asks for an accounting uh it's a little confusing because the statutes talk about a client request for a bill but your duty to account for trust funds the client doesn't have to ask for an accounting you have a duty to supply that on your own so uh the unclaimed property law it's an interesting little niche in the law that uh you may at some point hopefully you won't have to uh ever get involved in this because you'll keep tabs on your clients but if you do that's the place to look oh running a little short on time so we may move it along here i want to leave time for questions i hope i hope people do have questions uh because there's a lot of stuff here any issues and we can't do anything but kind of outline them uh a significant item of client property is the client file the rule on the client file is a little bit different than the rule on earned fee on unearned fees which you're required to pay promptly on termination of employment you have a duty to return the client file but only if the client asks for the file a duty to return the client file on request row 1.16 e1 well what's the client file consist of the rule says all items necessary to the representation what does that mean exactly and there's a lot of debate now especially with since we live in the age of email uh where emailed the email exchange could be voluminous i had a state bar i had a complaint state bar complaint where the the the email about it is 7 000 pages not 7 000 emails but 7 000 pages of email between a client and a lawyer over a period of only a few months these two guys were emailing each other 40 and 50 times a day was kind of crazy we of course had to produce all that and presumably you're going to have to produce all that too because the state bar takes the view that the client file means everything that you've collected for the client it's the property of the client so this is a significant item of client property that you may have to return when you close your law practice when you tell the client uh you know i'm going to be moving on either to sunny retirement or some other work environment and the client says well i want my file you have to do to give it back to the client and exactly what that file consists of could be a subject of some controversy the best approach is to make sure you maintain everything including email which is especially problematical most lawyers don't have a system for easily maintaining email outlook isn't very satisfactory that way um what if the client doesn't want the file back or the client says no i have no thanks i don't want the file i don't need the file how long do you have to keep the file there's no clear answer on that and obviously if you're going to close down the law practice you don't want to keep the file you want to give it back to the client there's no clear answer to how long you might have to keep your fiduciary duty to the client might obligate you to keep the client file um and part of the solution to this is having a some kind of file retention policy in your fee agreement in other words your fee agreement says something like my fee agreement i'm going to maintain your paper and or electronic file from for five years after the date i stopped representing you at that point it's going to be destroyed so if you want your file you put the client on notice if you want your file you better tell me within five years now let's assume i close this law of practice tomorrow i'm still going to have some fixed cost for the next few years until i reached that five-year bar uh by the way the five-year mark is somewhat arbitrary it's based on i base it on the obligation to keep client trust account records which you have to keep for five years but it's sort of an op it's sort of an arbitrary figure if you look at coprac 2001 157 which talks about file retention it basically says it's impossible to come up with a one-size-fits-all rule for foul retention but absent some prior agreement in the fee agreement the client's got to be contacted before the file is destroyed now if you've been in practice a long time you don't have a file retention policy you now want to close the practice uh coprac the coprac opinion opines that you can't dispose of the file without the client's notice so this could be a very significant cost to [Music] closing your law practice is trying to figure out what to do with these closed files um and and contacting clients and past clients to find out uh whether they want or need their file some clients in a criminal defense practice for instance to avoid prejudice to the client you may have to keep the client file indefinitely maybe for the life of the client other kinds of practice let's say an off unlawful detainer practice where the case is turned over quickly not much chance of need for the file down the road you might have a document retention policy that's fairly short or you may have a hybrid policy that some lawyers have instituted many lawyers now they take the paper documents are scanned the electronic copies are kept and paper documents are returned to the client nobody wants to store large amounts of paper anymore and as the volume of electronic information grows fewer and fewer lawyers really want to uh pay the cost of keeping that electronic information and finally we have a few minutes just to talk about sale of law practice this is another another mechanism for closing a law practice this is rule 117. uh all are substantially all the law practice may be sold the law that seems to imply you can't piecemeal it you can't raise fees because of the sale and there are some rules about notice to the client and these are kind of like if you know anything about commercial law you may know about the bulk sales law and you may have seen bulk sales notices in the legal newspapers i guess we still have those uh we used to see those a lot in the commercial law practice a bulk sale essentially the client is given notice that they have 90 days to opt out of the transfer uh and as part of that notice they have to be given notice of their right to obtain another council there's two flavors to this there's a sale after the lawyer is deceased or incapacitated presumably done by the heirs and a sale with a lawyer is neither deceased or incapacitated and they both have very similar opt-out provisions requiring notice to the client remember it's a personal relationship the client's got to be given notice and the purchaser must also observe the conflict rules which is another wrinkle to selling the law practice so it's a fairly specialized area in terms of the application of the role uh and i think our last topic managing licensing status and mcla there's two kinds of lawyers and you're both lawyers you're both licensees of the state bar of california inactive versus active if you're an inactive member you can't practice law but you pay a much smaller fee and this is contained in section 6003 uh but if you go inactive you're still subject to what are called proportional mcle requirements in other words uh while you're active uh in a given three year compliance period you must comply proportion in a proportionate to the time you're active to the mcle requirements to parse out that 25 hours when you're inactive you don't have to do that the scenario that i've seen lawyers snared in are lawyers that go inactive because they're retired and then they come out of retirement and they become inactive to handle one matter for two or three months well and they then they get snagged by that proportional mcle requirement uh because for that three months that they're active they have some mcle obligation so that's a little traffic and weary i've seen so with that i'm at the end of my presentation i think we have a few minutes left for questions lisa hopefully we have some questions yeah we are getting some questions so here's a good one from one of our attendees upon request to transfer a client file to a new firm i.e when the lawyer changes firms and the client follows can the prior firm properly withhold drafts of contracts or other documents that were prepared on behalf of the client no that's a fairly simple answer the the modern view is that the file belongs to the client and that includes the attorney's work product now you could quibble with the words in the rule that say all items reasonably necessary for the representation but i'll tell you the state bar discipline folks view that rule expansively and they are going to they are going to expect that the entire file including drafts including work product is going to be given to the client on the client request so here's another question about trust account funds um michael's asking what about money that's left over in a trust account where a check has been sent out and was never cashed and the client cannot be found well that would be an example of funds where that would cheat to the state after three years so the attempt has been made to locate the client the client cannot be located presumably if you look at the sheet rules you have to make some reasonable effort to locate the client in order to take take advantage of those rules i recommend looking at the handbook they publish because when i looked at it i found that it was this area is more complicated than i thought because of the three-year rule and it's three years from the last contact with the client i had a client who was trying to pay a client money the client refused to cash a check they kept sending notice and they kept pushing their three-year clock out so they couldn't take advantage of these sheet rules until they stopped communicating with the client kind of strange but that would be a classic situation where those funds could sheet to the state so here's another question from deborah hi debra um how does one value a law practice to be sold well see that's one of those technical questions that would require a business valuation expert which i am not i mean given my business model which is low overhead work at home in terms of assets i've got a computer a printer in my brain a computer a printer a cell phone in my brain and that's that that are really my my assets but good will of a law firm is a significant asset and the the rule on sale over law practice includes the sale of the goodwill and goodwill essentially might be the most valuable asset of a law practice certainly the legacy value of a lawyer's name might be something that that has significant value to to a lawyer and uh not not only the clients but also the the halo of trust that a that an experienced lawyer might have built up over many decades that might be the most significant asset and how you value that i i really have no expertise so do lawyers selling their firm typically hire someone who's a valuation expert to help them i think there are experts who can do that yes all right i don't see any other pending questions and oh joanne's has a question maybe joanne has one or a comment i have a couple questions um one when you talk about the coprak um absent the prior agreement client must be contact before files destroyed how must that contact be um how do you know whether it was success or not can you just send something if you don't hear anything back can you then go ahead and destroy it that's my first question and also with regard to sending files to clients now a lot of us have these online where we scan and put everything up online then does that satisfy that requirement do they need that hard paper well with respect to the first question that's really uh you know obviously i think the lawyers are due to make contact at the last known address um and it would be appropriate to send i think a letter perhaps a perhaps a certified letter to that address and have no responses received that may be sufficient however if the letters were turned undeliverable then then there may the lawyer may have some duty to further require it it's hard to know uh just how far you need to go but there may be situations where you know a inexpensive skipped race is not an unreasonable you know measure you know a a public record search online may not be an unreasonable measure if you don't get a response to the letter uh spending a few hundred dollars to locate a client depending on the nature of the file and depending on the the probability of the client's need i mean different matters some matters like i said conclude quickly other matters have a long long tail if you will like criminal defense a criminal defense client lawyer may have to make more effort to locate a client when before destroying the file than somebody in a matter say a transactional matter or something with a discrete beginning and end so it's kind of a rule of reason i think okay so another deborah has a follow-up question on this issue of contacting clients about their files or former clients she wanted clarification that if the client is if someone is no longer a client their file was transferred to another attorney years ago when a substitution was signed is there still any obligation to contact that person upon closing the practice that's a very good question i don't know the the answer to that because there may be there may be an obligation even though the file may have been transferred to success or counsel i think you have to look at that issue [Music] you would think that the file having been transferred there should be no obligation but i think i would want to examine the text of the coprac opinion closely to be sure there's not some some problem uh with destroying the file i'm a firm believer in belt in suspenders and another belt and more suspenders and taking the extreme risk management approach i think is a at least looking at issues and thinking about them as opposed to assuming well i set the file to successor council so no problem i'm just going to destroy it that's where having document retention policies really helps because that short circuits that analysis because the clients unnotice five years you've got x amount of time and uh i'm i'm looking forward to my my next shredding party at my storage unit the portable shredder comes out and boxes go in and it's kind of like saying goodbye to memories in some ways but it's kind of a good feeling too to get rid of all that stuff that sounds like one of the great takeaways for everybody here today is that sort of preventative approach and having those kind of clauses in the agreement to prevent these obligations later down the line with that we're actually out of time so we're not going to be able to take any more questions but i wanted to thank david and joanne and the east county san diego bar association for helping with this presentation today and for everyone for attending thank you very much it's been a great pleasure thank you you