“Most attorneys are not business people,” write partner Seth L. Laver and associate Andrew P. Carroll in Riding the E&O Line, the newsletter of the Defense Research Institute (DRI) Professional Liability Committee. This might not be a problem for attorneys at mid-sized or large firms, which have firm leadership and administrative teams to handle the “business side” of the practice, but smaller firms demand more business input and responsibility from attorneys, which can lead to serious problems, including financial distress, violation of state advertising regulations, and professional liability claims. One overlooked liability risk comes when sole practitioners decide to meet overhead costs by sharing expenses — such as office space and supplies — without making clear that they are not law partners.
“The concept of imputing liability to non-partners is known as partnership-by-representation or partnership estoppel, and is recognized in states across the country,” Seth and Andrew write. Plaintiffs in such cases must show representations of partnership as well as reliance on those representations. “While these cases often turn on whether there was reliance by the plaintiff, it is the representation prong that is completely within the control of attorneys and makes these claims avoidable.” For an illustration, they examine the recent case of Messler v. Cotz.
While attorneys “[r]epresenting themselves as partners may also [reflect] better to potential clients by exhibiting a single firm occupying the office, instead of separate attorneys ‘sharing a room’ … attorneys cannot enjoy all of these benefits of a ‘partnership’ while avoiding the legal liability for it,” Seth and Andrew explain.
“The most important lesson from Messler v. Cotz, and many of the other partnership estoppel cases, is just how preventable these claims are,” they write. “Prior to entering into any sort of shared resources relationship, it is vital to set clear boundaries.” If these don’t work, Seth and Andrew advise, “there are many modern business structures available for firms that can achieve the desired result without unanticipated liability.”
Both Seth and Andrew are experienced professional liability practitioners. Seth is the editor of Professional Liability Matters, Goldberg Segalla’s blog focusing on the professional liability community, and serves as the Vice Chair of DRI’s Professional Liability Committee, of which Andrew is also a member.