One of the more controversial changes imposed by the recent amendments to the lawyer advertising rules relates to the use of law firm-like names by lawyers associated by physical location, but not joined together as a formal legal entity. Effective January 1, 2011, Indiana Rule of Professional Conduct 7.5(d) will state: “Lawyers may state or imply that they practice in a partnership or other organization only when they in fact do so.”  Comment [2] to Rule 7.5 expands on this notion: “[L]awyers sharing office facilities, but who are not in fact associated with each other in a law firm, may not denominate themselves as, for example, ‘Smith and Jones,’ for that title suggests they are practicing together in a firm.”  Some minor wording differences aside, Indiana’s rule now aligns with ABA Model Rule of Professional Conduct 7.5(d) and the corresponding comments are identical.

Legislative History

Current Rule of Professional Conduct 7.5(c), which will no longer be effective after December 31, states: “A lawyer shall not hold himself out as having a partnership with one or more other lawyers unless they are in fact partners.” There are no comments that provide any further explanation.  The advertising rule amendments were prompted by a proposal by the Indiana State Bar Association.  That original proposal included the following language at the end of the last sentence of new Comment [2] to amended Rule 7.5: “…, however, if Smith and Jones indicate specifically the nature of their relationship, such a disclaimer may be sufficient to avoid a violation of the rule.”  The Supreme Court referred the ISBA’s proposal to its Committee on Rules of Practice and Procedure.  The committee conducted a review of the ISBA proposal and published its own version of amendments on the Supreme Court’s website for public comment.  The Rules Committee’s proposal deleted the ISBA language quoted immediately above, and it was this iteration that the Supreme Court promulgated as new Rule 7.5(d).  One assumes that the Court was aware of this history and, in approving the amendment, consciously preferred the Rules Committee’s version over the ISBA’s.

Strength in Numbers

Many solo practitioners share office and other facilities with other lawyers. This generally means that they agree to share some of the overhead of operating a law office, but there is no sharing of income—they eat what they kill.  These arrangements typically involve sharing office rent and utility expenses or perhaps paying rent to one of the lawyers who owns a building.  Additional cost-sharing arrangements are common, including shared staff, library (back when lawyers held books in their hands), and office equipment.  Often, these lawyers also identify themselves collectively using combinations of their surnames on office signage and letterhead stationery with a disclaimer that they are “an association, not a partnership.”  Perhaps the telephones are answered similarly, although one suspects that the part about it being an association, not a partnership, often gets left off.

Does this amendment signal the end of this practice? Let’s take a closer look.

What’s in a Name?

The Rules of Professional Conduct define “law firm”: “‘Firm’ or ‘law firm’ denotes a lawyer or lawyers in a partnership, professional corporation, sole proprietorship or other association authorized to practice law; or lawyers employed in a legal services organization or the legal department of a corporation or other organization.” Prof. Cond. R. 1.0(c).  Comment [2] to that rule says more:

Whether two or more lawyers constitute a firm within paragraph (c) can depend on the specific facts. For example, two practitioners who share office space and occasionally consult or assist each other ordinarily would not be regarded as constituting a firm.  However, if they present themselves to the public in a way that suggests that they are a firm or conduct themselves as a firm, they should be regarded as a firm for purposes of the Rules.  The terms of any formal agreement between associated lawyers are relevant in determining whether they are a firm, as is the fact that they have mutual access to information concerning the clients they serve.  Furthermore, it is relevant in doubtful cases to consider the underlying purpose of the Rule that is involved.  A group of lawyers could be regarded as a firm for purposes of the Rule that the same lawyer should not represent opposing parties in litigation, while it might not be so regarded for purposes of the Rule that information acquired by one lawyer is attributed to another.

The definition of a law firm refers to “associations authorized to practice law.” What does that mean?  Lawyers, not law firms, are licensed to practice law.  Historically, if lawyers were not solo practitioners, they joined together in general law partnerships and identified themselves as such, using what we think of as traditional law firm names, like “Smith and Jones.”  When a client hired a solo practitioner, the client knew that if the lawyer committed malpractice, all of the lawyer’s assets were on the line to make the client whole.  When a client hired a lawyer in a partnership, general partnership law not only created unlimited personal liability on the part of the individual lawyer who handled the representation, but also put the assets of the partnership itself and all of the other partners at risk to compensate a client harmed by an act of professional negligence.  See Ind. Code 23-4-1-13 through 15.

Limiting Liability

Traditionally, lawyers were not allowed to organize in alternative ways that limited the joint and several liability that goes with being in a general partnership. Because incorporation shielded shareholder assets from being reached for acts of negligence by the corporation acting through it agents, even the lawyer who was negligent, general business corporations were unavailable to lawyers as a means of limiting personal liability.  That changed with the advent of the professional corporation, and later limited liability companies and limited liability partnerships.  The personal assets of shareholders in a professional corporation are protected except for those shareholders who engage in, direct or control negligent conduct. Ind. Code 23-1.5-2-6.  The same is true for limited liability partnerships, Ind. Code 23-4-1-15(2) through (5), and limited liability companies.  Ind. Code 23-18-3-3.

When limited liability entities became available to lawyers who chose to practice collectively with other lawyers, an ethical problem arose. Under the old Code of Professional Responsibility and its predecessor, lawyers were ethically precluded from limiting their liability for malpractice to clients.  Disciplinary Rule 6-102(A).  The vestiges of this principle are still found in Rule 1.8(h).  Switching from a general partnership to some form of limited liability entity would have had the effect of doing just that, thereby violating the ethical prohibition: the client of a lawyer in a limited liability entity would have fewer assets to look to for compensation in the event of a loss due to professional negligence.

Authorized Entities and Legal Malpractice Insurance

State supreme courts, as the ultimate regulators of the bar, began to fall into line by allowing lawyers to organize using limited liability forms, but insisted on certain trade-offs in exchange for the right of shareholders of PCs, members of LLCs, and partners of LLPs to shield their personal assets from being placed at risk due to acts of professional negligence for which they had no personal responsibility. In Indiana, the balance was struck by Admission and Discipline Rule 27.  It allows lawyers to practice law in PCs, LLCs and LLPs.  Admis. Disc. R. 27(1).  But it imposes a number of conditions, including the required use of PC, LLC or LLP designations to put clients and the public on notice of the limited liability form of the association, Admis. Disc. R. 27(1)(a), and mandatory professional liability insurance coverage at levels set by that rule.  Admis. Disc. R. 27(1)(g).

The latter is a special point of contrast with solo practitioners and general law partnerships. In Indiana, neither solo practitioners nor law partnerships are required to maintain professional liability insurance coverage, even though it may be foolhardy not to.  Indeed, unlike in an increasing number of American jurisdictions, uninsured lawyers in our state are not even required to inform their clients when they don’t have malpractice insurance.

Can’t Have It Both Ways

So back to the question at hand: does a group of lawyers who share space and designate themselves as “an association, not a partnership” constitute an “association authorized to practice law” within the meaning of Rule of Professional Conduct 1.0(c)? Probably not.  If they are not, in fact, partners, the lawyers so associated will likely be viewed as attempting to have it both ways: not having partner-like responsibility for the negligent acts of their associates, yet escaping the mandatory malpractice insurance regime that applies to lawyers who formally organize together to practice law in limited liability organizations.  The Supreme Court’s adoption of the Rules Committee’s version of Comment [2] to Rule 7.5(d) would appear to be consistent with this reading.

None of this, of course, means that lawyers are prohibited from combining together to share the overhead of running their law offices. The economics of practicing law will always make that an attractive alternative.  Rather, the impact of amended Rule 7.5(d) will be on how those lawyers refer to themselves on office signage, letterhead stationery, business cards, in advertising and when they answer their telephones.

Being a Law Firm for Other Purposes

We shouldn’t lose track of the fact that sharing office space, while not the formal creation of a law firm, can sometimes result in law firm-like treatment under the Rules of Professional Conduct for other purposes. The illustrative case is Matter of Sexson, 613 N.E.2d 841 (Ind. 1993).  Sexson shared office space with several other lawyers.  They also shared a secretary, used common letterhead stationery (although the opinion is silent about the name on the letterhead) and a telephone system.  Observing that there was little inter-lawyer confidentiality within the office, the Supreme Court deemed the office-sharing arrangement to have created a law firm for purposes of imputing a conflict of interest under Rules of Professional Conduct 1.7(a) and 1.10(a).

Regardless of the fact that lawyers who merely share office facilities will not be permitted to identify themselves using law firm-like names, there will continue to be a risk that they will nonetheless be treated as law firms for other purposes, particularly conflicts of interest. To be spared that fate and the corresponding obligation to adopt procedures to guard against imputed conflicts of interest, those lawyers should carefully examine their office environments and practices and pay particular attention to the importance of protecting clients confidences.  I discussed this topic at greater length in a previous column. A Firm By Any Other Name Is Just As Conflicted: Quasi-Law Firms and Imputed Conflicts of Interest, Vol. 53, No. 2 Res Gestae 36 (September 2009).

Here’s the bottom line: Lawyers who are not formally associated with each other in a limited liability entity or general law partnership should cease using names like, “Smith and Jones, an association, not a partnership,” after December 31.

ERRATUM: In my November column that included an overview of the lawyer advertising rule amendments, The Amended Lawyer Advertising Rules, 54 Res Gestae No. 4 at 39 (November 2010), there was an incorrect citation.  In the second line from the top of the middle column on page 39, the citation should be to Rule 7.2(c)(1) and (2), not 7.3(c)(1) and (2).