by Christopher Graham and Joseph Kelly

Thieriot v. Jaspan Schlesinger Hoffman, LLP, et al, Case No. 07-CV-5315 (TCP) (E.D. N.Y. Aug. 27, 2013)

Plaintiff, the sole trustee and sole beneficiary of a trust, transferred real property into that trust. Plaintiff received an offer to purchase the property and she hired defendant attorneys to draft a sales contract. The contract listed plaintiff — not the trust — as the Seller. Seller decided she didn’t want to go through with the sale after she was unable to get certain affidavits regarding ownership as required by the title company.

Buyer sued for specific performance and plaintiff retained defendant attorneys to represent her. Buyer prevailed. In that suit, defendant attorneys admitted plaintiff — rather than her trust — owned the property and didn’t raise a defense of lack of ownership.

Plaintiff alleged in this suit that defendant attorneys committed legal malpractice by failing to raise a defense of lack of ownership. Defendant attorneys’ summary judgment motion was denied because the court found there was a material issue of fact as to whether the decision to admit plaintiff was the owner and not her trust was a reason why Buyer was granted specific performance. Defendant attorneys successfully moved for reconsideration.

The issue essentially was whether the lack of ownership defense was futile. The court noted that it’s possible under New York law for the same person to be the trustee and a the sole present beneficiary under a revocable trust — but only if there one or more people hold a beneficial interest in the trust. Here, plaintiff was the sole trustee and sole beneficiary, and no one else had a beneficial interest in the trust. The trust thus was invalid and any purported transfer of real property to the trust was invalid and plaintiff remained the property owner.

Defendant attorneys failure to raise a lack of ownership defense thus wasn’t legal malpractice.

Tags: New York, legal malpractice

by Christopher Graham and Joseph Kelly

Cook v. Nationwide Insurance Company, Case No. PWG-13-882 (D. Md. Aug. 23, 2013)

This legal malpractice case results from an auto accident tort case.

Alvarez, while driving drunk and with a suspended license, crashed into plaintiff Cook’s car, injuring Cook. Cook filed suit against Alvarez. Nationwide, Alvarez’s auto insurer, appointed defendant attorneys to represent Alvarez. Cook offered to settle the case for $71,000 which was above the $50,000 policy limit. Nationwide refused. The case went to trial and Cook received a jury verdict in his favor in excess of $892,000. Alvarez subsequently assigned “any and all rights he has against [Nationwide and attorney Defendants,” of any and all claims that he has against them as a result of actions” alleged in the complaint in the tort case.

Cook then filed suit against Nationwide and the defendant attorneys for “bad faith/negligence” alleging that they should’ve settled. Defendant attorneys successfully moved to dismiss Cook’s complaint.

Legal malpractice

The court also dismissed Cook’s legal malpractice claim against defendant attorneys, citing to Maryland case law for the proposition that an attorney “is liable for his negligence … to his immediate employer only, and not to the latter’s assigns or any third person, between whom and the attorney there is no privity.”

The court noted that under Maryland law there must be strict privity between the parties for a legal malpractice claim. The rationale — according to the court — is that “[a]n attorney’s loyalty would be compromised … if she were at risk of an assigned malpractice claim brought be her former adversary.”

The court additionally noted if legal malpractice claims are assignable, then attorney defendants may be required to violate attorney-client privilege by disclosing confidential information to successfully defend such a claim.

Bad faith

The court dismissed Cook’s bad faith claim against defendant attorneys.

The court noted that:

• “It is well-settled Maryland law that an insured has a cause of action against its insurance company for bad faith refusal to settle a claim within policy limits.” citation omitted

The court also noted the rationale behind bad faith claims against an insurer that controls the defense, stating:

• “[i]t is when the insurer undertakes to provide a defense that it has “the exclusive control . . . of . . . settlement and defense of any claim or suit against the insured,”and it is at this stage that the “potential, if not actual, conflict of interest giving rise to a fiduciary duty” comes into being.” citation omitted

The parties didn’t present (and the court didn’t find) any Maryland cases permitting a bad faith claim against attorneys appointed to defend by an insurer.

Regardless, the court found that Cook had no bad faith claim against defendant attorneys because there were no allegations that defendant attorneys knew about Cook’s settlement offer or had authority to accept it. The defendant attorneys didn’t have control over the settlement.

Tags: Maryland, legal malpractice, assignability, bad faith

by Christopher Graham and Joseph Kelly

Samson v. Ghadially Case No. 14-12-00522-CV (Tx. Ct. of Appeals Aug. 20, 2013)

Attorney was sued by client after declining to file a medical malpractice suit against former client’s surgeon.

In November 2006, the surgeon inserted screws into client during a bone graft surgery without his consent. Client met with attorney in 2008 regarding a potential medical malpractice suit. In August 2008, attorney sent client a letter stating that he couldn’t locate an expert to file an expert medical report which is a required for medical malpractice cases in Texas. The letter also reminded client of the November 2008 statute of limitations deadline for such a suit.

Client filed the medical malpractice suit pro se, but that suit was dismissed because of the lack of an expert medical report.

In May 2010, client filed this suit alleging fraud, negligence, breach of fiduciary duty, and breach of contract. Client’s complaint essentially argues that attorney committed malpractice by agreeing to pursue client’s medical malpractice claims and then changing his mind two months before the statute of limitations expired.

Attorney filed a motion for summary judgment arguing, in pertinent part, that client couldn’t establish causation. The court agreed stating a legal malpractice plaintiff must satisfy the “suit within a suit” requirement – meaning that plaintiff must prove he would’ve won his medical malpractice case if not for the attorney’s malpractice. The court stated “[e]xpert testimony is required whenever the connection between the alleged acts of malpractice and the harm suffered by the client is beyond a jury’s common understanding.”

Here, client failed to prove — via expert testimony or otherwise — that he would’ve prevailed in his medical malpractice case if attorney hadn’t delayed in informing client that an expert couldn’t be found.

Tags: Texas, legal malpractice, causation, expert testimony

by Christopher Graham and Joseph Kelly

Rafel Law Group v. Defoor Case No. 68339-0-I (Ct. of Appeals of Washington, Aug. 19, 2013)

Client hired law firm to substitute in as counsel for her in litigation relating to her in a distribution of property suit after the end of her “committed intimate relationship” with her business partner.

There was a dispute between client and the firm regarding legal fees. Firm’s subsequent motion to withdraw was granted. The firm filed attorney’s lien claims in the litigation.

Client later went to back to the firm asking them to represent her in the case for the second time. The firm agreed to again represent client if: (1) client acknowledged the fees owed; (2) client agreed to pay legal fees on an hourly basis going forward; and (3) client sign a promissory note for all fees owed presently and in the future. Client agreed and signed the note.

The case went to trial and client received a judgment in her favor. But client refused to pay the firm which led to this case.

Client argued that the note was void because the firm failed to comply with Rule 1.8(a) of the Washington Rules of Professional Conduct. The court rejected client’s argument, stating:

“RPC 1.8(a) governs transactions entered into during the course of the attorney-client relationship. The rule does not apply to transactions entered into prior to the creation of the attorney-client relationship or those agreed upon during the relationship’s formation. Such application is made clear by the plain language of RPC 1.8, which expressly prohibits an attorney from entering into “a business transaction with a client.” The language of the rule makes no reference to transactions with prospective clients or transactions entered into in anticipation of representation. The rule itself is thus limited to conflicts of interests with current clients.”

Here, the court found that “it is undisputed that at the time [client and firm] reached agreement on the Agreement and Note, an attorney-client relationship had not yet commenced. To the contrary, their previous relationship had been terminated, as evident by the trial court’s order granting [firm’s] leave to withdraw. At the time of the Agreement and Note were negotiated, [client] was not a ‘current client’ of [firm] for purposes of RPC 1.8(a).”

Rule 1.8(a) of the Washington Rules of Professional Conduct thus didn’t void the note.

Tags: Washington, legal malpractice, Rules of Professional Conduct,

by Christopher Graham and Joseph Kelly

Waite, Schneider, Bayless & Cheeley Co. v. Davis Case No. 1:11CV851 (S.D. Ohio Aug. 13, 2013)

Plaintiff law firm sued its former client for unpaid legal fees. The former client counterclaimed for malpractice against the firm.

Under Ohio law, only individual attorneys — not law firms — may be sued for legal malpractice. After the expiration of the one-year legal malpractice statute of limitations, the firm moved for summary judgment. The former client filed a response and a motion to amend the complaint to name the individual attorneys rather than the firm.

The District Court granted the former client’s motion to amend.

FRCP 15(c)(1)(C)(ii) provides that an amendment to a pleading changing a party relates back to the original pleading if: (1) there was a mistake concerning the identity of a prospective defendant; and (2) whether a prospective defendant knew or should have known that it would have been sued but for the mistake of identity.

The firm argued that former client made a deliberate choice to sue the firm rather than the individual attorneys and that even though the former client knew the individual lawyer’s names, he only sued the firm.

The Court rejected the firm’s argument, holding “[a]bsent a clear indication that [the former client] intentionally used the wrong entity, or that the amendment would unfairly prejudice the individual attorneys, the technical pleading rules should not operate to preclude a decision on this dispute on its merits.”

Tags: Ohio, legal malpractice, statute of limitations

by Christopher Graham and Joseph Kelly

The United States Supreme Court is set to hear arguments on three consolidated class action suits relating to Latin American investors’ purchases of fraudster Alan Stanford’s certificates of deposit. The investors sued Stanford’s law firms (Proskauer Rose and Chadbourne & Parke), insurance broker (Willis) alleging that they aided and abetted Stanford in his fraudulent conduct.

The suits were filed in United State District Court but were based on Texas securities law. The defendants moved to dismiss citing the federal Securities Litigation Uniform Standards Act (SLUSA) which was designed to discourage state law claims “in connection with the purchase or sale of a covered security.” The District Court granted the motion to dismiss, but the 5th Circuit reversed finding that suits didn’t involve “covered securities” and that there were other claims unrelated to securities that placed the suits outside the scope of SLUSA. See Roland, et al v. Green, Case No. 11-10932 (5th Cir. March 19, 2012). Defendants appealed, The Supreme Court granted defendants’ petition for certiorari, and argument is set for October 7.

If the Supreme Court agrees with the investors that SLUSA doesn’t apply, law firms and other professionals that represent or are associated with fraudsters will likely face liability in securities cases in the future. Fraudsters often don’t have sufficient funds to satisfy a judgment. Plaintiffs will then look for “deep pockets” – namely, fraudster’s lawyers, brokers, and other professionals.

by Christopher Graham and Joseph Kelly

Cordero v. Koval Rejtig & Dean PLLC, et al, 2013 NY Slip Op 31893(U) (Sup. Ct., NY County Aug. 14, 2013)

Plaintiff was injured in a motorcycle accident in New York City in August 2004. Defendant law firm and attorney were retained in November 2004. Defendants filed suit on plaintiffs behalf in September 2006 against various companies and utilities, but not New York City.

On November 28, 2007, a new firm substituted in as counsel for plaintiff. A non-party associate from defendant firm took plaintiff’s case to the new firm. The non-party associate worked on the case until her returned to defendant law firm on November 12, 2008.

Summary judgment was granted to the defendants in the underlying case on December 5, 2008 because no defendants were liable; New York City was at fault. It was too late for plaintiff to file suit against New York City.

Plaintiff filed suit against defendants on November 30, 2011 alleging they were negligent in failing to name New York City as a defendant.

Defendants moved to dismiss based on New York’s three year statute of limitations for legal malpractice cases.

Plaintiff argued the limitations period began running on December 5, 2008 when summary judgment was granted in the underlying case. Defendants claimed that plaintiffs’ suit was untimely whether the limitations period began to run on November 28, 2007 when the substitution of counsel occurred or it began to run on November 12, 2008 when the non-party associate stopped working on the case.

The court explained that under the continuous representation doctrine, “[t]he statute of limitations does not begin to run when the malpractice occurs, where, after the malpractice, the attorney continues to represent the client in the matter in which the attorney committed the malpractice (citation omitted). The limitations period starts running when the attorney’s representation in the matter is completed.”

The court further explained that if an attorney leaves a defendant law firm and continues to work on a case, that attorney’s continued representation of the client will be imputed to the attorney’s former firm.

Here, the non-party associate’s continued representation of plaintiff was imputed to the defendant law firm under the continuous representation doctrine. The date that the non-party associate stopped representing plaintiff thus is the date the statute of limitations began to run.

The court denied defendants motion to dismiss because of questions of fact regarding when the non-party associate’s representation of client ended.

by Christopher Graham and Joseph Kelly

Steinmetz v. Wolgamot, et al, 2013 IL App (1st) 121375 (Aug. 12, 2013)

Plaintiff physician sued various professionals, including defendant attorney and law firm for legal malpractice, relating to advice given to him to enroll in an asset protection and tax savings program called AEGIS. Instead of asset protection and tax savings, Plaintiff incurred significant tax penalties from the IRS and Illinois Department of Revenue.

The attorney and firm defendants successfully moved for summary judgment arguing the claims against them were barred by Illinois two-statute of limitations for legal malpractice claims. Plaintiff appeals and the appellate court affirmed.

Defendant attorney advised plaintiff in October 1997 about AEGIS and encouraged plaintiff to join. In October 1999, plaintiff received a letter from the IRS informing him it would audit his tax returns from 1997 and 1998. Sometime later in 1999, plaintiff received a notice of deficiency from the IRS relating to his participation in AEGIS that stated he owed the IRS “large sums of money” in back taxes. Plaintiff then contacted defendant attorney would told plaintiff he was “going to deal with” the IRS and plaintiff should contact AEGIS officials. Defendant attorney also recommended plaintiff contact defendant law firm regarding the IRS notice. Defendant law firm worked with a legal researcher to prepare documents to challenge the IRS notice. The IRS found the arguments in the challenge documents “frivolous.” Despite many more notices from the IRS and consultations with AEGIS and other professionals, plaintiff continued with AEGIS. Plaintiff ultimately owed the IRS and Illinois Department of Revenue over $3 million in penalties and interest.

The appeals court statute of limitations analysis started with 735 ILCS 5/13-214.3(b) which provides:

“[a]n action for damages based on tort, contract, or otherwise ***| against an attorney arising out of an act or omission in the performance of professional services” must be commenced within two years “from the time the person bringing the action knew or reasonably should have known of the injury for which damages are sought.”

The court noted how the two-years “professional services” limitations period incorporates the “discovery rule” which provides that the limitations period is postponed “until the injured party knows or reasonably should know of the injury and knows or reasonably should know that the injury was wrongfully caused.” Khan v. Deutsche Bank AG, 2012 IL 112219.

Here, the appeals court held that the two-year limitations period began to run when plaintiff received the notice of deficiency in 1999. The court stated “[t]he notice of deficiency alerted plaintiff he had suffered an injury by his participation in the AEGIS program and that the injury was wrongfully caused, thereby putting him on inquiry to determine whether he had an actionable claim.”

by Christopher Graham and Joseph Kelly

Paul Hastings, LLP v. LA Pacific Center, Inc.

Law firm represented LA Pacific in $75 million commercial real estate transaction, which included a $5 million escrow holdback period of 12 months.

Before closing, LA Pacific got cold feet and informed law firm that it would only close if the holdback period was 60 months. The Seller purportedly agreed to a 60 month holdback, but only some of the documents at closing were revised to reflect the 60 month holdback (rather than 12 months). Law firm discovered the error and contacted the escrowee to replace the erroneous documents, but law firm didn’t inform LA Pacific or Seller.

After 12 months, Seller took the position that the holdback period expired and it was entitled to the $5 million holdback. LA Pacific disagreed. Seller filed suit for rescission based on fraud, cancellation of written instruments based on illegality, and conspiracy. Seller disagreed and protracted litigation resulted. Years later, LA Pacific prevailed.

LA Pacific subsequently filed suit against law firm for legal malpractice, breach of fiduciary duty, and breach of contract based on law firm’s error in having the wrong documents at closing and law firm’s error in not informing the parties of the subsequent correction to the documents. LA Pacific’s damages were having to litigate the underlying suit for years, its inability to sell the property, and substantial attorneys’ fees.

Law firm moved for summary judgment arguing that: (1) LA Pacific couldn’t establish causation because it prevailed in the underlying suit; and (2) LA Pacific shouldn’t recover punitive damages. Law firm’s motion was denied and law firm then appealed.

Appeals court affirmed the denial of summary judgment regarding causation but reversed regarding punitive damages.

Appeals court explained the causation standard for a transaction malpractice suit stating that the standard is the same as in a litigation malpractice claim — plaintiff must show that “but for” the malpractice, it’s more likely than not that it would’ve had a more favorable result. The trial court’s denial of summary judgment was correct because there was a triable issue of fact as to whether LA Pacific would’ve had a better result “but for” law firm’s alleged malpractice.

Law firm also argued LA Pacific was judicially estopped because LA Pacific argued in the underlying suit that Seller always intended to avoid the contract. The trial court rejected this argument as did the appellate court. The court found the positions taken by LA Pacific in the underlying suit and here weren’t totally inconsistent, and, thus, judicial estoppel didn’t apply.

Appeals court reversed the denial of summary judgment on punitive damages. Under California law, “punitive damages may be recovered “where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice . . . .”

“Malice” means “conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.”

And “despicable conduct” means “having the character of outrage frequently associated with crime.”

Appeals court noted that “[a] breach of fiduciary duty alone, without malice, fraud or oppression, does not support an award of punitive damages” and “[p]unitive damages are proper only when the tortious conduct rises to levels of extreme indifference to the plaintiff’s rights, a level which decent citizens should not have to tolerate.”

Here, appeals court found that “[w]hile these acts might support L.A. Pacific’s claims of legal malpractice and breach of fiduciary duty, they do not rise to the level of extreme indifference to the client’s interests which would support an award of punitive damages.”

by Christopher Graham and Joseph Kelly

Whitney Group LLC v. Hunt-Scanlon Corp., et al, 106 AD3d 671 (N.Y.S. Ct. of Appeals May 30, 2013)

Client corporation filed suit alleging legal malpractice against its outside counsel for failure to notify client of unauthorized loans by client’s CFO.

Outside counsel discovered unauthorized loans made by client’s CFO to another corporation. Outside counsel advised CFO to tell client’s CEO and Board of Directors about the loans. CFO didn’t tell the CEO or the Board and neither did outside counsel.

Outside counsel moved for summary judgment arguing that client knew of CFO’s loans and did nothing to stop CFO and that outside counsel’s failure to notify client about the loans wasn’t a proximate cause of client’s damages.

The court noted that there were fact questions as to whether client knew about the loans and thus whether outside counsel’s failure to notify was a proximate cause of client’s damages.

The court also analyzed outside counsel’s in pari delicto affirmative defenses noting that there was a fact question as to whether client was at equal fault by not doing anything even thought it supposedly knew about CFO’s loans.

Lastly, the court rejected outside counsel’s affirmative defense of comparative fault finding that client’s failure to discovery CFO’s loans didn’t interfere with outside counsel’s performance of its professional duties to client.