SPACE-SHARERS, BEWARE!
by Daniel C. Crane, Bar Counsel
and
John W. Marshall, Assistant Bar Counsel
As a result of recent amendments to a comment in the Massachusetts Rules of
Professional Conduct, attorneys in group practices who share space and common
expenses but are otherwise solo practitioners may have to re-think their letterhead
and office name. Many such offices are known as, for example, "Rodgers
& Hammerstein, a Professional Association" or "W. W. Rainmaker
and Associates." Such names are no longer permitted for space-sharers "in
the absence of an effective disclaimer of joint responsibility."
Rule 7.5(d) of the Massachusetts Rules of Professional Conduct states that
"[l]awyers may state or imply that they practice in a partnership or other
organization only when that is the fact." The rule, which applies to firm
names and letterheads, was adopted on January 1, 1998. As of October 1, 1999,
the Supreme Judicial Court amended Comment 2 to Rule 7.5 to state as follows:
With regard to paragraph (d), lawyers who are not in fact partners, such
as those who are only sharing office facilities, may not denominate themselves
as, for example, "Smith and Jones," or "Smith and Jones,
A Professional Association", for those titles, in the absence of an
effective disclaimer of joint responsibility, suggest partnership in the
practice of law. Likewise, the use of the term "associates" by
a group of lawyers implies practice in either a partnership or sole proprietorship
form and may not be used by a group in which the individual members disclaim
the joint or vicarious responsibility inherent in such forms of business
in the absence of an effective disclaimer of such responsibility.
The new comment puts teeth into the rule by explicitly clarifying that firm
names such as "Lennon & McCartney, a Professional Association"
and "Don Corleone & Associates" suggest a partnership. Although
lawyers are generally aware that such names may signal space-sharers and not
a partnership, the point of the comment is that the names may suggest something
else to the public and potential clients. Space-sharers risk running afoul of
the rule if they use an office name that suggests that the office is any
business entity other than a group of space-sharers.
In its report to the Supreme Judicial Court recommending changes to the comment
to Rule 7.5(d), the Court’s Advisory Committee on Lawyer Advertising noted that
the purposes of the revised comment are "to prevent consumers from being
misled and to alert lawyers to the risks of incurring unintended liability."
Both purposes need to be considered by attorneys in group practices in order
to effectively respond to the change.
What can space-sharers do to comply with Rule 7.5(d)? One solution would be
to abandon the group name and joint letterhead. Each attorney would have individual
letterhead and a separate phone. The nameplates on the door would list the attorneys
individually, such as "Law Office of Ginger Rogers", "Law Office
of Fred Astaire", with no group name at the top.
The problem with this solution is that it may not be the best solution for
Ginger and Fred. As the MBA’s Committee on Professional Ethics acknowledged
in 1985 (Opinion 85-2), the use of the term "Professional Association"
is widespread in Massachusetts. The MBA’s 1997 law practice survey showed that
10% of MBA members are solo practitioners in group practice. Group practices
provide benefits of collegiality and practice support, and there are business,
tax and personal reasons why attorneys may not want to practice in a more formal
organization, such as a partnership or professional corporation. It would not
be beneficial to attorneys or the public to force solo practitioners into isolation.
Effective disclaimers So what can space-sharers who want to use
a joint letterhead do to comply with Rule 7.5(d)? The comment to Rule 7.5(d)
states that space-sharers should not use a joint letterhead "in the absence
of an effective disclaimer of joint responsibility." While the Board of
Bar Overseers and the Supreme Judicial Court ultimately have the authority to
decide on the efficacy of any particular disclaimer, some parameters can initially
be set.
There are many short phrases that have been proposed as disclaimers: "not
a partnership"; "individual" or "independent practitioners";
"an association of independently practicing attorneys"; "professional
association of independent attorneys"; "network of cooperating lawyers."
The problem with such brevity is that each phrase begs as many questions as
it answers—If "not a partnership", then what? "Independent"
from what? "Cooperating" with whom? None of the above phrases would
be considered effective, and it is unlikely that any similar short phrase could
pass muster.
In order for a disclaimer to be effective, a more detailed statement about
the relationship among the attorneys in the group practice is necessary, such
as: "Each attorney in this office is an independent practitioner who is
not responsible for the practice or the liability of any other attorney in the
office." This type of detailed disclaimer must appear on the letterhead,
web site, advertising, and any other medium in which the name of the office
appears, and not just the name of the individual attorney. It would also make
sense to include the disclaimer in a written fee agreement, the use of which
is encouraged by both the MBA and the Massachusetts Rules of Professional Conduct.
(Rule 1.5(b)). Provided each potential client receives clear information about
the lack of joint liability among space-sharers before retaining an attorney,
attorneys may present themselves other than just as individuals under Rule 7.5(d).
Professional liability insurance The main point of the new comment
to Rule 7.5(d) is to guard against misleading potential clients about the existence
of joint responsibility to the client. Can a group professional liability policy
provide the responsibility that the rule encourages? Malpractice insurance coverage
is generally available to group practices to the same extent that it is available
to partnerships. In fact, many insurers will not insure individual solo
practitioners in a group practice, but will only insure the group and all attorneys
in the group on one policy. In effect, a solo practitioner in a group practice
can have the same malpractice insurance as a partner in a partnership. So long
as that coverage is adequate, it would effectively provide clients with the
same recourse to financial responsibility enjoyed by clients of other entities.
Although attorneys should always maintain professional liability insurance,
the problem with space-sharers attempting to comply with Rule 7.5(d) by maintaining
it is that the new comment simply does not allow for such an approach. As drafted,
the comment requires that a group of space-sharers either accept joint liability
or make an effective disclaimer. The insurance alternative would raise questions
of minimum required levels of coverage and whether vicarious liability above
the coverage can be disclaimed. The question of whether a group of space-sharers
could adopt the same approach to vicarious liability that is permitted for limited
liability entities by S.J.C. Rule 3:06 should perhaps be the subject of further
amendments to the rules. For now, however, space-sharers need to respond to
Rule 7.5(d) and its comment as drafted.
Space-sharers—beware! One of the purposes behind the amended
comment to Rule 7.5(d) is to alert space-sharers to the risk of incurring vicarious
liability for other attorneys in the group through the theory of partnership
by estoppel. Section 16 of MGL Chapter 108A, the Uniform Partnership Act, essentially
says that a person can be held vicariously liable as a partner if he or she
consents to being held out as a partner and a third party relies on the partnership
to his or her detriment. What the comment to Rule 7.5(d) says is that space-sharers
practicing under a joint name without a disclaimer of joint liability are holding
themselves out as partners. The case of Atlas Tack Corp. v. DiMasi, 37
Mass. App. Ct. 66 (1994) is to the same effect. The new comment to Rule 7.5(d)
probably will make it easier to prove a partnership by estoppel claim against
space-sharers who do not use effective disclaimers of joint liability.
The potential liability involved in partnership by estoppel is not limited
to negligence or malpractice of another attorney. Vicarious liability can be
incurred for any liability of an office mate, including malpractice, breach
of fiduciary duty, theft of clients’ funds, or the lease of that new BMW. As
a practical matter, an adequate professional liability policy will provide protection
against vicarious liability for many situations. Insurance will not cover all
of the potential liabilities involved, like the new BMW or the client’s fund
theft (unless it is carefully pled as a breach of fiduciary duty). Rule 7.5(d)
and its new comment requires that thought be given to these factors as well,
lest you become "Down & Out, a Former Professional Association."
At first blush, Rule 7.5(d) and the comment as amended this fall appeared to
spell the demise of the professional association as we have known it—a group
of solo practitioners sharing space and some common expenses. Upon reflection,
however, the changes can better be viewed as a wake-up call and as an impetus
to space-sharers to think through their arrangements and to make whatever changes
are necessary to protect their clients and themselves. Rule 7.5(d) need not
force solo practitioners into isolation. However, those who do not consider
the implications of the rule and make appropriate adjustments are likely to
encounter difficulty.
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