By James J. Mangraviti, Jr., Esq.
Introduction
I have been helping professionals become expert witnesses for over 25 years. One of the most common questions I get asked these days is whether an expert witness should form an LLC. The assumption behind this question is that the entity, a limited liability company, will protect the expert witness from personal malpractice liability stemming from their expert witness practice.
What is an LLC for an Expert Witness Practice?
LLC is short for “limited liability company.” LLCs were legislatively enabled by states over the last 2-3 decades as a simpler way for business owners to shield themselves from potential personal liability related to their businesses. LLCs have in essence been designed as a simpler alternative to forming and running/maintaining a corporation.
Liability Protection from an LLC for an Expert Witness Practice
LLCs do, in fact, provide liability protection for many potential claims – such as contract disputes. Unfortunately, a huge general exception is that an LLC does not typically protect its owner(s) (called a “member(s)”) from wrongdoing that they have personally committed. What this boils down to is that if you are serving as an expert witness and are sued for professional malpractice, the LLC you formed will typically NOT provide you with liability protection.
The public policy reasons for this exception are easy to understand. If professionals could simply form an LLC or the like to protect themselves from liability for their own malpractice, everybody would do so. The result would be that nobody who was the victim of professional malpractice could ever get compensated for the harm they have suffered.
Potential Downsides to Forming an LLC for an Expert Witness Practice
Forming an LLC for an expert witness practice has a couple of not so obvious downsides. The first is cost. In the vast majority of states an annual fee is required to maintain an LLC. This could be upwards of $500-$800 or whatever the legislature in the state in question will dictate in the future.
Another disadvantage to forming an LLC for an expert witness practice has to do with discovery of the expert witness’s financial data by opposing counsel. Such discovery typically takes the form of questions at the expert witness’s deposition and/or subpoenas and document requests for financial records directed at the expert witness. Experts are often asked how much money they make annually from their expert witness practice and what percentage of their income comes from expert witness work. Many experts truthfully answer such questions by responding that they don’t know or don’t know for sure. This is because many experts don’t separate out their expert witness income from other sources of revenue such as their day job salary and investment income. Someone who maintains an LLC for an expert witness practice will more readily have the above requested financial information available to them.
Potential Advantage to Forming an LLC for an Expert Witness Practice with Multiple Experts
An LLC for an expert witness practice can provide protection in the situation where the expert hires and uses other experts. In this instance the LLC could very well provide the member(s) personal liability protection for the wrongdoings of the other experts who work for the LLC.
If an LLC for an Expert Witness Practice Doesn’t Help Shield the Expert – What Does?
There are risk management options for expert witnesses that are readily available.
Malpractice suits against expert witnesses are relatively rare. In over 25 years of helping expert witnesses I could count on one hand the number of times I have become aware of experts being sued for malpractice. To protect yourself consider the following:
- Don’t take cases where you don’t have the time, information or qualifications to do a great job.
- Carefully check for conflicts of interest and don’t work for two different sides in the same case.
- Show up for scheduled depositions and trials and be very careful about withdrawing from cases without solid justification-especially late in the case.
- Don’t sue retaining counsel to collect unpaid expert witness fees in a case that went south. Such a suit will often invite a counter suit for malpractice from retaining counsel.
- Use an expert witness retention agreement that defines your duties.
- Consider a clause in your expert witness retention agreement that limits your liability to retaining counsel and their client(s) to the fees you have been paid and prohibits consequential damages.
- Maintain professional liability insurance for your expert witness work (errors and omission or “E & O” insurance).
Conclusion
Ultimately it is a business decision as to whether one should form an LLC for an expert witness practice. Before deciding whether or not to form an LLC for an expert witness practice, an expert witness should consult with a qualified lawyer and accountant in their jurisdiction to get a clearer picture of any potential benefits as well as the annual costs that would be involved. If the expert witness is concerned with potential professional liability, the risk management techniques described above are available.
About the Author
James J. Mangraviti, Jr., Esq., has been teaching, training, coaching, and supporting expert witnesses for over 25 years. He has written, taught, and consulted extensively about expert witness practice management. Jim is a Principal of SEAK, Inc – The Expert Witness Training Company. He is the co-founder of SEAK’s National Directory of Expert Witnesses, the #1 rated expert witness directory and the creator of SEAK’s signature How to Start, Build, and Run a Successful Expert Witness Practice course. For more information on SEAK, Inc. – The Expert Witness Training Company, visit www.testifyingtraining.com Jim can be reached at 978-276-1234 or jim@seak.com.