In 2013, my husband/law partner and I were relatively young (69, 72) when faced with the dissolution of our law firm. We had both enjoyed practicing law and had no plans to retire. Then my husband had to have hip replacement surgery. Six hours later, when he woke up, he told me he was unable to continue practicing law. The doctors assured me that my husband’s cognitive problems were due to anesthesia and would resolve over time. That did not happen. When it became obvious to us and my husband’s doctors that my husband had been correct to believe he could no longer practice law, I had decisions to make. After agonizing hours of debating with myself, I decided not to continue my 24/7 practice to be with my husband during his Alzheimer’s journey. I wasn’t worried because we had an informal succession plan. I was wrong.
We had always believed that the way to keep the firm strong was to have two partners involved with every client so that the client was as comfortable working with our partners as they were working with us. Further, each of the named partners had specific administrative responsibilities, and one of our partners had even managed the firm for the last two years. We thought our partners were prepared to take over the firm and would continue it. However, for reasons of their own, they did not wish to continue the firm. That left me to dissolve an over thirty-year-old law firm of 11 lawyers.
I dissolved our law firm over 10 years ago, and ethical rules and best practices have no doubt substantially changed. My goal in this article is simply to describe lessons I learned that may help lawyers plan ahead if they must dissolve a firm, not to give legal or other advice.
First, I prepared a checklist with deadlines that included:
The most important priority was to determine and implement a procedure for contacting clients for whom the firm had files. This was a traumatic time because clients were losing their long-time advisers (us), and we were losing the firm we worked so hard to build.
Not surprisingly, the way we handled the clients varied, depending on the firm’s relationship with the clients and the relationship of the clients to others in the firm. Our firm believed in collaboration, and as a result, there were often two or more lawyers who handled matters for, and often worked directly with, clients. This proved to be an excellent practice to provide continuity for the clients when the firm had to be dissolved.
If the client had worked with other lawyers in the firm, the other lawyer and I called the client so that they knew we both believed the other lawyer might be a good fit for the client. Then, if the client wished to continue with the other lawyer, that lawyer obtained a written consent from the client to transfer files to the other lawyer. Only when that consent was obtained would the files be transferred. In my experience, retaining the client and the files provided an excellent incentive for the other lawyers to obtain written consents.
A few years before the dissolution, knowing the firm’s paper filing system was inefficient, the firm had begun installing a digital file management system. Each lawyer had the ability to file his or her own documents and, more importantly, could easily access the files of all clients of the firm. If a matter arose when a lawyer was not in the office, no problem. Using the internet and firm passwords, the lawyer could access the file and immediately help the client. Appropriate cybersecurity measures based on current practice were established at the same time as the file management system.
This system proved invaluable when the firm was being dissolved. First, it was easier to transfer digital files to the departing lawyers. They could then immediately resume working with clients without having to dig through paper files. Paper files remained for matters handled before the firm began using the file management system, as well as paper files of lawyers who preferred paper copies even though a digital copy was available.
A few years ago, the firm had also instituted a document destruction system. There were no rules or standards clearly in place in Colorado. The firm therefore reviewed all available document destruction policies and instituted the most conservative policies.
There were two challenges: client notification and client confidentiality.
First, the client had to be notified of the policy. If the client was new or current, the firm described the policy on its website and in fee agreements. Even then, the firm sent two letters to all clients before the files were destroyed. The clients were given an option to keep the files or to direct the files to be destroyed. The clients were given a reasonable time to decide and were advised that the documents will be destroyed if the clients did not respond before a specified date. The firm then sent a follow-up letter and did not destroy any files until the deadline in the second letter had been met.
This process, of course, required that the firm have current addresses for the clients. This was not a problem for current clients, but was a problem for old files. The firm did not have current addresses for these files and had to use internet tracking tools to try to find addresses, a long and tedious process.
By consulting ethical rules and best practices, the firm determined the number of years that client files should be retained and the length of time the client should be given to make a decision after the second letter.
When the deadline had been met, the firm either delivered the files or destroyed both the digital and paper files, careful to preserve confidentiality as discussed below.
The firm then used this process every year so that most of the firm’s old files had been destroyed prior to dissolution.
The firm prepared, and updated every year, a spreadsheet that indicated the date the first client letter was sent, the response, if any, the date the second letter was sent, the response, if any, as well as the date and method of delivering the files to the clients or destroying the files.
The second challenge was that client files must be kept confidential. The firm used a third-party shredding service to destroy all the paper files and erased digital files based on the guidance of the firm’s computer service. Upon dissolution, the firm used that service to delete all information from the firm’s hard drives, using United States military methods, the best then available.
Most of the firm’s vendors were willing to work out reasonable terms when the firm had to be dissolved for three reasons. First, after the first five years of the firm’s existence, the firm’s partners had never personally guaranteed any contracts, including building leases and lines of credit.
Second, the firm negotiated cancellation provisions in most vendor contracts. Because the firm had used the same vendors for years, it typically had the bargaining power to negotiate such a clause. Finally, the firm always had promptly paid vendors in the full amount due at the time.
The Colorado Bar negotiated a claims-made policy for law firms with a specific insurer. The firm always used that insurer because the lawyers who negotiated the policy were experienced and excellent. In particular, the bar policy had a provision that enabled lawyers to purchase a tail for a specified formula price. Even though the firm had had only two claims over its over 30-year history, both of which were dismissed on summary judgment, the firm decided to purchase the continued protection of a tail. The price was steep, but it was worth it in terms of peace of mind. Without that provision in the firm’s current malpractice policy, it would have been much more difficult and certainly even more expensive to purchase a tail.
