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Abstract 98/99-11

Summary of Facts Provided

Upon his retirement from the practice of law, Lawyer A wishes to sell his law practice to Lawyer B. The attorneys are considering a transaction whereby Lawyer B would pay Lawyer A a percentage of future fees received by Lawyer B for work performed by Lawyer B for Lawyer A's clients.

Issues and Conclusions

May a retiring lawyer structure the sale of his law practice to require the purchasing lawyer to pay the retiring lawyer a percentage of future fees collected by the purchasing lawyer for work performed by the purchasing lawyer for the selling lawyer's clients? The Committee believes that this arrangement is permissible under the Colorado Rules of Professional Conduct.

Colorado Rule of Professional Conduct 1.17, which became effective on July 1, 1997, permits a lawyer to sell his or her law practice, including the value of its goodwill, subject to compliance with the terms of the Rule. The Rule does not regulate the method of establishing a price for a practice or how the price is to be paid; the comment assumes that the price will be based on the reasonable value of the practice. Rule 1.17(b) prohibits the buyer from increasing the fees charged to clients because of the sale, or from otherwise passing on to clients the cost of goodwill. Rule 7.2(c) provides that the sale of a law practice in accordance with Rule 1.17 does not constitute a prohibited payment for the recommendation of the purchasing lawyer's services.

The Committee believes that the rationale for the adoption of Rule 1.17 was to enable sole practitioners to sell their practices at a reasonable price, which would include the value of its goodwill. Because a sale price based on a percentage of future collected fees is consistent with that underlying goal of Rule 1.17, the Committee concludes that such a transaction is permissible. The Committee does not believe that payment of a percentage of future fees to a retiring lawyer constitutes a prohibited division of fees under Rule 1.5(d), particularly in light of the later adoption of Rule 1.17. However, the Committee notes that there is authority for a contrary conclusion, including Schoenwald, Model Rule 1.17 and the Ethical Sale of Law Practices: A Critical Analysis, 7 Geo.J.Legal Ethics 395 (1993).