As with a marriage it is generally easier to get into one than to break it up. Dissolving a law firm is much like breaking up a marriage, but with many more complexities. There are a whole host of issues that are created when a Law Firm breaks up including the business side of the law and the practice of law. A first steps needs to be checking with your local or state bar as well as your malpractice insurance carrier. Also there are many check lists available on the internet to help make sure that you have a plan for the closing.
From the business side of the law the general issues are:
1. Who will satisfy lease, loan and other contractual obligations of the firm?
2. How will tax returns, accounts receivables and other accounting issues be resolved?
3. How will the final expenses and revenue be divided?
4. Where will mail go that is directed to the firm?
5. What will happen with phone calls or e-mails directed to the firm?
6. What are the plans for the firm’s website?
7. What notices must be given to employees?
8. How long should the law firm entity remain in existence?
9. Who will take care of remaining law firm administrative needs?
But law firms have ethical obligations to their clients that go well beyond the above the business of law. The practice of law imposes ethical obligations that differ by state but they do share a number of common threads:
1. Develop a plan that assures that no active matters are abandoned. Clients may follow the lawyers directly involved in their matters to new law practices, but not without solicitation by the lawyers. If Lawyers do solicit other clients in the firm they need to make sure that they follow ethical rules that restrict the manner in contacting firm clients.
2. The plan needs to assure that clients are not abandoned. In cases where lawyers in the firm are willing to continue to work with current clients in their new practice, an agreed form letter may be appropriate. The letter should indicate that while the lawyer is willing to work with the client in the new practice, the client is free to seek other counsel.
3. If no firm lawyer wishes to continue representing certain clients, rules regarding withdrawal from matters must be followed.
4. The firm should also consider sending letters to former clients, particularly recent clients. In addition to helping lawyers build and maintain a practice after dissolution, such letters may assist with assuring that a client is not unintentionally abandoned.
5. Litigation and other matters pending before tribunals require permission from the court and compliance with court rules regarding notice to clients. In transactional matters, withdrawal must conform to applicable ethics rules.
6. Legal malpractice claims do arise from clients who think that a lawyer is still working on a matter when the lawyer considers it finished. A letter from a dissolving firm reiterating the termination of the attorney client relationship can avoid such issues.
7. When a firm dissolves, storage and retrieval of client files may be a significant source of headaches. Dissolving firms do not want to rent space to store old paper files, and storage of electronic files may require new computer infrastructure. For these reasons, the firms should plan how both paper and electronic files will be kept. An attorney’s obligation to a client does not end just because the law firm has dissolved. If they are going to return old client files back to the client notifications need to follow bar rules to accomplish this transfer.
8. Determination of how Trust Accounts are to be handled and transferred need to be addressed.
Last but not least is the Lawyers Professional Liability Insurance. Remember that Attorney Malpractice is written on a claims-made basis. Once the policy is cancelled so are the obligations of the Malpractice Insurance carrier to the firm for any unreported matters. If the firm does not buy an Extended Reporting Period Endorsement (ERP) or make provisions for providing coverage for past acts with new firms, there will be no protection for the past firm members past acts. The time frame for making the decisions on how past acts will be protected is limited. The ability to buy an ERP is generally limited to 30 to 60 days after coverage termination. If the decision is to have new entities assume the liability for the dissolving firm then this needs to be done on day one with the new firm’s malpractice insurance carrier.
If the best approach to coverage is a firm ERP then the firm needs to plan for this cost. ERP’s are usually a multiple of the expiring premium running from 1 times premium to 4 times premium depending on the duration and insurance carrier. The premium cannot be financed and must be paid prior to the ERP being put in place. For many firm’s this can be one of the largest expenses of the dissolving firm. Not addressing the malpractice insurance coverage can have consequences for many years in the future to all firm members.