Jump to content


Photo

Limited liability of an LLP


  • Please log in to reply
5 replies to this topic

#1 stebbinsd

stebbinsd

    Diamond Contributor

  • Members
  • PipPipPipPipPipPip
  • 1,599 posts

Posted 17 January 2013 - 11:46 PM

Let's assume that Plaintiff has a legal malpractice case against Defendant, a lawyer. Defendant works for an LLP law firm, and his relationship with Plaintiff was introduced through that LLP firm.

Would the LLP, itself, be jointly and vicariously liable for the actions of that lawyer, the same as an LLC would?

#2 pg1067

pg1067

    Platinum Contributor

  • Members
  • PipPipPipPipPipPipPip
  • 46,255 posts

Posted 18 January 2013 - 07:19 AM

Depends on the laws of the unidentified state where the alleged malpractice occurred. In my state, the actual attorney-client relationship would be between the LLP and the client, not between the particular lawyer and the client. Therefore, both the LLP and the individual lawyer who committed the alleged malpractice would be appropriate defendants. As far as vicarious liability, in all states, an employer is vicariously liable for its employees' negligence committed in the course and scope of employment, regardless of the employer's business entity form.

#3 Tax_Counsel

Tax_Counsel

    Platinum Contributor

  • Members
  • PipPipPipPipPipPipPip
  • 17,756 posts

Posted 18 January 2013 - 09:39 AM

Let's assume that Plaintiff has a legal malpractice case against Defendant, a lawyer. Defendant works for an LLP law firm, and his relationship with Plaintiff was introduced through that LLP firm.

Would the LLP, itself, be jointly and vicariously liable for the actions of that lawyer, the same as an LLC would?


That depends on the laws of the particular state in which the LLP is organized and, if different, where the alleged malpractice occurs. Your question actually is several questions: is the LLP jointly liable, is it vicariously liable, and is it liable in the same way a LLC would be in the same circumstances?

Whether the LLP is jointly liable will depend on how the contract for legal services with the client is set up.

The LLP would be vicariously liable for the malpractice assuming that the lawyer was acting within the scope of his employment with the LLC when the malpractice occurred.

Assuming law firms may be organized as LLCs or LLPs in the state at issue, I’d expect that rules for malpractice liability would apply the same way whether organized as a LLC or LLP. But again, that depends on the particular state law that applies here.

#4 Guest_FindLaw_Amir_*

Guest_FindLaw_Amir_*
  • Guests

Posted 18 January 2013 - 11:28 AM

What state is this matter concerning?

#5 stebbinsd

stebbinsd

    Diamond Contributor

  • Members
  • PipPipPipPipPipPip
  • 1,599 posts

Posted 18 January 2013 - 12:58 PM

How do I find out what the laws are of this particular state?

#6 Tax_Counsel

Tax_Counsel

    Platinum Contributor

  • Members
  • PipPipPipPipPipPipPip
  • 17,756 posts

Posted 18 January 2013 - 05:43 PM

How do I find out what the laws are of this particular state?


You didn't specify which state’s law you want to research or which part of your question you want to research. The issue of joint liability would be a matter of contract law, most of which is found in state case law (appellate court decisions). The issue of vicarious liability is agency law, which is also mostly found in state case law.

The extent to which a LLP or LLC will shield the owners of the LLP or LLC from personal liability for the debts of the LLC or LLP is initially one of the business organization statutes for that state. However, the extent to which certain professionals (e.g. doctors and lawyers) may limit their liability for malpractice through the use of such entities is often addressed in the statutes and/or state regulatory agency rules that specify the requirement for practice of that profession in that state.

Let me outline the basic law in most states that you'll start with for this. Generally speaking, the use of a limited liability entity (e.g. corporation, LLC or LLP) shields the owners of the entity from personal liability for the debts of the entity. So, suppose Amy is a member of Acme Widgets, LLC, and Acme enters into a contract to borrow from Bob $10,000, which is be repaid to Bob in a year later with 10% interest. Amy does not personally guarantee the loan. Acme is of course liable to pay Bob $11,000 in year to complete the contract. If Acme doesn’t pay, Acme may be sued and a judgment made against it for the $11,000. But Amy is not personally liable and could not be successfully sued by Bob on this debt. That’s the benefit of the limited liability shield for Amy. All that she has at risk here is her investment in Acme; Bob cannot reach her personal assets to pay for this.

Let's say that Acme also borrows $50,000 from Little City Bank (LCB). LCB understands the limited liability protection that the LLC form gives to Amy and it wants greater recourse should the loan go bad. So it gets Amy to execute a personal guarantee for the debt in the loan agreement, too. Now Amy is jointly liable for the debt and LCB may successfully sue her as well as Acme if Acme does not pay on the loan as required in the loan agreement.

Suppose that Amy also works for Acme in the Acme Widget store. She sets up a display shelf of widgets in the store, but does a bad job of it and did not take reasonable care in her installation of the display. Carl comes into the store to look at widgets, and while there the display collapses on top of Carl, injuring him. He may sue Amy because she was negligent in setting up the display, and because she was working for Acme when she set it up, she was an agent of Acme and Acme would be vicariously liable to Carl for his injuries, too. The LLC form of business doesn’t help Amy here because her liability is direct — she was the one who was negligent. This is not a case where she is being held liable for the debts of the LLC. Indeed, if Acme had another member other than Amy, that other member would be protected from personal liability for Carl because that other member has no direct liability for the damages Amy caused (that other member wasn't negligent in causing the accident) and the LLC protects that other member from the LLC's obligation that it has via vicarious liability.

The same general principles would apply to law firms, too. Thus the lawyer in the law firm who commits malpractice would not, under these principles, be relieved of liability for his own negligence simply because the law firm is organized as a LLC or LLP. Under these general principles, the other partners/members of the law firm would not be liable for the damages caused by the malpractice. This, however, is where the rules that govern the practice of lawyers in the state may step in to provide a different answer. At least some states do not allow the partners/members of the firm to shield themselves from the liability for the malpractice committed by other lawyers in the firm by the use of a LLC, LLP, or corporation. States following that concept achieve it in different ways, from restricting the types of entities lawyers may use for their practice in some cases and/or requiring the lawyers to waive that limited liability in the organizational documents of the firm or in the contracts they have with clients.

One other issue that comes up is whether a lawyer in his contract with a client may prospectively limit personal liability for his own malpractice. Most states say no.

I hope this helps in targeting what it is that you want to research here.




0 user(s) are reading this topic

0 members, 0 guests, 0 anonymous users