With the Supreme Court’s recent approval of limited liability forms of practice new risk management and professional responsibility issues come into play. Under the new rules an attorney remains personally liable to clients for the attorney’s own acts, errors, and omissions, and those of any attorney directly supervised -- but is not vicariously liable for other firm lawyer malpractice. To aid in converting to a limited liability form of practice we offer a compilation of risk management questions with a few suggestions for your evaluation on how best to proceed. Until Kentucky’s limited liability forms of practice laws and rules are interpreted it is not possible to recommend with authority specific actions. (For information on limited liability practice see the article “Supreme Court Approves Limited Liability Forms of Practice for Kentucky Lawyers” in our Winter 2000 newsletter at http://www.lmick.com).
Notice: How should clients be notified that the firm’s form of practice limits liability? Is it necessary to get express consent to limited liability from clients for limited liability to be effective?
When a firm converts to a limited liability form of practice notice of the change should be given to current clients. Some commentators take the position that, unless the limitation is in writing in clear and precise terms, vicarious liability is not avoided. Furthermore, without express consent to the change a client may later argue that the limitation was not effective. This could be troublesome both for current partners and partners leaving a firm believing they need not worry about vicarious liability for on-going matters at the time of departure.
New clients of a limited liability practice should be notified of the liability limitation in a letter of engagement in clear and precise terms to be sure that vicarious liability is avoided. The ABA Standing Committee on Ethics and Professional Responsibility in a lawyer friendly opinion allows a less stringent approach to new client notification if legislation approves the use of initials: “Criterion No. 2 in Formal Opinion 303 required that restrictions on liability as to other lawyers in the organization be made apparent to the client. While a minority of this committee is concerned that the use of initials, without more, is not sufficient to make the limitation of liability apparent to the client, most of the committee members are of the view, based upon the legislative approval of the use of initials and the relative unimportance, today, of the lawyer’s business form for clients, that the use of initials, without more, is adequate to meet ethical criteria. The majority is of the view that the abbreviation places clients on notice that their lawyer is practicing in a particular business form, and encourages them to inquire if they are in doubt as to its implications for them. When faced with such inquiries from clients, of course, a lawyer must clearly explain the limitation of liability features of his firm’s business organization. The Committee cannot and does not express any opinion as to whether, as a matter of law, the use of initials is sufficient to shield the partners of a lawyer held liable for malpractice from vicarious tort liability.
As an aside, we note that the use of a statutorily required or permitted abbreviation on letterhead, professional and media announcements, and in other public contexts, satisfies the requirements of Model Rules 7.1 and 7.5(a) that a lawyer’s public communications not be “misleading” or “deceptive.” Cf ABA Formal Opinion 94-3 88 (1994) (“Relationships Among Law Firms”). Limited liability partnerships are indeed partnerships, and thus there is no actual or implied misrepresentation when a firm describes itself as such.” (Formal Opinion 96-401, Lawyers Practicing in Limited Liability Partnerships, 8/2/96)
The safest notice procedure is to give detailed notice of liability limitations to clients in writing that they acknowledge by signing.