Rutgers School of Law, OAL case ACPE203

94 N.J.L.J.298
April 15, 1971

ADVISORY COMMITTEE ON PROFESSIONAL ETHICS

Appointed by the New Jersey Supreme Court

OPINION 203

Professional Corporation
Files to Withdrawing Attorney

    A question has arisen as to the procedure to be followed when several attorneys who are members of a professional corporation withdraw as members. The ethical question presented is whether the corporation may refuse to honor the request of a client to permit a withdrawing attorney-stockholder, to take the client's file with
him.
    Pursuant to N.J.S. 14A:17-8, six attorneys formed a professional corporation in which each attorney acquired stock. A purchase and sale agreement was signed by all parties which makes no mention of the disposition of clients' files. The agreement does provide a formula to fix the value of stock held by each of the attorneys based on book value.
    Three attorneys have decided to terminate their employment and sell their stock to the corporation in accordance with the agreement. It is proposed that a letter be sent to each client to designate the attorney who should continue to handle pending matters after the effective date of the termination. Should this designation by the client be recognized? Do the files remain the property of the corporation until the corporation is paid by the client for work performed?

    The United States lay Department has made it possible for lawyers to practice as a professional corporation to secure benefits under our income tax laws. In our State in 1969 "The Professional Service Corporation Act" was adopted.
    N.J.S. 14A:17-8 provides as follows:
    14A:17-8,: Professional relationship; personal liability; corporate liability.

        Nothing contained in this act shall be interpreted to abolish, repeal, modify, restrict or limit the law now in effect in this State applicable to the professional relationship and the contract, tort and other legal liabilities between the person furnishing the professional services and the person receiving such professional service and to the standards for professional conduct, including the confidential relationship between the person rendering the professional services and the person receiving such professional service, if any; and all confidential relationships previously enjoyed under the laws of this State or hereafter enacted shall remain inviolate. Any officer, shareholder, agent or employee of a professional corporation shall remain personally and fully liable and accountable for any negligent or wrongful acts or misconduct committed by him, or by any person under his direct supervision and control, while rendering professional service on behalf of the corporation to the person for whom such professional service was being rendered; ... (Emphasis added)

    Regardless of the form of the organizations whether a partnership or a corporation, the Canons of Professional Ethics shall apply. To permit compliance with these canons, only attorneys can act as the managers of a professional corporation. The guidelines applicable to partnerships would be equally applicable to the attorney managers of the professional corporation.
    What is the procedure which is followed when a partner withdraws from a partnership or when a partner dies? Canons of Professional Ethics, Canon 34 provides that "[n]o division of fees for legal services is proper, except with another lawyer, based upon a division of service or responsibility." Upon death, good will is not considered an asset which can be sold. Lawyers have nothing to sell but personal services and clients cannot be treated as merchandise. A deceased attorney would be entitled to be paid only for services performed to the time of death. American Bar Association, Committee on Professional Ethics, Opinion 266 (1945).
    In our Opinion 80, 88 N.J.L.J. 460 (1965), we dealt with the procedure to be followed upon the sale of a practice. We held that a proposed sale based upon a percentage of fees to be received from the clients would be improper and would be acceptable only if based exclusively upon "a division of service or responsibility."
Canons of Professional Ethics, Canon 7 provides as follows:
            When lawyers jointly associated in a cause cannot agree as to any matter vital to the interest of a client, the conflict of opinion should be frankly stated to him for his final determination. His decision should be accepted ... .

It is therefore our opinion that a client has a right to be represented at all times by counsel of his own choosing and the files should be delivered to the attorney selected by the client.

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