by Chris Graham and Joseph Kelly

Greenwald v. Eisinger, Brown, Lewis & Frankel, P.A., et al, Case No. 3D12-1181 (Fla. 3d DCA July 10, 2013)

Legal malpractice plaintiffs appealed judgment affirming jury verdict in favor of defendant lawyers and law firm arguing the trial court committed evidenciary errors.

Before trial, the judge reserved ruling on a motion in limine regarding whether violations of the Florida Rules of Professional Conduct were admissible to establish an attorney’s standard of care. The judge stated he would “rule before we get into the substantive part of the trial.” Plaintiffs didn’t seek a ruling on that motion in limine before or during trial.

The trial judge sustained defendants’ objections when plaintiffs tried to ask their legal expert about the Florida Rules of Professional Conduct. Plaintiffs made no proffer or other preservation of claimed error for appeal.

The appeals court found that plaintiffs didn’t preserve any claimed error, but even so, the court was within its discretion to exclude the legal expert’s testimony. Plaintiffs cited to the preamble to the Florida Rules of Professional Conduct in support of its position. The preamble provides in pertinent part:

“Violation of a rule should not itself give rise to a cause of action against a lawyer nor should it create any presumption in such a case that a legal duty has been breached. In addition, violation of a rule does not necessarily warrant any other nondisciplinary remedy, such as disqualification of a lawyer in pending litigation. The rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for civil liability. Furthermore, the purpose of the rules can be subverted when they are invoked by opposing parties as procedural weapons. The fact that a rule is a just basis for a lawyer’s self-assessment, or for sanctioning a lawyer under the administration of a disciplinary authority, does not imply that an antagonist in a collateral proceeding or transaction has standing to seek enforcement of the rule. Accordingly, nothing in the rules should be deemed to augment any substantive legal duty of lawyers or the extra-disciplinary consequences of violating such duty. Nevertheless since the rules do establish standards of conduct by lawyers, a lawyer’s violation of a rule may be evidence of a breach of the applicable standard of conduct.”

Plaintiffs argued that the last sentence required admission of the rules violation. The appeals court disagreed, stating:

“…[P]laintiffs have failed to provide any case to support the proposition that the trial court had neither the discretion to determine the admissibility of this evidence, nor the authority to assess, if admissible, whether the “probative value of such evidence was substantially outweighed by the danger of unfair prejudice, confusion of the issues, misleading the jury, or needless presentation of cumulative evidence.” § 90.403, Fla. Stat. (2012). We do not agree that the preamble language or the caselaw mandates the admission of such evidence; rather, the decision to admit or exclude such evidence remains vested in the broad discretion of the trial court, and will not be disturbed absent an abuse of that discretion.”

by Chris Graham and Joseph Kelly

Abdulla v. Klosinski, Klosinski Overstreet, LLP, et al, Case No. 12-15448 (11th Cir. July 10, 2013)

Client appealed grant of summary judgment to law firm defendants in legal malpractice case.

Client alleged the firms committed malpractice and breached fiduciary duties by advising him to sign a personal guaranty for his business and for allowing a default judgment to be entered against him.

Client’s company bought $460,650 in merchandise from its vendor and never paid. Vendor sued. Client and his company retained Johnston, Wilkin & Williams (“Litigation Counsel”) to represent them in that case. Williams advised client he should consider Chapter 11 bankruptcy for his company and referred client to Klosinski & Overstreet (“Bankruptcy Counsel”) to represent client’s company in the bankruptcy. Client’s company filed for Chapter 11 and Vendor’s suit was stayed.

Client wanted to avoid the appointment of a bankruptcy trustee because he didn’t want to give up control of his business or a liquidation of the company’s assets. Vendor agreed not to seek a trustee if client executed a personal guaranty. Litigation Counsel advised client to sign the guaranty. The guaranty provided that Vendor could go after client personally in the event of a default which was defined to include a conversion of the Chapter 11 to a Chapter 7. The guaranty also included a waiver-of-defenses clause.

The bankruptcy ultimately was converted into a Chapter 7 over client’s objections and client became personally liable for his company’s debt. Vendor filed suit and served Litigation Counsel and Bankruptcy Counsel as per the guaranty, but not client because he was out of the country. Bankruptcy Counsel forwarded the complaint to client advising him that they wouldn’t be representing him in the case. Client didn’t appear timely and default judgment was entered. A couple months later, Litigation Counsel agreed to represent client for Vendor’s suit and unsuccessfully tried to reverse the default judgment.

The District Court granted the law firm defendants summary judgment. Regarding the execution of the guaranty, the court found Bankruptcy Counsel didn’t represent client personally and the record didn’t show a violation of the duty of case by Litigation Counsel. Regarding the default judgment, the court found that even if there was no default, client couldn’t have recovered in the litigation because of the waiver-of-defenses clause.

On appeal, client claimed the District Court was wrong in concluding Bankruptcy Counsel didn’t represent him. The Eleventh Circuit disagreed finding that Bankruptcy Counsel’s engagement letter explicitly said it was representing client’s company and Bankruptcy Counsel’s actions were consistent with such an engagement. The Eleventh Circuit also didn’t buy client’s argument that Bankruptcy Counsel represented him for Vendor’s suit when it represented client and his company in an unrelated matter.

Client also argued that Litigation Counsel breached the standard of care. The Eleventh Circuit disagreed noting that the record showed Litigation Counsel advised client of the risk and reward of the personal guaranty and that it was reasonable to advise client to sign the guaranty.

Client further claimed that the waiver-of-defenses clause was unenforceable because there was no consideration. The Eleventh Circuit disagreed noting that the “compromise of a doubtful claim” can be consideration.

Client lastly argued that he signed the guaranty under duress. The Eleventh Circuit again disagreed noting that “when the signer of an agreement is sophisticated in business matters and has access to and in fact obtains advice of counsel, the defense of duress is not available to void the contract.”

by Chris Graham and Joseph Kelly

Fromhart v. Tucker, et al, Case No. 5:11CV97 (N.D. WV July 3, 2013)

Tucker was sued by Fromhart for $700,000 in loans that were allegedly fraudulently procured and not repaid. Tucker filed a third-party complaint against attorney Thomas for legal malpractice. Thomas removed the case to federal court and moved for and received a summary judgment.

Thomas argued that Tucker has no standing to sue for legal malpractice because Thomas owed him no duty. Thomas argued he only represented Tucker’s companies – OVA and Mound City – and he didn’t represent Tucker individually.

Thomas’s most convincing proof was the engagement letter sent to Tucker regarding his representation of OVA and Mound City.

The District Court concluded:

“In this letter, Mr. Thomas repeatedly states that he has been retained ‘to undertake representation of Ohio Valley Amusement Company and Mound City, Inc. in their pending Chapter 11 bankruptcy cases.’ [citation omitted]. He also specifically requests that OVA and Mound City ONLY furnish him and his firm with a retainer. Id. Finally, Mr. Thomas briefs Mr. Tucker in this letter regarding his impressions of the state of the OVA/Mound City bankruptcy, and informs Mr. Tucker that it may become necessary for him to file for bankruptcy individually. However, Mr. Thomas clearly indicates that, if filing for bankruptcy individually becomes necessary, Mr. Tucker ‘will need to consult with another lawyer, as there would be a conflict of interest that would prohibit us from being the lawyers for you at the same time that we are representing your companies.’

As such, it is clear that Mr. Thomas only represented OVA and Mound City, and did not represent Mr. Tucker individually. It is equally clear that Mr. Thomas made this fact clear to Mr. Tucker. Further, as Mr. Thomas points out, absent evidence of special circumstances showing an arrangement otherwise, a corporation’s attorney does not owe an attorney/client duty to the corporation’s shareholders.”

by Chris Graham and Joseph Kelly

Chaudhary v. Bartnof, Case No. 3-179/12-0898 (CA Court of Appeals May 22, 2013)

Appellate court reversed trial court’s grant of summary judgment to defendant attorney on basis that he had no duty to client’s son, the sole beneficiary of a trust. Attorney purportedly negligently advised client to transfer three properties from a trust into a non-existent sub-trust. Client died and client’s second wife claimed a community property interest in the three properties in probate. Client’s son, the sole trust beneficiary, settled the probate action and sued attorney.

The appeals court noted that “It is now well-established that an attorney may be held liable to the beneficiary if: (1) the attorney’s professional negligence frustrates the testamentary intent in a legal instrument, and (2) the ‘beneficiaries clearly designated by the testator lose their legacy as a direct result of such negligence.’”. The court determined that the father intended that the property go to his son and that the son didn’t receive all that he was supposed to receive because of the probate settlement.

by Chris Graham and Joseph Kelly

Taylor v. Hogan, Case No. 3-179/12-0898 (IA Court of Appeals April 24, 2013)

Iowa appeals court affirmed defense verdict in legal malpractice trial. LLC #1 and its individual members sued attorney that represented LLC #2 in an investment deal. LLC #1 was a member of LLC #2. LLC #1 and its members alleged that attorney owed them a duty to obtain releases of guarantees made by LLC #1 and its individual members.

Trial court held that neither LLC #1 nor the individual members had standing to sue LLC #2’s attorney.

The court stated “[b]ecause in Iowa, as elsewhere, a limited liability company is a legal entity distinct from its members, it is also the general rule that an attorney representing a limited liability company owes a duty of care solely to the limited liability company, not to its separate members.”

Attorney only owed a duty to LLC #2, not its member, LLC #1, or LLC #1’s members.

by Chris Graham and Joseph Kelly

Bar Plan Mutual Insurance Company, Case No. ED98826 (MO Court of Appeals April 23, 2013)

Grant of summary judgment to professional liability insurer affirmed on appeal. Insurer filed a declaratory action seeking a judgment that a breach of fiduciary duty claim filed against Insured during the 2009 policy period was related to legal malpractice claims filed against Insured during the 2008 policy period, and, thus, only the 2008 policy applied.

The legal malpractice claims filed in the 2008 policy period arose from an $11 million real estate deal gone bad. The breach of fiduciary duty claim filed in 2009 policy period was for Insured’s failure to disclose to its client that it only had $250,000 of insurance coverage. The 2008 and 2009 policies contained “an explicitly-stated non-exhaustive list of ‘a series of related acts or omissions that constitute a single Claim under the Policy where a single Limit of Liability will apply[.]’ This list includes ‘[a]ll activities pertaining to a real estate transaction[.]’”. While “related” was not defined in either policy, the court found that “related” was not ambiguous, the breach of fiduciary duty claim was related the initial legal malpractice claims, and, thus, only the 2008 policy applied.

by Christopher J. Graham and Joseph P. Kelly

Jeanes v. Bank of America, 2013 WL 856385 (Kan. Mar. 8, 2013)

Administrator of estate sued decedent’s attorney for negligence and breach of fiduciary duty. The decedent’s estate totaled nearly $40 million and estate and inheritance taxes were about $22 million. Court held that the administrator’s cause of action accrued when the taxes were due after the client’s death, and, thus, that cause of action couldn’t survive the client’s death. The case was dismissed because it didn’t qualify as a survival action under Kansas law.

by Christopher J. Graham and Joseph P. Kelly

Evans v. Howell, Case No. 2011-CA-01414-COA (Miss. App. March 5, 2013)

Plaintiff filed suit alleging defendant lawyer prepared buy-sell agreements for plaintiff and plaintiff’s business partner’s various business entities. Under Mississippi law, a legal malpractice claim must be brought within three years after the claim accrued; and claims accrue on the date the client learns or, through the exercise of reasonable diligence, should learn of his lawyer’s negligence. Here, the alleged malpractice stems from defendant lawyer’s preparation of a buy-sell agreement in March 2005. Appeals court agreed with trial court that plaintiff knew or should have known of the alleged malpractice in March 2005 when he signed the agreement; and thus the complaint was barred by the three-year statute of limitations.

by Christopher J. Graham and Joseph P. Kelly

Hayes v. Hutchinson, Case No. B237556 (Ca. Ct. App. 2nd Jan. 24, 2013) (unpublished)

Appellate court affirmed trial court’s order denying defendant lawyer’s anti-SLAPP motion to strike. Defendant lawyer had been hired by the band “Linkin Park” to review royalty agreements negotiated by plaintiff lawyer. Plaintiff lawyer sued defendant lawyer for defamation, trade libel and intentional interference with contractual relations based on statements made by defendant lawyer in an audit report critical of plaintiff lawyer’s conduct. Defendant lawyer filed a motion to strike under California’s anti-SLAPP law which provides, in part, that statements made in anticipation of litigation are protected speech. Here, defendant lawyer claimed that his report was a statement in anticipation of litigation because he was asked to prepare it by a legal malpractice attorney retained by the band. But defendant lawyer ultimately failed to meet his burden that the statements were made in anticipation of litigation because the evidence showed that the band didn’t have plans to sue plaintiff lawyer.

by Christopher J. Graham and Joseph P. Kelly

Eastwood Ranch, LP, et al v. Dyess, et al, Case No. G046526 (Cal. App. 4th Jan. 16, 2013) (unpublished)

California’s one-year statute of limitations barred plaintiffs’ legal malpractice claim. Plaintiffs discovered in 2007 that defendants didn’t include a significant provision in purchase option documents, but didn’t file suit until 2010. Court stated under California law (§ 340.6) “the limitations period is one year from actual or imputed discovery, or four years (whichever is sooner), unless tolling applies” and that the trigger for the one year limit is the client’s “discovery of ‘the facts constituting the wrongful act or omission,’ not by his discovery that such facts constitute professional negligence…” Plaintiffs discovered the facts constituting purported negligence in 2007 – three years before filing suit.