Tangential relationships for the ‘winding down’ attorney: co-counsel, of counsel, referring attorney, tenant, etc.

Oftentimes, a lawyer who wants to “quit” the practice of law elects to downsize rather than to completely shut down.  More often than not they enter into some informal, tangential relationship with another firm, or another lawyer, perhaps serving as of counsel, co-counsel, referring attorney, or just as a tenant.

Entering into any of these relationships creates the very real risk of vicarious (malpractice) liability.  Black’s Law Dictionary defines vicarious liability as “the imposition of liability on one person for the actionable conduct of another, based solely on the relationship between two persons: indirect or imputed legal responsibility for the acts of another.” 

Also, and especially for the “winding down/retiring lawyer,” these relationships can potentially impact a tail/EPR cover, of course.  Tail/EPR coverage is a provision found within a claims-made policy (which most of us have) that permits an insured to report claims that are made against the insured after a policy has expired or been cancelled, if the wrongful act that gave rise to the claim took place during the expired/cancelled policy. Tail coverage requires that the insured pay additional premiums.

Of Counsel

The generally understood meaning of the term “of counsel” is an effort to identify a lawyer in some way with a firm.  It is the identification as an attorney who is not a partner, associate, shareholder, or member of a firm, and who has some sort of a relationship with the firm.  The American Bar Association Formal opinion #90-357 identifies the “core characteristic” of “of counsel” as a “close, regular, personal relationship” but excluding “that of a partner (or its equivalent, a principal of a professional corporation), with the shared liability and/or managerial responsibility implied by that term,” and associates, defined as a “junior non-partner lawyer, regularly employed by the firm.”  

According to Formal Op. 90-357, there are four types of of counsels, as a practical matter:

(1) the “part time practitioner, who practices law in association with a firm, but on basis different with that of mainstream lawyers in the firm,” e.g. the winding down lawyer;

(2) a retired partner of the firm who provides institutional recollections of his or her experiences with the firm and is available for consultation;

(3) a lawyer, usually a lateral hire, brought into the firm with the expectation that the lawyer will shortly become a member e.g., associate, partner; and

(4) a lawyer who occupies a permanent senior position in the firm with no expectation of becoming a partner.

These four examples underscore that “of counsel” should not be used to designate more casual relationships which depend on the occasional consultation; the co-counseling in a single case, (discussed infra), even if it is of long duration; “a relationship involving only occasional collaborative efforts among otherwise unrelated lawyers or firms;” or a relationship based solely on making or accepting referrals, (also discussed infra).

The name of a lawyer who is of counsel to a firm should not appear in the name of the firm (e.g. in its letterhead with partners and associates) unless the lawyer who is of counsel is a retired name partner of the firm.  The “of counsel” is listed, usually, on the right margin of a firm’s stationary, under the heading “of counsel.”  There are a few generally applicable issues that take on special significance in an “of counsel” relationship.  In consulting various legal articles on the subject, they define the risks, variously, but usually to:

• conflicts/disqualification
• vicarious liability, and
• insurance coverage disputes,
• with perhaps a few difficult to imagine outliers.

Conflicts/Disqualification.  For conflict purposes, the of counsel affiliation means that the affiliated firm and the of counsel attorney will often be treated as one entity, thus governing disqualification, recusal, and any other conflict imperatives.  The problems are further compounded when a lawyer or firm has an of counsel relationship with more than one firm, since all of the lawyers in those firms may be disqualified, even if their only connection is the same of counsel lawyer, obviously the proverbial “Pandora’s Box.”

Vicarious Liability.  Of course the firm for which a lawyer serves only as “of counsel” is not going to be liable for the independent acts and omissions of the of counsel attorney that were not “within the scope” of the relationship, though those issues may still arise, especially if it would serve the purposes of an adversary in some way, litigation, coverage, denial of coverage, or whatever, and vice versa.

Insurance Coverage Disputes.  In the unfortunate event of a claim, coverage problems can arise when an affiliated firm has done work on a matter that the of counsel attorney had no involvement in, or awareness of.  Unfortunately, his name was listed on the letterhead so he may become named as a defendant.  If the of counsel attorney is not covered by the affiliated firm’s malpractice policy, there may be a significant problem because the of counsel attorney’s own policy will often not afford indemnification and defense coverage either.  Or, at the very least, there becomes dueling “coverage denial,” between the malpractice insurance coverage carriers.  Why?  His policy only covers work done on behalf of clients of the named insured which in many instances is not the affiliated firm.  These sorts of “who is the client,” “who is the attorney of record,” and “who is the named insured” are common challenges that underscore the necessity of investigating and addressing the insurance coverage issues early on.  Appropriate coverage for the exposures of both the affiliated firm and the of counsel attorney can usually be obtained, so long as the issue is addressed at the outset.  My experience is, though probably very limited, these insurance coverage issues are not thought about when establishing this amorphous relationship.

In order to avoid unwanted liability: make sure that you document the scope of your “of counsel” relationships; verify that the other attorney has malpractice insurance and the policy limits; and don’t engage in any practices that would lead the client to believe that you are partners with one another unless that is in fact the case.  Also, it is vital to check with one’s malpractice carrier (tail coverage company?) that this relationship is covered and not in violation of the terms of the policy.

Referring Attorney

It is imperative that the referring (retiring) attorney recognizes the risk inherent in referring matters to another attorney in exchange for the sharing of a fee.  Initially and most importantly, be sure that the carrier of the referring attorney’s tail coverage allows his referral/referral fee relationship and is covered.  Usually, the referral is an “act” of practicing law and therefore is not covered under the tail policy.  As a general principle, attorneys who refer work for a fee become “partners” from a liability standpoint with the attorney to whom the matter was referred.  This means that the attorney earning the referral fee can be held legally liable for a malpractice committed by the attorney who receives the referral (the “receiving attorney”). 

In terms of this referring attorney sending another matter for handing to another firm, obviously the referring attorney will be covered for malpractice by the firm handling the matter.  The question is whether, for example, if the firm handling the matter becomes guilty of malpractice, without coverage, does the tail coverage of the referring attorney provide coverage?

Co-Counsel

The referring attorney with tail coverage should be sure to check with the carrier to be sure that this engagement is permitted under the tail for coverage.  As with being a referring attorney, a retiring lawyer that engages another attorney or firm as co-counsel on a particular matter or case is basically forming a partnership with its co-counsel from a risk standpoint with respect to the co-counsel matter. 

Office Sharing

A retiring/winding down lawyer may elect for to be a tenant with another firm, or any lawyer for that matter—very often the case.  This could create, arguably, an event of vicarious liability if the circumstances are such, to give rise for the client, fairly, concluding that he or she is a “member” of the lessor’s firm.  Therefore, it is incumbent of this, or any, “tenant”/”sub-tenant” to review the arrangement objectively so no impressions are left that would give rise to the incorrect conclusion of the relationship.  For example, do not list the name of the retiring attorney in the lessor’s stationary.  Be cautious of the perception created by phone numbers and listings.  For example, if using a common switch board operator, do not let the answerer just say the name of the lessor firm, preferably recite “law office” when answering calls.

Conclusion

Most of us, when we know it’s time to hang it up, usually prefer to do it “softly,” to gradually walk away.  The above circumstances offer alternatives, tangential relationships. Just be conscious of the consequences, the risk of vicarious liability, and the potential effect or impact on one’s tail coverage.