As a business owner in Texas, you may be familiar with the concept of a professional limited liability company (PLLC).
A PLLC is a type of LLC that is specifically designed for professionals, such as lawyers, doctors, and accountants, who want to take advantage of the liability protection provided by an LLC while still maintaining their professional licenses.
It is important to note that operating as a PLLC, like the LLC, does not provide complete immunity from liability. This was demonstrated in the case of Bloodworth v. Aden, No. 01-05-00796-CV (Tex. App.–Houston [1st Dis.] 2007).
Facts & Procedural History
In this case, Bloodworth, a Texas attorney, was sued for legal malpractice.
Bloodworth operated his law practice as a PLLC, and he argued that the PLLC structure should shield him from personal liability for any claims arising out of his professional activities.
The trial court rejected this argument and ruled that Bloodworth could be held personally liable for any damages resulting from his legal malpractice.
About the Texas PLLC
A PLLC is a form of entity that several states provide for. They are very similar to LLCs, but are limited to those with the appropriate state licenses, such as law licenses, medical licenses, etc.
In Texas, a PLLC is formed by filing articles of organization with the Texas Secretary of State and obtaining a certificate of formation. A PLLC must have at least one member, who may be an individual or another business entity. The PLLC is managed by its members, unless the articles of organization provide for the appointment of a manager.
One of the key benefits of operating as a PLLC is that it provides liability protection to its members. This means that, in most cases, the members of a PLLC cannot be held personally liable for the debts, obligations, or liabilities of the PLLC solely by reason of being a member. However, it is important to note that operating as a PLLC does not provide complete immunity from liability. For example, a member of a PLLC may still be personally liable if they personally guarantee a debt of the PLLC or if they engage in misconduct or fraud while acting on behalf of the PLLC.
The Court’s Ability to Sanction Attorneys
In Texas, courts have the authority to sanction attorneys for frivolous pleading under Rule 13 of the Texas Rules of Civil Procedure. Rule 13 provides that a court may impose sanctions on a party or attorney if it determines that the party or attorney has filed a pleading, motion, or other paper that is frivolous or is intended to harass or cause unnecessary delay.
Frivolous pleading is defined as a pleading that is not warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law. Sanctions may include an award of attorneys’ fees and expenses to the opposing party, as well as other penalties as the court may deem appropriate.
The purpose of Rule 13 is to deter attorneys from filing frivolous pleadings and to ensure that the judicial system is not used for improper purposes. If a court determines that an attorney has filed a frivolous pleading, it may impose sanctions to punish the attorney and to deter similar conduct in the future.
In Bloodworth, the attorney argued that the court could not sanction him for filing a frivolous pleading as he operated through a PLLC. The appeals court did not agree. It held that the court’s authority to sanction an attorney is not barred by the fact that the attorney operated under a PLLC.
This case serves as a reminder that operating as a legal entity, such as a PLLC or LLC, does not provide complete immunity from liability for professional activities.
If you are a Texas attorney or other professional operating as a PLLC, it is important to understand the limits of the liability protection provided by this business structure and to take steps to protect your personal assets.
We can help with this. Call us if you have questions about your liability risks and the steps you can take to minimize those risks.