Ethical Guide to Succession Planning
The premature closing of a law office can result from an unexpected disability, death, disappearance or discipline of an attorney. The failure to plan adequately for the unexpected can result in harm to the client and in confusion and hardship for the attorney’s family, staff and professional colleagues. In addition as attorneys retire a succession plan is required to ensure a smooth transition to retirement.
Developing a succession plan in advance ensures the orderly transfer of a client’s matters and files to a new attorney, as well as return of moneys held in trust and satisfies the attorney’s ethical obligation to provide competent and diligent representation.
This guide charts a path for an attorney to facilitate the transition of open client matters to new attorneys or a successor attorney appointed in advance by the affected attorney. It also addresses what can happen when an attorney does not prepare a succession plan and the State bar becomes involved with the attorney’s practice.
I. Is An Attorney Required to Develop a Succession Plan?
While there is no professional obligation requiring an attorney to have a succession plan, prudent attorneys should have one in place. Attorneys owe fiduciary duties to their clients: duties of loyalty and confidentiality and the duty to perform services competently. California Rule of Professional Conduct 1.1 and 1.3. Attorney competence includes anticipating events or circumstances that may adversely affect client representation. (See Rutter Practice Guide, Professional Responsibility, 6:24.3) Practice interruption may affect an attorney’s fiduciary obligations to his/her clients and produce harsh consequences. An attorney without a succession plan may face state bar discipline and legal malpractice exposure.
Although representation normally will terminate when the attorney is no longer able to adequately represent the client, the attorney’s fiduciary obligations continue beyond the termination of the agency relationship. See ABA Formal Opinion No. 92-369.
II. What Are the Core Elements of a Succession Plan?
The type of practice determines the elements of a succession plan. Mid-size and large firms with multiple attorneys do not experience issues regarding file transfer and attorney-client privilege and confidentiality that a solo or small firm practitioner faces. It is suggested that every solo or small firm attorney should have a written succession plan that includes detailed instructions to members of the attorney’s immediate family, a designated successor attorney, the attorney’s estate planning representative and key office staff.
The following are core elements of a comprehensive plan:
- A written agreement with the designated successor attorney.
- Information regarding the status of open client matters including contact information for the client and the location of the client files.
- A copy of the attorney’s client file retention policy.
- Details concerning the IOLTA account, operating account and other bank information.
- The location of log-in and password information for bank accounts, computers, mobile devices, voicemail, cloud storage, billing systems, calendaring system, email and other websites the attorney regularly uses.
- The location of accounts payable and receivable information.
- Contact information for office personnel and key vendors.
- Detailed information about office lease, insurance, and leased equipment.
Corporate Entity Considerations
If the affected attorney is the sole member of a LLC or LLP, the LLC or LLP must pre-authorize someone other than the sole member to act on behalf of the entity and carry out the succession plan in the event of the member’s death or disability. The corporate entity must have a resolution in place that states when and how the successor attorney may act on behalf of the entity after the death or disability of the member.
III. Why Designate a Successor Attorney?
The succession plan should include the designation of a competent and diligent attorney to act as the successor attorney. Some malpractice insurance carriers may require the designation. A successor attorney is typically granted authority by the affected attorney to inventory the affected attorney’s files and make determinations as to which files need immediate protective actions. In addition, the successor attorney is typically responsible for notifying the affected attorney’s clients. See ABA Formal Opinion 92-369. The designation of a successor attorney will ensure client confidentiality and prevent malpractice if an attorney is temporarily disabled.(e.g. file to protect a statute of limitations or other filing deadline). An ideal candidate is someone the affected attorney knows and trusts and who practices in the same field and geographic location.
IV. How Do I Designate a Successor Attorney?
A written agreement between the affected attorney and the successor attorney is essential to memorialize the arrangement and include duties and responsibilities. Suggested key provisions of the agreement should include the following:
- Authority to access the client’s matters (e.g. within 24-48 hours after death or disability) and determine those matters which need protective action.
- A provision concerning confidentiality to authorize the review.
- Authority to carry out immediate protective action including communication with courts and opposing counsel.
- Authority to notify clients concerning death or disability. (A draft letter can be prepared in advance for the successor attorney to send to clients.)
- Authority for the successor attorney to access and serve as a signatory on the attorney’s IOLTA and operating accounts.
- Any compensation that will be paid to the successor attorney for his/her services.
- Indemnification of the successor attorney by the practice or the estate of the deceased attorney
- Termination of the agreement.
How will the Successor Attorney Access My IOLTA and Operating Accounts?
Advanced planning can avoid issues that may arise concerning the successor attorney’s need to access the trust and operating accounts. The affected attorney should contact his/her bank in advance to determine what documentation it will accept for transfer and/or signature authority on these accounts. Methods of possible documentation include: a power of attorney, a copy of the written agreement between the successor and affected attorney permitting access, a probate court order or pre-signed designation forms provided by the bank.
Under the written agreement, the successor attorney should make every reasonable effort to identify clients who have funds on deposit in trust and contact the clients to return any funds to which they are entitled.
VI. What Happens if There is No Written Succession Agreement/Plan-State Bar Involvement under Business & Professions Code?
A significant interruption in an attorney’s practice may provide a sufficient basis for the State bar to petition the Superior Court to assume jurisdiction over an attorney’s practice under Business & Professions Code Sections 6180 (cessation) and 6190 (incapacity). The court will assume jurisdiction to protect client interests and if there are unfinished client matters for which no other attorney has agreed to assume responsibility. The state bar and the Superior Court have the authority to take over management and control and to close the practice. See Business & Professions Code Sections 6180/6190. Although the court may appoint an attorney, the process often involves a state bar attorney who takes over and manages the practice until it can be closed. The appointed attorney can examine files and records, obtain information on pending matters that require attention, notify clients and inform them it may be necessary to obtain other legal counsel. See Business & Professions Code Section 6180.5. In addition, until new counsel is obtained, the appointed attorney has the authority to control all operations and bank accounts of the practice.
Since the attorney appointed is working under the auspices of the Superior Court, he/she will not be liable to a particular client if there is any harm resulting from the death or disability of the affected attorney. Business & Professions Code Section 6180.11.
If the Superior Court becomes involved there are serious obstacles that a recovering or recovered attorney faces. Once the court proceeds under Business & Professions Code Sections 6180/6190, the attorney is automatically placed on inactive status and must seek reinstatement to resume practice. See Business & Professions Code Section 6007(b)(2). Reinstatement depends on the attorney’s ability to prove that he/she is competent to practice. Once reinstated, the attorney must petition the Superior Court to terminate jurisdiction over the practice. Business & Professions Code Section 6190.6.
The best recommendation is to plan ahead so that succession of an attorney’s law practice or its closing can be handled with the least amount of stress and chaos associated with unexpected events. If an attorney is retiring, a succession plan will ensure a smooth transition into retirement.