Professional Corporations, Professional Limited Liability Corporations And Limited Liability Partnerships: Are They Adequate Protection From Malpractice Liability?
Firm ManagementOne of the most frequent misconceptions we hear from lawyers is that a professional corporation (PC), professional limited liability corporation (PLLC) or limited liability partnership (LLP) insulates them against personal liability for professional liability. Under each of these entities, a lawyer remains liable for their own acts of professional negligence or malpractice.
Under the Business Organizations Code, a lawyer in a limited liability partnership is not personally liable for torts committed by another partner or representative of the partnership unless the lawyer was “supervising or directing the other partner or representative”, was “directly involved in the specific activity” involving legal malpractice, or failed to take action to avoid damage after the lawyer became aware of the malpractice. Tex. Bus. Org. Code Section 152.801(b).
The situation is similar for lawyers who are in PCs and PLLCs. All professional entities, PCs, PLLCs, and professional associations, are subject to the provisions of Section 301.010, based on Section 301.003(4). Professional entities are “jointly and severally liable” for legal malpractice committed by “a person who is an owner, managerial official, employee, or agent of the entity” and who committed the legal malpractice. Section 301.010(a). Associated persons are not personally liable if they did not commit the legal malpractice. Section 301.010(b). The professional entities provisions are silent as to whether supervision or failure to take action may subject the lawyer to individual liability. Such negligent supervision and failure to take action after learning of malpractice could potentially be considered direct acts of legal malpractice by the supervising or knowledgeable lawyers.
It should be noted that the disciplinary rules rejected negligent supervision as a basis for imposition of discipline on a supervising lawyer. See Commentary to Texas Disciplinary Rule 5.01. Ordering, encouraging or knowingly permitting unethical conduct by a supervised lawyer is a basis for discipline, Rule 5.01(a), but “internal firm controls designed to ensure adherence to ethical standards” of supervised lawyers are merely “recommended.” Commentary to Rule 5.01. The rules do impose discipline for failing to take remedial action. Rule 5.01(b). The approach was slightly different as to non-lawyer assistants, however. As noted in the Commentary to Rule 5.03, an affirmative duty exists to “make reasonable efforts to ensure” that non-lawyer assistants act in accordance with a lawyer’s ethical obligations, Rule 5.03(a), but no discipline is imposed if a non-lawyer fails to act appropriately provided that the reasonable effort was made. Rule 5.03(b).
The exact extent to which there may be malpractice liability for negligent supervision has not been addressed by the Texas courts. The LLP statute does not seem to insulate a lawyer from liability for negligent supervision since it does not limit responsibility to knowing actions as do the disciplinary rules. Whether such responsibility could extend as far as failure to adopt internal controls is not clear.
