Step 4 – Transition Journey – Assessing the Status of Client Files

By | 2018-04-30T18:10:13+00:00 April 30th, 2018|Articles|0 Comments

Wrestling the Angels
Charlotte, N.C.

Step 4 – Transition Journey – Assessing the Status of Client Files

Stephen P. Gallagher


One of the first things you should do in assessing the status of client files is to compile a detailed list of all your open client matters. You may want to go to each physical file to make sure the file documents what your understanding of the status of the file is. For each open file, you are looking to find out answers to several key questions:

  1. What is the current status of this file?
  2. What type of fee agreement is involved?

Estimate a timeline for finishing the work on each of these open files. The aggregation of these timelines will help to inform the overall timeline you’ll want to adopt for closing your practice. You may need help in finalizing some of these matters, so you should start reaching out to other attorneys who may be interested in helping you wind-down your practice.

You may find that you cannot possibly keep your practice open long enough to complete all of your cases, but you definitely want to finalize as many active files as possible. As you are handling these files for one last time, make sure you each client receives work of your interest in retiring from the practice.

Next, decide how to deal with the cases that require special handling, including when and how the files might be transferred to other lawyers in accordance with your jurisdiction’s rules. If you have pro bono, reduced fee or special fee arrangement cases see if you can find another qualified attorney who would be willing to do so under the same fee arrangement?

Assess whether you may need to refund money to any of your clients for work that has not been completed. If you charged a flat fee that was designated “earned upon receipt” and you will be unable to finish work on the matter, be sure to check with your bar’s ethics counsel for how to proceed. You may need to refund the fee or pay another competent lawyer to finish the work.

To keep your timeline moving, deal promptly with cases before administrative bodies and courts. For cases with pending court dates, hearings or depositions, discuss with the clients how to proceed. You may need to request extensions, continuances and resets of hearings. Be sure to send written confirmations of these changes to your client and to opposing counsel. In addition, be sure to obtain the client’s permission before submitting a motion and an order to withdraw as attorney of record or arrange that the new lawyer file a substitution of counsel with the court. You’ll need to consult your local jurisdiction’s rules and comply well within the deadlines before you become officially inactive.

In addition, as you chart out your timeline for closing the practice, keep in mind that your clients will need adequate time to select a new lawyer. Also, remember the client gets to select the lawyer—you may only recommend. If possible, provide them with the names and phone numbers of competent lawyers along with the phone number to your bar’s lawyer referral program.

Again, if any of your clients have cases that another lawyer may not want to take, which could include pro bono or reduced fee matters, you will want to make adequate provisions to get those cases handled, too. Your bar’s lawyer referral and pro bono programs may be able to provide information on attorneys willing to assist on those matters.

Wrapping Up Client Trust Accounts
A critical part of closing up a law practice, is finalizing all funds held in a client trust account. The first step in doing this is to get your trust account fully reconciled. The funds in the trust account should either correspond to clients for whom work is being completed or be earmarked for refund to the client. Although, if you’ve held a nominal amount of your own money in the account to meet the bank’s minimum-balance requirements or cover bank charges for services such as check printing, don’t forgot about that sum when reconciling the account.

Once the trust account is fully reconciled, you’ll prepare and send the final client bills. In accordance with your fee agreement, disburse money owed to you for earned fees and reimbursement for costs advanced. Deposit this money to your general business account. Disburse funds belonging to your client to your client. Or, if the clients are going to new lawyers and their trust account funds are to be transferred to the new firm, then make the check payable to both the client and the new firm.

Next, if you have any unclaimed funds in your trust account, you’ll need to determine the source. Payments made on behalf of your clients, such as witness checks not cashed, revert to the clients and should be reimbursed to them. Unclaimed funds belonging to clients may be subject to your state’s Disposition of Unclaimed Property Act.

Typically, funds held by a fiduciary are deemed abandoned if the owner has not accepted payment of the funds or corresponded about them within two years after the funds are payable. You may be required to report the funds to your state’s Division of State Lands (or similarly titled division) and to turn the funds, along with a copy of the report, over to your state’s IOLTA program. Check with your state bar’s practice management advisor or ethics counsel for further guidance. Also, if you know the whereabouts of the recipient of an outstanding uncashed check, consider stopping payment on the check and using the funds to purchase a bank cashier’s check and delivering or mailing the check to the recipient.

Lastly, you must also provide for preserving your trust account records in accordance with your jurisdiction’s ethics rules.

Wrestling the Angels
Charlotte, N.C.

Nuts-and-Bolts Issues
Other things to consider when you begin winding-down or closing a solo practice, include reviewing the terms of your office lease and any vendor contracts that are currently in place. You’ll want to make timely notifications and be aware of any office or equipment agreements that automatically renew without notice and when they renew or end. With that in mind, here’s a look at the types of nuts-and-bolts items that must be addressed in your wrap-up timeline.

Your office lease – Hopefully, you were able to negotiate a year-to-year lease at your last renewal period. But what if your lease is going to last longer than your practice? You may need to negotiate an early termination of your lease or arrange for a sublease of your office, if allowed.

  • Equipment leases and disposal. If your office equipment is still under lease, contact the vendor to see if you can renegotiate or arrange for a sublease. If you own certain equipment outright, you may want to sell it or donate it to a nonprofit group. You will first need to take the proper steps to “wipe” any client information that is stored on computers, digital copiers and other electronic devices (e.g., smartphones)! Consult your IT consultant or your state bar’s practice management advisor for help with this.
  • Utilities and office services. You’ll need to bring your utilities and office services to a close in a timely fashion to receive a final bill to pay soon after closing. Don’t overlook your Internet and e-mail service, or your Web site, either. Consider setting up an automated reply on your e-mail and a static page on your site with information about the closure of your office and where closed files are being stored.
  • File storage. Your state bar may have specific guidelines for properly storing closed client files. If you carry professional liability or malpractice insurance, you should check with your carrier, too. Also check your state statutes and regulations for any statute of ultimate repose on a legal malpractice claim. You will want to have your files in the event you need to defend yourself against a claim.
  • Tail insurance coverage. Check with your professional liability or malpractice insurance carrier (again, if you have one) about obtaining tail insurance coverage, which covers you for any malpractice claims that arise after you have stopped practicing for malpractice incurred while you were still practicing. Tail insurance coverage might be included free as part of your insurance coverage or you may need to purchase a separate policy for a set term.
  • Business records. The IRS will expect you to keep your business records for as long as they may be needed to prove the income or deductions on your tax return. You may need to recall records and receipts related to an asset you sold or disposed of for three years after you sold or disposed of the asset. Some of your business records, however, will need to be kept for a minimum of seven years. Ask a CPA for advice on which of these records to retain and for how long.
  • Call-forwarding number. In the final days of winding down your practice, you should arrange to have your office phone number forwarded to your home, or to a lawyer who is assisting you with the closure of your office, to ensure that any clients calling will be given the proper assistance. To convey relevant information, you might also arrange for an automated message on your office line for at least several months after your practice closes.

The foregoing list of considerations and to-dos is, admittedly, not comprehensive but it gives you a good primer if you’re a solo thinking of closing up shop as your exit strategy. Back in 2011, two of my friends, Sheila Blackford, the Practice Management Advisor for the Oregon State Bar Professional Liability Fund, and Peter Roberts, the Practice Management Advisor in the Law Office Management Assistance Program (LOMAP) of the Washington State Bar Association. wrote an article on Closing a Solo Practice: An Exit To-Do List in ABA Law Practice Magazine, Volume 37 Number 3, May/June 2011. They included a very good “Checklist for Closing Your Solo Practice.” You may want to add some of these additional items to your planning, too.

Checklist for Closing Your Solo Practice

  1. Calculate amounts owed from clients (i.e., accounts receivable). Ensure that these balances are paid or total in the aggregate in the low four figures before you announce that you intend to close your practice.
  2. Inform staff of your plans.
  3. Cease taking new matters.
  4. Give notice of termination for lease and other rental agreements.
  5. Inform clients of your plans.
  6. Conclude active cases.
  7. Transfer client files to new lawyer(s).
  8. Give files to clients.
  9. Deal with retained files, such as closed files and original wills.
  10. Finalize accounting for the practice.
  11. Prepare last time records and list of work in progress.
  12. Meet with your accountant.
  13. Close law firm banking accounts and other related accounts.
  14. Close client trust accounts. Note: Do this after audit is completed.
  15. Address unclaimed account funds.
  16. Confer with lenders.
  17. Finalize accounts receivable.
  18. Deal with safe deposit box contents.
  19. Notify bar association and professional organizations.
  20. Notify insurance carriers such as malpractice, professional liability and premises liability carriers.
  21. Have consultation about benefits such as health, life and disability policies.
  22. Check with financial planner regarding retirement plans (e.g., IRAs, SEP, 401k).
  23. Cancel other memberships and office subscriptions.
  24. Take down computer system.
  25. Determine disposition of furniture, fixtures, library materials, art, etc.
  26. Notify post office and legal messenger services.
  27. Notify telephone companies and have forwarding number set up.
  28. Write goodwill, farewell thank-you notes.
  29. Deal with last unresolved matters.
  30. Enjoy the next steps in your path!

Note:

I was a Practice Management Advisor (PMA) for the New York State Bar Association from 1990 – 2003, and if you need information about  PMA services through your state bar association, you can find more information, including a list of all of the PMA programs and a guide to setting up a program in your jurisdiction, at https://www.americanbar.org/groups/delivery_legal_services/legal_access_jobs_corps/lajc_resource_center/practice_management_advisors_content.html.

About the Author:

I am a frequent speaker at bar association meetings on topics related to transition/succession planning, leadership skills training, and professional development.

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