Legal Malpractice Law Review : Professional Responsibility Case Summaries & Commentary : Bennett J. Wasserman : LegalMalpractice.com : Lawyer Malpractice & Legal Ethics

Akin Gump Strauss, etc. v. National Development and Research Corp. (07-0818).

Supreme Court of Texas- Decided October 30, 2009

The Supreme Court of Texas took a giant step  closer to  New Jersey's rule in Saffer v. Willoughby, which permits a prevailing plaintiff in a legal malpractice action to recover as consequential damages attorneys' fees and expenses from the negligent attorney, in order to make the plaintiff whole again.

The case involved an underlying trial and botched jury verdict questions caused by the attorney's malpractice and then an appeal to correct the damage it caused.

Here's what the High Court in Texas said:

A negligence claim, unlike a fee forfeiture claim for breach of fiduciary duty, is about compensating an injured party. See Douglas v. Delp, 987 S.W.2d 879, 885 (Tex. 1999) (“[W]hen the injuries caused by an attorney’s negligence are economic, the plaintiff can be fully recompensed by the recovery of any economic loss. Restoration of the pecuniary interest suffices to return a plaintiff to her prior circumstances.”); Thomas D. Morgan, Lawyer Law: Comparing the ABA Model Rules and the ALI Restatement (Third) of the Law Governing Lawyers 98 (2005) (“A key distinction between fee forfeiture and the malpractice remedy is that the amount forfeited need have no relation to actual damages suffered by the client.”) (emphasis omitted); Restatement (Second) of Torts § 903 cmt. a (1977) (“When there has been harm only to the pecuniary interests of a person, compensatory damages are designed to place him in a position substantially equivalent in a pecuniary way to that which he would have occupied had no tort been committed.”).

We see little difference between damages measured by the amount the malpractice plaintiff would have, but did not, recover and collect in an underlying suit and damages measured by attorney’s fees it paid for representation in the underlying suit, if it was the defendant attorney’s negligence that proximately caused the fees. In both instances, the attorney’s negligence caused identifiable economic harm to the malpractice plaintiff. The better rule, and the rule we adopt, is that a malpractice plaintiff may recover damages for attorney’s fees paid in the underlying case to the extent the fees were proximately caused by the defendant attorney’s negligence. See Alexander v. Turtur & Assocs., Inc., 146 S.W.3d 113, 119 (Tex. 2004); Knebel v. Capital Nat’l Bank, 518 S.W.2d 795, 799 (Tex. 1974); 3 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 21:19 (2009). 

In Saffer, the New Jersey Supreme Court similarly held:

A client "may recover for losses which are proximately caused by the attorney's negligence or malpractice." Lieberman v. Employers Ins., 84 N.J.325, 341, 419 A.2d 417 (1980)...The purpose of a legal malpractice claim is "to put a plaintiff in as good a position as he [or she] would have been had the [attorney] kept his [or her] contract."

                                                         * * *

...,[the prevailing plaintiff] is nonetheless entitled to reasonable expenses and attorney fees, as consequential damages, incurred in a successful malpractice prosecution.

143 N.J.256, 272, 670 A.2d 535.

According to one Texas blogger:

So, in a later malpractice action, the additional portion of fees attributable to the original lawyer’s negligence — added hearings, procedures, or appellate procedures — might be recoverable.

Question: The "later malpractice action" is  an "added procedure". So, aren't  the additional fees that a client has to pay to another lawyer to prosecute the later legal malpractice  action also "attributable to the original lawyer's negligence"? The Texas Court made clear in the Akin Gump case, as did New Jersey in Saffer, that these cases  do not involve the "American Rule" nor fee shifting. They involve compensating the damaged client for his losses and making the client that is  damaged by his lawyer's negligence whole again-- even if doing that requires bringing a later legal malpractice action against the negligent lawyer.

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From Henry Gottlieb of the New Jersey Law Journal, October 28, 2009 (on line):

For students looking for interaction with authors and practitioners in a law review format, the cutting edge may be a new quasi-student online publication started by Bennett Wasserman, a New Jersey legal malpractice lawyer and an adjunct professor at Hofstra University School of Law in Hempstead, N.Y.

Started just two weeks ago, Wasserman's Legal Malpractice Law Review is a hybrid that could be called a "blawreview" — part blog, part law review. Students write digests of leading legal negligence cases, and the postings are open to comment. The site is for lawyers and insurance professionals, and rants by disgruntled litigants are going to be flamed quickly, the "rules of use" section of the site suggests.

Wasserman is counting on comments from a board of contributors he assembled that includes lawyers on all sides of the malpractice wars, such as plaintiffs' practitioner Glenn Bergenfield of Princeton, defense counsel Thomas Campion of Drinker Biddle in Morristown and pioneering legal ethics scholar Monroe Freedman, Hofstra Law's former dean.

Melissa Goldberg, one of the student contributors, is also on the staff of the Hofstra Law Review, where she spends a lot of time checking citations in articles. Not only does her work on the malpractice site have a more practical effect on readers, she says, it gives her an opportunity to have her name on published work.

"You are interacting with people you wouldn't otherwise have a chance to meet and you are getting your name on the Internet," she says. "If you Google your name, it comes right up. It's cool to have a presence on the Internet."

It also has helped widen her horizons. "I didn't even know until I got to law school that you could sue a lawyer," she says.

 

Editor's Note: Thank you to the New Jersey Law Journal for recognizing the uniqueness  and value of the Legal Malpractice Law Review. In the 10 days since we have gone live, we have had more than 4,200 "visits" and an abundance of congratulatory comments. Thank you all for your enthusiastic welcome.

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Alampi v. Russo, 345 N.J. Super. 360 (App. Div. 2001)

Student Contributor:  Melissa Goldberg

NJ Underlying Criminal Defense

Facts: Plaintiff, a public accountant, sued his attorney for legal malpractice alleging his professional negligence caused him to plead guilty to a federal misdemeanor charge for refusing to give information to the IRS in a tax investigation. Plaintiff contended that his attorney failed to keep him properly informed about the potential of a criminal investigation and failed to arrange a meeting with the IRS where the government could have been persuaded to either grant him immunity or decide not to prosecute.

Issue: Does an unimpeached guilty plea in a criminal proceeding bar recovery in a legal malpractice action?

Ruling: Yes, Plaintiff cannot seek in a civil action to renounce his federal conviction, or seek money damages for a wrongful conviction based on his guilty plea which he never otherwise attacked, since:
1) He unconditionally pled guilty to a criminal offense committed before representation was commenced; and
2) It would undermine the guilty plea if a defendant were allowed to argue that no prosecution would have occurred if his attorney had used different tactics.

Lesson: Public policy does not permit defendants who have been convicted of a criminal offense from profiting from their illegal conduct by shifting blame to their defense attorneys.

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Kamaratos v. Palias, 360 N.J. Super. 76 (App. Div. 2003)

Student Contributor:  Melissa Goldberg

NJ Underlying Commercial Action

Facts: The Plaintiff was a minority shareholder in a corporation and retained Defendant attorney to represent its interests in  a dispute with the majority shareholder. The retainer agreement included an arbitration provision whereby  Plaintiff agreed that any dispute regarding fees would be resolved by binding arbitration between the parties in accordance with the New Jersey Uniform Arbitration Act. As litigation continued, Plaintiff challenged bills submitted by the attorney. Defendant filed an attorney’s lien to recover the unpaid legal fees. Plaintiff filed for fee arbitration  provided by NJ Court Rule 1:20A, but the fee arbitration committee declined  to hear it given the amount in controversy (usually more than $100,000.)  Plaintiff then argued that the retainer clause mandating arbitration of a fee dispute was against public policy and unenforceable.

Issue: Is a mandatory arbitration clause for fee disputes in a retainer agreement  enforceable?

Ruling: Yes. The attorney-client relationship does not inherently mandate a blanket preclusion of the arbitration of fee disputes. However, in the instant case, the arbitration clause was not binding on the Plaintiff, since the court did not believe that the retainer agreements clearly articulated the consequences of an agreement to arbitrate a dispute over legal fees.

Lesson:  In making a decision concerning the enforceability of arbitration clauses in retainer agreements, courts will consider:

•  the circumstances in which the agreement was made;
• the parties’ past practices and agreements
• the extent to which the parties actually negotiated the agreement; and 
• the client's level of sophistication or experience in retaining and compensating lawyers.

In addition, the prospective effect of an agreement to arbitrate must be clear to the client before it will be held to be binding upon him, e.g.,

• no right to a jury trial,
• no right to appeal,
• the binding nature of the arbitration award.

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Brizak v. Needle,  239 N.J. Super. 415, 571 A.2d 975 (1990)

Student Contributor: Maninder (Meena) Saini

NJ Underlying Statute of Limitations and Duty to Investigate

Facts: Plaintiff-client commenced a malpractice lawsuit against defendant-attorney, alleging the defendant was negligent by failing to file a medical malpractice claim before the expiration of the statute of limitations (“SOL”). The defendant argued the SOL did not start until there was expert opinion recognizing that medical malpractice had occurred. The facts are as followed: In 1981, plaintiff sustained an arm injury and was treated by Dr. Shafi. Instead of conducting surgery, the doctor simply placed her arm in a hanging cast. On December 5, 1983, plaintiff retained defendant to pursue an action against Dr. Shafi because she was still suffering from the affects of her arm injury. In May 1984, the defendant requested a copy of the hospital records. Next, in March 1985, the defendant obtained an opinion from a radiologist who advised defendant that no malpractice transpired. In June 1987, defendant obtained another medical expert opinion that held malpractice had occurred.

Issue: When does the “discovery” rule apply in any given case?

Ruling: The “discovery rule” tolls the statute of limitations when one “is either unaware that he has sustained an injury, or although aware that an injury has occurred, he does not know that it is, or may be, attributable to the fault of another.”  When one knows or has reason to know of the injury, the SOL starts to run.

Issue: What is the scope of a lawyer's duty  to investigate the basis of a client’s claim?

Ruling: An attorney must undertake a reasonably diligent investigation to determine if there is a  basis for commencing an action and when the statute of limitation starts to run.
The appellate court stated the “[d]efendant’s clearly erroneous advice to plaintiff that she need not be concerned about the time limitations until she found a physician to support her claim was itself a sufficient basis for linking his negligence to her failure to commence a timely action against the doctor.” The SOL started in December 1983 when the plaintiff had suspicion of the malpractice and retained a lawyer.  

Lesson: The defendant was not diligent in his investigation of the  medical malpractice nor of the ascertaining the date the cause of action accrued in order to determine the correct statute of limitations. . An attorney has a duty to take any steps reasonably necessary to properly handle the case which includes the duty to investigate and to file any action necessary for recovery within the applicable  time period.

Moreover, said the Court:

...[the] attorney who litigates a legal malpractice claim without the opinion testimony of a legal expert unnecessarily exposes his client to a serious risk...

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Daly v. Peace,54 A.D.3d 801, 863 N.Y.S.2d 770, 2008 N.Y. Slip Op. 06955

NY Underlying defense of criminal  action

Student Contributor: Angela M. Ignelzi

Facts: Plaintiff-Client brought an action against his Attorney who had represented him in defending a prior criminal action where he was convicted. Client sought to recover damages for legal malpractice. Attorney made a motion to dismiss the complaint on the grounds that the client could not prove he was innocent. Client appealed the dismissal of his Complaint.

Issue: Was the motion Court correct in dismissing the Client’s malpractice complaint?

Ruling: The Appellate Division (2nd Department), held that:

•  Client could not establish his innocence of the underlying criminal charge
•  Client has no cause of action for legal malpractice against his criminal defense attorney, unless he was ultimately successful in his attempts to have the underlying conviction reversed and he proves his innocence.

Lesson: To prove that his lawyer's allegedly negligent conduct in defending him in an underlying criminal case was the proximate cause of his damage, i.e., his wrongful conviction, the client must have his conviction reversed and he must prove his innocence of the underlying criminal charges. 

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Muhammed v. Strassburger, McKenna, Messer, Shilobod and Gutnik
526 Pa. 541, 587 A.2d 1346 (Pa. 1991)

PA Underlying Medical Malpractice Litigation

Student Contributor: Justin B. Lieberman

Facts: Former client sued attorney for legal malpractice after the client was unhappy with the settlement received in the underlying medial malpractice action. In the underlying action clients accepted a settlement offer at a pre-trial conference, and then recanted the acceptance after their lawyer informed the opposing side of acceptance. The opposing side sought enforcement of the settlement and the trial court, at an evidentiary hearing, upheld the settlement, as did the Superior Court on appeal. The clients filed suit against the attorneys. The law firm defended on the following grounds: that the action should be dismissed as the claims were too speculative and settling clients were seeking to relitigate the settlement. The case was brought to the Supreme Court of Pennsylvania.

Issue: Can a settling defendant sue his/her lawyer for malpractice although they agreed to settle the underlying claim?

Ruling: A client cannot bring a malpractice claim against a former attorney because of their later dissatisfaction of a settlement to which they agreed,  unless they can show some fraudulent conduct by the attorney  in advising the client on accepting the settlement. Here, the clients, were dissatisfied not able to renegotiate their settlement after they had already voluntrarily accepted an offer. They were thus, not fraudulently induced to settle by their attorney.

We foreclose the ability of dissatisfied litigants to agree to settlement and then file suit against their attorneys in the hope that they will recover additional monies.

Lesson: An attorney may not be held liable when a client later decides they are unsatisfied with a settlement they willingly agreed to at a prior time, unless the attorney fraudulently induced or intentionally misadvised the client to accept the settlement.

Editor's note: This was the law in PA for many years. The stringent rule in this case, of barring a malpractice suit against the lawyer who represented the settling party-- has  since  been substantially limited  and liberalized.

See, e.g., McMahon v. Shea, 441 Pa. Super. 304, 657 A.2d 938 (1995).

The holding in Muhammad has been rejected in New Jersey (Ziegelheim v. Apollo, 128 N.J.250, 607 A.2d 1298 (1992) and Connecticut (Grayson v. Wofsey, Rose, Kweskin & Kuriansky, 231 Conn. 168, 646 A.2d 1994).

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Liberty Surplus Insurance Corporation, Inc. v. Nowell Amoroso, P.A.
189 N.J. 436, 916 A.2d 440 (N.J. 2007)

NJ Underlying matter: Malpractice Insurance coverage

Student Contributor: Evan Michael Hess

Facts: Plaintiff is the malpractice insurance carrier of the Defendant law firm in a Declaratory Judgment action. During the law firm’s  representation of one of its clients, it did not timely file the client’s Complaint. The Client got a judgment for $400,000 which was reversed due to the untimely filing. Shortly after the dismissal, the Defendant applied for malpractice insurance with the Plaintiff. On the application for insurance, Defendant answered “no” to a question whether it had “a reasonable basis to believe that it had breached a professional duty or to foresee that a claim would be made against" it. The policy was issued. Afterwards, a malpractice action was started by the client against the law firm. It tendered the defense of the malpractice action to the carrier. The carrier disclaimed coverage alleging that the law firm reasonably knew of the possibility that it might be sued for malprctice when it submitted the application for insurance. The carrier filed a declaratory judgment action against the law firm seeking to deny coverage. The law firm cross-moved for coverage. Both parties filed motions for summary judgment.

Issue: Can a malpractice insurance carrier deny coverage to an insured law firm when on its application for insurance the firm answers “no” to a question asking whether the firm had subjective knowledge of any circumstance, act, error or omission that could result in a legal malpractice claim ? Here, the application was submitted before the law firm was sued by the former client.

Ruling: The Supreme Court upheld the Appellate Division’s ruling that denied coverage to the law firm:

1) The law firm could not have subjectively believed that it had not breached any professional duty. It was reasonable to foresee that the client that had lost their $400,000 judgment would bring a malpractice claim against the law firm.

coverage, under the policy, was conditioned not only on foreseeing a possible malpractice claim, but also on the insured having no reasonable basis to believe that any deviation from a pertinent standard of care had occurred.

Lesson: You can never report a claim to your carrier early enough--As soon as you know it might turn into a malpractice claim.  Some lawyers choose to wait until there is objective proof of a claim--when they are served with a malpractice complaint. But if you have a subjective basis to know that you may have made a mistake and that it can reasonably turn into a later malpractice claim, it makes sense to report it sooner rather than later-- during your policy period and on any application for renewal. Otherwise, you run the risk of no coverage for that claim. You may want to forego reporting a claim if your policy deductible is big enough to cover the claim.

Editor's Note:  In  NJ, a recent trial court ruling required a lawyer who practices as a professional corporation, LLC or LLP,  and who must carry malpractice coverage under Court Rule 1:21:-1A,B and C, to report all claims and to cooperate in the defense of the claim so as not to deprive the client of the benefit of mandatory insurance coverage.

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Cherry Hill Manor Associates v. Faugno (N.J.Super.A.D., 2004) (PDF) reversed by 182 N.J. 64 (2004)

NJ Underlying Real Estate and Litigation

Student Contributor: John Anzalone

Facts:   Plaintiff retained Attorney 1 to represent it in a real-estate purchase. After the transaction failed, Plaintiff retained Attorney 2 to recover its deposit from seller. Attorney 2 failed to add a claim for legal malpractice against Attorney 1 in the suit. Plaintiff then hired Attorney #3, the Defendant, to file a malpractice claim against Attorney 1, but the suit was dismissed because he should have been sued in the case against the seller Attorney #2. Plaintiff then filed a malpractice complaint against Attorney 2 for failure to include Attorney 1 in the suit against the seller, but the suit was dismissed because he should have been sued in the case against Attorney 1. Plaintiff then sued Defendant and his law firm for failing to add a claim against Attorney 2 to the suit against Attorney 1. Defendant and his law firm added Attorney 2 and Attorney 1 to the case under a New Jersey statute providing for indemnification and contribution by those also responsible for Plaintiff's damages.

Issue:   Could the defendant attorney seek reimbursement for damages paid to the Plaintiff from the lawyers the plaintiff previously retained to try to recover its deposit?

Ruling:   In reversing the lower court, the Appellate Division held that an attorney could seek to recover from the lawyers Plaintiff previously retained to try to recover its deposit, based on the following factors:
1) The Defendants' liability and the predecessor attorney's potential liability to the plaintiff were all for failing to protect the interest of the Plaintiff.
2) All liability in the case followed from Attorney 1's potential malpractice in protecting the Plaintiff's interest in its contract with the seller.
3) Defendant was liable for failing to protect Plaintiff's claim against Attorney 2, who was potentially liable for failing to protect Plaintiff's claim against Attorney 1, who was potentially liable for failing to protect Plaintiff's interest against the seller.

Lesson:   When attorneys are sued for failing to protect the plaintiff's interest by a subsequent lawyer for that plaintiff, the attorneys remain potentially liable to the paying defendant lawyer for the extent of the damages to the plaintiff that they caused.

Editor's Note: This summary is posted for educational purposes only, as the Appellate Division decision summarized above was reversed by the NJ Supreme Court. See, 182 N.J. 64,76 (2004). (PDF)

The Supreme Court stated:

...we are dismayed by the cottage industry of litigation that was spawned by a rather commonplace real estate transaction that occurred eighteen years ago. By this opinion, we bring this matter to an end today. We, therefore, hold that, under the circumstances of this case, the prior tortfeasors are not liabile for statutory contribution to the subsequent tortfeasor because the prior and subsequent tortfeasors were not jointly or severally liable to plaintiff for the same cause of action.  We further hold that the subsequent totfeasor cannot claim statutory contribution form the prior tortfeasor inasmuch  as the "injury" inflicted by the prior  tortfeasrn is not the "same injury" as the one inlficted by the subsequent tortfeasor.

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The New Jersey Supreme Court is about to  take another look at the "settle and sue" syndrome: When a client settles a case and then sues  his or her lawyer over it. The case is Guido v. Duane Morris.

The Appellate Division had decided to permit  the Guidos' malpractice lawsuit against their former attorneys who had represented them in an underlying shareholder dispute that was settled.

Duane Morris has filed an interlocutory appeal and brief (PDF) arguing that the suit should not be permitted.

Plaintiffs oppose (PDF) and say that their malpractice claim should be allowed.

Trial Attorneys of New Jersey,  representing the interests of the trial bar, wants  permission to file an amicus brief.(PDF).

Pennsylvania had faced the same problem and has resolved it in a way that seems to have pleased all the contending parties. How should New Jersey’s High Court proceed? For one suggestion, see, "Holding Lawyers Accountable for Bad Settlements" in the New Jersey Law Journal.  (PDF) Should New Jersey follow Pennsylvania's lead or should it chart a different course to calm the unrest in the Appellate Divisions resulting from its 2005 decision in Puder v. Buechel?

Stay tuned. More to come on this hot topic. 

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The purpose of the Legal Malpractice Law Review is very simple: To help make us all better lawyers.

Today, we lawyers are expected to adhere to  the highest levels of competence, diligence and honesty at the risk of being held accountable for substantial  money damages to clients and non-clients.    Our  law schools teach and test us on professional responsibility, i.e., legal ethics.  But very few  offer us a course in professional liability, i.e., legal malpractice. The two fields are distinct, yet both are essential for us if we are expected to deliver  high quality legal services. Just as  we  need to know about professional responsibility, we must also know about professional liability; and how to avoid it.

We're all busy lawyers. But now, through the simplicity and convenience of blog technology, Legal Malpractice Law Review allows us to quickly learn —through its one-minute case summaries, about the professional mistakes other lawyers have made.  We will also see how to avoid those mistakes and thus spare ourselves  from the  catastrophic risks of malpractice; not to mention how to protect our own clients from the harm they will  suffer from such mistakes. Over the years, we plan to build an on-line  archive of one-minute-case summaries for as many past and current court decisions we can find that touch on the substantive area of legal malpractice. In addition, we plan to post important resource materials such as standards, Restatement sections and Rules that pertain to legal malpractice.  We will also be able to participate in blog discussions on timely topics conducted  by well-known practitioners, insurance industry professionals, law school faculty and experts in the field.

I am so grateful to many who have made the Legal Malpractice Law Review a reality:  First, my Lawyer Malpractice students at Hofstra Law School, whose required research and writing assignments  provide most of the content for the one-minute-case summaries appearing in this blog. Since 1990, each of my students has inspired me to continue  to study, work in  and help to build this new substantive area of the law. The President, Dean and Law School faculty at Hofstra have served as a constant source of support to me, encouraging originality, innovation and practice-based relevance in legal education. The many lawyers and law firms-- from both the defense and plaintiff's bar,  throughout the country,  who have given me the privilege to serve as their legal malpractice and ethics consultant and expert witness in over 1000 fascinating cases. The many clients--from widows and orphans to publicly traded corporations and prominent law firms, who have entrusted me with representing their respective interests in legal malpractice cases for over  three decades. They all have provided me with a  continuing and generous supply of educational resources. And finally, to my wife and  partner in life  for the past 40+ years-- whose beauty, loyalty and pragmatism have given me nothing less than the world, and more.

It is my sincere hope that all members of the legal community will gain from this effort and that it will ultimately find its appropriate place in the ongoing quest to make us all better lawyers for the benefit of those who depend on our counsel.  

                                                                      Bennett J. Wasserman
                                                                      Editor

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During one of our recent class meetings at Hofstra Law School, we discussed the different causes of action that are typically brought in legal malpractice lawsuits. We saw in Fiorentino v. Rapoport, 693 A.2d 208 (PA. 1997), at least three separate and distinct causes of action: breach of contract, negligence and breach of fiduciary duty. Many jurisdictions apply different statutes of limitations to each of these causes of action, which frequently determine which one of them will survive a motion to dismiss. Sometimes the facts of a particular case can establish theories of liability in more than one cause of action. For example, the same facts can establish both negligence and breach of fiduciary duty.

One renowned scholar, Professor Charles Wolfram, is critical of the way courts have permitted breach of fiduciary duty claims in legal malpractice cases. He wants them to be scaled back. In “A Cautionary Tale: Fiduciary Breach as Legal Malpractice”, 34 Hofstra L. Rev. 689,692 (2006), he argues that

“courts have allowed fiduciary breach claims to proliferate needlessly on the same ground already adequately occupied by negligence….[M]ost fiduciary breach claims are problematic precisely because of their almost complete and useless overlap with available claims of negligence.”

On the other hand, we studied Judge (now Justice) Sotomayor’s decision in Estate of Re v. Kornstein, et al., 958 F. Supp. 907 (SDNY 1997). She points out that a breach of fiduciary duty claim alleviates plaintiff's burden of proof particularly in regard to the proximate cause element of the cause of action. (True, the Court dismissed the negligence claim and permitted the fiduciary breach to proceed.) Also, there is generally a longer statute of limitations applicable to breach of fiduciary duty claims than negligence claims. These distinctions can easily make the difference between recovery for or dismissal of a bona fide claim. The notion that meritorious claims deserve appropriate remedies may thus help to explain why the vitality of the fiduciary breach claim is so important to fundamental fairness and justice.

We also read the Restatement of Law Governing Lawyers § 49 which provides that the breach of fiduciary duty claim is “[i]n addition to the other possible bases of civil liability…”

Should fiduciary breach claims in legal malpractice lawsuits be permitted to continue to flourish or should they be scaled back and limited to being, in effect, a cause of action of last resort reserved only for the most reprehensible forms of lawyer misconduct that harms clients? And what if it harms forseeable non-clients?

Do you see any merit to the argument that the proliferation of fiduciary breach claims should be encouraged because of its prophylactic benefit, i.e., it serves as a constant reminder to us of our over-arching, primary duty of undivided loyalty to our client and thus encourages adherence to that duty?

As lawyers, these are concepts we must take to heart in our everyday dealings with clients and non-clients alike. What do you think about this debate? Do you see a lawyer’s fiduciary duty as a standard of care or perhaps even an enforceable “Code of Conduct”? Or do you think in years to come we will see a move toward taking the teeth out of its bite?

Please, share your thoughts and comments with us. Just click the comments link below.

Prof. W.

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Estate of Spencer v. Gavin, 400 N.J. Super 220, 946 A.2d 1051 (App Div. 2008)

NJ Underlying Wills, Trusts & Estates.

Facts: Gavin and Averna, had their law offices in the same building and frequently worked on cases together. Gavin, was executor of Spencer's will and he hired Averna to establish a charitable foundation pursuant to the will. Spencer's beneficiaries later sued Gavin for embezzling money from the estate, and Averna for failing to blow the whistle on Gavin since he could have prevented the thefts.

Issue: What was Averna's duty to the Estate?

Ruling: The trial court dismissed the complaint as to Averna. The Appellate Division reversed and remanded, holding that Averna had a duty to Spencer based on these factors:

1. Averna and Spencer had an attorney-client relationship. Averna worked only on the charitable foundation, but it was formed at the direction of Spencer's will. In addition, (a) the estate paid Averna; (b) the estate benefited from his work and (c) Averna did not limit the scope of his representation to the foundation.
2. Averna's close and ongoing working relationship with Gavin gives rise to Averna's duty to report Gavin's misdeeds. There was no de facto partnership between them because they did not exercise "joint control over a common business" nor was there a "community of interest in the profits or losses." But they had worked closely on 10 to 15 cases.
3. RPC 8.3 (a) provides: "A lawyer who knows that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority."

Lesson: A lawyer to whom work is referred by another attorney and who has a close working relationship with that referring attorney has a duty to report the referring attorney if he or she actually knows that the referring attorney has been misappropriating funds from the client. Failure to do so can be a departure from the standard of care, and can lead  to malpractice liability to the client. It can also be  an ethics violation for failure to "rat" on the referrer.

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Hedlund Mfg. Co., Inc. v. Weiser, Stapler & Spivak, et ano.
517 Pa. 522, 539 A.2d 357 (1988)

Facts: Martin hired attorney Spivak to apply for a patent for a machine that Martin had invented and manufactured. Spivak prepared the application but he did not timely file it. Hedlund Manufacturing purchased Martin's business, including the rights to all pending patents. When Hedlund learned that Spivak had filed the patent application late, they had Martin assign to them all rights and causes of actions arising out of the lawyer's malpractice. Hedlund then sued Martin's lawyer for legal malpractice alleging negligence and breach of contract.

Issue: Can Hedlund (the assingee) sue the assignor's lawyer based on the assignment of the legal malpractice claim, even though there is no attorney-client relationship between the assignor and the lawyer?

Ruling: The PennsylvaniaSupreme Court said yes, reversing the lower court that had held that lack of privity barred the malpractice suit. The Court held legal malpractice claims can effectively be assigned and that "privity is not an issue involving an assigned claim because the assignee stands in the shoes of the assignor and does not pursue the cause of action in the assignee's own right." Thus, the assignment of a cause of action for legal malpractice is valid and can be used by the assignor to circumvent the privity defense. It might also be viewed as a "hidden" asset in the sale of a business.

New York: Assignment of legal malpractice claims are permitted. See, Tawil v. Finkelstein, et al 646 NYS2d 691 (App Div. 1st Dept, 1996). But they probably have to be explicit and unambiguous CALPERS v. Shearman & Steling, 95 N.Y. 2d 427 (2000).

New Jersey: Assignment of legal malpractice are not permitted for public policy reasons. Alcman Services Corp. v. Bullock 925 F. Supp. 252 (DNJ 1996).

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Connell, Foley & Geiser, LLP v. Israel Travel Advisory Service, Inc.,377 N.J. Super. 350, 872 A.2d 1100 (App. Div. 2005)

NJ Underlying litigation

Student Contributor:  Dannis Le,  Class of 2009.

Facts: Out-of-state law firm recommended a New Jersey law firm to represent client in litigation. That firm worked closely with the N.J. law firm but did not appear as counsel of record. After client lost the case, the NJ law firm sued client for unpaid legal fees and client counter-claimed for malpractice. Client did not claim that out-of-state firm committed malpractice. The NJ law firm sought contribution  from the out-of-state firm in the malpractice action, on the theory that it was either co-counsel or successor counsel in the underlying case. 

Issue: Is out-of-state counsel liable for contribution tn a malpractice action when it did not appear as counsel of record with NJ local counsel?

Ruling: The Appellate Division remanded the malpractice claim for trial and affirmed that the NJ law firm could seek contribution from the out-of-state firm, because: 

1. Co-counsel owes a duty to the client, not to other co-counsel. NJ local counsel must show that the out of state law firm had a duty to their joint client in order to seek contribution in the client's malpractice claim. 
2. Liability under the NJ Joint Tortfeasors Contribution Law. It would defeat the purpose of the JTCL to allow the out of state law firm to escape liability because it was not named in the malpractice claim: "The purpose of the JTCL is to promote the fair sharing of the burden of judgment by joint tortfeasors and to prevent a plaintiff from arbitrarily selecting his or her victim." 
3. Malpractice can occur whether or not an attorney is formally admitted to practice in the state. The Court found no authority to the contrary. Not being admitted to a state does not bar a malpractice claim against out-of-state counsel in that state. 

Lesson: A firm acting as co-counsel has a duty to the client. Co-counsel can be held jointly liable for any malpractice committed. This is true even if they are not admitted pro hac vice in NJ and are not the counsel of record. But under NJ law there is no successor counsel liability. 

Editor's Note: On the duty of local NJ counsel when lead counsel is an out-of-state firm acting pro hac vice, see Ingemi v. Pelino & Lentz, 866 F. Supp. 156 (D.N.J. 1994) where NJ local counsel was held to a reasonable care standard and a duty to take more than a de minimis role in representing the client.

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Gilles v. Wiley, Malehorn & Sirota,
345 N.J. Super. 119, 783 A.2d 756 (N.J.Super.A.D., 2001)

NJ Underlying case: Litigation; Medical Malpractice

Student Contributor: Geri Mulligan

Facts: Lawyer represents plaintiff in a medical malpractice case. Six months after getting a favorable expert witness report, lawyer writes to client that his firm has reconsidered and will not file suit. Lawyer suggests client immediately find a new lawyer and even recommends others who might take the case. Lawyer also stated that client had two years from the malpractice incident to file suit and failure to do so would forfeit client's right to sue. By the time plaintiff met with a new lawyer the statute of limitations had run.

Issue: How long does the lawyer's duty to the client last even after the attorney-client relationship has come to an end?

Ruling: The trial court dismissed the complaint against lawyer. The Appellate Division reversed, holding that lawyer breached his duty of care based on these factors:

1. There was an established lawyer-client relationship. Lawyers had to protect the client's cause of action. Therefore, lawyer's termination of the relationship so close to the expiration of the statute of limitations, without preserving client's cause of action is a breach of duty.
2. RPC 1.16 (b) provides that "where the conduct of the client does not justify the attorney's withdrawal, the attorney may withdraw from representing a client if withdrawal can be accomplished without material adverse effect on the interest of the client." RPC 1.16 (d) further provides: "upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interest." 
3. Lawyer had the information necessary to file a complaint six months before withdrawing from the case at which point he could have made the determination of whether to continue representation.
4. Although the letter discontinuing representation mentioned the two-year statute of limitations and advised client to obtain new counsel, it failed to provide the date that the statute began to run. Also, the time between termination and expiration of the statute was too short to find new counsel to thoroughly review the case and go forward with filing a complaint.

A lawyer who agrees to represent a client has to preserve the client's cause of action. If the lawyer terminates the representation he must do so in a timely fashion so the cause of action won't become time-barred.

Editor's Note: What could the lawyer have done to preserve the cause of action under these circumstances? 1) With client's consent, file the complaint to stop the statute of limitations and then farm the case out to another lawyer who will substitute into the case. Having done the investigation, gotten a favorable expert report and then filed the complaint will entitle the lawyer to get a fee from substitute counsel; (2) file the complaint pro se for the client and then help client arrange to secure new counsel. After filing pro se Complaint make sure it is timely and properly served.

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Togstad v. Vesely, Otto, Miller & Keef
291 N.W.2d 686 (Min. 1980)

Facts: Plaintiff had consulted with an attorney about bringing a medical malpractice claim. At the conclusion of the consultation, the attorney decided not to take the case, but failed to inform the client about the applicable statute of limitations, that he was not an expert in the field, or that she should consult with another attorney. Relying on the lawyer’s silence, the client did not bring an action until after the statute of limitations had run.

Issue: Was an attorney client relationship formed between the non-client and the attorney?

The Ruling: The trial court held that there was sufficient evidence to create an attorney-client relationship, and the Minnesota Supreme Court affirmed the decision based on the following factors:

1. The attorney acted as a legal advisor on the viability of the plaintiff’s claim. The non-client reasonably relied on that advice and on the attorney’s silence that his firm would not take the case.
2. It was reasonable for the non-client to rely on the attorney’s advice. An attorney-client relationship is created when one asks and receives legal advice from an attorney in circumstances where a reasonable person would rely on such advice.
3. The attorney’s advice injured the non-client. An attorney-client relationship comes into effect when an attorney gives legal advice, where it is reasonably foreseeable that the client will rely on the advice and could be damaged if the advice given by the attorney was incorrect.

The Lesson: When consulting with a non-client giving an opinion about the viability of a case will create an implied attorney-client relationship because he/she has the right to rely on the lawyer’s professional legal opinion. In order to prevent liability, its a good idea to send a “non-engagement” letter informing the prospective client about the applicable statute of limitations for his or her cause of action, and clearly stating that you are not their lawyer and that they should promptly seek other counsel to protect their legal rights. You might even gve them the local bar association's lawyer referral service.

Editor’s Note: For how little it takes to form an attorney-client relationship which can give rise to liability, see, Restatement of Law Governing Lawyers §14.

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Padilla v. Kentucky, Argued before the US Supreme Court Oct. 13, 2009 (PDF)

Does a lawyer's wrong advice to a client, a permanent resident alien, to plead guilty to a criminal charge that results in his deportation, amount to  ineffective assistance of counsel?

The High Court heard oral argument today. Stay tuned. Read the argument of the parties and the grilling of the Justices.

Smith v. Spisak. Argued before the US Supreme Court on Oct. 13, 2009 (PDF)

How bad does defense counsel's summation have to be before it amounts to ineffective assistance of counsel?  The High Court heard oral argument today  on this too.

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Prospect Rehabilitation Services, Inc. v. Squitieri, 392 N.J. Super. 157 (App. Div. 2007)
NJ Underlying Commercial Action

Student Contributor: Melissa Goldberg

Facts: Plaintiff sued a nursing home for overpayment of rent and construction advances in an underlying action in which Plaintiff’s lawyer had failed to include a Medicare claim. Plaintiff fired its attorney and tried to, unsuccessfully, amend its complaint in the underlying action to include the Medicare claim. Eventually, Plaintiff settled with the nursing home voluntarily in the underlying action and sued its attorney for malpractice. The trial court dismissed Plaintiff’s legal malpractice complaint because it found Plaintiff settled voluntarily with the nursing home, and thus, was precluded from recouping any additional monies from its attorney. The Plaintiff appealed arguing that it only settled as an attempt to mitigate damages, and that it was not necessary to exhaust all appeals before bringing the malpractice action.

Issue: Whether the Plaintiff could successfully assert a cause of action for malpractice after settling in the underlying action without exhausting all appellate remedies?

Ruling: Yes, Plaintiff could assert a cause of action for legal malpractice against the defendant attorney to recoup damages under the Medicare claim, since:

1. Plaintiff never represented that the settlement with the nursing home was an acceptable settlement of all of its underlying claims;
2. Plaintiff entered into the settlement in an effort to mitigate its damages; and,
3. There is no requirement that all appellate remedies available in an underlying action be exhausted prior to asserting a claim for legal malpractice.

Lesson: As long as a litigant enters into a settlement in the underlying action in an effort to mitigate damages, it does not have to exhaust all appellate remedies prior to asserting a cause of action for legal malpractice.

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1. A lawyer must keep a client reasonably informed about the matter and must consult with a client to a reasonable extent concerning decisions to be made by the lawyer under §§21-23.
2. A lawyer must promptly comply with a client's reasonable request for information.
3. A lawyer must notify a client of decisions to be made by the client under §§21-23 and must explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

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1. Subject to other requirements stated in this Restatement, a client and lawyer may agree to limit a duty that a lawyer would otherwise owe to the client if:

• (a) the client is adequately informed and consents; and

• (b) the terms of the limitation are reasonable in the circumstances.

2. A lawyer may agree to waive a client's duty to pay or other duty owed to the lawyer.

Editor's note: See, Lerner v. Laufer, 359 N.J. Super, 201, 819 A. 2d 471 (App. Div. 2003)

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To the extent consistent with the lawyer's other legal duties and subject to the other provisions of this Restatement, a lawyer must, in matters within the scope of the representation:

1. proceed in a manner reasonably calculated to advance a client's lawful objectives, as defined by the client after consultation;

2. act with reasonable competence and diligence;

3. comply with obligations concerning the client's confidences and property, avoid impermissible conflicts interest, deal honestly with the client, and not employ advantages arising from the client-lawyer relationship in a manner adverse to the client; and

4. fulfill valid contractual obligation to the client.

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A relationship of client and lawyer arises when:

1. a person manifests to a lawyer the person's intent that the lawyer provide legal services for the person; and either

• (a) the lawyer manifests to the person consent to do so; or
• (b) the lawyer fails to manifest lack of consent to do so, and the lawyer knows or reasonably should know that the person reasonably relies on the lawyer to provide the services; or

2. a tribunal with power to do so appoints the lawyer to provide the services.

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Kaplan v. Skoloff & Wolfe, P.C. 770 A.2d 1258 (N.J.Super.A.D., 2001)
NJ Underlying Divorce Action Settlement

Student Contributor: John Anzalone

Facts: Attorney represented Plaintiff in a divorce proceeding. Plaintiff alleged that because of the attorney negligence in negotiating a property settlement agreement, she received less than she was entitled to when she accepted it. Plaintiff's expert concluded that the settlement was not adequate by comparing what she received to anecdotal evidence as to what he got for one former client recently. As a professional negligence action, an expert opinion on liability was required, But the court found Plaintiff's expert testimony inadmissible because it was based on anecdotal experience of the expert that were unsupported by facts.

Issue: What constitutes an inadmissible expert net opinion?

Ruling: In affirming the dismissal, the Appellate Division held that the expert's opinion on liability was properly excluded, based on the following factors:

1. In New Jersey, expert opinions that are solely conclusions and that fail to provide the basis for the conclusions are considered "net opinions" and are inadmissible as evidence.
2. To get an expert's opinion admitted into evidence, the expert must provide evidence of the accepted practice by lawyers that the defendant failed to adhere to.
3. The expert here failed to provide evidence other than anecdotal evidence regarding a case he handled in the recent past and otherwise only established that he would have done something different in the case, and not what reasonable attorneys' would have done in this case.

...the net opinion rule requires the expert witness 'to give the why and wherefore of his expert opinion, not just a mere conclusion...'

... Plaintiff's expert offered no evidential support establishing the existence of a standard of care, other than standards that were apparently personal to himself.

The Lesson: For the expert's opinion to be admissible in a legal malpractice case, he must define the standard of care and must support its definition by reference to evidence that other experts rely on and which are applicable to lawyers in similar circumstances. The expert's opinion must not be solely based on the expert's own personal view and experience. Once the expert esablishes the applicable standard of care or practice, he must then, through reference to the factual evidence, express the opinon how the defendant lawyer deviated from that standard and how that deviation was the cause of the alleged damage.

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Hernandez v. Baugh, 401 N.J. Super. 539; 951 A.2d 1095 (App. Div. 2008)
NJ Underlying commercial transaction, real estate.

Student Contributor: John Anzalone

Facts: Plaintiff consulted with attorney to represent him in the purchase of a business with Plaintiff's uncle. In representing both the Plaintiff and uncle, the attorney created two corporations, one to own the business, the other to own the real estate on which it sat. Plaintiff was only given stock in the corporation that owned the real estate. Plaintiff had an unwritten understanding with the uncle regarding his role in the business, and asked the attorney if his interests in the business were protected with such an arrangement. The attorney did not change the agreement to give Plaintiff partial ownership of the business. Plaintiff sued the uncle for breach of their understanding and settled for less than he alleged he would be entitled to had the attorney not failed to protect his interests in the business.

Issue: Since the settlement agreement stated that the settlement was "fair and reasonable” was plaintiff barred from bringing a legal malpractice action against the attorney?

Ruling: In reversing the lower court, the Appellate Division held that the settlement agreement’s wording did not entitle the attorney to dismissal of suit against her, based on the following factors:

1. The wording of the settlement, "in light of all relevant factors" included the attorney's alleged negligence in weakening plaintiff’s case against the uncle.

2. The plaintiff was forced to settle for less because his claim seeking an ownership interest in the business had been weakened by the attorney's alleged negligence.

Among the factors that plaintiff had to take into consideration in negotiating the settlement [with his uncle] were the legal hurdles he faced in proving that he held an ownership interest in [the business]; those hurdles, he contended, were the result of defedant [attorney's] negligence.

The Lesson: If the attorney's negligence caused a reduced value of the former client's settlement because it made the client's case weaker, the attorney can be held liable even if the settlement is called “fair and reasonable” in light of the circumstances. At the outset of the relationship, the attorney should have counseled the plaintiff to get his own lawyer or, if permitted by law, to get a full waiver of the conflict in representing the plaintiff and uncle. The lawyer should also have made clear, in writing and at the beginning who he represented and who he did not represent.

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Sahli v. Woodbine Board of Education, 386 N.J.Super. 533, 902 A.2d 296 (App. Div. 2006)
NJ Underlying Subrogation Action

Student Contributor:  Jason Klein

Facts: The Woodbine Board of Education entered into a contractual agreement with Ronald Sahli, an attorney licensed to practice in the State of New Jersey, to hire him as its attorney. Pursuant to the agreement, Sahli’s duties included attending Board meetings, providing counsel and advice to board members and carrying out the Board’s specific instructions as related to legal matters involving the district.

Toy, an Administrative Assistant in the Special Education Department of the Woodbine School District, appeared at a meeting of the Board to discuss her complaints regarding the district’s failure to comply with federal and state laws governing special education programs. Because of confidentiality concerns at the meeting, the Board designated Sahli, rather than the Board’s usual secretary, as secretary pro tem, responsible for providing minutes of the session, as well as performing his usual duties as attorney.

Following Toy’s presentation, Sahli recommended to the Board that Toy be removed from her position and explained that if the Board felt it was necessary, they could subject Toy to a physical and/or psychiatric examination. Toy declined to undergo the requested examination and left the employment of the Woodbine School District. Toy sought damages from Sahli for violating her civil free speech rights, Law Against Discrimination rights, and due process and equal protection rights. Sahli sought indemnification under New Jersey Statute 18A:16-6 which provides that "the board shall defray from all costs of defending [a civil action]...any person holding office, position or employment under the jurisdiction of any board of education".

Issue: Whether an attorney has a right to indemnification for legal fees incurred in the defense of a suit against him under the indemnification provisions of N.J.S.A. 18A:16-6.

Ruling: The Court, in reversing a motion for summary judgment, found that a third party independent contractor operating as a board attorney is not entitled to indemnification under N.J.S.A. 18A:16-6.

Lesson: The intent of the legislature in passing N.J.S.A. 18A:16-6 was “to confine indemnification to Board members, employees, and students preparing for teaching careers.” None of the statute’s various amendments since its enactment in 1937 have referenced school board attorneys, or otherwise suggested coverage for legal fees incurred in the defense of malpractice actions.

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Grubbs v. Knoll,
376 N.J. Super. 420, 870 A.2d 713 (App. Div. 2005)

Student Contributor:  Cheryl Neuman

NJ Underlying real estate transaction

Facts: Plaintiff was involved in a real estate transaction wherein the Defendant and his real estate agent failed to disclose evidence revealing that the real estate was situated above wetlands, which would result in building and construction limitations. Plaintiff's attorney similarly failed to bring this critical information to light.  Upon learning of these constraints, Plaintiff sued the Defendant for common law fraud, the Defendant’s real estate agent for violation of the Consumer Fraud Act ("CFA"), and his own lawyer for legal malpractice. The jury awarded the plaintiff $75,650 in compensatory damages for common law fraud, consumer fraud, and legal malpractice and allocated 60% of the liability for compensatory damages to the broker, 30% to vendors, and 10% to plaintiff’s counsel.  The trial court increased the damages under the CFA to $226,950. The plaintiff settled with the defendant for $20,000 and with the real estate agent for $500,000. The malpractice claim, however, did not settle, and plaintiff subsequently sued the allegedly negligent attorney for reimbursement of attorney's fees incurred in the malpractice action.  

Issue: Will a negligent attorney sued for malpractice be liable for the legal fees incurred by his former client in the malpractice action?  

Ruling: As a general rule, New Jersey Courts ascribe to the American Rule:  there is no fee shifting between parties irrespective of who prevails.  Legal malpractice cases, however, are an exception.  Legal fees incurred by a former client in a legal malpractice action are considered additional compensatory damages in instances where the client prevails.  The Grubbs Court found that the negligent attorney was liable for one-third of the attorney's fees and costs incurred by his former client in the malpractice action. 

Lesson: A negligent attorney is responsible for the reasonable legal expenses, costs, and attorney's fees incurred by a former client in prosecuting the legal malpractice action against the negligent attorney.

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Newell v. Hudson,
376 N.J. Super. 29, 868 A.2d 1149 (App. Div. 2001)

Student Contributor:  Natalie Resto

NJ Underlying matrimonial action

Facts: Hudson, an accountant, retained Newell as her attorney to defend her in a matrimonial action filed by her then husband. After lengthy negotiations and discussions with Newell, Hudson signed an Interspousal Agreement, which provided that she would receive monthly limited payments for four years based upon his income plus a discretionary bonus. Before Hudson signed the agreement, Newell explained to her the concept of alimony, and advised her that the amount she received might depend, in part, on the marital standard of living. After entering into the agreement Hudson and her husband each testified that they understood and voluntarily consented to the terms of the agreement.

About a day later, Hudson contacted Newell stating that she felt “pressured and intimidated by her husband’s counsel, the Judge and Newell,” and called into question his preparation and legal representation. Newell later filed a suit against Hudson for failing to pay outstanding legal fees. She filed a counterclaim alleging that Newell had committed legal malpractice by, among other things, failing to serve interrogatories on her husband, and failing to secure documents reflecting the status of certain investment accounts.

Issue: Can a litigant, dissatisfied with her decision to enter into a settlement, bring a claim for legal malpractice alleging that she actually had not understood the agreement, and was forced to enter into it, or will she be judicially estopped from bringing such a claim? 

Ruling: The court barred Hudson’s legal malpractice claim:

Hudson’s self-serving behavior is precisely the type of inconsistent judicial position-taking that the doctrine of judicial estoppel is designed to prevent. To permit this litigant to assert a contrary position in the malpractice action presumably to bolster her counterclaim in an effort to defeat Newell’s legitimate claim for counsel fees would result in a miscarriage of justice and impugn the integrity of the judicial process. Id. at 47.

Lesson:  New Jersey does not allow litigants to sue for legal malpractice based on settlement agreements that were entered into voluntarily, freely, and willingly in the underlying action.  Superficial allegations of duress and intimidation will not be countenanced by the Court.  Dissatisfaction with a settlement agreement is not grounds for a legal malpractice action in New Jersey. 

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