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

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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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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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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Baldasarre v. Butler, 132 N.J. 278 (N.J. 1993)

Student Contributor: Jason Klein

NJ Underlying Real Estate Transaction

Facts: Plaintiffs inherited undeveloped land from their father and retained Defendant to act as attorney for the estate. The will directed the property to be sold and the proceeds divided between the Plaintiffs. Plaintiffs told Defendant that they wanted a price of $110,000 per lot. Defendant discussed the property with another client, DiFrancesco.

DiFrancesco wanted Defendant to represent him in the purchase of the property, despite the fact that Defendant had alerted him to the potential conflict of interest that could arise from his dual representation. After obtaining signed conflict of interest letters from both Plaintiffs (sellers) and DiFrancesco (buyer), the contract for sale was executed.

Pursuant to the contract, closing was subject to subdivision approval. During the subdivision approval process, DiFrancesco, represented by Defendant, entered into contract to sell the subject property to Messano Construction for $200,000 per lot, subject to DiFrancesco obtaining title to the property.

Defendant did not inform Plaintiffs of the Messano Construction contract, and when Plaintiffs were later informed, they brought a legal malpractice action against Defendant, and sued DiFrancesco, alleging legal and equitable fraud. They sought a rescission of their contract of sale with DiFrancesco, and compensatory and punitive damages. DiFrancesco counterclaimed, alleging tortious interference with his prospective economic advantage.

Issue: Can an attorney represent both buyer and seller in a real estate transaction?

Ruling: No. The potential for conflict in a real estate transaction is too great to permit even consensual dual representation of buyer and seller.

Lesson: The court adopted a new bright-line rule as a result of this case, prohibiting dual representation in real estate transactions because of the risk of disastrous consequences, given the inherent conflict of interest between a buyer and seller of real estate, the number of contingencies and options involved, and the large sums of money at stake.

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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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