Changing or Selling Firms and Ethics – Sharing Client Names and ABA Model Rule Changes

There are many complicated ethical concerns when an attorney seeks to make a lateral move or to sell her firm. One of the foremost issues involves client confidentiality, e.g. when should the moving/selling attorney share information with the new firm/buying attorney so as to enable a conflict check?

Sale of a Practice

Here in Pennsylvania, when it comes to selling a firm we have Rule 1.17 comment (4,) which kindly provides us direction that conflicts with Rule 1.6(c)(6) as to when an attorney can share information.

Comment (4) of 1.17 requires an attorney selling a firm to give the clients notice of intent in advance. Rule 1.6(c)(6) however allows for “unconsented exchange of client information, ‘to the extent that the lawyer reasonably believes necessary…to effectuate the sale of the law practice…” Fortunately, the Pennsylvania Bar Association Ethics  Committee stepped in to offer an opinion in which it found Rule 1.6(c)(6) dispositive.

The Committee found that when information is necessary to “effectuate” the sale then it may be exchanged.  The Committee went on to note that the attorney or firm which receives the client information now has ethical obligations in relation to those clients about whom she has received client specific information, regardless of whether she chooses to purchase the firm. See PBA Committee on Legal Ethics and Professional Responsibility, Formal Opinion 2010-100, Ethical Considerations as to Exchange of Client Information in Sale of a Law Practice. The PBA opinion is behind a subscription wall, but feel free to review my slides addressing the topic.

Lateral Move

Rule 1.6 does not, however address a lateral move. As a result, those seeking to change firms find themselves in a difficult position. Publicly informing clients that an attorney plans on moving will notify the current firm, perhaps long before the attorney is ready to do so, of her plans.  In addition, such notification might upset clients who really don’t need to find themselves in the middle of a negotiation or conflict review process, especially if the lateral move falls through.

ABA Gets Involved

I am bringing up this topic today, because the ABA has spoken on the issue of whether it is appropriate to share client information during the process of changing firms. After considerable debate, the new model rule will allow for sharing of information to identify conflicts as long as the information does not cause any harm to the client. Pennsylvania will seek to adopt the same rule in the next few months, but until it does so, the rule is not applicable in our state.

This new rule, assuming it is passed in Pennsylvania, will put those who seek to sell their firms or move laterally to a new firm in the same position when it comes to sharing information. It was illogical to have a difference in the two situations and it makes sense to correct the inconsistency.

The key here, just as with sell of a firm, is that the attorney must look to any client confidentiality concerns and use her judgment as to whether sharing the information during a sale or lateral move is appropriate. We trust our attorneys to keep their clients concerns foremost in their minds. As long as they continue to do so, there is no reason this new rule cannot work here in Pennsylvania as well as nationally.

For more information, see the article on Law.Com explaining the change to the model rules.




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