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

Maritrans GP, Inc. v. Pepper, Hamilton & Scheetz, 529 Pa. 241; 602 A.2d 1277 (Pa., 1992)

PA Underlying Legal Ethics Matter

Student Contributor: Lisa Larato

Facts: This legal malpractice action was commenced by the Plaintiff, Maritrans GP, Inc., former clients of the Defendant law firm, due to the law firm’s representation of the Plaintiffs’ competitors, entities whose interests were found to be adverse to the interests of Plaintiffs, in matters substantially related to matters in which they had represented Plaintiffs. The Court of Common Pleas granted the Plaintiffs injunctive relief and enjoined the Defendants from representing the Plaintiffs’ competitors. The Superior Court reversed the injunction order, given that it was based on nothing more than the Defendants’ alleged violation of Pennsylvania’s Rules of Professional Conduct (1.7, 1.9) which, in and of itself, cannot be the basis for a cause of action in legal malpractice. Plaintiffs’ appealed the Superior Court’s reversal.

Issue: Did the Defendants’ conduct give rise to a claim for legal malpractice?

Ruling:

1) [Defendant] attorneys’ representation of subsequent clients whose interests were materially adverse to former client in matter substantially related to matters in which [they] represented the former client was an impermissible conflict of interest actionable at law, independent of any violation of the code of professional responsibility; (2) injunctive relief would lie to prevent [the] attorneys from breaching fiduciary duties toward [their] former client by representing its competitors; and (3) grant of preliminary injunction was not an abuse of discretion, given law firm's extensive involvement in its former client's affairs and its extensive knowledge of sensitive client information.

Lesson: The Court will intervene to prevent imminent harm to a former client by an attorney’s breach of his or her fiduciary duty, irrespective of the fact that the breach may constitute a violation of nothing more than state professional ethics guidelines. 

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Leffler v. Mills, 285 A.D.2d 774 (3 Dept. 2001)

Underlying NY Probate Action

Student Contributor: Marina Kritikos

Facts: Plaintiffs were beneficiaries of a will. They had hired the defendant attorney to probate the will. As part of his duties, the attorney paid state estate taxes due by the beneficiaries, but failed to timely pay the federal taxes due. Although the attorney then secured an extension to pay the federal taxes by January 1, 1995, he failed to actually make the payment until November 6, 1995. As a result, the Internal Revenue Services charged penalties and interest in the amount of $158,853.33 to the estate. Plaintiffs subsequently discharged the attorney, and in December 1998, brought an action for legal malpractice. Both Plaintiffs and the defendant attorney filed motions for summary judgment. The trial court ruled in favor of the Plaintiffs, and the attorney appealed that ruling.

Issue: Did the lower court correctly grant Plaintiffs’ motion for summary judgment in light of New York’s three-year statute of limitation for the filing of legal malpractice actions?

Ruling: The lower court erred in granting Plaintiffs’ motion for summary judgment. There is a three-year statute of limitations for legal malpractice actions which may be tolled if there is “ clear indicia of an ongoing continuous, developing, and dependent relationship between the client and the attorney.” The Supreme Court of New York, Appellate Division, Third Department, found the evidence to be insufficient to establish a continuing relationship as a matter of law, despite the fact that the attorney was listed as “attorney of record” for the estate on an accounting dated January,1996 and federal and state estate income tax returns dated April, 1996.

Lesson: Although the court will toll the three-year statute of limitations for legal malpractice actions, the extension will only be granted where there exists clear, unequivocal evidence of an ongoing attorney-client relationship and continued dependence and reliance on the attorney with regard to the matter that was, purportedly, negligently handled.

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Katz v. Herzfeld & Rubin, P.C., 853 N.Y.S.2d 104 (2 Dept. 2008)

NY Underlying Personal Injury Action

Student Contributor:  Jason Klein

Facts: Plaintiffs retained Defendant attorneys as counsel for a personal injury action which was eventually settled. Subsequently, Plaintiffs commenced an action for legal malpractice alleging that Defendants refused to pursue a claim for loss of income, and as a result, Plaintiffs were forced to settle their personal injury action for an amount far below what they could have recovered. Defendants filed a motion to dismiss arguing that because Plaintiffs dismissed Defendants and hired new counsel five months prior to settling, the Defendants’ actions did not proximately cause the alleged damages. The trial court granted the Defendants’ motion to dismiss and Plaintiffs appealed

Issue: Did the trial court properly grant Defendants’ Motion to Dismiss in light of Plaintiff’s decision to terminate their representation five months in advance of the settlement of which they now complained?

Ruling: Yes. Successor counsel had been retained in a timely fashion and had every opportunity to protect the Plaintiff’s rights in advance of the time of their decision to enter into a settlement.

Lesson: Plaintiffs had sufficient time in which to pursue its claims with successor counsel, and therefore, could not establish that any alleged damages resulting from their decision to settle were proximately caused by the acts or omissions of their former counsel.

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Daly v. Peace, 863 N.Y.S.2d 770, 2008 N.Y. Slip Op. 06955 (2 Dept.)

NY Underlying criminal action

Student Contributor: Angela Ignelzi

Facts: Plaintiff brought an action against his former defense attorney for legal malpractice after, allegedly, being wrongfully convicted. The attorney made a motion to dismiss plaintiff’s complaint on the grounds that the client could not prove he was innocent of the charges brought against him in the underlying action. The trial court granted the attorney’s complaint and plaintiff appealed the dismissal.

Issue: Did the trial court correctly dismiss plaintiff’s malpractice complaint because of his inability to prove his innocence with regard to the claims asserted against him in the underlying action?

Ruling: The Supreme Court of New York, Appellate Division, Second Department, held that:

(1) The trial court has correctly assessed that the plaintiff could not establish his innocence with regard to the charges made against him in the underlying action, and, therefore

(2) The Plaintiff had no cause of action for legal malpractice against his criminal defense attorney, unless and until he ultimately succeeded in his attempts to have the underlying conviction reversed.

Lesson: A former client, even in an underlying criminal action, can only prevail on a claim for legal malpractice by successfully applying the “suit within a suit” method: No presumption of innocence is available to those convicted in the first place, purportedly, as a result of negligent representation.

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Joyce A. Popwell v Law Offices of Broome and Horn, 363 N.J. Super. 404 (App. Div. 2002)

NJ: Underlying Negligence Action for a Slip and Fall

Student Contributor: Candice L. Deaner

Facts: Plaintiff’s attorney failed to file for a trial de novo in the time frame set out by R. 4:21A-6(b)(1), after the court appointed arbitrator found that plaintiff had no cause of action for negligence against the underlying defendant. A trial de novo filing would have preserved plaintiff’s claim and would not have subjected it to dismissal. Defendants made a cross motion to dismiss, alleging that Plaintiff’s failure to submit an affidavit of merit as required by statute is enough to grant summary judgment and dismiss the complaint

Issue: Whether the Plaintiff’s failure to submit an affidavit of merit is enough to grant summary judgment in favor of the Defendants and dismiss the complaint, or if the failure to submit the application for a trial de novo within the statutory time limit is per se legal malpractice, and thus requires no affidavit of merit.

Ruling:  . The requirement of the filing of an affidavit of merit is not applicable in this matter because the malpractice plaintiff's  allegations do not require the testimony of an expert  to determine the issue of negligence. The jury can exercise its  own “common knowledge”  is such cases.  

Lesson: In some very clear cases, such as here with the violation of a statutory time limit,  the lawyer's failure constitutes per se legal malpractice and no expert’s affidavit of merit is necessary. An affidavit of merit is not required from an expert for this case because the jury can determine whether the Defendants should be held liable for the late filing of the application for a trial de novo by using common knowledge without the need for expert testimony.

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Ingemi v Pelino & Lentz  866 F. Supp. 156 (D.N.J. 1994)

NJ Underlying Action-Claim for pension benefits

Student Contributor: Candice L. Deaner

Facts: Plaintiff instituted a malpractice suit against related New Jersey and Pennsylvania law firms due to their mishandling of the underlying litigation. Plaintiff specified her desire to have a New Jersey attorney and the New Jersey law firm was retained as local counsel. They then petitioned the court to admit pro hac vice two lawyers from the Pennsylvania firm. The New Jersey firm argued that one of the Pennsylvania lawyers was the only one to give advice and act “on the judgmental and strategic issues,” and contended that the New Jersey firm served “merely” as local counsel, performed ministerial tasks, and undertook “discovery and motion practice in a manner that did not require making judgments or giving advice regarding prejudgment remedies or settlements,” and therefore was not liable in this action.

Issue: What is the role of local counsel when pro hac attorneys are admitted to handle the case?

Ruling: The Court found that the New Jersey firm “underestimated the role of local counsel” and stated that “by virtue of submitting the pro hac vice application, the New Jersey firm was responsible for the ‘conduct of the cause.’” Local court rules “require local counsel to take more than a de minimis role in the representation,” and clearly indicate “that local counsel is the counsel of record with attendant responsibilities, not out-of-state counsel admitted pro hac vice.”

The Court held that

“Local counsel must also supervise the conduct of pro hac vice attorneys and must appear before the court in all proceedings. Even if pro hac vice attorneys attempt to delegate solely routine or ministerial tasks to local counsel, local counsel remains counsel of record and wittingly or unwittingly exposes itself to liability for penalties such as sanctions.”

Lesson: A law firm retained as local counsel has equal responsibility even though other counsel is actually handling the prosecution of the case. ,  Liability is not delegated to the pro hac vice attorneys. Local counsel must continue to supervise the pro hac vice attorneys and appear in court. A law firm cannot avoid liability by claiming that other counsel was primary. The responsibility still lies with the local counsel to supervise and handle the case.

Editor's Note: For other cases holding local counsel potentially liable  for malpractice to client, see also:. Ortiz v. Barrett, 278 S.E.2d 833, 838 (Va. 1981);  Gould, Inc. v. Mitsui Mining & Smelting Co., 738 F. Supp. 1121 (N.D. Ohio 1990); Neel v. Magana, Olney et al., 98 Cal. Rptr. 837, 491 P.2d 421 (1971); Wildermann v. Wachtell, 267 N.Y.S. 840, 841 (1933), affirmed, 271 N.Y.S. 954 (1934). 

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Donohue v. Kuhn, 696 A.2d 664 (N.J. 1997) (PDF)

Student Contributor: John Anzalone

Facts: Plaintiffs retained Defendant attorney to represent them in a wrongful death and survivorship suit. The attorney failed to file the cases before the applicable statute of limitations.  The Plaintiffs secured another attorney after the statute of limitations passed, but the suit for wrongful death was dismissed for not being filed within the statute of limitations period. While the survivorship claim case was on going, the plaintiffs brought this malpractice suit.

Issue: Does the "entire controversy doctrine" prevent the Plaintiffs from suing Defendant attorney because they failed to add a legal malpractice claim against Defendant attorney in the survivorship case that was still before the trial court?

Ruling: In reversing the Appellate Division, the New Jersey Supreme Court held that the entire controversy doctrine did not require that the Plaintiffs had to amend their complaint to add an attorney that allegedly committed legal-malpractice claims in the survivorship suit to that case for their suit against the Defendant attorney to go forward.

Lesson: Legal malpractice claims are exempt from the entire controversy doctrine in NJ. A plaintiff's failure to add a claim  against a malpracticing attorney to an ongoing case in which it is alleged that the attorney committed an act or acts of negligence that harmed the plaintiff is not grounds for dismissing the case.

Editor's Note: This case was one of three on this issue decided by the New Jersey Supreme Court on the same day. See Olds v. Donnelly, 150 N.J. 424  (PDF).  See also, NJ Court Rule 4:30A.

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Shulman v. Wolff & Sampson, P.C. 951 A.2d 1051, 401 N.J.Super. 467 (2008) (pdf)

Student Contributor: Joshua Aronson

Facts: Plaintiffs were minority shareholders and served on the board of directors of Van Mar, Inc. The Plaintiffs were ousted from their board positions by the other directors (defendants). Plaintiffs contend that defendant law firm assisted the other defendants in ousting the minority shareholders and therefore committed legal malpractice and breached their fiduciary duties to the corporation and to plaintiffs. The defendant law firm argued that they could not be legally responsible to the plaintiffs individually for legal malpractice because they never represented them. Plaintiffs argue that the attorneys did not represent the best interest of the corporation because if they had knowledge that the majority shareholders were acting improperly, they had a duty to bring that to the attention of all shareholders. Plaintiffs filed three separate complaints two of which actions were settled. The third action for legal malpractice is the heart of the ensuing litigation. The defendant claims that because the first two actions were settled, the plaintiff is precluded from bringing any further claims against the defendant.

Issues:  Can minority shareholders of a corporation bring individual claims of legal malpractice against corporate counsel?

Ruling:
Legal malpractice claims brought against corporate counsel are limited to derivative shareholder causes of action where the shareholders are seeking to benefit the corporation, not for individual claims.
 

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 Ward v. National Savings Bank, 100 U.S. 195 (1880)

US: Underlying mortgage and title transaction.

Student Contributor: Ally Shuster

Facts: Bank loans  money to a borrower who owned a parcel of land and proposed to use it as collateral for the loan. He retains a lawyer to furnish a title report for the bank to rely upon in granting the loan and taking back a mortgage. The Lawyer, who had been hired by the borrower  had no contact with the bank but dealt through a mortgage broker.  The Lawyer provided  a certificate of title stating that the land was “good, and the property is unencumbered.” Before the closing, however, the borrower  transferred the lot in fee through a properly recorded conveyance. The borrower defaulted and because the lot was transferred out his name, a foreclosure action would fail. The bank instituted this n action against Mr. Ward, who, admittedly was not its lawyer.

Issue:  Even though there was no privity between the Bank and the Lawyer who furnished the title report, could the Bank prevail?

Ruling: In those days--1880, using contract law, the majority found no duty owed because there was no privity between the bank and the borrower's lawyers.

Lesson:  While times and the law have surely  changed since the Ward case, privity of contract is still an important defense in many states. Today, however, tort concepts such as duty, reliance and other exceptions to the privity rule abound. This case is posted here  purely for historical and educational purposes.  

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Moores v. Greenberg 834 F.2d 1105, 9 Fed.R.Serv.3d 1314 (1987)

PA: Underlying personal injury

Student Contributor: Ryan O'Donnell

Facts: Longshoreman was injured during the course of his employment and was able to collect compensation benefits through his employer. He then retained an attorney to bring a third party liability claim against the ship owners. The ship owners allegedly made two settlement offers of $70,000 and $90,000, which the attorney did not communicate to the client. The third party liability claim was subsequently lost, and the client brought this malpractice claim against the attorney claiming that he would have accepted the settlement offer had he been informed of it. The attorney was found to be liable for $12,000, and he appealed the verdict claiming that the settlement offers were too meager to be relayed.

Issue: Is a lawyer required to communicate all reasonable settlement offers?

Ruling: Yes. A lawyer has a duty to use a degree of skill, diligence, and judgment necessary to the practice of his profession and which others who are similarly situated ordinarily possess. “As part and parcel of this duty, a lawyer must keep his client seasonably appraised of relevant developments, including opportunities for settlement.” The court implies that an attorney might not have a duty to communicate offers only when they are “so divorced from a realistic appraisal of the merits,” and unresponsive to the upside and downside of the litigation.

Lesson: A lawyer has a duty to keep his client informed of relevant developments, including opportunities for settlement. Lawyers are obliged to promptly communicate to the client settlement offers and all matters that may be relevant to the client’s appreciation and understanding of the matter. 

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Davin, L.L.C. v. Daham, 329 N.J. Super. 54, (App. Div. 2000)

NJ Underlying landlord tenant action and property dispute

Student Contributor: Coleen Gaedcke

Facts: The defendants argued that the owner’s attorney owed them a duty to disclose “any factual and/or legal impediments which might follow or encumber the subject lease.” They also argued that the owner’s attorney owned the defendants a duty not to include a covenant of quiet enjoyment in the lease where there was a pending foreclosure on the property.

Issue: Whether the owner’s attorney owed the defendants a duty to notify them of his client’s financial difficulties when negotiating the commercial lease?

The Ruling: The Appellate Court found that the owner’s attorney had an affirmative obligation to be fair and candid with the defendants and not to include a covenant of quiet enjoyment in the lease when he was aware and involved in the pending foreclosure. They also said the owner’s attorney was obligated to advise his clients that they were responsible for notifying the defendants of the foreclosure.

1) When determining whether the owner’s attorney owned the defendants a duty the court “must weigh and balance the following factors: the relationship of the parties; the nature of the attendant risk; the opportunity and ability to exercise care; and the public interest in the proposed solution.”

2) In addition, the Rule 1.3 of the Rules of Professional Conduct state that “attorneys may owe a duty of care to non-clients in situations in which the attorneys know or should know that the non-client would rely on the attorney’s representations, and the non-client is not too remote from the attorney to be entitled to protection.”

3) Furthermore, an attorney has a duty to advise his clients to disclose facts that are material to a transaction and if the clients fail to follow the advice, the attorney has the right to decline further representation of the client.

The Lesson: The absence of an attorney-client relationship does not necessarily protect an attorney from owing a duty to a non-client third party, therefore it is important to remember that an attorney must always act with candor and honesty even though disclosure of significant facts that go the essence of a transaction might not be in their client’s best interests.

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Frazier v. New Jersey Manufacturers Insurance Company, 142 N.J. 590, 667 A.2d 670 (1995) (pdf)

NJ: Underlying litigation; workers compensation lien

Student Contributor: Michael Park

Facts: Plaintiff was injured on the job while working for a third-party general contractor, and his attorney filed a worker's compensation claim against his employer's insurance carrier. However, his attorney failed to file a complaint against the third-party general contractor before the statute of limitations had run out. Plaintiff then retained a new lawyer to file a malpractice claim against his former attorney, and obtained a settlement. After learning of the settlement, the insurance carrier said it would file a lien against the recovery for legal malpractice. The matter went to court and the trial court ruled that the workers' compensation lien could not attach to his legal malpractice settlement. However, the Appellate Division reversed and held for the insurance carrier, and the plaintiff appealed.

Issue: Can a workers' compensation lien attach to the proceeds of a malpractice suit brought to recover damages from an attorney who failed to institute an action against the third-party tortfeasor responsible for the worker's injury?

Ruling: In affirming the Superior Court, Appellate Division, the Supreme Court held that a worker's compensation lien can attach to a legal malpractice settlement.

“It was the tortious act of the third party (the general contractor) that was the predicate for Frazier's malpractice action against his former attorney. But for the third-party tortfeasor's tortious conduct, Frazier would not have recovered against his attorney...No apparent justification exists for allowing an injured employee who receives a legal malpractice recovery to be in a better position than an injured employee who recovers directly from the tortfeasor. Malpractice claims that are derivative of third-party claims are therefore subject to the workers' compensation lien under N.J.S.A. 34:15-40."

Lesson: The Court did not want to allow the plaintiff to receive double recovery, pocketing the money from the legal malpractice settlement that arose from the attorney not filing a complaint against the original tortfeasor, and the money he received for workers' compensation for being injured. If the lien did not attach, he would be receiving compensation twice for the same injury. 

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          The Editorial Board of the

Legal Malpractice Law Review 

is pleased to welcome 

Ellen A. Pansky, Esq. 

as our Contributor of content covering

CALIFORNIA

Just scroll down to  Ellen's current blog post immediately below. 

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Costco Warehouse v. Greg Randall (2009 CAL LEXIS 12375) (pdf)

Decided Nov. 30, 2009.

CA: Attorney Client Privilege

FACTS: In June of 2000, Costco retained Sheppard, Mullin, Richter & Hampton to provide legal advice regarding whether certain warehouse managers in California were exempt from California wage and overtime laws. One of Sheppard’s wage and hour law attorneys interviewed warehouse managers and produced a 22-page opinion letter on the issue. Costco, the interviewed managers and the lawyer all testified that they understood the communications between the managers and Hensley were, and would remain, confidential.
Several years later, a group of Costco employees filed a class-action suit against Costco alleging that between 1999 and 2001, Costco had misclassified some of its managers as ‘exempt’ and had therefore failed to pay overtime wages. In the course of the litigation, Costco employees sought to compel discovery of the lawyer’s opinion letter. Costco objected on grounds that the letter was subject to the attorney-client privilege and the attorney work product doctrine. Plaintiffs argued that the letter contained unprivileged information and that Costco had waived the privilege by placing the contents of the letter in issue.

RULING: Overruling the intermediate appellate court, the California Supreme Court reiterated California’s strong policy in favor of maintaining client confidences and secrets.

1. In Costco, after finding that an attorney-client privilege existed by virtue of an opinion letter written by independent counsel who had interviewed and taken witness statements from company employees, the Supreme Court found the entire letter, including the witness statement summaries, to be privileged.

2. Additionally, the majority ruled that, while the court can require an in camera hearing to determine whether the relationship constituted an attorney-client relationship, there is no authority for allowing the court to require in camera disclosure of the communications themselves. Those communications are privileged from disclosure, even in camera. If “ the dominant purpose” of the relationship was to provide legal advice from lawyer to client, no disclosure of communications is permitted.

3. Additionally, the Supreme Court held that it was not necessary to demonstrate any harm resulting from the disclosure; the intrusion into the attorney-client relationship was deemed to be harm in itself.

'[T]he privilege is absolute and disclosure may not be ordered, without regard to relevance, necessity or pany particular circumstance peculiar to the case.'

LESSON: From a legal malpractice point of view, it is crucially important to maintain client confidences, even in the face of a judicial order to reveal confidential material in camera. At least in California, it has long been held that a lawyer has a duty to preserve client secrets and confidences, even in the face of a contempt citation. See, In Re Navarro, 93 Cal. App. 3d 325,330 (pdf). 

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Student Comment by Candice Deaner, 3L

PA: Judicial Corruption and Immunity

Recently, Luzerne County, Pennsylvania, learned a tough lesson in what can happen when judges become corrupt. Former Luzerne County Senior Judge Michael Conahan along with Justice Ciavarella, a juvenile court judge, corruptly and fraudulently "created the potential for an increased number of juvenile offenders to be sent to juvenile detention facilities," federal court documents alleged. Children would be placed in private detention centers, under contract with the court, to increase the head count. In exchange, the two judges would receive kickbacks. The two secretly received more than $2.6 million. In order to accomplish their goals, harsh punishments were given for minor crimes.

Minors charged with nonviolent crimes were often given harsher sentences than what probation officers recommended, court documents say. Hundreds of these children appeared without attorneys. All of this done in order to ensure the judge could send the child to one of the private facilities lining the judges’ pockets.

The judges have been disbarred and have resigned from their elected positions and agreed via plea bargain to serve 87 months in prison. What proves to be more interesting than the criminal portion of the matter, is that fact that they have been held to be IMMUNE from civil suit.

The plaintiffs, led by the Philadelphia Juvenile Law Center, and brought a class action, arguing that neither judge should be granted immunity because their acts were so far outside the norm. The Plaintiffs’ alleged the actions were “so egregious that he was not acting as a judge while he was adjudicating juveniles delinquent and sentencing them.”

In rejecting the Plaintiffs’ allegations, U.S. District Judge A. Richard Caputo has ruled, in Wallace, et al. v. Powell, et al., that the Judges  are protected by immunity from facing legal action for their courtroom acts. Judge Caputo used both historical principles, as well as public policy in defending his ruling, which he noted would likely be against popular will.

The doctrine of judicial immunity, he wrote, is grounded in the notion that all judgments are final, judicial independence must be protected, sincere judges should be protected from continual legal action and the justice system is to be protected from falling into disrepute. Caputo founded his decision on long held principals of immunity, from the days of Lord Coke, the former chief justice of England, from 400 years ago.

In further rejecting the Plaintiff’s arguments that the degree of corrupt behavior should weigh in the decision to allow a civil suit, Justice Caputo wrote, "the degree of corrupt behavior is not the touchstone of the immunity doctrine's application." Judges with good intentions, as well as bad intentions are immune from civil suit, and Judge Caputo refused to make a distinct with regard to intent. The test, Caputo said, is an OBJECTIVE not SUBJECTIVE standard, which is whether the alleged action is one that traditionally a judge would perform or that the parties expected would come from the judge in an official capacity.

As for the public policy argument, Judge Caputo said that "Subjecting judges to a determination of the existence of good faith on a case by case basis is not desirable," "It would create chaos and undermine judicial independence. It would eliminate the finality of judgments and destroy public confidence in the judiciary. Every decision by every judge would be subject to attack on the basis that it was not an honest mistake."

Judge Caputo noted that the judges wouldn’t be free from liability entirely. They would be held liable for non judicial actions, such as coercing probation officers. He reiterated his knowledge that the behavior of the judges was egregious in nature, however he stressed his commitment to upholding the law. "It is about the rule of law in the face of popular opinion which would seek a finding directly contrary to the result the rule of law dictates."

Editors Note: Comments, Please.  

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Schenkel v. Monheit, 226 Pa. Super. 396 (Pa. Super. Ct. 1979)

Student Contributor: Melissa Goldberg

PA Underlying personal injury action.

Facts: Plaintiff was injured in an automobile accident when his vehicle was struck from behind by a car driven by Charles Salem. Plaintiff thereafter retained Defendant as his attorney to prosecute Plaintiff's civil action against Salem. When Defendant filed this action, he did not join Salem's employer, as Defendants in the underlying action. Plaintiff claims that at the time of the accident, Salem was "on the job" and was within the scope of his employment and that the employer should have been joined as Defendants. Plaintiff’s dissatisfaction with Defendant handling of the personal injury action led appellant to dismiss Defendant before trial and retain other counsel to complete the case. Plaintiff was awarded 10,000 dollars in the personal injury case, which he collected in full. Plaintiffs alleged that the jury would have awarded him a larger verdict in the personal injury action if the corporate employer had been joined as a Defendant.

Issue: Was Defendant’s alleged negligence the proximate cause of damages to Plaintiff? 

The Result:  The failure to join the corporate employer should not have affected appellant's damages. The tort was the same in this case, whether or not the corporate employer was a party to the action.

1) The actual tortfeasor, was made a Defendant; the corporate employer would only arguably be liable under agency principles, not as an independent tortfeasor.

2) Joinder of the corporate employer would simply have increased the number of parties against whom Plaintiff could enforce any judgment he received.

3) He received the full judgment.

Lesson: Failure to name a necessary party, when full recovery from the main tortfeasor was had,  did not proximately cause any injury to the plaintiff. If, on the other hand, the named tortfeasor did not have adequate insurance coverage to pay the judgment and if the unnamed party would have been vicariously liable, the result would have been different since then part of the judgment would remain unsatisfied. 

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Fiorentino v. Rapoport,   693 A.2d 208 (Pa. Super. 1997).

PA underlying sale of business interest : conflict of interest

Student contributor: Cheryl Neuman

Facts: Plaintiff and his business partner had established a restaurant servicing business. Ten years later, plaintiff and his partner decided to end their business relationship. They hired defendant lawyer to draft the terms of their mutual agreement. The defendant, however, failed to discuss the possibility of a default by one of the partners, conflict of interest, or the possibility of hiring independent counsel by each of the business partners. Subsequent to signing the termination agreement, one business partner could not pay plaintiff the money that he owed the other under the agreement. Furthermore, the business partner transferred the business’s assets to other companies—owned by his family, that competed in the restaurant servicing business. The defaulting partner filed for bankruptcy. Plaintiff then sued defendant for 1) breach of contract, 2) legal malpractice, and 3) breach of fiduciary duty.

Issue: Was it the inadequate quality of defendant’s legal services that allowed the defaulting partner to strip the business of all assets, rendering it judgment proof, so that he could not pay what was owed to plaintiff?

Ruling: Yes, it was the negligence of defendant’s legal services that allowed the defaulting partner to liquidate his business so that he could declare bankruptcy and subsequently fail to pay the money owed to plaintiff. Plaintiff’s expert (the Editor here) testified that it is a universal practice for lawyers to consult form books when drafting agreements for the sale of a business. Common protection used in these agreements include clauses that require corporate stock to be transferred through third-party escrow accounts, prohibit the transfer of corporate assets to other entities for less than the full market value, and prevent the buyer from setting up businesses that compete with the business providing the payment source for the seller, which is what happened in this case. None of those common safety clauses were used in the termination agreement and that benefitted one partner over the other. The conflict of interest should have been obvious to the defendant lawyer.

Lesson: The crux of the matter is that the default could have been avoided if the agreement had been properly drafted to prevent the transfer of assets away from the servicing business into other businesses that actively competed with the original business. That happened becuase, the defendant lawyer had a conflict of interest, since he could not concurrently represent both the separating partners whose interests were adverse to one another. It was therefore inevitable that one side of the transaction was going to benefit at the cost of the other. The Court relied heavily on the plaintiff's expert and permitted the suit to proceed under both tort and contract theories. 

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