Attorney Grace, licensed in State G, has been practicing for 20 years. She decides to retire and sell her entire law practice, including client files, goodwill, and the right to use her firm's name, to Attorney Harry, who is licensed in State G and has been practicing for 5 years. Grace plans to move to another state and will no longer practice law in State G. Which of the following conditions is NOT required for Grace to ethically sell her law practice to Harry?
- AWritten notice must be given to each of Grace's clients regarding the proposed sale and their right to retain other counsel.
- BThe purchase price for the practice must be based solely on the fair market value of its tangible assets, not including goodwill.
- CClient consent to the transfer of their files must be obtained before the sale is finalized.
- DThe entire practice must be sold to Harry, rather than just a portion of it.
Show answer & explanationAnswer & explanation
Correct answer: B. The purchase price for the practice must be based solely on the fair market value of its tangible assets, not including goodwill.
Model Rule 1.17 permits the sale of a law practice, including goodwill, for a reasonable price. The purchase price is NOT limited to tangible assets; goodwill is a recognized component of the practice's value. The other options (client notice, sale of entire practice, and client consent/right to counsel) are all required conditions for an ethical sale.
Why the other options are wrong
- A. Client notification and opportunity to retain new counsel are mandatory under Rule 1.17.
- C. Clients must be informed and given the opportunity to consent to the transfer of their files or object, under Rule 1.17.
- D. The sale of an entire practice (or an entire field of practice) is a requirement of Rule 1.17 to protect client interests.
Sale of Law Practice
A lawyer or a law firm may sell or purchase a law practice, including goodwill, if certain conditions are met, primarily to ensure client protection and continuity of representation.
- Governed by Model Rule 1.17.
- Must sell the entire practice or entire area of practice.
- Seller must cease practice (or area) in the jurisdiction.
- Written notice to clients required (right to consent, take files, or hire new counsel).
- Client fees cannot be increased due to the sale.
Memory trick: Selling a practice requires client care, not just a cash share.