Topics:

1) Can a law firm organize itself as a limited liability company or as a limited liability partnership?

2) Is it a violation of Model Rule 5.6 (Restrictions on Right to Practice) for a lawyer to condition a settlement offer on the opposing lawyer's agreement not to use any information learned in the case in any subsequent litigation?

At the outset, I would like to bring to "Ask ETHICSearch" readers' attention an ABA opinion which is relevant to one of the inquiries discussed in the November 1994 "Ask ETHICSearch" column. The inquiry dealt with the duty of a lawyer to disclose to an adverse party that his client (the plaintiff) had died. ABA Informal Opinion 1169 (1970) stated that a lawyer for the defendant in a civil case must make known his client's death to the court and opposing counsel ... for those of you who weren't aware of this opinion, just testing!

INQUIRY #1: Can a law firm organize itself as a limited liability company or as a limited liability partnership?

RESPONSE: ABA Informal Opinion 865 (1965) (cited and followed in ABA Informal Opinion 85-1514 (1985)) stated that a lawyer could not participate in a law firm as a limited partner under the Uniform Limited Partnership Act of 1916. One of the reasons the opinion cited for the prohibition was a provision in the 1916 Act which stated that "a limited partner may not actively participate in the conduct of the partnership business and still retain his immunities as a limited partner." (Note that the Revised Limited Partnership Act of 1985 has excluded this provision.) The opinion also cited to ABA Formal Opinion 303 (1961) for the proposition that "the lawyer rendering service to a client remain(s) personally responsible to the client and that restrictions on liability as to other lawyers in the organization be made apparent to the client.

The opinion concluded:

While the question you pose is a novel one and we find no precedent or Canon precisely covering it, it is our opinion that a lawyer may not ethically (even if he could legally) practice as a limited partner in a law firm, and that the general sense of the Canons as well as the above opinions lead to this conclusion.

There are several state ethics committees that have considered this question. These opinions typically look to the applicable jurisdiction's state statutes regulating limited liability companies and/or partnerships to verify that they 1) permit a limited liability company to practice law and 2) make provision for the fact that lawyers may not limit their liability to clients for professional misconduct or malpractice.

Some of these opinions have also considered how a law firm organized as a limited liability company or partnership can designate its status on firm letterhead. See, e.g., Kansas Opinion 91-06 (1991):

A law firm may practice in the form of a limited liability company that consists of individual shareholders, is treated like a partnership for tax purposes, but operates like a corporation, because a state statute now permits professionals to form such business entities. The business of the company must be confined to the practice of law and the firm must remain subject to the limitations imposed on all professional corporations. In addition, use of the term "limited liability company" must be accompanied by an explanation that it in no way limits the firm's liability for professional misconduct or malpractice. The firm may use the abbreviation, "LLC" to indicate its business status on letterhead. The firm must also comply with all relevant statutes, cases, and ethics rules.)

Some state opinions do not permit lawyers to practice as limited liability companies or partnerships. See, e.g., Nebraska Opinion 94-1 (1994). The Nebraska committee's reasoning for prohibition was based on the lack of express authority in the Nebraska limited liability company statute permitting limited liability companies to practice law and the absence of a provision in he statute that gives the Nebraska Supreme Court the authority to regulate how limited liability companies can practice law.

INQUIRY #2: A lawyer represents a plaintiff in a personal injury matter. The opposing counsel has proposed a settlement favorable to the lawyer's client but which is conditioned on the lawyer's not using any of the information learned during the representation in any future litigation against the same defendant. Does this violate Rule 5.6(b)?

RESPONSE: Rule 5.6(b) states:

A lawyer shall not participate in offering or making:

(b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a controversy between private parties.

There are several state and local bar opinions which address restrictions on the right to practice where a lawyer who represents a client against a defendant is asked to agree not to represent clients with similar claims against the *21 same defendant in the future. See, e.g., ABA Formal Opinion 92-371 (1992, ABA Informal Opinion 1039 (1968), Arizona Opinion 90-6 (1990), California Opinion 1988-104 (undated), Philadelphia Opinion 86-121 (1986), and

Michigan Opinion CI-1166 (1988).

New Mexico Opinion 1985-5 (1985) touches on some of the issues raised in the inquiry. This opinion discussed the question of whether a lawyer could turn over his/her file to the opposing party at the conclusion of the representation. The opinion stated:

A lawyer may turn over file to opposing counsel if client consents. However ... "if the attorney is required to disclose her entire work product, it may inhibit her representation of subsequent clients. If this were to occur, defense counsel could accomplish indirectly what they cannot accomplish by directly precluding the attorney from representing other plaintiffs with similar claims."

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Copyright 1995 by the American Bar Association; Peter H. Geraghty

ETHICSearch receives 200-300 calls per month from ABA member lawyers, non-member lawyers and the general public. The following are some of the more unusual, interesting and frequently asked questions. ETHICSearch welcomes reader comments. If you are familiar with materials relevant to the inquiries in this or past columns, please send them to me c/o The Professional Lawyer.

"Ask ETHICSearch" is intended to stimulate awareness of ethical problems and illustrate the varying approaches of different jurisdictions. It is not intended as legal advice. The ABA Model Rules of Professional Conduct and the opinions discussed are advisory only; the ethics rules, laws and court decisions of your jurisdiction may dictate a different result.

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