September 30, 1991
A lawyer retiring from the practice of law must ensure the proper disposition of representation files and other files of the law practice. "Proper disposition" includes assisting the client in obtaining competent legal representation for matters the lawyer cannot conclude before retirement, protecting confidences and secrets of clients, fulfilling the lawyer's fiduciary duties regarding safekeeping of client property, and satisfying the lawyer's recordkeeping obligations.
References: MRPC 1.4, 1.5(e), 1.6, 1.15, 1.16, 1.17, 5.1, 5.3, 5.4; R-5, R-12; J-2; CI-628, CI-716, CI-766, CI-845, CI-926; MCR 9.119(G).
The Committee has been asked about a lawyer's duties regarding handling of client representation files and law practice files when a lawyer is contemplating retirement. The following instances are representative of facts presented to the Committee:
CASE 1: Partner has decided to retire from law firm A & B, a major metropolitan firm having offices in six smaller cities as well as the metropolitan area. Although firm accounting records show several matters handled by Partner as clients of Partner, over the past ten to twenty years Partner has delegated much of the legal work for the clients to other law firm members.
CASE 2: Lawyer has decided to end a solo practice, move from the area and manage an automobile dealership that lawyer's family owns. Lawyer is the only lawyer in a thirty mile radius, with less than 35 lawyers in the entire county.
Lawyer obligations with respect to records management and retention have their origin in two basic principles of legal ethics: first, the principle that a lawyer has an obligation to protect the confidences of clients and second, that the lawyer avoid conflicts of interest, including conflicts between the lawyer's personal interests and those of the client. The first of these principles finds articulation in MRPC 1.6. The second of these principles finds articulation in MRPC 1.15, requiring safekeeping of client property. MRPC 5.1 and 5.3 require lawyers to have record retention policies or plans, and to ensure that all lawyers and nonlawyer employees and agents of the firm act in compliance with the plan. These principles were first articulated by this Committee with respect to record maintenance issues in R-5.
A lawyer contemplating retirement may not ignore the interests of clients whose matters the lawyer has undertaken and which are incomplete. When the lawyer to whom the client looks for communication about the client's matter ceases practice, the client must be advised how the client's matter will be handled and by whom. MRPC 1.4. In order to ensure that the client's interests will be properly handled, the lawyer may (1) see that the client's matter is reassigned within the law firm, if other lawyers competent to handle the matter are available, (2) refer the client's matter to another law firm pursuant to MRPC 1.5(e) with client consent, or (3) give the client adequate notification that representation will no longer be available and that the client should seek new counsel. A client has the right to choice of counsel, and may object to the assignment of a particular lawyer. If a matter is before a tribunal, consent of the tribunal is required before a lawyer may withdraw. MRPC 1.16.
The successor lawyer in pending matters will normally need the client representation file in order to assist the client. After consent of the client to the successor lawyer has been obtained, the retiring lawyer should arrange the transfer of the client's file either to the client or to the designated successor lawyer. CI-716, CI-766. The transfer of the file should be made in such a way as to preserve the confidences and secrets of the client, MRPC 1.6, such as by hand delivery. A lawyer has a retaining lien on any files for which payment of fees is in arrears, Kysor Industrial Corp v DM Liquidating Co, 11 Mich App 438 (1968). But exercise of the retaining lien would be unethical if the client needs the file to pursue legal rights. CI-628; 3 ALR 2d 148.
To the extent the lawyer needs to retain portions of the representation file for the lawyer's own purposes, such as for record retention required under MRPC 1.15(a), defense to possible malpractice or grievance action relating to the matter, or other reason, the lawyer may keep copies at the lawyer's own expense. CI-845, CI-926. The lawyer's duty to maintain the confidences and secrets of the client continues even after the lawyer has returned the client's file.
Effective October 1, 1991, because of Michigan Supreme Court Order No. 90-43 entered May 31, 1991, which will add new MRPC 1.17 and amend MRPC 5.4, 5.6 and 7.2, it will no longer be unethical per se to "sell" client files or law firm good will. The new and amended rules will allow a retiring lawyer to "sell" the assets of a law practice, including client matters, under certain defined circumstances and with certain protection for the clients. See Vol 70 No 7 MBJ 734 (1991).
R-5 recommended that lawyers advise clients of the firm's record retention plan regarding the client's file either at the time the firm undertakes the client's representation or at the time the representation in the matter is completed. R-12 warns that if the R-5 advice regarding notice to clients is not followed, the lawyer is left with having to locate and notify clients at the point the file is to be disposed of, which frequently occurs many years after the firm has last contacted the client. Under R-12, a lawyer must determine what constitutes "reasonable efforts" to locate the individual client, and what constitutes a "reasonable period of time" to await instruction from the client before disposing of the file. The lawyer must weigh the "reasonableness" against any liability for negligent or improper destruction of client property. Because of the pitfalls of locating a client many years after contact has ceased, R-12 requires client notification at the beginning or at the close of representation for files closed after October 1, 1988.
When the retiring lawyer is a member of a law firm which will continue after the lawyer's retirement, the law firm's record retention plan should be adequate to accommodate the client representation files of the retiring lawyer. Unless a partnership or shareholder agreement provides that a particular client or type of client is the client of a particular lawyer, clients are considered to be clients of the law firm, and not clients of any individual member of the law firm. If the partnership or shareholder agreement provides that the clients are clients of the individual lawyer, rather than of the law firm, the lawyer is responsible for having a record retention plan for those files, in the same manner that a sole practitioner is required to have a record retention plan.
If the retiring lawyer advised the clients of the record retention plan when the representation was begun or when it was completed, the lawyer does not have to further notify the client when the conditions for destruction of the file are met. If the retiring lawyer has not provided client notification, the lawyer will need to contact each client for whom the lawyer holds documents or files to inquire about the disposition. The lawyer may either return the entire file to the client, or wait a "reasonable period" before employing a destruction method which preserves the confidence and secrets of the client.
There may be in the lawyer's possession files other than client representation matters which must either be transferred to another lawyer in the firm, maintained under required recordkeeping rules, or disposed of properly.
MRPC 1.15(a) requires lawyers to keep records for five years of all property of clients or third persons coming into the lawyer's possession. If the five-year period has not expired, the records must continue to be retained.
Frequently a lawyer in a firm will have other duties to the firm beyond representation of clients, such as managing partner, law firm administrator, signator on the firm trust account, recruiter, head of marketing, etc. Records regarding the business of the law firm should be left with the member of the firm designated to take over those responsibilities.
DISCUSSION OF CASE 1
Case 1 is the classic case of a senior partner retiring from a law firm that has institutional status. In effect Partner "inherited" files when Partner arrived at the firm and will pass them on to younger lawyers when Partner leaves. The clients are clients of the firm and it is likely that most of those clients look to the firm as an institution for their legal work. Such clients will require little more than notice of Partner's pending retirement to satisfy Partner's and the firm's professional responsibilities. Client consent need not be sought prior to transfer of a file to another lawyer in the same firm.
A few of Partner's clients (very likely individual persons as opposed to enterprises and probable such persons who sought out Partner as their personal lawyer) may require more attention in connection with Partner's retirement. Those clients may need to be specifically asked if their work may be reassigned to another "responsible lawyer" in the firm after Partner's retirement and if that new responsible lawyer should keep possession of the specific client's files. On the other hand, the firm may have been using a "standard" retainer agreement that may already resolve that transfer issue from a professional responsibility standpoint.
DISCUSSION OF CASE 2
Lawyer will probably spend more time and energy dealing with the client's records issue than Partner will in Case 1. Partner's firm was an institution; Lawyer is a solo practitioner, perhaps with a secretary to provide some assistance. When Lawyer moves away, Lawyer's practice will probably disappear. Furthermore, for geographic reasons, Lawyer is probably not in a position to take the practice along when Lawyer moves. Also for geographic reasons, the "sale" of Lawyer's practice to another local lawyer is a less likely alternative. Perhaps Lawyer utilized a standard retainer agreement with each of Lawyer's clients that anticipated the possibility of Lawyer's "retirement" from practice. We will assume, however, that Lawyer did not.
Lawyer will need to contact each of Lawyer's clients for whom Lawyer holds documents or files, and who have not been notified as required by R-12, to inquire about the disposition of those documents. If those documents are client property, unless the specific client indicates otherwise, Lawyer will be required to return those documents to the clients in a reasonably prompt fashion. Reasonableness will be based on the client's expectations. In some cases, Lawyer will be prudent to ship the documents to the client. In all cases where the Lawyer delays the return of the documents, Lawyer has a minimum obligation to notify the client of both Lawyer's whereabouts and the documents' location. Lawyer also has minimum obligations to keep the documents in a secure location and make appropriate arrangements for their return to the clients in the event of Lawyer's death. How these minimum obligations are fulfilled are subject to the availability of various reasonable alternatives.
When a lawyer is contemplating retirement from the practice of law, the following guidelines apply:
- Notify the firm partners/shareholders, if any, and transfer firm business files to the firm member assuming those duties;
- Notify clients whose matters have not been completed, obtain client consent to successor counsel, transfer the representation file;
- Notify clients whose matters are closed regarding disposition of the representation file and other client property, if the client has not been previously notified regarding the firm's record retention plan;
- Store client representation files and other law firm files which are not to be destroyed in a facility which protects client confidences and secrets, safekeeps property, and complies with recordkeeping requirements;
- Incinerate or shred client representation files for which notice has been given the client and which are due for destruction.
For information concerning a judge's duty to wind up law practice before assuming judicial office, see J-2; for information concerning duties of a disbarred, suspended or inactive lawyer see MCR 9.119(G).