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Office Sharing and Dissolving Partnerships: Partnership by Estoppel
By Thomas P. Sukowicz
Office Sharing
For many lawyers, it makes economic sense to reduce the cost of overhead by sharing office space, office machines and support staff with one or more other lawyers who are not their partners. When the office sharing arrangements of lawyers create confusion in the minds of their clients as to whether the lawyers are partners, the lawyers involved risk of being held liable for the malpractice of the lawyer sharing the office. This liability is based on the theory of partnership by estoppel.
Under the Uniform Partnership Act, partnership by estoppel occurs when, a person, by words or conduct, purports to be a partner of one or more persons who are not partners. In such a case, the purported partner is liable to a person who, relying on the representation, enters into a transaction with the purported partnership.
Claims of partnership by estoppel commonly arise out of office sharing arrangements in which the separate identities of the individual lawyers are not apparent to the public. In Atlas Tack Corporation v. DiMasi, 37 Mass.App.Ct. 66, 637 N.E.2d 230 (1994), three lawyers were sued for malpractice by the client of one of the lawyers. The court held that because the three lawyers shared office space, jointly paid for a receptionist and knowingly allowed the printing and use of office stationery entitled "Law Offices of DiMasi, Donabed & Karll, A Professional Association," there was sufficient evidence of a partnership by estoppel to defeat a motion for summary judgment, even though two of the lawyers did not hold themselves out as partners of the third, kept separate files, had their own staffs, had their own stationery and paid their own expenses.
In Gosselin v. Webb, 242 F.3d 412 (1 Cir., 2001), a lawyer who sometimes used the office of "Field, Hurley, Webb, Sullivan, Attorneys at Law," told a prospective client that he was "with" the Field, Hurley firm. Upon inquiry, the prospective client was informed that the Field, Hurley firm was "well-respected," so he met the lawyer at the firm's office. The office building directory listed the lawyer's name under the Field, Hurley name. The client called and went to the Field, Hurley office to speak with one of the firm lawyers or secretaries to obtain information about his case and to sign papers. The court held that lawyer's words and the directory listing implied a "partner-like" arrangement and that the above facts could result in a finding that Field, Hurley held the lawyer out as a partner.
Merely being listed on the letterhead of a firm, however, does not itself necessarily give rise to liability. The presence of a name on a law firm's letterhead simply indicates that it is practicing law in a combination of some type, but not necessarily a partnership. Janjigian Search Term End v. Ferraro and Walsh, 1 MASS.L.RPTR. No. 4, 86 (October 4, 1993). It is one factor, however, in determining whether a lawyer is being held out as a partner of other lawyers.
Identifying oneself as "of counsel" may also provide a basis for liability for another lawyer's malpractice. In Staron v. Weinstein, 305 N.J. Super. 236, 701 A.2d 1325 (1997), two lawyers, Weinstein and Thelander, were sued for malpractice in allowing a statute of limitations to expire. The first page of the written retainer agreement referred only to Weinstein, the lawyer handling the case, but on the second page above Weinstein's signature was the name "Robert C. Thelander, Esq." Weinstein also wrote to the adverse party's insurer on stationery bearing Thelanders' firm name and indicating that Weinstein was "of counsel" to Thelander's firm. The letter stated that "we" represented the plaintiffs. Weinstein sent a second letter to the insurer on identical stationery and sent a copy to his client. The appellate court held that the retainer agreement and the fact that defendant had at least apparent authority to enter into such agreements on behalf of the firm was sufficient to withstand a motion for summary judgment.
Liability under the theory of apparent partnership may encompass intentional, as well as negligent, acts of another. For example, in Myers v. Aragona, 21 Md.App. 45, 318 A.2d 263 (1974), the court imposed vicarious liability on one attorney for the theft of $310,000 by another, finding a partnership by estoppel. The funds were deposited into the "Gordon and Myers" escrow account. Gordon used a settlement statement for the transactions that bore the legend "Gordon & Myers, Attorneys at Law." Both lawyers used "Law Offices Gordon & Myers" letterhead. When Gordon and the money disappeared, the plaintiffs sued Myers, who denied that he and Gordon were partners. The court, however, found that, even if no actual partnership existed, Myers was estopped from denying the existence of a partnership because of his using or allowing the use of the name "Gordon & Myers, Attorneys at Law" on the settlement statements and the name "Law Offices Gordon & Myers" on the letterhead. The court held that, in the eyes of the law, the two lawyers' relationship was "as much a partnership, insofar as third parties are concerned, as if there had been formal Articles of Partnership."
Partnership Dissolution
The same theory can be used against lawyers who dissolve a partnership but fail to remove the indicia of partnership from letterhead, signs and advertising. In the Weinstein case, cited above, Thelander argued that he had terminated his "of counsel" relationship with Weinstein prior to the alleged malpractice. Thelander had informed all of the firm clients about whom he had knowledge that he and Weinstein were no longer associated. Unfortunately, the plaintiffs were not among those notified. Even though Thelander had no knowledge of the plaintiffs' case and the alleged malpractice did not occur until nearly a year after Thelander terminated his relationship with Weinstein, because Thelander's name was on the retainer agreement and he did not inform the plaintiffs of the termination of his "of counsel" relationship, summary judgment was reversed.
The same principal was applied to two former partners in Royal Bank and Trust Company v. Weintraub, Gold & Alper, 68 N.Y.2d 124, 497 N.E.2d 289 (1986). In that case, Weintraub agreed to hold in the firm's client trust account $60,000 and pay it to Royal Bank eight days later. The funds were not paid, so the bank sued the borrower, the law firm and the three named partners. Gold and Alper contended that the firm had been dissolved by oral agreement of the partners twenty months before the $60,000 loan was made and that Weintraub had no authority to bind the partnership at that time. The court held that Gold and Alper were estopped from denying liability to a party that relied on the public indicia of partnership including the letter to the bank on the law firm's stationery acknowledging that the check would be received by the firm as escrow agent and placed in the firm's trust account, the current telephone directory listing for the firm at the address and number corresponding to the letterhead, and the receptionist answering the telephone at that number who identified the firm as "Weintraub, Gold and Alper." Notwithstanding the partners' private agreement to dissolve the partnership, because the public indicia of the partnership remained undisturbed even two years later, the partnership was liable to any party reasonably relying on the impression of an ongoing entity.
Former partners may also be liable for the malpractice of a former partner if the former firm remains attorney of records in cases pending before tribunals. For example, in Redman v. Walters, 88 Cal. App. 3d 448, 152 Cal.Rptr. 42 (1979), one of the partners in the firm MacDonald, Brunsell & Walters accepted a case on behalf of the firm. After Walters had left the partnership, the firm stopped using Walters' name in firm stationery and on pleadings and other court documents. The successor firm, however, never filed substitutions as attorneys for the plaintiff and never formally advised the plaintiff that the partnership had changed. In the ensuing legal malpractice case against the firm, the court held that existence of the partnership continues until the winding up of its affairs is completed and that, among the partnership affairs that were to be "wound up," was the plaintiff's case. Because the plaintiff had not consented to nonrepresentation by Walters, the firm continued as a partnership and Walters as a partner for purposes of representing the plaintiff.
When a lawyer leaves a firm or a partnership is dissolved, it is prudent to inform all clients of the dissolution of the firm, file a substitution of counsel in all pending cases using new firm name and enter into a new retainer agreement with firm clients. If these steps are not taken, all of the former partners risk being liable for any error that occurs.
Ethical Issues
Most state ethics rules prohibit lawyers from stating or implying that they practice in a partnership or other organization only when that is the fact. This includes using the names of lawyers who are not partners as part of the firm name, a sole practitioner using in his firm name the words "and Associates," and a professional corporation including in its firm name the name of an associate who is not a shareholder in the corporation. Continuing to use the name of a dissolved partnership after one of the two partners had resigned from the practice of law was considered to be misleading. In the Matter of Miller, 2 Cal. State Bar Ct. Rptr. 423 (1993).
Sharing office space, machines and staff also create other potential ethics problems. Client confidences may be at risk of disclosure if client files are kept or stored in a common area or if a fax machine or computer software is shared with persons outside your firm. Covering for other lawyers in the office by appearing at court on behalf of their clients without obtaining the client's consent or checking for conflicts of interest could also raise ethical issues.
Insurance Coverage
Another issue that a lawyer who shares office space or who dissolves his partnership should address is whether he are covered by his professional liability policy for the errors or omissions of "apparent partners" or former partners who continue to hold themselves out as current partners. If those errors and omissions are not covered, all necessary precautions should be taken to avoid giving the appearance of partnership where none exists.
Conclusion
The manner in which a lawyer holds himself out to the public may unintentionally create the impression that the lawyer practices in an association with other lawyers. Whether you are sharing office space or dissolving a partnership, take precautions to insure that you are not being held out as the partner of another lawyer outside your firm.
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