FLORIDA SUPREME COURT

Judicial Ethics Advisory Committee

Opinion Number: 2013-01
Date of Issue: January 11, 2013

ISSUES

1.   May a lawyer who has been appointed as a judge, but has not assumed office, sell the lawyer’s interest in a law practice, including its tangible assets and goodwill, and collect payments for that sale over a period of time, while sitting as a judge?

ANSWER: Yes.

2.   May payments for goodwill be based upon a formula taking into account fees earned in pending matters transferred to the acquiring firm?

ANSWER: No.

FACTS

The inquiring judicial appointee, whose appointment has been announced, but who has not assumed office, asks whether payments for the value of the law practice, including its goodwill value, may be received over a period of time, including the time during which the judge is serving on the bench.

The inquiring judicial appointee also asks whether the value of the interest in the law firm being sold, rather than being fixed at the time of sale, could be adjusted in the future based on “the economic value of the fees that may be earned in the future on client matters pending and active at the time of the sale.”  The inquiring judicial appointee postulates that fixing the amount of the goodwill value at the time of the sale makes it “very likely that the acquiring firm will either overpay or underpay the economic value of the practice being sold.”  To avoid this result, the inquiring judicial appointee suggests the possibility that a formula be agreed upon to be applied to fees as they are collected in the future.

DISCUSSION

The inquiring judicial appointee acknowledges that this Committee  consistently has opined that a judge, after assuming office, may continue to collect fees resulting from work performed before appointment.  See Fla. JEAC Op. 09-09 and opinions cited therein.

In Fla. JEAC Op. 09-09, the Committee opined that the fees to be collected in the future must be calculated based upon legal services which the incoming judge performed on behalf of the client before assuming office, and must satisfy the applicable requirements of the Rules Regulating the Florida Bar.  If there are fees earned by the incoming judge, but which have not been collected, these fees may be paid to the incoming judge upon collection in the future.

The questions posed by the inquiring judicial appointee, however, relate not to fees on work performed by the appointee before the appointee’s cessation of law practice, but rather the payments to the appointee for the goodwill value of the practice.

The inquiring judicial appointee asks whether he/she may sell the goodwill value of the practice, with payments to be made after the appointee assumes office.  The inquiring judicial appointee further asks whether that value may be adjusted according to a pre-arranged formula as fees are collected in the future.

The Committee has not previously explicitly addressed the issue of goodwill.  Fla. JEAC Op. 74-4 refers to the sale of a lawyer’s interest in a practice, but does not specifically refer to sale and valuation of goodwill.   That opinion approves of the sale of a lawyer’s interest in a law practice for a fixed sum to be paid over a period of time during which the former lawyer serves on the bench.

In addressing the issue of goodwill, it is important to note that Rule Regulating the Florida Bar 4-1.17 explicitly provides that a lawyer may sell a law practice, including the practice’s goodwill value, subject to the rule’s requirements.

Therefore, if the inquiring judicial appointee sold the practice and were paid the entire consideration due before assuming office, the Code of Judicial Conduct would not be implicated.   It is only the payment of the value of the goodwill over time (including the period of time after which the judge has assumed office) which implicates the Code of Judicial Conduct.

The Massachusetts Committee on Judicial Ethics has most directly addressed this issue in its Opinion 2000-1.  Although that opinion addresses payments to a former lawyer for the capital investment in a law firm, the Committee believes that the opinion’s logic equally applies to payments for goodwill.

The Massachusetts Committee opined that as long as the payment for goodwill is for a fixed sum at a reasonable rate of interest, to be paid over time, the arrangement would not violate Canon 5C, restricting a judge’s financial and business dealings, nor Canon 5G, prohibiting a judge from practicing law.

We agree with that reasoning and accordingly answer Issue 1 yes.

Regarding Issue 2, the adjustment in the amount to be paid for the goodwill value, as proposed by the inquiring judicial appointee, based on the success of the law practice in collecting fees in the future, would not be permissible.  Such a process impermissibly would involve the judge in the future success or failure of the continuing law practice.

Although not included in the inquiry, it is important to note that a judge must not sit on any matter involving the law firm during the period when the payments are being made to the judge.  Fla. JEAC Op. 00-34.

REFERENCES

Fla. Code Jud. Conduct Canons 5C and 5G.

R. Reg. Fla. Bar 4-1.17.
 
Fla. JEAC Ops. 74-4; 00-34; 09-09.

Massachusetts CJE Op. 2000-1.

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The Judicial Ethics Advisory Committee is expressly charged with rendering advisory opinions interpreting the application of the Code of Judicial Conduct to specific circumstances confronting or affecting a judge or judicial candidate.

Its opinions are advisory to the inquiring party, to the Judicial Qualifications Commission and the judiciary at large. Conduct that is consistent with an advisory opinion issued by the Committee may be evidence of good faith on the part of the judge, but the Judicial Qualifications Commission is not bound by the interpretive opinions by the Committee. See Petition of the Committee on Standards of Conduct Governing Judges, 698 So. 2d 834 (Fla. 1997). However, in reviewing the recommendations of the Judicial Qualifications Commission for discipline, the Florida Supreme Court will consider conduct in accordance with a Committee opinion as evidence of good faith. See Id.

The Committee expresses no view on whether any proposed conduct of an inquiring judge is consistent with substantive law which governs any proceeding over which the inquiring judge may preside. The Committee only has authority to interpret the Code of Judicial Conduct, and therefore its opinions deal only with the issue of whether the proposed conduct violates a provision of that Code.

For further information, contact the Committee Chair: Judge Jonathan D. Gerber, Chair, Judicial Ethics Advisory Committee, Fourth District Court of Appeal, 1525 Palm Beach Lakes Boulevard, West Palm Beach, Florida 33401.

Participating Members:
Judge Roberto Arias, Judge Robert T. Benton II, Dean Bunch, Esquire, Judge Lisa Davidson, Judge Jack Espinosa, Jr., Judge Jonathan D. Gerber, Judge T. Michael Jones, Patricia E. Lowry, Esquire, Judge Michelle Morley, Judge Barbara Lagoa, Judge Richard R. Townsend, Judge Dorothy Vaccaro.


Copies furnished to:
Inquiring judge (Name of the Inquiring Judge deleted)
Justice Charles T. Canady
Thomas D. Hall, Clerk of Supreme Court
All Committee Members
Executive Director of the J.Q.C.
Office of the State Courts Administrator