RISK MANAGEMENT ADVANTAGE
The Quarter Hour
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Managing Risk in the Legal Profession
Life After Revocation: Steps to
Protect the Firm
Written by Noah D. Fiedler
License revocation is a drastic remedy, and one that
carries with it strong emotions for all involved. If the
revoked lawyer is the member of a firm, the revocation
likewise affects all other members and employees of
that firm. Following the license revocation of one of its
members, there are certain important issues a firm
must confront in order to continue operating while
avoiding further ethical issues and possible liability.
The model Rules of Professional Conduct provide
guidance, but firms must consider each state's specific
rules, along with any applicable state statutes,
particularly those that relate to the corporate form of the
firm. In this example, we consider a firm organized as a
service corporation, but the analysis is similar for any
corporate form. In addition, where possible, the
emotions of all involved should be considered to
prevent additional difficulties.
Article of Interest
The Attorney May No Longer Have Any
Involvement in the Firm
It is misconduct for the remaining members of the firm
to continue practicing with the disbarred member as
long as the revoked attorney remains a shareholder in
the service corporation.
RPC 5.4 (a) prohibits a lawyer from sharing legal fees
with a nonlawyer. RPC 5.4 (d) specifically prohibits a
lawyer from practicing in a service corporation in which
a nonlawyer owns any interest:
(d) A lawyer shall not practice with or in the form of a
professional corporation or association authorized to
practice law for a profit, if:
(1) a nonlawyer owns any interest therein, except
that a fiduciary representative of the estate of a
lawyer may hold the stock or interest of the lawyer
for a reasonable time during administration.
Specific provisions of your state's lawyer regulation
rules, other than the Rules of Professional Conduct,
likely apply to the treatment of revoked attorneys. For
example, in Wisconsin, an attorney whose license is
suspended or revoked may not engage in the practice
of law, nor may he engage in any law work activity
customarily done by law clerks or other paralegal
personnel. Wis. SCR 22.26 (2). Likewise, a Wisconsin
attorney may not permit an attorney whose license is
suspended or revoked to interview witnesses or clients,
prepare cases for trial, conduct legal research, write
briefs or memoranda, or otherwise engage in any “law
work activity” on a salary or fee splitting basis. Wis.
SCR 22.27.
Finally, for the revoked member to continue acting in
any role in the operation of the firm could violate
Risk Management Article | Fall 2013
statutes governing the corporate form. Many states'
corporation statutes are based on the Revised Model
Business Corporation Act, and contain similar, if not
identical, provisions. For example, in Wisconsin, Wis.
Stat. § 180.1911 governs service corporations owned
by licensed professionals, prevents unlicensed
individuals from having any ownership or control of,
and requires the immediate severance of employment
and financial interest in, the organization:
(1) … each shareholder, director and officer of a
service corporation must at all times be licensed …
in the same field of endeavor …. An individual who
is not so licensed … may not have any part in the
ownership or control of the service corporation …. A
proxy to vote any shares of the service corporation
may not be given to a person who is not so licensed
….
(2) If any shareholder, director, officer or employee
of a service corporation becomes legally disqualified
to render professional or other personal services,
consultation or advice within this state for which he
or she was licensed … he or she shall immediately
sever all employment with, and financial interest in,
the service corporation. A service corporation’s
failure to require prompt compliance with this
subsection is a ground for the suspension or
forfeiture of its franchise.
Thus, in Wisconsin, and in most states adopting the
Revised Model Business Corporation Act, a revoked
lawyer may no longer be a shareholder, officer, or
director in the firm, nor may he receive any
compensation from the firm that is generated by legal
services performed after the effective revocation date.
It would be misconduct for the revoked lawyer to do any
of these things under Wis. SCR 22.26, but more
importantly, it would also be misconduct by the firm's
attorneys to permit it. Wis. SCR 22.27 (2)(e). Check
your state's procedures for the lawyer regulation
system to be sure, but it is safest to prohibit the
revoked attorney from participating in the management
or operation of the firm in any way, e.g. supervision of
staff, accounting, payroll, bookkeeping, marketing, etc.,
whether or not for compensation.
Over, please.
The Revoked Attorney's Interest in the Firm Must
be Terminated
Typically, following revocation of one member's license, the
remaining firm members would follow the procedures set
forth in a shareholder agreement for buying out another's
shares. If no such agreement exists, review your state's
business corporation statute to determine what steps to take
in the absence of a shareholder agreement. In Wisconsin,
Wis. Stat. § 180.1919(2) outlines the steps:
(2)(a) Within 90 days after a shareholder’s date of …
disqualification under s. 180.1911 (2) to own shares in the
service corporation, all of the shares of the shareholder
shall be transferred to, and acquired by, the service
corporation or persons qualified to own the shares. If no
other provision to accomplish the transfer and acquisition
is in effect and carried out within the 90-day period, the
service corporation shall purchase and redeem all of the
… disqualified shareholder’s shares of the service
corporation at the book value of the shares, determined
as of the end of the month immediately before death or
disqualification.
(b) For purposes of par. (a), the book value is determined
from the books and records of the service corporation in
accordance with the regular methods of accounting used
by the service corporation to determine its net taxable
income for federal income tax purposes. A subsequent
adjustment of the service corporation’s net taxable
income, whether by the service corporation, by federal
income tax audit made and agreed to, or by a court
decision which has become final, does not alter the
redemption price.
(c) This section does not prevent the parties involved
from making any other arrangement, or providing in the
service corporation’s articles of incorporation or bylaws or
by contract, to transfer the shares of a deceased or
disqualified shareholder to the service corporation or to
persons qualified to own the shares, whether made
before or after the death or disqualification of the
shareholder, if all of the shares involved are transferred
within the 90-day period under par. (a).
Although emotions run high following an extreme event like
revocation, the firm must take steps to protect its remaining
members and employees. To reduce the risk of litigation and
to smooth the difficult transition, the firm should consider the
revoked member's history with, and contribution to, the firm
and all those who depend upon it for their livelihood.
Recognition of the attorney's involvement, even if not
monetary, can go a long way toward soothing the hurt
feelings that could ignite litigation.
The Revoked Attorney Must Be Removed From
the Firm Name
Many states prohibit the use of the name of a suspended or
revoked lawyer's name in a firm name. See, e.g., Wis. SCR
22.27 (1)(“a lawyer may not use in a firm name, letterhead or
other written form the name of an attorney whose license is
suspended or revoked.”).
The firm name is everywhere, and care must be taken to
identify all possible uses. After changing the name registered
with the State agency governing corporations, address
letterhead, business cards, default email signatures, phone
directories, the State Bar website, marketing and advertising
materials, billboards, signage, bank accounts, etc. In the
event that some uses cannot be changed or halted (for
example an outdoor sign that cannot be altered because of
winter weather), consider providing the lawyer regulation
agency with a list of any instances where it is not practical to
change the firm name immediately (or at all), and seek
guidance.
The revocation of an attorney's license to practice is a
severe discipline that affects an entire firm. To continue its
uninterrupted operation, and to avoid ethical and liability
issues, the remaining members should carefully consider
their responsibilities and the rules under which they operate.
Noah D. Fiedler is a partner in the Milwaukee, Wisconsin,
office of Hinshaw & Culbertson LLP. His practice focuses
on the defense of professionals, commercial litigation, and
labor and employment.
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