February 11, 1998
It is not unethical for a judge to accept reasonable compensation for the sale of the judge's former law practice after assuming the duties of judicial office provided the transaction complies with MRPC 1.17 dealing with the sale of a law practice.
A judge who has received payment in full for the sale of the former law practice from a lawyer or law firm which appears in a representative capacity before the judge must raise the issue of disqualification on the record and offer recusal unless all parties request the judge to proceed and the judge is willing to do so.
References: MCJC 2A, 3C, 5F; MRPC 1.1, 1.6, 1.7, 1.8(b), 1.9, 1.16, 1.17; J-4; A/O48; MCL §600.8203; MCR 2.003(B) and (D); In the Matter of Ryman, 394 Mich 637 (1975).
On being appointed to the bench, a district court judge entered into a contract for the sale of the judge's private law practice to another lawyer. The contract of sale between the judge and the lawyer provided for the transfer of wills and estate planning files with compensation to the judge to be paid by the lawyer on an installment basis. The purchasing attorney now wishes to terminate the relationship with the judge and the judge wants to transfer the contract to another law firm who will pay the balance due the judge on the original contract in one lump sum. The judge and the proposed assignee law firm inquire if the contemplated transaction is ethical.
The proposed transaction raises ethical considerations, namely: the propriety of the sale of the judge's former law practice and the judge's disqualification from hearing cases advocated by the acquiring law firm.
Ethics rules and statutory law require that a judge dispose of the judge's private law practice upon assuming the responsibilities of judicial office. MCJC 5F states: "A judge should not practice law for compensation except as otherwise provided by law." MCL §600.8203 states: ". . . a district court judge shall not engage in the practice of law other than as a judge." It is clear that a district court judge cannot maintain a law office and furnish legal services to the judge's former clients after taking judicial office. See In the Matter of Ryman, 394 Mich 637 (1975).
In the present inquiry, the judge is not personally furnishing legal services to the judge's former clients by transferring the judge's former law practice, or part of it, pursuant to contract providing for compensation to be paid to the judge for legal services rendered prior to taking the bench. The transfer of files is merely a necessary part of winding up the judge's former law practice. This winding up process cannot always be concluded before the judge takes office, and may take longer for a sole practitioner to accomplish, such as the judge in this inquiry, than one whom is a member of a law firm with other lawyers to take over the files.
Nothing in the Michigan Rules of Professional Conduct precludes a judge from receiving compensation for legal services performed by the judge before becoming a judicial officer. The only restriction is that the remuneration received by the judge not exceed a reasonable amount to avoid the appearance of impropriety under MCJC 2A.1 A/O 48.
Thus, the Committee concludes that acceptance of reasonable compensation for services rendered prior to taking the bench pursuant to a contract for sale of the judge's private law practice is not the practice of law. However, the transfer by a sole practitioner to another lawyer or law firm must comply with MRPC 1.17 dealing with the sale of a law practice.
MRPC 1.17 permits a lawyer or law firm to purchase or sell a private law practice. The selling lawyer is entitled to receive from the purchaser the reasonable value of the practice developed by the seller. However, all persons participating in the sale and purchase must comply with the tenets of MRPC 1.17. The rule requires that all clients be notified of the impending sale at least 91 days in advance. The notice must include the fact of the proposed sale; identity of the buyer; terms of any proposed change in the fees to be charged the client (they cannot be increased by reason of the sale); and the clients are given the right to retain other counsel or take possession of the file. If the client does not object to the proposed sale with 90 days of receipt of the notice, the parties are free to proceed with the transaction with the admonition that all elements of client autonomy survive the sale of the law practice including the client's absolute right to discharge the acquiring lawyer or law firm.
In addition to the foregoing prerequisites, lawyers participating in the sale and purchase of a law practice must comply with ethical standards that apply when one lawyer involves another lawyer in the representation of a client. These standards include the seller's obligation to act competently in the selection of a purchaser qualified to assume the client representation and the purchaser's duty to undertake the representation competently. MRPC 1.1. The duty to avoid disqualifying conflicts of interest and to obtain client consent following consultation as to those conflicts that can be waived. MRPC 1.7. The protection of client information relating to the representation. MRPC 1.6, 1.8(b) and 1.9. Filing motions for withdrawal in all matters before tribunals and obtaining timely orders of substitution before the matter can be included in the sale. MRPC 1.16 and MCR 2.117.
Since the proposed transaction involves the transfer of the judge's former client matters to yet another lawyer, it is incumbent upon the judge, the first purchasing lawyer and the subsequent acquiring law firm to comply with MRPC 1.17 and related rules as discussed above.
With regard to the judge's disqualification from presiding over matters where a party is represented by a member of a law firm that has purchased all, or part of, a judge's former law practice MCJC 3C states:
"A judge should raise the issue of disqualification whenever the judge has cause to believe that grounds for disqualification may exist under MCR 2.003(D)."
The September 1995 amendments to MCR 2.003 state that "(a) judge is disqualified when the judge cannot impartially hear a case, including but not limited to, instances in which the judge . . . has an economic interest in the subject matter in controversy or in a party to the proceeding or has any other more than de minimis interest that could be substantially affected by the proceeding." MCR 2.003(B)(5). Revised MCR 2.003 provides for remittal of a judge's disqualification in all cases, "other than personal bias or prejudice concerning a party" provided all parties, without the judge's participation, agree that the judge should not be disqualified and the judge is willing to participate in the proceeding. MCR 2.003(D). (Emphasis added).
The law firm proposes to pay the judge a one-time lump sum payment for an assignment of the earlier contract for the sale of the judge's law practice. The sum of money the judge will receive is fixed in amount and presumptively, there is no ongoing economic relationship between the judge and the law firm. There appears to be no economic interest, de minimis or otherwise, that could be substantially affected by proceeding in which a member of the firm appears in the judge's court. However, the judge's objectivity in presiding over a matter may be in jeopardy where the acquiring law firm, or one of its members, appears before the judge in a representative capacity. Does the judge favor the party represented by the firm that has paid the judge for the former law practice, or does the judge lean so far backwards that the firm's client is somehow prejudiced?
In J-4, the Committee opined that a judge is required to recuse during a period of time in which the judge is receiving retirement benefits from the judge's former law firm. However, J-4 is instructive with regard to completed economic transactions:
"(C)learly . . . the judge's economic relationship must be more than de minimis before automatic disqualification is required. (Former MCR 2.003 did not provide for remittal of judicial disqualification).
"Where the agreement for the financial interest is a contract with the amount due the judge established as a set amount, not subject to contingency or discretion of the judge or the payor, and neither the amount nor the terms of the payment are in dispute, the fact of the agreement to pay the judge is not presumptively prejudicial. Regular periodic, or one-time disbursements to the judge from a lawyer or a law a law firm is not prejudicial unless the matter over which the judge presides is the matter which affects the disbursement.
". . . In such cases we have considered it sufficient for the judge to disclose the relationship on the record, and to recuse unless the parties ask the judge to proceed."
In the present inquiry, disqualification of the judge is not necessary because the economic relationship between the judge and the law firm would not be ongoing, and the amount is set and not subject to dispute or the discretion of the judge or the law firm. had the arrangement been made where the judge would receive payments over a period of years, and the relationship would be classified as more than de minimis, then disqualification may be appropriate. However, the facts presented suggest that the outcome of a matter could be influenced by the appearance of the law firm that has purchased the judge's law practice. Therefore, MCJC 3C requires the judge to raise the issue of disqualification on the record and offer recusal unless all parties request the judge to proceed and the judge is willing to do so.
In summary, the act of assigning a contract for legal services to a law firm for completion and receiving compensation due the judge under that contract does not amount to the practice of law by the judge. Rather, assigning the contract is part of the process of winding up the judge's law practice which can take several months to complete, especially for a sole practitioner. Moreover, mandatory disqualification of the judge from presiding over cases where a lawyer represents a party from that law firm does not seem to be warranted. However, the judge should disclose this relationship on the record and recuse unless the parties request the judge to proceed and the judge is willing to do so.
1 "A. Public confidence in the judiciary is eroded by the irresponsible or improper conduct by judges. A judge must avoid all impropriety and appearance of impropriety. A judge must expect to be the subject of constant public scrutiny. A judge must therefore accept restrictions on conduct that might be viewed as burdensome by the ordinary citizen and should do so freely and willingly."