New Michigan Bar and Court Rules stress need for succession plans

Amanda Afton?Martin

(This was prepared in preparation for 32nd Annual ICLE Estate Planning Seminar.)

On June 15, 2022, the Michigan Supreme Court issued a new State Bar Rule 21, Mandatory Interim Administrator Planning, that adds new requirements for private practitioners to name an Interim Administrator to manage their practices in the event that they become temporarily or permanently unavailable to practice law.  Naming an administrator, which can also be accomplished by participating in the SBM Interim Administrator Program, is intended to protect clients from consequences of lawyers becoming unavailable, e.g. abrupt termination of legal support and guidance; missed statutes of limitations, court hearings or other deadlines; lost rights of appeal; or lack of adequate preparation for trial.  

The new Rule 21, along with a new Subchapter 9.300 of the Michigan Court Rules, and amendments to MCR 9.119, will become effective September 1, 2023, corresponding to the next annual State Bar of Michigan registration cycle. The new rules provide substantially greater requirements and guidance for attorneys’ law practice succession plans. 

A. Succession Plan for Attorneys Unable to Practice.

In Michigan, Michigan Court Rules (“MCR”) 9.119(G) (“Receivership”) has, to-date, been the only provision that addresses the death, disability, suspension, imprisonment, resignation or transfer to inactive status of an attorney, with provisions for attorneys at multi-lawyer firms, and sole practitioners. The existing rule provides that firms with multiple lawyers may continue to represent the affected attorney’s clients, so long as clients agree to such representation in writing. For sole practitioners, the current rule also provides that if “there is no partner, executor or other responsible person capable of conducting the attorney’s affairs”, the administrator may request the chief judge of the circuit in which the affected attorney practiced to appoint a receiver, who will exercise authority listed in the rule to obtain and inventory files, protect the affected attorney’s bank accounts, protect the interests of the attorney and the attorney’s clients, etc. 

B. Sale of Practice.

Michigan Rules of Professional Conduct (“MRPC”), Rule 1.17 explains requirements to be followed when selling a law practice. A notice of the sale, including client’s right to retain other counsel, or to take possession of the client’s file, must be sent to clients at least 90 days prior to date of                                                                                                                                                                                               sale. If the client does not retain another attorney or object within this time, consent to the transfer of the file to the purchaser may be presumed.  

C.  Assigning a Practice

Michigan attorneys wishing to assign their practices to other attorneys should examine Ethics Opinion JI-89 (1994), which states that whether or not a lawyer may "assign" a law practice is a question of law. The Opinion goes on to prohibit any lawyer from making an agreement to transfer a practice when:

(a) there is no provision for client consent to the transfer of the client's file and transfer of lawyer responsibility for the matter;

(b) the transferring lawyer assumes judicial office and continues to be actively involved in the law practiced by the transferred firm; or

(c) the transferring lawyer assumes judicial office and maintains a continuing financial or business interest in the former law practice. 

The Opinion also describes specific restrictions on the continuing involvement of judges transitioning from private practice to the bench, and the use of a judge’s name in the firm’s name or in professional notices.

Preparing for New Rules

On June 15, 2022, the Michigan Supreme Court made several changes to the MCRs, effective September 1, 2023, most notably requiring a succession plan for attorneys. Changes are  found in subchapter 9.300, “Interim Administrators.” Related changes also include an amendment to MCR  9.119 and deletion of MCR 9.119(G). 

“Affected Attorney” is defined in MCR 9.301A as an attorney who is either temporarily or permanently unable to practice law. A fiduciary, an Interim Administrator (“IA”) may represent affected clients so long as the affected attorney is the firm for which the attorney belonged. MCR 9.303. In this case, the firm must have a minimum of one active attorney in good standing in Michigan, capable of representing affected clients, with each affected client’s written consent to continue representation.  If an IA must be appointed, the new rules provide the circuit court jurisdiction for this appointment. MCR 9.305 provides the process for the appointment of an interim administrator to protect your business and clients’ interests. 

The IA must closely follow MCR 9.307 to execute its duties and powers. An important duty is to notify  affected clients of the affected attorney’s inability to practice law and the client’s options. After receiving direction from the affected client, the IA shall deliver files, funds and any other property per the clients wishes. The IA is obligated to protect the client’s information according to the rules of the attorney-client privilege. MRPC 1.6. MCR 9.309.

MCR 9.311 provides that during this interim period, the circuit court has jurisdiction over files, records, and property of affected clients. In order to protect the interests of the affected attorney that are consistent with the protection of the affected clients’ interests, the court may make orders relating to the delivery, storage, or destruction of the client files. However, the IA, without court permission, may destroy client documents pursuant to the law office’s file retention policy or as necessary.  

MCR 9.313 outlines IA entitlement to compensation and reimbursement, and the process to follow to recover said payment. The IA is required to have professional liability insurance. MCR 9.315

Best practice is to receive a client’s written consent to all representation. In this interim period, MCR 9.317 allows representation without this writing in limited circumstances. IA may represent the affected client temporarily to protect interests of the client or unless/until IA has completed purchase of the law firm. In any other circumstance without written consent, IA cannot represent the client in a pending matter. 

Drafting Your Succession Plan

All attorneys, sole practitioners, partners and members of large firms alike, should create a succession plan that meets the new requirements, protects their firms and practices, and most importantly protects their clients from the uncertainty of an unplanned inability of an attorney to practice. 

Checklist for Succession Plan

1. Create your personal estate plan and review every other year;

2. Create a retainer agreement that includes succession plan’s IA; 

3. Prepare and update office manual with the following information:

a. conflicts of interest process;

b. calendar instructions;

c. location of active and closed client files, that includes clients’ names and contact information;

d. client ledgers’ location;

e. billing policies;

f. process to organize client files, including open/active and closed files;

g. office policy regarding storing clients’ original documents;

h. office retention policy;

i. office safe or safe deposit box location and instructions regarding its access;

j. bank account information; including bank name, address, account signers and account numbers;

k. location of all bank accounts for the firm;

l. location and contact person to access computer passwords; 

m. instructions concerning using phone system including voicemail, answering machine and/or email.

4. Calendar all deadlines including lead dates, due dates and follow up deadlines;

5. Document your files and keep detailed notes;

6. Keep timesheets and billing records up to date;

7. Avoid keeping original documents of clients, such as wills and other estate planning documents;

8. Prepare a written agreement with the following;

a. nomination of Interim Administrator, which must include the name and address of an active Michigan attorney that is in good standing or a Michigan law firm that has at least one Michigan Attorney in good standing;

b. outline of the process and responsibilities in closing your practice;

c. compliance with bank’s procedures, if agreement authorizes the Interim Administrator to sign general business account checks; 

d. determination concerning whether incapacity renders you unable to practice law.

9. Prepare a Health Insurance Portability and Accountability Act authorization form, allowing disclosure of medical information to the Interim Administrator; 

10. Determine whether your Interim Administrator will be your personal attorney;

11. Familiarize your Interim Administrator with your office; including systems, insurance policies, etc.;

12. Introduce your Interim Administrator to your staff. Make sure your staff knows where your succession plan documents are and how to contact your Interim Administrator. If you have no office staff, be sure your Interim Administrator has the contact information for your landlord, if any;

13. Inform your spouse or closest family members and your named fiduciaries (trustee, personal representative, attorney-in-fact and patient advocate) of your succession plan and your Interim Administrator’s contact information;

14. Renew your written agreement with your Interim Administration yearly and keep your retainer agreements current; and

15. Maintain a file consisting of all current client retainer agreements.

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