If you and your spouse are both lawyers, you know that you potentially face a few unique ethics issues — conflicts and confidentiality are the most obvious ones.  (We’ve considered some of the ins and outs here and here.)

But what if your nearest and dearest is also your law partner — or what if it maybe only looks that way?

The Third Circuit Court of Appeals held last month in a non-precedential opinion that a New Jersey lawyer couldn’t be held liable for her husband’s alleged legal malpractice because the client hadn’t relied on the existence of an apparent partnership.

The opinion spotlights some interesting law/spouse partnership issues.

“No legal entity”

As set out in the court of appeals opinion, the client contacted George Cotz to discuss an anticipated action against her employer.  Later, at an in-person meeting, the client signed a retainer agreement.

The retainer agreement had several significant features:  it was on letterhead reading “Cotz & Cotz Attorneys at Law;” at the side, the “members” were listed as George Cotz and Lydia Cotz; and George Cotz signed the retainer agreement on behalf of “Cotz & Cotz.”

But “notwithstanding this document,” the court said, “no legal entity named ‘Cotz & Cotz’ existed and the Cotz’s had never entered into a partnership.”  (It would be interesting to know more of the underlying facts — like whether there had ever been such a partnership, and why this letterhead was used — but the opinion does not provide them.)

As the Third Circuit opinion describes, George Cotz filed the client’s employment action in state court, but he later failed to oppose the defendant-employer’s summary judgment motion, and it was granted.

The client filed a legal malpractice suit against George Cotz and “Cotz & Cotz,” and later amended her complaint to also name George Cotz’s wife, Lydia Cotz.

A divided appellate panel upheld the district court’s ruling:  no actual law partnership existed between George and Lydia Cotz, and the client lacked evidence that she relied on the appearance held out in the retainer agreement — namely, that there was such a partnership.

Partnership-by-Estoppel

Interpreting New Jersey’s partnership statute, the Third Circuit said that in order to impose liability on someone who has purported to be a partner, the complaining party is “require[ed] in all cases” to have “acted in reliance on the representation.”

Here, Lydia Cotz escaped liability as a partner-by-estoppel for her husband’s alleged malpractice because there was no evidence that the client “transacted with [George Cotz] in whole or in part because of” the various representations that he was in a partnership.

For instance, said the court, the client testified that she had been referred to “the law office of Cotz & Cotz,” but not that “she called him because she thought he was in a partnership.”  Hence, the panel majority held, no partnership-by-estoppel was raised.

Need for magic words?

The dissenting judge wrote that there was at least a fact issue on whether the client relied on the existence of the Cotz & Cotz firm in making her hiring decision.

“What reasonable person would be referred to a law firm, go to the office of the law firm, and sign a retainer agreement with the law firm, only to think that they were hiring an individual attorney, rather than a law firm?” asked the dissenting judge.

The majority, said the dissenter, essentially established a requirement that under New Jersey law, “to establish a partnership by estoppel,” a plaintiff “must use the magic word ‘rely’ in their testimony.”

Partner, partner, who’s got a partner?

Of course, as in other state-law-based contexts, results may vary.  And the opinion is a federal court’s interpretation of New Jersey state law — and a non-precedential interpretation at that.

But the Third  Circuit’s grant of a litigation off-ramp to an alleged partner-by-estoppel is worth noting for its close reading of the reliance requirement when it comes to holding a purported partner liable.