Part Two: Failure to Plan
In my post last quarter, I set out some guidelines for succession planning for Maryland attorneys, including the best times to get started in creating a plan and how to go about creating a succession plan. But, what happens if an attorney does not have a plan in place?
The Maryland Rules of Professional Conduct outline the responsibilities attorneys have to their clients. The Rules address the attorney-client relationship, the role as counselor and advocate, interactions with third parties, law firms and associations of lawyers, public service, advertising, and the integrity of the profession. If you practice law, you think about these rules every day you are alive and never consider their application after you are incapacitated or deceased. These responsibilities do not evaporate with the death of the attorney. If an attorney has not put a good plan in place for addressing these issues, their unsuspecting family members are left navigating the Rules themselves.
For argument’s sake, let’s look at a hypothetical:
Anna Turney is a solo practitioner, and a generalist to boot. Her practice is mostly litigation, predominantly personal injury. She drafts the occasional contract and sometimes does consultations in other areas. Anna maintains a good referral network. If a case comes to her from another personal injury attorney, or if she refers a case to another personal injury attorney, they split the fees. These agreements are all done on a handshake, and Anna keeps a record of these referral agreements entirely in her head.
Anna’s got a leased office space, and one assistant who handles calls and helps out with billing. The assistant is on payroll and gets a bonus every year. Anna does her billing on a monthly basis, but her personal injury cases are all paid through contingency fees. She’s generally pretty flexible about letting clients pay their bills, but doesn’t have anything written down with regards to some of the negotiated repayments. Anna’s too busy practicing law to worry about the business end of things.
Anna’s busy. So, when she neglects to get her car serviced and her brakes fail… well, let’s just say Anna’s not with us anymore. She’s survived by her young kids, and a loving sister, Nona Turney, who is her personal representative. What happens to Anna’s clients now?
First and foremost, Nona Turney is not an attorney. She’s not allowed to look at Anna’s files or contact clients. As the personal representative, she can petition the circuit court where Anna’s office was located to have a conservator appointed. The conservator must be another attorney, so Anna’s sister needs to identify someone to fill that role. If she doesn’t know one of Anna’s friends willing to do the job, she can go to the Attorney Grievance Commission to request one. Fortunately, Anna’s colleague, Ima Goodfriend has stepped up and agreed to serve as the conservator. Ima has generously offered to serve in the role without payment – by law, the conservator is entitled to payment for work done in unwinding Anna’s practice, which eats away at her estate.
What is a conservator? A conservator is an attorney appointed when an attorney dies, disappears, or has been disbarred, suspended, placed on inactive status, incapacitated, or has abandoned the practice of law. Rule 19-734(a). This person will handle the attorney’s trust accounts and client matters, but the conservator does not have the authority to try a case. The client retains the rights to determine who they want as counsel. The conservator has the ability to file motions alerting the court that the client needs to find a new attorney. The conservator has to take an inventory of the attorney’s files, review the accounts, and determine what needs actions. With court approval or client consent, the conservator can help a client find a new attorney, assume responsibility for matters, or refer matters to other attorneys.
With the help of Anna’s assistant, Ima has sent out notices to all of Anna’s clients and she’s called the ones who haven’t responded. She’s filed motions in all the active cases, and received payments from the most recent invoices. There are still some clients who haven’t paid, so the firm has a pretty sizeable accounts receivable. Anna’s assistant is still employed throughout this process, and all of this extra work on top of her normal duties is compensable time.
Ima’s also identified another attorney who wants to buy Anna’s practice. The challenge is that Ima can’t disclose the client files to the prospective buyer. She can show the accounts receivable, and she can provide estimates on the fees anticipated in the remaining cases, and any of the referral agreements Anna had with other attorneys, but the buyer will never know whether the purchased practice is a viable concern. There’s a lot of risk in buying this business, and the buyer will probably offer a lower price than the practice could be worth.
If the buyer wants to pay a singular purchase price for the business, it will likely be at a decreased value because there is no guarantee of income. Ima’s savvy, though, so she negotiates a long-term agreement on the outstanding cases and the accounts receivable. Essentially, under Ima’s arrangement, the buyer will be paying a lump sum at closing, and then a percentage of the fees realized for a three-year period after closing. Those fees can not go directly to Anna’s kids, though – they aren’t lawyers, and that would be fee-splitting. Instead, a fund has to be set up and the fees will be paid to Anna’s estate. The estate can then disperse them to her beneficiaries under the terms of her will.
Deal in hand, buyer in the wings, Ima needs to get court approval on this plan. She takes a draft purchase agreement to the Attorney Grievance Commission for their review and approval. After she gets their approval, she needs to file a request in the Circuit Court allowing her as the conservator to execute the sale. All of the terms of the sale are on the record, so everyone knows how much the buyer is paying. Fortunately, because Ima did her homework and has a patient buyer, the sale is approved, and the practice is transitioned to the buyer. The whole process took just under a year.
If Anna had planned ahead, all of this could have been avoided. She could have had an agreement with another attorney to buy the practice in place, shaving off months of aggravation from her family and sparing Ima all of the headache of acting as the conservator. A few hours of good planning in advance would have resolved a year’s worth of court and AGC oversight.
Any solo practitioner or small practitioner could find their practice in this unfortunate position. Thinking ahead, and documenting the plan, is an incredibly important step towards providing for your family and loved ones after your passing.
ABOUT KELCIE LONGAKER
Ms. Longaker’s primary areas of concentration include general corporate advising, administrative hearings, and state and federal appellate litigation. She advises start-ups and small businesses during all stages of the business’s life-cycle. She regularly drafts organizational documents, reviews commercial leases, negotiates franchising agreements, and assists with the sale of corporate entities. Ms. Longaker represents many businesses that require liquor licenses, including restaurants, package goods stores, agricultural producers, and manufacturers. She represents clients before county agencies in their applications for new licenses, transfers of existing licenses, or defense of challenged licenses. She also handles land use and zoning matters, real property transactions, and homeowners’ association matters.
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