Guilty by Law Office Association

It’s not uncommon for small or solo attorneys to join together with others to share in operating and overhead costs of running a law firm.  Attorneys can sometimes share office space, personnel and equipment yet run completely different practices independent of each other.  However, what happens when one attorney is sued?  Can any of the other attorneys also be held liable? Of course not, right? Well, according to a decision out of Tennessee it’s not entirely out of the question.

Wildasin v. Mathes, arose out of a dispute over the auction of plaintiff’s house.  Plaintiff sued the auction company, the administrator of the estate and the administrator’s law firm, “Firm”.  Plaintiff alleged that one of the attorneys from Firm was negligent in the administration of the estate and as legal counsel.  She also alleged that Firm was vicariously liable for the attorney’s actions. Firm filed for summary judgment arguing that it was actually an unincorporated association and cannot be held vicariously liable for the tortious conduct of one of its members.

The facts revealed that several years prior to the suit, Firm was created by three attorneys who formed an LLC designed to share in business expenses. They shared an office space and split the cost of rent.  They each owned an equal share of all the office equipment, including conference tables, fax and copy machines and office furniture. A single receptionist answered calls for all three attorneys.  The attorneys also shared a letterhead bearing all three of their names but designating the firm as an “association of attorneys”.  However, the attorneys did not have a partnership agreement, nor did they share a bank account or file shared tax returns for business expenses.

Under Tennessee law a partnership can be held liable for the actionable conduct of a partner.  In its motion for summary judgment, Firm asserted that an association of three attorneys did not constitute a partnership and thus it could not be held liable.  They argued that there was no joint ownership or control of the association or ability to bind the association to collective decisions.

The court denied Firm’s motion for summary judgment.  It found that in Tennessee unincorporated associations are considered legal entities capable of being sued.  Furthermore, vicarious liability could attach when a member of an unincorporated association violates a statute or breaches a contract. Therefore, the court opined that vicarious liability may also attach if a member committed a tort. While the court did not actually have to determine this issue, it did decided that even if Firm was not considered a partnership it did not satisfy its burden of demonstrating that it was entitled to judgment as a matter of law.

The case is interesting for any attorney that shares an office space or is associated with another lawyers or firm.  While it was not mentioned in the opinion, it would be curious to note how the attorneys maintained professional liability insurance—whether jointly or individually.  This case serves as a good reminder of why any attorney considering a partnership, association, corporation or other legal entity should be mindful of the potential legal implications for the entity they form.

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1 Comment

  1. Adam

    An LLC must typically have articles and bylaws, which can substitute for a partnership agreement. Without the formation of the LLC, I believe there would have been a different outcome.

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