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

Ziegelheim v. Apollo, 607 A.2d 1298, 128 N.J. 250 (N.J. 1992)

NJ Underlying Divorce Action Settlement

Student Contributor: John Anzalone

Facts: Plaintiff discussed her concern with Defendant Attorney that her husband was concealing substantial assets and asked Attorney to make a thorough inquiry into her husband's assets that attorney failed to undertake before negotiating the property settlement agreement. This resulted in the marital estate being undervalued. Plaintiff received 14 percent of the estate's value in the settlement. Plaintiff signed the agreement after Attorney advised that she would receive no more than 10-20 percent of the estate's value at trial. Plaintiff later filed a malpractice suit against Attorney and a suit to get the settlement set-aside that was rejected.

Issue: Did the lower court err in holding that there was only one factual dispute that Attorney had committed malpractice and that Plaintiff's claims were estopped because the settlement was deemed fair?

Ruling: In partially reversing the lower court, the New Jersey Supreme Court held Plaintiff's  malpractice case could go forward, based on the following considerations:

1) A dissatisfied litigant does not have to prove that their attorney committed fraud in the settlement before they can sue the attorney for malpractice in settlement negotiations.

2) Litigants rely on attorney's advice on whether to accept settlements and the law insists that their recommendation be made with the skill, diligence, and knowledge of a reasonably competent attorney. Attorneys are expected to know the reasonable probability of their case's success and the range of potential outcomes. A lawyer must exercise reasonable care in negotiating a settlement for a client, just as he must exercise such care in all other aspects of the representation. 

3) The doctrine of estoppel should not be applied here because the fact the court hearing  on setting aside the settlement  called the award "fair and equitable" does not mean that Plaintiff could not have secured a better award had Attorney not been negligent.

4) The prior ruling also did not touch on whether or not Plaintiff's husband hid assets. Consequently, the ruling does not bar a claim that Attorney negligently failed to discover hidden marital assets.

5) Given the evidence, Plaintiff's further claims that Attorney negligently failed to put agreed upon terms into writing and delayed in making the final settlement resulting in financial losses,  should not have been disposed of with summary judgment.

Lesson: Rulings regarding the fairness of a settlement do not preclude suits against attorneys for malpractice in reaching that settlement. To avoid malpractice claims in settlement situations attorneys should explain the settlements as written to the consenting parties and their legitimate basis for believing that the client should accept the proposed agreement. 

Editor's Note:  This case highlights the "settle and sue" syndrome  in legal malpractice actions. At this posting, the NJ Supreme Court has heard oral argument in Guido v. Duane Morris, LLP  and is taking a fresh look at the issue. Stand by for a decision in the near future. 

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Guy v. Liederbach, 501 Pa. 47 (Pa. 1983)

PA. Underlying Will Action

Student Contributor: Melissa Goldberg

Facts: Kent, then a resident of Pennsylvania, retained Defendant to draft a one-page "Last Will and Testament," which Defendant did on the same day. The will provided that Plaintiff was to be the beneficiary of the residuary estate. Guy was also named executrix of the estate. The will was signed by Kent and, allegedly at Defendant's  direction, was witnessed by Plaintiff and Defendant. Kent died. After offering the will for probate, the court invalidated the gift to Plaintiff because Plaintiff was a subscribing witness to will. Plaintiff argued Defendant was negligent in advising the Plaintiff to become an attesting witness to the will. Also, Plaintiff argued the action and conduct of the Defendant in directing and advising the Plaintiff to become an attesting witness to the will amounted to a breach of the contract between Kent and Defendant to which contract the Plaintiff was a third party beneficiary.

Issue: Does a named beneficiary of a will who is also named executrix have a cause of action against the attorney who drafted the will and directed her to witness it where the fact that she witnessed the will voided her entire legacy and her appointment as executrix?

Result: In a wills action, a properly restricted cause of action for third party beneficiaries in accord with the principles of Restatement (Second) of Contracts § 302 is available to named legatees, who would otherwise have no recourse for failed legacies, which result from attorney malpractice.

1) The will, providing for one or more named beneficiaries, clearly manifests the intent of the testator to benefit the legatee
2) The grant of standing to a narrow class of third party beneficiaries is "appropriate" under Restatement (Second) of Contracts § 302 where the intent to benefit is clear and the promisee (testator) is unable to enforce the contract.

Lesson: Important policy concerns require privity to maintain an action in negligence for professional malpractice. However, a named legatee of a will may sue as an intended third party beneficiary of the contract between the attorney and the testator for the drafting of a will which specifically names the legatee as a recipient of all or part of the estate because named beneficiary has no other discourse.

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Bailey v. Tucker, 533 Pa. 237 (1993)

PA Underlying Action-Criminal Defense

Student Contributor: Candice L. Deaner

Facts: Plaintiff was convicted of first degree murder and sentenced to life imprisonment. He was represented at trial by defendant attorney. Subsequent to the guilty verdict, plaintiff alleged that his criminal defense lawyer had been ineffective in failing to investigate and adequately pursue an intoxication defense on his behalf. Finding some merit to this claim, the court revisited his case and ultimately found him guilty of a much lesser offense. Having already served 9 years on the previous conviction, plaintiff was released. His subsequent suit against defendant attorney alleged both negligence and breach of contract.

Issue: What are the elements of a legal malpractice case arising from an allegedly botched defense in an underlying criminal prosecution?

Ruling: The court decided to recognize criminal malpractice actions subject to the following :1) The employment of the attorney; 2) Reckless or wanton disregard of the defendant’s interest by the attorney; 3) The plaintiff’s innocence in the underlying case if not for the attorney’s malpractice; 4) Damages suffered by the criminal defendant/plaintiff; and, 5) Plaintiff’s full pursuit of available post-trial remedies. The standard was set because criminal defendants are afforded several opportunities to insure that injustice has not been committed during their prosecution. The Court noted:
1) Defense counsel should not use a criminal defendant’s access to the appellate courts as a shield to liability. Even though criminal defendants may appeal a conviction in the ordinary course of a prosecution, such a remedy does not address the “time and suffering spent under the burden of an unwarranted conviction.” Therefore some cases may award damages.
2) Imposing the same burden of proof on criminal plaintiffs as that required of civil plaintiffs may have a chilling effect on defendant representation. The court worried that availability of actions by defendants against their former attorneys would provide a powerful disincentive among practitioners to take on such cases. 

Lesson: Criminal defendants face greater burdens in proving malpractice because courts have identified concerns regarding the extension of this cause of action to convicted criminals. The court felt that too broad an application would effectively chill the criminal defense bar and award money to wrongdoers. Rather than eliminate the right to sue one's allegedly negligent criminal defense lawyer altogether, Pennsylvania courts will instead impose greater burdens on criminal plaintiffs to protect the interests of both attorneys and potential clients.

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Wausau Ins. Companies v. Fuentes,  215 N.J. Super. 476, 522 A.2d 440 (1986).

NJ Underyling Worker’s Compensation Lien on legal mal cause of action .

Student Contributor: Anthony J. Forzano

Facts: Worker, who suffered job-related accidental injury and received workers' compensation benefits, brought a legal malpractice action against attorney that had failed to file products liability action within limitations period against manufacturer of machine upon which worker was working at time of injury. Worker obtained a compensation settlement of $115,000 and $670 a month for the rest of defendant's life. Workers' compensation carrier then asserted lien. The Superior Court recognized compensation carrier's lien, and appeal was taken. The Appellate Division held that worker's compensation lien stops at the payments actually made by a third person whose tortious conduct contributed to happening of industrial accident; therefore, worker's compensation carrier had no lien upon settlement fund recovered in legal malpractice action brought against attorney. The insurance company appealed.

Issue: Does a lawyer who committed malpractice take on the legal status of a “Third Person” as it pertains to the ability for an Insurance company to assert a lien for workers compensation benefits paid?

Ruling: No.  

“We hold that plaintiff's right of recovery goes no further than to payments actually made by the “third person” whose tortuous conduct contributed to the happening of the industrial accident. The lawyer whose delinquency deprived the employee of a possible recovery from the machine manufacturer does not take on the identity of the statutory “third person.”

The court in part based their opinion on the that fact that it would not have been known whether the compensation payments covered by the carrier's compensation lien would even have been recoverable in the malpractice action. The court held

“Since only the carrier was entitled to those monies, and it was able to sue for them in its own right, N.J.S.A. 34:15-40(f), they could hardly be claimed as an element of damage suffered by defendant as a result of her former attorney's malpractice or contemplated as such by the malpractice settlement.”

Lesson: If a third party with a pecuniary interest in a case wishes to bring an action for malpractice against an attorney on the grounds that his malpractice damaged them, then they must follow the statutory guidelines and bring the action themselves. One cannot rely on the result of a malpractice case, then attempt to recover money on a lien claiming that the attorney was a statutory “third person” who contributed to the original negligence.

Editor's Note: Make sure to see Frazier v. NJ Manufacturers' Ins. Co., 142 NJ 590 (1995), a more recent statement of the law in NJ on the workers compensation lien and whether it attaches to the legal malpractice cause of action. 

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Milbank, Tweed, Hadley & McCloy v. Boon, 13 F.3d 537 (2nd Cir. 1994)

NY Underlying Representation: Prospective Purchase of Bankrupt Company's Assets

Student Contributor: John Anzalone

Facts: Defendant Law firm represented Plaintiff through an agent in her attempt to purchase the assets of a bankrupt company. Problems occurred with the deal and the Agent was dismissed by the Plaintiff. Agent then told Firm that he wanted to buy the assets of the bankrupt company. Despite knowing that Plaintiff still sought to purchase the assets, Firm told Plaintiff that it would represent Agent in his attempt to purchase the assets. Plaintiff objected to this subsequent representation of Agent. Agent outbid Plaintiff with Firm's assistance. The jury found that Firm's representation of Plaintiff's Agent breached its fiduciary duties to her and was a "substantial factor in preventing her from obtaining assets she sought in the transaction."

Issue: Was the determination that Firm breached its duty to its former client by representing Plaintiff's agent in the same transaction incorrect?

Ruling: In affirming the lower court, the Second Circuit held that the Firm breached its fiduciary duty to Plaintiff, based on the following considerations:
1) Firm committed a serious breach of its fiduciary duties to Plaintiff as a former client by representing a party with interests adverse to the Plaintiff in the same transaction.
2) The nature of this breach triggers the prophylactic rule so plaintiff has to prove that Firms' actions were a substantial factor in its damages instead of the normal requirement of proximate cause.
3) The jury could have found that Firm's action were a substantial factor in Agent purchasing the assets rather than Plaintiff because their presence could have given Agent more credibility. The jury could have found that the deal moved forward because Agent and Firm agreed to use Plaintiff's money in an escrow account for Agent's purchase too. This potential usage also could have been held as interfering with Plaintiff's negotiations because she had to take action to protect her funds from usage by her former agent.
4) There was factual evidence supporting that Firm used confidential information gained from Plaintiff in its representation of Agent because it knew that Plaintiff was not willing to bid higher than she had previously stated to them. 

Lesson: If an attorney or a law firm is alleged to have breached their fiduciary duty to the client they are subject to the prophylactic rule that will make it easier for a plaintiff to prove the proximate cause element of the legal malpractice cause of action. The burden will be reduced from “but for” to “substantial factor”.

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Alevras v. Tacopina, 399 F.Supp.2d 567, (N.J. 2005); 

NJ Underlying criminal action.

Student Contributor: Colleen Gaedcke

Facts: The plaintiff was prosecuted and indicted on various counts of criminal violations in federal criminal court. He was appointed counsel but later retained the defendants to represent him. With the advice of his attorneys the plaintiff accepted an unfavorable plea agreement and began serving his sentence. After the plaintiff entered his guilty plea, he brought a 20 U.S.C. β 2255 motion, pro se, alleging ineffective assistance of counsel. His motion was denied by the District Court and the plaintiff appealed to the Third Circuit. The District Court held four evidentiary hearings on remand regarding the plaintiff’s motion, but the plaintiff’s petition was denied for a second time and affirmed by the Third Circuit. Then the plaintiff filed a seven count civil complaint against the defendant alleging legal malpractice. The defendant moved to dismiss the complaint and made a motion for summary judgment.

Issue: Whether the doctrine of collateral estoppel bars a criminal defendant from making civil legal malpractice claims for criminal malpractice where claims for ineffective assistance of counsel have been adjudicated, decided and rejected in a 20 U.S.C. β 2255 criminal proceeding?

Ruling: Yes. In granting the defendants’ motion for summary judgment and dismissing the plaintiff’s complaint with prejudice, the District Court held that the doctrine of collateral estoppel bars a legal malpractice claim against a criminal defense attorney based on the following reasoning:
1) The doctrine of collateral estoppel prevents a party from re-litigating issues that have previously been adjudicated and decided previously by another court of competent jurisdiction. Thus, where the issue of ineffective assistance of counsel has been fully litigated in the post-conviction proceeding, it may not be considered again in a civil proceeding.
2) As a matter of public policy, we cannot allow criminal defendants to re-litigate issues in civil court where the same issue was litigated by a court of competent jurisdiction. To allow otherwise would undermine the effective administration of the judicial system.  

Lesson: A criminal defendant cannot bring a legal malpractice case concerning the quality of his criminal defense counsel when he raised or had a full and fair opportunity to raise the issue  of ineffective assistance of counsel and he knew the facts regarding the attorneys alleged malpractice during the criminal proceedings.

 

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Lawson v. Nugent, 702 F. Supp. 91, (N.J. 1988); 1988 U.S. Dist. LEXIS 14576

NJ Underlying criminal action.

Student Contributor: Coleen Gaedcke

Facts: The plaintiff retained the defendant as defense counsel after being indicted for robbery of a post office. Upon the advice of the defendant, the plaintiff pleaded guilty and was sentenced to 25 years in prison. While in prison the plaintiff retained new counsel and obtained a reduction in his sentence and was released after serving 5 years. The plaintiff then brought a legal malpractice case against the defendant where he alleged that but for the defendant’s negligent legal representation he would have served a maximum of 40 months in prison. The plaintiff sought damages for emotional distress as a result of the anguish he suffered for the extra 20 months he spent in prison as a result of the defendant’s representation.

Issue: Whether a criminal defendant can recover damages for emotional distress from his attorney in a legal malpractice action based on the attorney’s representation in a criminal proceeding?

Ruling: Yes. The District Court held that the plaintiff may present evidence of emotional distress damages in a legal malpractice action.
1) Generally, damages in a legal malpractice claim are limited to economic loss and damages for emotional distress are not recoverable in a legal malpractice action absent some egregious or extraordinary circumstances.
2) In New Jersey, the courts have increasingly allowed for emotional damages in an increasing number of cases and a plaintiff may prove such damages attributable to an extra 20 months of confinement in prison.

“an attorney who commits malpractice is liable to his client for any reasonably foreseeable loss caused by his negligence including emotional distress resulting from the loss of liberty.” 
 

Lesson: When representing a client in a civil case, the court is unlikely to award damages for emotional distress absent extraordinary circumstances because the nature of the attorney client relationship is primarily based on economic interest. However, the attorney client relationship in a criminal proceeding is predicated upon a defendant’s liberty interest.  

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Thompson v. Seligman 53 A.D.3d 1019, 863 N.Y.S.2d 285 (N.Y.A.D. 3 Dept., 2008)

NY: Underlying personal injury; workers compensation

Student Contributor: Ryan M. O'Donnell

Facts: Plaintiff was employed by AMFAC Recreational Services, Inc. AMFAC regularly provided cleaning services to the Gideon Putnam Hotel. While performing her duties cleaning at the Gideon, plaintiff suffered injuries and retained defendant attorney to represent her in a workman’s compensation claim. When plaintiff inquired about a possible claim for pain and suffering against the Gideon, defendant advised her that she could not pursue a claim, based on his mistaken belief that plaintiff was employed by the hotel. Plaintiff then consulted with a different attorney who advised her that she did have a claim against the Gideon, except for that the statute of limitations had expired.

 Issue: Can a mistaken assumption by an attorney give rise to a legal malpractice claim?

Ruling: Yes.

“An attorney has the responsibility to investigate and prepare every phase of his or her client’s case.”

There was sufficient documentation that stated plaintiff’s employer was AMFAC, not the Gideon. Had defendant made the appropriate inquiry he would have known that plaintiff was not employed by the Gideon, and that plaintiff could have a third party claim against the Gideon for pain and suffering. The defendant’s failure to investigate the availability of a third party claim by plaintiff raises a question of fact whether the defendant exercised an appropriate duty of care to the client. 

Lesson: As an attorney, you have the responsibility to investigate and prepare every phase of your client’s case. If there is information that will further the interests of your client that is easily ascertainable, and you fail to use such information, you have breached your duty of care to your client. Unless the client actively misrepresents information to you, you can be liable for malpractice if your mistaken assumption would have been corrected by further inquiry.

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 Lafasciano v. Lorber, 823 N.Y.S.2d 427, (2006)

NY Underlying matrimonial action; holding marital assets in trust

Student Contributor: Jason Zemsky

Facts: During a matrimonial action between the Lafascianos, the Supreme Court determined that the proceeds of the sale of certain real property owned by a closely held family corporation, was marital property. Lorber, the attorney who represented the sale placed the proceeds in a non-interest bearing escrow account. The court then ruled that the money Lorber placed in the trust account should be divided equally among the Lafascianos. The wife, Carla M. Lafasciano, sued Lorber for legal malpractice claiming that he had failed to put that money in an interest bearing account. Lorber moved for Summary Judgment which the trial court granted.

Issue: Does a lawyer commit legal malpractice by not placing sale proceeds in an interest bearing account?

Ruling: Affirmed. The plaintiff failed to prove that the court directed Lorber to place the sale proceeds in an interest bearing account and Judiciary Law § 497(4) allowed Lorber to place the proceeds in a non-interest bearing escrow account.

Lesson:   It might have been prudent for the lawyer to deposit the  proceeds into an interest bearing escrow account pending resolution of any dispute.  But would that have avoided the legal malpractice action?  Maybe yes. Maybe no.   RPC 1.15 "Safekeeping of Property" provides guidance.  Otherwise, Court Rules generally do not require Attorney Trust Accounts to be interest bearing.  

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Leder v. Spiegel 9 N.Y.3d 836, 872 N.E.2d 1194 (2007)

NY: Underlying Will Contest

Student Contributor: Ryan O'Donnell

Facts: Defendant represented plaintiff in an underlying probate matter. Rather than accept a settlement offer, plaintiff decided to continue to trial, where they were unsuccessful in challenging the will. The plaintiff bases his malpractice claim on defendant’s advice on the prospect of success in the underlying case, and that he would have accepted the settlement were it not for his attorney’s advice. There was no documentary evidence showing that plaintiff refused to settle strictly based on defendant’s advice.

Issue: Is an attorney liable for legal malpractice if he was not the proximate cause of the client’s damages, even if he negligently represented his client?

Ruling: No.

"In order to sustain a claim for legal malpractice, a plaintiff must establish both that the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession which results in actual damages to a plaintiff, and that the plaintiff would have succeeded on the merits of the underlying action 'but for' the attorney's negligence"

The failure to demonstrate proximate cause mandates the dismissal of a legal malpractice action regardless of whether the attorney was negligent. Since there was no evidence that the defendant’s advice was the sole basis for refusing the settlement, the defendant was not the proximate cause of the plaintiff’s loss, the defendant attorney was not liable for malpractice.

Lesson: Even an attorney who negligently represents his client will not be liable for malpractice if he is not the “but for” cause of the client’s damages. To establish liability based on the loss of a settlement opportunity, the plaintiff must prove that but for the attorney’s negligence he would have accepted the settlement offer. A court will not rely on bare allegations of fact by a plaintiff without documentary evidence to prove proximate cause. 

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Petrillo v. Bachenberg, 139 N.J. 472 (1995)

Student Contributor: Evan Kusnitz

NJ Underlying Real Estate Transaction

Facts: A purchaser of real estate sued the seller and the seller’s attorney. The seller’s attorney had forwarded to the seller an incomplete copy of the results of percolation tests conducted by a previous owner to determine the subject property’s ability to hold a septic tank. During negotiations, the seller gave the incomplete copy of the test results to the purchaser. When the purchaser performed her own tests after the contract had been signed, she became aware of the actual quality of the land and told the seller that the contract was null and void. The seller refused to return the purchaser’s deposit. The purchaser subsequently brought suit against the seller’s attorney for, among other claims, breach of fiduciary duty.

Issue: Does an attorney who represents a seller in a real estate transaction owe any duty to the purchaser of the subject property?

Ruling: The court applied a “relaxed” privity rule, holding that an attorney for a real estate seller who makes affirmative misrepresentations by providing misleading information concerning the subject of the transaction, violates a fiduciary duty to a purchaser who will rely on the material misrepresentations to his detriment.

Lesson: A seller’s attorney has a fiduciary duty of care to the buyer and this duty exists when the attorney knows, or should know, that non-client will rely on the attorney’s affirmative misrepresentations.

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Alevras v. Tacopina, 399 F.Supp.2d 567 (D.N.J. 2005)

NJ Underlying criminal action

Student Contributor: Colleen Gaedcke

Facts: The plaintiff was indicted and prosecuted on various counts of criminal violations in federal court. He was appointed counsel, but later retained the defendants to represent him. Upon advice of the defendant attorneys, plaintiff accepted an unfavorable plea agreement and began serving his sentence. At some point thereafter, the plaintiff brought a 20 U.S.C. 2255 motion, pro se, alleging ineffective assistance of counsel. His motion was denied by the United States District Court, District of New Jersey, and the plaintiff appealed to the Third Circuit. The Court held four evidentiary hearings regarding the plaintiff’s motion, but the plaintiff’s petition was denied. The Court of Appeals, Third Circuit, affirmed the denial. Plaintiff subsequently filed a civil complaint against the defendants alleging legal malpractice. The defendants argued that the legal malpractice claim was barred by the doctrine of collateral estoppel, given the adjudication of plaintiff’s claim for ineffective assistance of counsel.

Issue: Whether the doctrine of collateral estoppel bars a criminal defendant from bringing a civil legal malpractice claim after the adjudication of a claim for ineffective assistance of counsel?

Ruling: Yes. The doctrine of collateral estoppel prevents a party from re-litigating issues that have previously been decided by another court of competent jurisdiction. Thus, where the issue of ineffective assistance of counsel has been fully litigated in the underlying criminal proceeding, it may not be considered again in a civil proceeding under the cloak of a professional negligence claim.

Lesson: New Jersey courts will not allow criminal defendants a second bite at the apple with a civil malpractice complaint after an adjudication on the very same issues in an ineffective assistance of counsel proceeding in the underlying criminal action.

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On January 20, 2010, I argued amicus curiae in the New Jersey Supreme Court on behalf of Trial Attorneys of New Jersey (“TANJ”) in the matter of Guido v. Duane Morris, A-31-09. The central issue is this: Under what circumstances should clients be permitted to “settle and sue” their lawyer  for legal malpractice after voluntarily entering into the settlement. As a decision has not yet been rendered, this post is limited to some of the issues raised by the Court at argument. It seems clear though from the Justices’ questions that a clarification of the relevant principals of law may soon be coming. Puder v. Buechel, 183 N.J. 428 (2005) would seem to have largely foreclosed many such suits. But subsequent Appellate Division decisions suggest that Puder's scope is not so sweeping. 

At the outset, the Court pressed counsel for the law firm--Duane Morris,  to define the relief being sought for attorneys who find themselves defending malpractice claims arising out of advice they gave in connection with a settlement. More than one Justice asked if the law firm was urging the Court to find that an attorney can never be sued for malpractice if his or her client knowingly and voluntarily enters into a settlement agreement. Counsel responded no, but argued that if a settlement was placed on the record, before a legal malpractice claim is brought, the prospective plaintiff should have to return to the trial court  to seek to vacate the settlement.

Questions from the Court suggested concern about the impact on the other party to a settlement. Counsel appearing amicus curiae was asked directly what impact a pre-condition requiring litigants to challenge the underlying settlement would have on the other party to the settlement. Several Justices questioned whether such a requirement would be futile in most instances.

One Justice suggested that the decision in Puder  which  dismissed a legal malpractice claim arising out of a settlement, could be an exception to the holding of Ziegelheim v. Apollo, 128 N.J. 250 (1992), allowing such a legal malpractice to go forward.

Since the Puder decision, there has been much debate about the effect of a settlement on a subsequent legal malpractice claim. Given the questions from the Court though,  it seems that clarification will be forthcoming.

As one of the lawyers who had the privilege to argue before the Court, I now watch and wait for the decision. What effect that decision  will have on “settle and sue” legal malpractice cases will most certainly be a topic for a separate post. Stay tuned.

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Contel Global Marketing, Inc. v. Dreifuss, 2010 WL 374946 (App. Div. Feb. 4, 2010)
 

NJ Underlying Commercial Action

Facts: Contel, a New Jersey business venture that imported fruit from Chile, believed that participants in its joint venture in Chile were overcharging it by $10 million. Contel, therefore, hired counsel to bring an action in federal court against Aldo Cotera, Clear River Corporation, Nova Agencia DeCarga, and Agricola Punta Arenas Lida. The Complaint was filed on January 17, 2001 and defendants were to be served pursuant to the Inter-American Convention of Letters Rogatory.

DeCarga and Agricola were served in July and September 2002, respectively. Neither submitted responsive pleadings.  In December 2002, the magistrate judge directed Contel to move for entry of default. Two days later, however, counsel for the Cotera defendants entered an appearance and filed a Motion to Dismiss. Contel filed a Cross-Motion for Entry of Default. In denying both motions, the judge remarked that, had Contel filed its motion in a timely fashion, and had the Court granted it, Contel could have carried a federal court judgment to Chile for enforcement. Contel, thereafter, retained new counsel and brought a suit for professional malpractice against its former counsel, Dreifuss & Nagel.

Issue: Can the possibility of a default judgment establish the requisite proximate cause to sustain an action for legal malpractice?

Ruling: No. Contel could not sustain the proximate cause element of a cause of action for legal malpractice, since it could plead no facts to establish how defendant’s failure to seek default directly resulted in additional damages and attorney’s fees:

 How can any Court really assume that if default has been enetered and even assuming arguendo that a default judgment had been entered, which I think is another leap that the Court would have to take in order to accept plaintiff’s damage argument in this case, that the outcome would have been any different. I just can’t believe that…the Chilean defendants…who ultimately did defend the case vigorously would have just rolled over and accepted a default judgment against them.

 

Furthermore, the Court noted, Contel could point to nothing that discovery might offer, other than further speculation, to maintain the “necessary causal nexus element” of its legal malpractice claim. The Appellate Division, thus, affirmed the lower court and dismissed Contel’s claims against defendant law firm.

Lesson:  Courts will not assume facts on the part of the plaintiff in a professional malpractice suit where he or she cannot show, that more likley than not, a favorable result would have been achieved but for the negligence of the attorney.

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Guarantee Insurance Co. v. Saltman, 217 N.J. Super. 604 (App. Div. 1987)

NJ Underlying Insurance Action  

Student Contributor: Colleen Gaedcke  

Facts: A few months after obtaining professional malpractice coverage from the plaintiff, one of the partners at the defendant law firm was served with a legal malpractice complaint. The defendant submitted the complaint to the plaintiff who provided a defense under a reservation of rights to disclaim, pending an investigation of any misrepresentation by the law firm on its application for coverage. This investigation ultimately revealed that the defendant law firm did not have knowledge of the malpractice claim at the time it submitted its application.

Despite the results of its own investigation, however, plaintiff moved to disclaim its duty to defend and indemnify the firm for alleged fraudulent misrepresentations and intentionally withholding information concerning the malpractice action. Additionally, plaintiff sought reimbursement for all defense costs.

The law firm, in turn, filed a counterclaim against the plaintiff arguing that it owed a defense and indemnity for the pending malpractice claim, and furthermore, sought indemnification for all legal fees incurred in defending the plaintiff’s declaratory judgment action. The court found that the plaintiff’s policy with the defendant was valid and required plaintiff to provide a defense and indemnity in the malpractice action. Moreover, under Court Rule 4:42-9(a)(6), the law firm was awarded a significant portion of the legal fees it incurred in defending the declaratory judgment action.  

Issue: Can an insured recover counsel fees from an insurer for costs and expenditures incurred in defending an insurer’s disclaimer of coverage?  

Ruling: Under the American Rule, a prevailing party cannot collect attorney’s fees from the losing party. The New Jersey Supreme Court has, however, carved out an exception to this Rule in R. 4:42-9(a)(6) for an insured who is forced to litigate for its policy benefits against an insurer who erroneously disclaims coverage under a liability or indemnity policy of insurance.  

Lesson: New Jersey Courts recognize that counsel fees must be awarded to insureds in order to make certain that they are receiving the full value of the coverage afforded by liability and indemnity policies in instances where an insurer’s disclaimer is not supported by the policy’s exclusions, conditions, or limitations on coverage.

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Gelsomino v.Gorov, 502 N.E.2d 264, 149 Ill.App.3d 809, (App. Ct. Ill., 1986)

IL Underlying Representation: Insurance coverage lawsuit

Student Contributor: John Anzalone

Facts: Plaintiffs sue Attorney and his law firm for legal malpractice for negligently investigating, preparing and presenting Plaintiffs in a lawsuit against the insurer that failed to cover the loss of their restaurant to a fire. Plaintiffs obtained Attorney as their counsel shortly before trial after their previous attorney had to withdraw because he was involved in an ongoing trial. The jury found for Insurer on the grounds that the plaintiffs' had committed arson and fraud.

Issue: Did the lower court err in holding that since the plaintiff did not present a question of fact regarding proximate cause or the attorney's breach of duty, the alleged errors were not actionable because they were errors of judgment, and that Plaintiffs were barred from claiming Defendant was negligent?

The Ruling: In reversing the lower court, the Appellate Court held that summary judgment was improperly given, based on the following considerations:
1) Plaintiffs are estopped from relitigating facts in one action that were specifically litigated and decided in a prior action. The Plaintiff's post-trial motion in the underlying case claiming that the court erred in not granting continuance and that this resulted in their counsel being unprepared did not bar Plaintiffs from asserting that Defendants were negligent.
2) To prove legal malpractice, Plaintiffs must establish that there was an attorney-client relationship, "a duty arising out of that relationship" that was breached, and that the breach proximately caused Plaintiffs' actual damages.
3) Plaintiffs were Attorney's client and were damaged by the jury verdict.
4) There was a question of fact regarding the attorney's breach of duty because Plaintiffs.rovided expert testimony alleging specific breaches of the attorney duty of care to Plaintiffs.
5) There was a question of fact about proximate cause because Plaintiffs supplied affidavits of people Defendants' knew about but failed to investigate whose testimony would have rebutted the circumstantial proof of arson and fraud alleged by Insurer.
6) An error of judgment is not immune for prosecution. If the attorney's judgment was one that a reasonably competent attorney would not come to, the attorney can be held liable for failing to exercise a "reasonable degree of care or skill in representing his client."

The Lesson: Errors of judgment is not an absolute defense to lawyer malpractice.  It is no defense that the allegedly negligent attorney's judgment was a non-actionable tactical choice if a reasonable attorney would not come to that conclusion. 

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Rizzo v. Haines, 520 Pa. 484, 555 A.2d 58 (Penn. 1989)

PA Underlying med mal and personal injury cases

Student Contributor: Evan Michael Hess 

Facts: The clients retained the  attorney in a case arising from a medical malpractice  against a physician and hospital and a personal injury suit against the city of Philadelphia. The attorney did not seek to have the two suits joined, and reassured the clients that the medical malpractice case was still viable. The jury in the personal injury lawsuit returned a verdict for the clients.  The medical malpractice case was dismissed soon thereafter based upon a lack of evidence and that the personal injury suit had fully compensated the clients for the injuries sustained. The clients initiated the legal malpractice action alleging the attorney negligently settled the personal injury case, breached his fiduciary duties, and improperly accounted for costs and expenses. A bench trial was conducted, and the clients were awarded damages.

Issue: Was the trial court correct in finding in favor of the client that the attorney breached his professional duties, and were the damages awarded reasonable?

Ruling: The Supreme Court of Pennsylvania held that:

1) An attorney's must communicate all settlement offers to clients;

2) Failure to investigate offers that were proposed constituted malpractice;

3) Aggrieved clients are entitled to recover as damages the difference between actual recovery and the amount they would have recovered if the attorney was not negligent; and

“The necessity of an attorney’s use of ordinary skill and knowledge extends to the conduct of settlement negotiations.”

Lesson: The attorney must fully communicate to his client all proposed settlement offers in addition to completing due diligence in investigations on the client’s behalf. If an attorney fails to perform her/his duties in accordance with the standard of professional care, they must make the client whole by paying the difference between what the client did receive and should have received in a settlement. 

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State of New Jersey v. Dennis Copling, 326 N.J. Super. 417, 741 A.2d 624 (1999)

NJ: Underlying criminal defense

Student Contributor: Evan Michael Hess

Facts: Appellant was convicted of first degree conspiracy to commit murder, first degree murder, manslaughter, possession of a weapon for an unlawful purpose and third degree unlawful possession of a handgun. Represented by the Public Defender’s Office, the Appellant alleged, among other things, that his counsel of record was a personal friend of the chief investigator assigned to the case, and a witness for the State at trial, and that, therefore, possessed a conflict of interest in representation. The Defendant notified his defense counsel that he was concerned with counsel’s ability to perform a competent cross examination of the investigator. Counsel then notified the court of the defendant’s concerns, noting that he did not believe there to exist any conflict of interest. The Court denied the Defense motion to continue. The Court later learned that the Defendant knew of his defense counsel’s preexisting friendship with the chief investigator, but chose not to raise the issue until roughly one year later, shortly before trial.

Issue: Does an attorney’s conflict of interest stemming from a pre-existing friendship, or the appearance of impropriety render a criminal trial fundamentally unfair?

Ruling: Relying on the Rules of Professional Conduct in New Jersey, Section 1.7(b), the Court held:

1) Legal counsel in criminal matters must have undivided loyalty to their clients and have representation that is "untrammeled and unimpaired" by conflicting interests. See State v. Bellucci, 81 N.J. 531, 538 (1980);
2) Friendship alone, without more, should not preclude effective representation;

Lesson: While the appearance of impropriety may exist, a conflict of interest does not exist unless counsel is prevented from serving as a "vigorous partisan" of the client's interest. Furthermore, in accordance with the Rules of Professional Conduct, legal counsel cannot represent a client if the attorney is limited by his/her responsibilities to a third person or limited by the attorney's own interests.

Note: New Jersey's Rules of Professional Conduct  no longer recognizes the appearance of  impropriety as prohibited conduct for lawyers.  

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Ellison v. Schenck, Price, Smith & King, 654 A.2d 1024 (N.J.Super.A.D. 1995)

NJ: Underlying Real Estate and Litigation

Student Contributor: John J. Anzalone

Facts: Plaintiff's entered into a lease for developing cemetery grounds. Defendant represented both Plaintiff and the Cemetery. The Defendant also represented the plaintiff in negotiating the terms of the sublease of leased land. After the lease had become unprofitable for Plaintiff, Plaintiff sued Defendant. Plaintiff asserted that they relied on defendant's advice to enter into the contract because they were wrongly led to believe there was nothing preventing the lawful lease of the land. Plaintiff also claimed they suffered loses because the defendant failed to put an escalation clause in the contract with the person they sublet to.

Issue: Could the statute of limitations only have started to run when Plaintiff's income from the property decreased and thus entitle defendant to dismissal of the case?

Ruling: In affirming the lower court's decision on other grounds, the Appellate Division held that the lower court erred in dismissing the case based on the statute of limitations because there was a question of fact regarding when the actual damages occurred, based on the following consideration:
1) The cause of action arises when the plaintiff knows or should have known that they were actually damaged by the attorney's negligence.
2) The actual damage did not necessarily occur when Plaintiff's profits were lessened by the increased rent, they could have also occurred when the rate increase made the sublease unprofitable.

Lesson: Statute of limitations for legal malpractice start to run once the Plaintiff knew or should have known that they were actually damaged by the attorney's negligence. This determination is fact sensitive. Thus, in practice a lawyer bringing a suit against the other lawyer for malpractice should not assume that the actual damage that the plaintiff knew or should have known about occurred when it seems the Plaintiff was first injured by the alleged negligence. 

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Ellison v. Schenck, Price, Smith & King, 654 A.2d 1024 (N.J.Super.A.D. 1995)

NJ Underlying Real Estate and Litigation

Student Contributor: John J. Anzalone

Facts: Plaintiff's entered into a lease for developing cemetery grounds. Defendant represented both Plaintiff and the Cemetery. The Defendant also represented the plaintiff in negotiating the terms of the sublease of leased land. After the lease had become unprofitable for Plaintiff, Plaintiff sued Defendant. Plaintiff asserted that they relied on defendant's advice to enter into the contract because they were wrongly led to believe there was nothing preventing the lawful lease of the land. Plaintiff also claimed they suffered loses because the defendant failed to put an escalation clause in the contract with the person they sublet to.

Issue: Did plaintiff's failure to sue the attorney in the suit against the cemetery preclude them from later suing the attorney? 

Ruling: The court affirmed the dismissal of the suit by holding that Plaintiff was barred from suing he should have sued the attorney as well in an earlier suit against the cemetery, based on the following considerations:
1) Under New Jersey's "Entire Controversy Doctrine", any suit against an indispensable party that should have been added to a prior suit, results in the inability to bring a suit against that party that is part of the same dispute.
2) Parties are indispensable when the case cannot be decided between the parties present in the suit without judging or affecting the interest of the party that should have been added.
3) Had the plaintiffs won, the Defendant would have been hampered by the decision in protecting itself from being found liable for substantial damages.

Lesson: New Jersey's "Entire Controversy Doctrine" provides an effective shield from suits by client-plaintiffs who fail to add a claim against an allegedly negligent lawyer to a suit that is ongoing and in which the lawyer's alleged negligence took place.

NOTE: In response to an uproar from its decision in Circle Chevrolet v.Giordanno Halleran & Ciesla, 142 N.J. 280 (1995) which held that the entire controversy doctrine bars subsequent legal malpractice claims, the Supreme Court of New Jersey reversed that holding in Olds v. Donnelly, 150 N.J. 424 (1997) and held that legal malpractice cases are exempt from the entire controversy doctrine. Thus, this case is no longer good law on the issue of the entire controversy's applicability to legal malpractice actions. 

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