Ethics Opinion 235
Registered Limited Liability Partnership/Limited Liability Company
Members of the District of Columbia Bar may practice in the District of Columbia as partners and associates of a law firm headquartered outside the District that is organized under the law of a state as a "registered limited liability partnership" or as a "limited liability company." In any such case the formal name under which the law firm's District of Columbia office practices must include the words "registered limited liability partnership" or "limited liability company," as the case may be, not merely the abbreviation "L.L.P." or "L.L.C.," as the case may be, as the last words of its name.
- Rule 1.4(b) (Communication)
- Rule 1.8(g) (Prospective Limitation of Liability)
- Rule 5.4(b) (Professional Independence of a Lawyer)
- Rule 7.1(a) (Communications Concerning a Lawyer's Services)
- Rule 7.5(b) (Firm Names and Letterheads)
In this Opinion we deal with two similar inquiries.
One of the inquirers is a Texas-based law firm (the "Texas Firm"), which is currently organized as a general partnership under the Texas Uniform Partnership Act (the "Texas Act"). The Texas Firm has offices in the District of Columbia and other locations. The Texas Firm is contemplating registering under Texas law as a "registered limited liability partnership" pursuant to recently amended provisions of the Texas Act. Under the Texas Act as amended, the Texas Firm would continue to be a general partnership. For our purposes the significant consequence of the Texas Firm's registration as a "registered limited liability partnership" is that the Texas Act as amended purports to limit in certain material respects the personal liability of a partner for legal malpractice committed by another partner or employee of the Texas Firm. Specifically, amended section 15 of the Texas Act includes new paragraphs (2), (3) and (4), which read in their entirety as follows:
(2) A partner in a registered limited liability partnership is not individually liable for debts and obligations of the partnership arising from errors, omissions, negligence, incompetence, or malfeasance committed in the course of the partnership business by another partner or a representative of the partnership not working under the supervision or direction of the first partner at the time the errors, omissions, negligence, incompetence or malfeasance occurred, unless the first partner:In summary, the above-quoted provisions of the Texas Act purport to absolve a partner (the "First Partner") from personal liability for the legal malpractice of another partner or employee of the Texas Firm if the First Partner:
(a) was directly involved in the specific activity in which the errors, omissions, negligence, incompetence or malfeasance were committed by the other partner or representative; or
(b) had notice or knowledge of the errors, omissions, negligence, incompetence or malfeasance by the other partner or representative at the time of occurrence.
(3) Paragraph (2) does not affect the joint and several liability of a partner for debts and obligations of the partnership arising from any cause other than those specified in Paragraph (2).
(4) Paragraph (2) does not affect the liability of partnership assets for partnership debts and obligations.
(a) was not the supervisor of the person who committed the malpractice;As indicated by Paragraph (4) of section 15 of the amended Texas Act quoted above, the Texas Firm as an entity remains fully liable, and all of the assets of the Texas Firm (capital, billed and unbilled receivables from clients, malpractice insurance proceeds, etc.) are available without limitation to satisfy any liability for legal malpractice.
(b) was not directly involved in the activity in which the malpractice was committed by the other person; and
(c) was not aware of the malpractice at the time it was committed.
The Texas Act as amended requires that a registered limited liability partnership's name must contain the words "registered limited liability partnership" or the abbreviation "L.L.P." as the last words or letters of its name. The Texas Act also requires that such partnerships "must carry, if reasonably available, at least $100,000 of liability insurance of a kind that is designed to cover" the type of liability described in the new paragraph (2) of section 15 quoted above.
The Texas Firm inquires whether, if it becomes a "registered limited liability partnership" under the Texas Act, it is permitted to practice through its District of Columbia office under its current firm name, followed by the words "registered limited liability partnership" or the abbreviation "L.L.P." as the last words or letters of its name.
The other inquirer is a Colorado-based law firm ("the Colorado Firm") that proposes to reorganize itself as a "limited liability company" under the law of Delaware The Colorado Firm advises us that Delaware and several other states have recently enacted legislation permitting a law firm or other professional firm to practice as a "limited liability company." We are advised that under those newly enacted state laws a limited liability company is not a corporate entity but is in substance a partnership having personal liability limitation features that are substantially the same as the personal liability limitations in those states' existing professional corporation statutes. Typically these limited liability company statutes require that a law firm's name include the words "limited liability company" or the abbreviation "L.L.C." as the last words or letters of its name.
The Colorado Firm inquires whether, if it becomes a "limited liability company" under Delaware law, it is permitted to practice through its District of Columbia office under its current firm name, followed by the words "limited liability company" or the abbreviation "L.L.C." as the last words or letters of its name.
Our research discloses that there are certain differences throughout the country between and among the various "limited liability partnership" statutes and the various "limited liability company" statutes (enacted and proposed, including a proposed "limited liability partnership" law that was under consideration by the District of Columbia Council on the date this Opinion was approved). Therefore, in the interests of clarity and simplicity, we shall address the issues by reference to the Texas Firm and the Texas Act, with the understanding that the guidelines contained herein will have general applicability, and may be relied upon by other similarly-situated law firms organized pursuant to a state law outside the District of Columbia, thus largely obviating the need for further Opinions of this Committee on this subject.
As we have often observed, this Committee's jurisdiction extends only to matters of legal ethics. We therefore express no opinion on important questions of general law that are necessarily implicated in this inquiry (e.g., whether courts in the District of Columbia or elsewhere would give extraterritorial effect to the liability limitation contained in the Texas Act, or what force and effect the Texas courts themselves might accord to such limitation of liability provisions).
We hold that as a matter of legal ethics it is permissible for the Texas Firm to practice through its District of Columbia office under its current firm name, provided that the firm name is followed by the words "registered limited liability partnership," not merely the abbreviation "L.L.P.," as the last words of its name.
Basically, the limitation of liability for legal malpractice contained in the amended Texas Act is in substance the same as the limitation of liability that has been common, and has become accepted by the legal profession and the public, in many professional corporation statutes throughout the country, including the District of Columbia. Indeed, the Texas Act's limitation of liability is slightly narrower than the limitation of liability contained in section 11 of the District of Columbia Professional Corporation Act (see D.C. Code § 29-611) and in many other professional corporation statutes throughout the country in that mere knowledge of the malpractice of another is not a basis for personal liability under those statutes, whereas under the Texas Act it is.
As the movement toward incorporation of law firms, and the consequent diminution in partners' (or, more precisely, stockholders') personal liability, developed in the 1970's, the guiding principles remained those originally established in Formal Opinion 303 (November 27, 1961) of the ABA Standing Committee on Ethics and Professional Responsibility: the practice of law in corporate form was ethically permissible provided:
(1) The lawyer or lawyers rendering the legal services to the client must be personally responsible to the client.Typically both of the foregoing legal ethics requirements have been codified by explicit provisions in the various state professional corporation statutes. In particular, those statutes (including the District of Columbia Act) virtually without exception do not absolve a lawyer from personal liability for his or her own malpractice, and require that the name of an incorporated law firm include the words "professional corporation" or "professional association" or the abbreviations "P.C." or "P.A." or some similar indication of a law firm's corporate status. Consistent therewith, DR 2-102(B) of the District of Columbia Code of Professional Responsibility, which was in effect through December 31, 1990, provided that the name of a professional corporation or professional association could contain the abbreviation "P.C." or "P.A."
(2) Restrictions on liability as to other lawyers in the organization must be made apparent to the client.
There is no literally exact successor to the previous DR 2-102(B) in the District of Columbia Rules of Professional Conduct, but Rule 5.4(b) expressly reconfirms the now well-settled and accepted principle that "[a] lawyer may practice law in a partnership or other form of organization. . . ." The Terminology section of the Rules defines a law firm "partner" as a member of a partnership or a shareholder in a professional corporation.
Thus, it is now beyond doubt that D.C. Rules 1.4(b) and 7.1(a) are satisfied by use of the abbreviation "P.C." or "P.A." in the case of an incorporated law firm. Further, D.C. Rule 1.8(g) (which proscribes prospective limitation of malpractice liability) is not violated if the individual lawyer who committed the malpractice remains personally liable to the client in all events, and if the client is made aware of the limitation of personal liability of the other lawyers in the law firm who were not involved in the malpractice. The Texas Act satisfies those conditions.
In summary, we conclude that it is ethically permissible for the District of Columbia office of the Texas Firm to practice as partners and associates of a Texas "registered limited liability partnership" because the limitation of liability under the Texas Act in substance is not broader than the limitation of liability contained in section 11 of the District of Columbia Professional Corporation Act:
An individual shall be personally liable and accountable only for any negligent or wrongful acts or misconduct committed by him, or by any individual under his supervision and control. . . .D.C. Code § 29-611 (1981 ed.).
The Texas Firm has advised us that, as permitted by the Texas Act, it intends to use merely the "L.L.P." abbreviation in Texas, and inquires whether the use of the initials "L.L.P." is permissible in the District of Columbia, or whether the somewhat more descriptive "registered limited liability partnership" is ethically required.
We conclude that, at least for the time being, the abbreviation "L.L.P." is not sufficient, and that the Texas Firm's name must include the words "registered limited liability partnership" as part of its name so that clients will be more likely to be alerted to and comprehend the limited liability features of that form of organization. The concept of a "registered limited liability partnership" (as well as the concept of a "limited liability company") is unfamiliar to citizens of the District of Columbia, including many experienced lawyers in the District of Columbia. There may come a time in the not too distant future when, either by District of Columbia Council action, or otherwise, the implications of the abbreviation "L.L.P." will be as well understood as the implications of the historically more common abbreviations "P.C." or "P.A.," but until that time comes we are not disposed to approve the use in the District of Columbia of the abbreviation. (We note that the abbreviations "L.L.P." and "L.L.C." are especially infelicitous in that they closely resemble the abbreviation "L.L.B.," which for decades until the 1970's the public and clients understood to be the description of a person who possessed a law degree).
We are not unmindful of District of Columbia Rule 7.5(b), which provides that "a law firm with offices in more than one jurisdiction may use the same name in each jurisdiction, . . . ." Nevertheless, we hold that this technical Rule was not intended to apply where there is a risk that District of Columbia clients will be misled or harmed.
The foregoing holding applies to the identification of the Texas Firm on whatever written material emanates from its District of Columbia office and/or from its lawyers who are based in the District of Columbia office: for example, but not by way of limitation, stationery, envelopes, The Legal Register, Martindale-Hubbell, business cards, professional announcements, brochures, and media advertisements. The only exceptions to the foregoing are the unpaid line item listings in the white and yellow telephone books, where because of space limitations and format we believe the use of the initials "L.L.P." is tolerable.
Further, when faced with the inevitable inquiries from clients, the Texas Firm must provide either orally or in writing a plain-English summary of the limitation of liability features of the Texas Act. We believe that for this purpose it would suffice to describe the limited liability features of the Texas Act in substantially the form set forth above in this Opinion immediately following the quoted provisions of amended section 15 of the Texas Act.
As indicated above, the fundamental principle on which this Opinion rests is that the limitation of liability under the Texas Act in substance is not broader than the limitation of liability that currently appears in section 11 of the District of Columbia Professional Corporation Act. We believe that in some states it is not completely clear on the face of the particular state's limited liability partnership statute or the state's limited liability company statute whether the limitation of liability in those statutes in substance is not broader than the District of Columbia Professional Corporation Act limitation of liability. It is not this Committee's function to interpret the numerous state laws that might be relevant as various law firms analyze and attempt to comply with this Opinion. We suggest that, if a relevant state statute is not clear on its face, a law firm would be well advised to seek an opinion from local counsel on the issue whether the limitation of liability in the jurisdiction is in substance not broader than the District of Columbia limitation of liability, and if necessary in appropriate cases clarify and confirm in the organic documents (certificate of partnership, statement of organization, etc.) precisely the circumstances under which the personal liability of individual members of the law firm is limited.