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

Greycas, Inc. v. Proud, 826 F. 2d 1560 (7th Cir. 1987)

Underlying loan transaction--duty to adversary

Student Contributor: Clem Durham

Facts: Theodore S. Proud, Jr., a member of the Illinois bar who practices law in a suburb of Chicago, appeals from a judgment against him for $833,760, entered after a bench trial. The original plaintiff, Wayne Crawford, like Proud was a lawyer but devoted most of his attention to a large farm that he owned in downstate Illinois. The farm fell on hard times and by 1981,  Crawford was in dire financial straits. He had pledged most of his farm machinery to lenders, yet now desperately needed more money. He approached Greycas, Inc., the plaintiff in this case, a large financial company headquartered in Arizona, seeking a large loan that he offered to secure with the farm machinery. He did not tell Greycas about his financial difficulties or that he had pledged the machinery to other lenders, but he did make clear that he needed the loan in a hurry. Greycas obtained several appraisals of Crawford's farm machinery but did not investigate Crawford's financial position or discover that he had pledged the collateral to other lenders, who had perfected their liens in the collateral. Greycas agreed to lend Crawford $1,367,966.50, which was less than the appraised value of the machinery. Crawford was required to submit a letter to Greycas, from counsel whom he would retain, assuring Greycas that there were no prior liens on the machinery that was to secure the loan. Crawford asked Proud to prepare the letter, and he did so, and mailed it to Greycas, and within 20 days of the first contact between Crawford and Greycas the loan closed and the money was disbursed. A year later Crawford defaulted on the loan; shortly afterward he committed suicide. Greycas then learned that most of the farm machinery that Crawford had pledged to it had previously been pledged to other lenders.

Issues: Does a lawyer have a duty of care to an adversary’s client when the primary purpose and intent of the attorney-client relationship itself was to benefit or influence the third party?

Ruling: Yes. By addressing a letter to Greycas intended to induce reliance on the statements in it, Proud made himself prima facie liable for any material misrepresentations, careless or deliberate, in the letter, whether or not Proud was Crawford's lawyer or for that matter anyone's lawyer. Knowing that Greycas was relying on him to determine whether the collateral for the loan was encumbered and to advise Greycas of the results of his determination, Proud negligently misrepresented the situation, to Greycas's detriment. Crawford hired Proud not only for the primary purpose, but for the sole purpose, of influencing Greycas to make Crawford a loan; and therefore, is liable under Illinois law for legal malpractice.

Lesson: Privity, normally required as a pre-requisite to attorney liability, is not a bar where the adverse party relied on the lawyer's representations to its detriment. The duty of care and candor extends even to adverse parties where the lawyer knows that the adversary will rely on his/her representations to its determiment.  
 

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Ex parte Gregory, 378 S.C. 430 (S.C. 2008)

SC: Underlying tort action-settlement

Student Contributor: Karen Dindayal

Facts:  Jerry Bittle sustained brain injuries from an automobile accident, rendering him mentally incompetent. Bittle’s mother, Melton, retained Malloy to represent Bittle for his injuries. Melton and Bittle reached a settlement with the insurance company for the claims made, and made several attempts to contact Malloy regarding receiving the settlement funds, but could not reach him. As a result, Melton terminated Malloy’s services for failing to account for the settlement money. Melton then retained Gregory to represent her and Bittle in recovering the settlement funds from Malloy. Fearing that the statute of limitations would soon run, Gregory filed the instant action against Malloy alleging causes of action for negligence, conversion, breach of contract, breach of contract accompanied by a fraudulent act, and constructive trust.

After the action was commenced, Malloy transferred the funds in dispute to Gregory, and filed a motion for Rule 11 Sanctions and counsel fees and expenses against Gregory, claiming specifically that the allegations of conversion were frivolous. Malloy reasoned that Sanctions were appropriate since Gregory relied soley upon Melton’s statements that she did not know where the settlement funds were, instead of conducting a thorough and independent investigation himself to determine the status of the funds.

Issues:  

Did the circuit court correctly find that the suit against Malloy was frivolous because Gregory failed to conduct a proper investigation?

Did the circuit court properly award Malloy attorney fees and expenses?

Ruling:  Yes. An attorney may be sanctioned and subject to counsel fees and expenses for bringing a frivolous claim due to that attorney’s failure to first conduct a proper and reasonable investigation into the facts.

Lesson: Before commencing an action, it is important to first always conduct a thorough and reasonable investigation to ensure a sufficient basis for the action(s) being brought. 

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Ex parte Gregory, 378 S.C. 430 (S.C. 2008)

SC: Underlying tort action

Student Contributor: Karen Dindayal

Facts:  Jerry Bittle sustained brain injuries from an automobile accident, rendering him mentally incompetent. Bittle’s mother, Melton, retained Gerald Malloy to represent Bittle in recovering for his injuries. Melton and Bittle reached a settlement with the insurance company for the claims made, and made several attempts to contact Malloy regarding receiving the settlement funds, but could not reach him. As a result, Melton terminated Malloy’s services for failing to account for the settlement money. Melton then retained George W. Gregory to represent her and Bittle in recovering the settlement funds from Malloy. Fearing that the statute of limitations would soon run, Gregory filed the instant action against Malloy alleging causes of action for negligence, conversion, breach of contract, breach of contract accompanied by a fraudulent act, and constructive trust.

After the action was commenced, Malloy transferred the funds in dispute to Gregory, and filed a motion for Rule 11 Sanctions and counsel fees and expenses against Gregory, claiming specifically that the allegations of conversion were frivolous. Malloy reasoned that Sanctions were appropriate since Gregory relied soley upon Melton’s statements that she did not know where the settlement funds were, instead of conducting a thorough and independent investigation himself to determine the status of the funds.

Issue:  Did the circuit court correctly find that the suit against Malloy was frivolous because Gregory failed to conduct a proper investigation?

Did the circuit court properly award Malloy attorney fees and expenses?

Ruling  Yes. An attorney may be sanctioned and subject to counsel fees and expenses pursuant to the Frivolous Proceedings Act for bringing a frivolous claim due to that attorney’s failure to first conduct a proper and reasonable investigation into the facts.

Lesson:  Before commencing an action, it is important to first always conduct a thorough and reasonable investigation to ensure a sufficient basis for the action(s) being brought. 

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

NY: Litigation, Duty to Investigate

Student Contributor: Ryan 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.

The 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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Rosemary E. Smith v. Jerome R. Lewis,  12 Cal. 3d 349 (Cal. 1975)

CA Underlying divorce action

Student Contributor: Evan Michael Hess

Facts:  Defendant attorney was retained to represent Plaintiff in a divorce proceeding. The Plaintiff brought the malpractice action asserting Defendant negligently failed to assert Plaintiffs community interest in the retirement benefits of her husband. Defendant alleges that the law with regard to retirement benefits was unclear at the time of representation, thus insulating him from liability for failing to assert said claim.

Issue: How much research is enough for an attorney to avail oneself from malpractice?

Ruling: The Supreme Court of California held:

I.

 “The law is now settled in California that "retirement benefits which flow from the employment relationship, to the extent they have vested, are community property subject to equal division between the spouses in the event the marriage is dissolved." (In re Marriage of Fithian, 10 Cal.3d 592, 596, (1974) citing Waite v. Waite, 6 Cal.3d 461 (1972));

II.

“In determining whether defendant exhibited the requisite degree of competence in his handling of plaintiff's divorce action, the crucial inquiry is whether his advice was so legally deficient when it was given that he may be found to have failed to use "such skill, prudence, and diligence as lawyers of ordinary skill and capacity commonly possess and exercise in the performance of the tasks which they undertake." (Lucas v. Hamm, 56 Cal.2d 583, 591 (1961))”;

III.

“an attorney does not ordinarily guarantee the soundness of his opinion . . . he is expected, however, to possess knowledge of those plain and elementary principles of law which are commonly known by well informed attorneys, and to discover those additional rules of law which, although not commonly known, may readily be found by standard research techniques.”

Lesson: Regardless of the state of the law, an attorney must, at the very least conduct due diligence to assure that the advice he gives his client is legally sound. If an attorney conducts a reasonable assessment of the state of the law, an attorney will not be held liable for failing to anticipate how that unsettled point of law will be resolved.

Note: Smith v. Lewis was overturned on other grounds in In re Marriage of Brown, 15 Cal. 3d 838, 851 (Cal. 1976).

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Brizak v. Needle  239 N.J. Super. 415 (App. Div. 1990)

Student Contributor: Maninder (Meena) Saini

NJ Underlying  Medical Malpractice Action

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

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

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

Issue: Whether an attorney has the duty to investigate the basis of their client’s claim?

Rule: An attorney must undertake a reasonable diligent investigation to determine if there is a reasonable basis for commencing an action.

D]efendant’s clearly erroneous advice to plaintiff that she need not be concerned about the time limitations until she found a physician to support her claim was itself a sufficient basis for linking his negligence to her failure to commence a timely action against the doctor.

The SOL started in December 1983 when the plaintiff had suspicion of the malpractice and retained a lawyer.

Lesson: The defendant was not diligent in his investigation of medical malpractice. An attorney has a duty to take any steps reasonably necessary to properly handle the case, which includes the duty to investigate and to file any action necessary for recovery within the applicable time period.

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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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Toth v. Vazquez, 3 N.J. Super. 379 (Ch. Div. 1949) (PDF with permission of Thomson West)

Student Contributor: Anthony J. Forzano

NJ Underlying Real Estate Transaction

Facts: Plaintiff, a potential land buyer, brought an action for legal malpractice against the defendant-attorney, Arthur A. Wolpin, who had been engaged by the plaintiff to examine the title and procure a survey of the premises prior to closing.  Plaintiff alleged that Wolpin failed and neglected to obtain an accurate survey.

Issue: Can an attorney be held liable for malpractice for failing to find a deficiency in the work of another professional, even though he acted in a prudent manner in selecting that professional on behalf of his client?

Ruling: No. Although it is the duty of an attorney who is retained to examine the title to real estate to make a reasonably diligent and zealous investigation of the public records, and to impart to his client all of the observable defects, deficiencies, and imperfections of the title, he is required only to exercise ordinary care, skill and diligence.

Given that Wolpin inspected all pertinent records and rendered an accurate report of record title, he had satisfied the standard of “ordinary care, skill, and knowledge”. The Court further noted:

“Nor is it evident that this defendant in acting for the plaintiffs failed to exercise reasonable care and precaution in the selection of a competent surveyor, even assuming a duty so to do. Assuredly, this defendant did not expressly agree to warrant the precision and accuracy of the survey”.

Lesson: An attorney must act in a reasonably diligent fashion in terms of his investigation of the pertinent issues and retention of other professionals, and cannot be held liable for malpractice as a result of damage incurred by his client owing to the negligence of others involved in the transaction.

Editor's Note: What if the attorney had engaged a process server who negligently failed to properly serve a complaint and the statute of limitations ran?  The lawyer's immunity for the negligence of an independent contractor hired to aid in the representation of a client is not so clear. See, e.g., Kleeman v. Rheingold, 81 N.Y.2d 270 (1993):

As plaintiff's attorneys, defendants had a non-delegable duty to her and, accordingly, they cannot evade legal responsibility for the negligent performance of that duty by assigning the task of serving process to an "independent contractor."

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

Student Contributor: Maninder (Meena) Saini

NJ Underlying Statute of Limitations and Duty to Investigate

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

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

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

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

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

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

Moreover, said the Court:

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

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