The following resource aims to help California lawyers close their practices, whether you’re a Baby Boomer lawyer retiring, a Great Recession graduate who became an involuntary solo but is now finding a job, or about to be elevated to the bench.

This article is written in conjunction with presentations I’ve given in 2014 on behalf of CEB (Continuing Education for the Bar) and the State Bar of California and in 2015 to the San Joaquin County Bar Association. I’ve also updated it in light of my retirement from the practice in June 2015 to become a full-time mediator/arbitrator with JAMS.

If you’d like 1 hour of MCLE Ethics credit, choose one:

State Bar of California (audio)
CEB (video)

The article assumes the following:

you’re a member of the State Bar of California,
you’re a solo or small firm,
you’ve decided to close your practice (see Matt Joseph’s 2013 article in Big News for Smaller Firms on making that decision),
the law practice is closing voluntarily, not because of death or incapacity,
the practice isn’t being sold to another lawyer.

APPLICABLE ETHICS RULES

The California Rules of Professional Conduct and Business & Professions Code apply even when you’ve stopped practicing and are closing the practice because you’re still a member of the bar until you resign.

Other resources: The State Bar’s Guidelines for Closing or Selling a Law Practice and its Agreement to Close Law Practice in the Future provide a good starting point, but they’re both focused on when a practice is closed involuntary (death or incapacity). My Google search revealed resources by the ABA, Lawyers Mutual Insurance and non-California bars, but they did not address the California Ethics Rules. The Cal Bar Journal published a Self-Study article on the topic in 1997.

COPRAC Opinion 2001-157 (retention of client files): civil files have to be retained for a reasonable amount of time if not picked up by the client and criminal files have to be retained until the client dies. I disagree with the latter conclusion.

COPRAC Opinion 2014-190 concludes, not surprisingly, that attorneys have an ethical duty to their clients even when closing up shop.

This article hopes to fill that void. It is organized into 4 sections:

Before You Announce
After You Announce But While You’re Still Practicing
After You Stop Practicing But Before You Close
After You Close

BEFORE YOU ANNOUNCE

Create a Timeline
1. The key dates are:
  1. When are you going to tell the world (Notice Date)
  2. When are you going to stop practicing law (Practice End Date)
  3. When are you going to close and vacate the office (Close Date)
2. Budget 30-90 days between each of these key dates.
Identify Potential Successor Counsel
1. Identify 2-3 attorneys who you could recommend to each client to take on their matter and find out if those attorneys can take on the matter (without disclosing client confidences protected by Rule 3-100, of course).
Clear Accounts Receivable
1. Push hard to collect outstanding invoices- sadly, clients stop paying bills when they know they won’t be getting more work from you.
Lease
1. Review your lease to see when it ends and the consequences to break it. Contact your landlord and explore when’s the cheapest time to break the lease. A common time to close shop is when the lease expires.
Review Fee Agreements
1. If your fee agreements are hourly, then you’re good to go.
2. If the fee agreements are contingency or flat fee, then it gets complicated. Contingency fee agreements might get turned into quantum meruit and flat fee ones might require the refund of the unperformed portion of the work. For example, if a client has paid $20,000 to defend a case up to trial and you plan to exit half-way through discovery, then the client could seek to have a reasonable portion of the funds refunded so he can pay successor counsel for the remainder of the flat fee period. The key word here is “reasonable”.
Insurance & Benefits
1. Malpractice: Notify your broker and purchase an Extended Reporting Endorsement (aka tail coverage). The Statute of Limitations on malpractice claims in California is 1-year from discovery or 4 years (Civ. Code section 340.6(a)), so you’ll want at least a year’s coverage.
  1. Remember that malpractice coverage is claims made insurance, so the policy in effect when the claim is made, not when the malpractice occurred, applies. Even if you had coverage when the alleged malpractice occurred, if you don’t have any coverage when the claim is made, you aren’t covered.
  2. Some carriers already include this Endorsement in their policies. For example, Arch includes a free tail for retiring policyholders over 56 who have been customers for 5 consecutive years and are current on their premiums.
  3. When I closed my law practice in June 2015, I had Arch as my carrier. But since I wasn’t 56, I didn’t qualify for the free tail. Instead the tail options set in my policy were:
    1. 12 months at 100% of premium
    2. 24 months at 150% of premium
    3. 36 months at 185% of premium
    4. Unlimited at 250% of premium (brokers push this option)
  4. I can’t advise you on which option to pick- it depends on everyone’s risk profile and the insurers intentionally price them so as to encourage you to get the unlimited tail because “you never know when someone might sue you”. In my case, I went with 1-year because I had wound down my practice enough that the risk of getting sued beyond year 1 was trivial.
2. Health/Dental/Vision: Notify your broker.
3. General Liability/Worker’s Comp/Long Term Disability: Notify your broker.
4. Find out if work-based retirement accounts need to be rolled-over into IRAs.
Prepare Public Notices (req’d by Bus. & Prof. Code section 6180 et seq.)
1. “When an attorney engaged in law practice in this state dies, resigns, becomes an inactive member of the State Bar … notice of cessation of law practice shall be given”. Bus. & Prof. Code section 6180.
2. Include the date when you’re going to stop practicing law.
3. Include that any unclaimed paper files will be destroyed on a date certain. This is for ancient matters where the long gone client couldn’t possibly want their file.
Prepare Notice to Clients
1. Attorneys have to keep clients “reasonably informed about significant developments relating to the employment or representation…” Rule 3-500: Communication. Closing up shop is a significant development relating to the employment.
2. It should be in writing (email’s ok) and should (i) terminate the engagement on a date certain, (ii) suggest 2-3 potential successor counsel, (iii) notify them of any upcoming deadlines, and (iv) provide instructions on how their files can be collected or transferred to successor counsel. Give your clients plenty of notice (at least 30 days). Rule 3-700(A)(2): Termination of Employment requires lawyers to give “due notice to the client, allowing time for employment of other counsel,” so you might need to give more than 30 days notice depending on the matter.
3. Make clear that if the paper files are not picked up by a date certain, they will be destroyed.
4. Lawyers Mutual has a good exemplar at page 12 of this link.
Tell Your Employees (Right before you announce)
1. You’ll likely need their help in closing the practice, so make them allies.
2. Presumably, they’re at will employees, so you technically don’t have to give them any notice. But keeping them in the dark will cause resentment and make your job harder.

AFTER YOU ANNOUNCE BUT WHILE YOU’RE STILL PRACTICING

Send Public Notices
1. File it in each of your cases. Bus. & Prof. Code section 6180.1
2. Mail it to opposing counsel in each case. Bus. & Prof. Code section 6180.1
3. Mail it to your insurance carrier. Bus. & Prof. Code section 6180.1
4. Mail it to the Office of the Chief Trial Counsel of the State Bar and to any other person who needs to know. Bus. & Prof. Code section 6180.1
5. Tweet and Facebook it.
Send Client Notices
1. First call and then send the notices.
Website
1. Put a notice on the homepage that the practice will close on the Practice End Date.
2. Take down the other pages, especially ones suggesting that you’re available.
Keep Practicing
1. But the focus should be on finishing what you can and getting extensions for the rest.
2. Don’t take on new matters (unless they can be completed quickly).
Client Files (property of the client)
1. Begin preparing the files for transition to successor counsel or the client.
2. Locating the client: One question I get is what to do with client files where the matter concluded years (or decades) ago and you have no idea where the client is. You can’t turn them over to the state bar or the superior court.
  1. Make a reasonable attempt to locate the client.
  2. If the matter concluded years ago and thus the chance of any document being needed by the client are remote, destroy the documents. Make sure that your public notice of closing the practice states that any unclaimed files on [date] will be destroyed.
3. Physical– if you’ve wrapped up the matter, bug the client to pick them up.
4. Electronic– if possible, compress and email the files to the client or put them on a shared server and give the client access. Since it does not cost anything, keep a copy for your records.
5. [Criminal Defense Lawyers: you must redact the address and telephone number of a victim or witness from any client files returned to your client. Penal Code section 1054.2(a)(1) precludes you from disclosing the address and telephone number of a victim or witness in a case to the defendant (your client), their family and “anyone else” (other than someone working for you or appointed by the court to assist you).
  1. Let the client know that you have an unredacted version of the file that you can only transfer to successor counsel. Now that doesn’t mean that you have to keep that file until the end of time.
  2. Scan those pages and keep the scans indefinitely or for more than enough time that they couldn’t possibly be needed.
  3. If the information is also being kept by the prosecutor, then even if you destroy the files, successor counsel could get the contact information from the prosecutor.]
6. [Estate Planning Lawyers: The Probate Code sets forth how attorneys may “terminate the deposit” of estate planning documents and other original signed instruments. The options include:
  1. Personal delivery to the depositor (Probate Code section 731(a))
  2. Mailing to depositor’s last known address by registered or certified mail with return receipt and getting a signed receipt (Probate Code section 731(b))
  3. Any method agreed to by the attorney and depositor (Probate Code section 731(c))
  4. Transferring it to another attorney (Probate Code section 732(b)) and notifying the State Bar
  5. Mailing a notice to depositor’s last known address that unless the document is picked up within 90 days, it will be destroyed Destroying the document if it is not picked up within 90 days after mailing a notice (Probate Code section 732(a))
  6. Other means set forth in Probate Code sections 731-735

AFTER YOU’VE STOPPED PRACTICING

Stop Practicing. SERIOUSLY, you’re done. Stop practicing. Your malpractice coverage doesn’t cover you for activity after your stop practice date. You should now be in collection and wrap-up mode.
Trust Accounts including IOLTA (Rule 4-100 – Preserving Identity of Funds and Property of a Client)
1. Rule 4-100 is silent about what how to close and distribute the proceeds from an IOLTA account, but reading 4-100(B)(4) liberally suggests that you should “Promptly pay or deliver [or return] … any funds, securities, or other properties in the possession of the member which the client is entitled to receive.”
2. Reconcile your trust account balances.
3. Return any funds to the respective clients.
4. Send due diligence letters to any clients who are not responding to your request to pick up their property.
5. If, after reasonable efforts, you cannot identify the person to whom the property held in trust belongs or you cannot locate that client, the property may have escheated to the state. Unclaimed Property Law (Code of Civ. Pro. section 1518).
  1. Use the Unclaimed Property Division’s Reporting Guidelines to determine if the property has escheated (i.e. it’s been 3 years since you last heard from the client).
  2. Complete both the Face Sheet (UFS-1) and the Annual Report (UDS-1) – they’re due by Nov. 1st every year. But do not send in the property- you have to wait until the following June to send in the property.
  3. If the property remains unclaimed as of June 1 of the following year, file a Face Sheet (UFS-1) and a Holder Remit Report and remit the property to the State between June 1 and 15.
6. Close the account.
7. Notify the Bar.
  1. Electronically: login to your state bar profile, then goto the IOLTA record page and click on “Remove”. Do this for each attorney at the firm.
  2. Via Mail: File the IOLTA Update Form with the State Bar for each attorney at the firm.
    1. Check the second box “I have not established an IOLTA account (or I have closed my previous account) as I am not covered by the legislation because”
    2. Check the first sub-box “I am not engaged in the practice of law”
    3. Mail it to: The State Bar of California Legal Services Trust Fund Program 180 Howard St. San Francisco, CA 94105
8. For questions, review the Bar’s Handbook on Client Trust Accounting for California Attorneys (which is silent on closing a law office), call the Bar’s Legal Services Trust Fund Program at (415) 538-2227 or email iolta@calbar.ca.gov.
Send Final Invoices and Bug Clients Until You’ve Collected.
Client Files (again, the property of the client)
1. Physical– bug the client to pick them up. If they’re not voluminous, send them to clients at your own cost. You may keep a copy for your records, but you CANNOT bill the client for these copying costs. If the client doesn’t pick them up within a reasonable time after notice, destroy them.
2. Electronic– if possible, compress and email the files to the client or put them on a shared server and give the client access. Since it does not cost anything, keep a copy for your records.
3. [Estate planning attorneys: Wills can be deposited with your local superior court. For example, LA Superior Court charges $50 per will.]
Website & email
1. Keep the website up and email account active for at least 6 months after the Close Date.
2. The website should basically identify you and say that you’ve stopped practicing law, along with a contact number/email address. That’s for the benefit of creditors and old clients who want their records. Consider saying that any files not picked up by X date will be destroyed.
3. Get a backup of your website before you cancel the hosting account because a website is a communication which arguably has to be kept for 2 years. Rule 1-400(F).
4. Backup your emails and hold onto it for a reasonable time (say 1 year).
Creditors– close all accounts & notify them to send you a final bill
1. Credit cards
2. Landline & mobile phone
3. Internet service provider
4. Courier, FedEx & UPS
5. Filing Service
6. Paralegal/Support services
7. Office equipment leasing companies
8. Online legal research companies
9. Newspaper/magazine subscriptions
Furniture & Computers
1. Most of your furniture likely has more sentimental value than resale value. So, consider giving it to your staff, selling it to the next tenant, listing it on Craigslist, donating it or just taking it to the dump.
2. Unless the computers were bought in the last 2 years, they’re likely worthless as well. Reformat the hard drives before selling/donating them.
Office Supplies & Law Library
1. Craigslist/Facebook/Tweet that the items are for sale
2. See if your friends want them
3. Offer them to legal aid societies/law libraries
Mail Forwarding
1. Have the mail forwarded to a PO box, prestigious business address service or your home.
Call Forwarding
1. Have calls forwarded to your celphone.
Lines of Credit
1. Pay them back and close them.
Bank Accounts (Operating Account) & Safe Deposit Boxes
1. Distribute/return the proceeds and client property in any trust accounts.
2. Only after all accounts have been settled and bills paid, close the operating account.
3. But, if a malpractice claim is pending or anticipated, keep enough funds in the operating account to cover it.

AFTER YOU CLOSE

Tax Returns & Quarterly Reports
1. Follow your accountant’s advice.
2. File quarterly reports with EDD through your last pay period.
3. File Form 8822-B Change of Address or Responsible Party – Business with the IRS.
4. File Form DE-24 Change of Employer Account Information with EDD.
Fiduciary
1. Resign as a fiduciary for positions you no longer wish to hold, such as executor or trustee of a trust or agent for service of process.
2. File a Resignation of Agent Upon Whom Process May be Served form with the Secretary of State.
[If in Estate Planning, after you’ve transferred your files, send the Transfer of Estate Planning Documents form to State Bar.]
Dissolve The Law Corporation
1. File a Certificate of Dissolution with the California Secretary of State.
2. Revoke the Certificate of Registration as a Law Corporation with the State Bar by mailing it (i) the applicable form depending on if there is 1 or multiple shareholders, or (ii) an original certified copy of the filed Certificate of Dissolution.
Dissolve the LLP
1. File a Certificate of Dissolution with the California Secretary of State.
2. Revoke the Certificate of Registration with the State Bar by mailing in an original certified copy of the file-stamped Certificate of Dissolution. See Rule 3.178.
Abandon the Fictitious Business Name Statement
1. File a “Statement of Abandonment of Use of Fictitious Business Name” form with each county recorder where you filed a FBN application. Bus. & Prof Code section 17922(a)
2. The form is available on the county recorders’ websites. See San Mateo‘s or Santa Clara‘s forms.
Recordkeeping
1. Bank account statements, especially for the IOLTA account, have to be retained for 5 years. Rule 4-100(B)(3) & Standard (1)(c).
2. Form I-9 for employees has to be retained the latter of 3 years after hire or 1 year after termination.
Change Your Bar Status To Inactive
1. After you close shop, you can either stay active status (paying full dues and still able to practice), go on inactive status (lower dues but unable to practice or mediate (State Bar Rule 2.30)), or resign completely (a big step).
  1. Rule 2.30 expressly covers mediation which I think is wrong and an unfair restraint of trade because mediating is not the practice of law and is otherwise an unregulated industry in California.
2. The easiest option is to go on inactive status for a few years until you’ve decided you’ll never practice again, at which point you can resign.
3. Complete and mail the Application for Transfer to Inactive Membership Status to the Bar’s Member Services Center.
4. As an inactive member, you can still participate in State Bar sections and committees, State Bar approved life, ADD and disability insurance programs.
  1. Also, you should still be able to serve as a trustee of an estate because trustees do not have to be attorneys.
5. If you never plan to practice again, resign.
Certified Specialist
1. Unless you’d like to keep your certified specialist designation and keep paying the annual fee, complete and mail the resignation form to the Board of Legal Specialization.
[In case you are curious] Involuntary Closing (Death or Incapacity)
1. If the attorney has executed an Agreement to Close Law Practice in the Future, then the Practice Administrator tasked with closing the practice will follow its directions.
2. If not, then the Superior Court has the authority to appoint an administrator to close the practice. Bus & Prof Code section 6180.2 gives the court jurisdiction to take over the law practice and appoint a pro bono attorney to wind up the practice.
3. For example, in 2014, the San Joaquin County Bar Association was tasked with closing multiple law practices and finding a home for 96 bankers boxes of attorney files.

I hope that this helps map out the steps to close a law practice in California.

Shirish Gupta is an award-winning mediator and arbitrator with JAMS. He is a past-Chair of the California State Bar Solo and Small Firm Section Executive Committee and had his own solo practice from 2008 through 2015.
Book a mediation with Shirish.