PA: Legal Malpractice Claim Sounds in Tort, Not Contract

Knopick v. Connelly, U.S.D.C., M.D. Pa., January 25, 2010.

Facts: Knopick retained the services of the Defendant attorney in or about March 2007 order to pursue a claim for legal malpractice against his former attorneys in a divorce proceeding.  The Defendant attorney, however, refused to pursue the action and advised that Knopick statute of limitations for the legal malpractice action had expired.

In July, 2009, Knopick sued the Defendant attorney for malpractice, under tort and contract theories of liability, for failing to pursue the malpractice action his former divorce attorney.  The Defendant attorney moved for summary judgment.

Issue: Could Knopick establish a prima facie case against the Defendant attorney under either the tort or contract theory of liability? 

Ruling: No.

The Court first noted that under a tort theory of liability, Plaintiff must show: 

1) The employment of the attorney or other basis for duty;
2) The failure of the attorney to exercise ordinary skill and knowledge; and
3) That such failure was the proximate cause of the damage to the plaintiff.

Here, the Court found that the Defendant attorney's analysis that Knopick was out of time to pursue a malpractice action against his divorce attorney was correct.  Knopick should have brought the malpractice action two years from the date he first became aware of the negligence - by August, 2006.  However, he had no even retained Defendant's services until March, 2007.  Accordingly, there was no failure on Defendant's part to exercise ordinary skill or knowledge.

With regard to Plaintiff's contract theory of liability, the Court noted that "a plaintiff may not couch a tort negligence claim as a contract claim simply to side-step the two-year limitation period."  The Court further provided: 

Plaintiff discusses the standard of care owed by an attorney, not a breach of specific terms of the contingent fee agreement...Merely reciting the language "specific terms of the contract" without citing which terms the parties breached, is insufficient...In addition, the implied duty of care owed by every attorney to their clients is insufficient to support a breach of contract claim...Further evidence that this is a negligence claim couched as a breach of contract claim, is the fact that the language contained in Count Three directly mirrors the language contained in Count Two-Plaintiff's legal malpractice tort claim.

Accordingly, the Court dismissed Plaintiff's complaint.

Lesson: When an attorney is retained after the applicable statute of limitations has expired, he is not negligent in failing to pursue that action.  Moreover, plaintiff cannot pursue a contract theory of liability to avoid the two year statute of limitations applicable in Pennsylvania to legal malpractice actions.  To pursue a contract theory of liability, plaintiff must be able to point to a specific provision of the retainer that was violated other than an attorney "implied duty of care."

NJ: Emotional Distress Claims Acceptable When There Is Loss of Liberty

Lawson v. Nugent, 702 F. Supp. 91 (D.N.J. 1988)

NJ: Underlying criminal conviction matter

Student Contributor: Laura Binski

Facts: The client was indicted for robbery of a Post Office and hired the lawyer to represent him. The client claims that the lawyer encouraged him to plead guilty to all three counts of the indictment without investigating whether a factual basis existed for the guilty plea. The client was then sentenced to twenty-five years in a maximum-security penitentiary. While in prison, the client hired a new lawyer who successfully made motions to vacate the guilty plea to two aggravated counts of indictment. The client was released after serving five years of his sentence. The client then sued his original lawyer, claiming that but for the lawyer’s negligent representation, the client would have served a maximum of forty months in a correctional facility. The client seeks damages for the emotional distress he suffered during the “extra” twenty months of confinement.

Issue: May a client recover damages for emotional distress when his relationship to the lawyer was based on a liberty, rather than economic interest?

Ruling: Yes.

“A lawyer 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.”

Wagenman v. Adams, 829 F.2d 196, 222 (1st Cir. 1987). The Court reasons that deprivation of his freedom could potentially cause an individual to suffer mental distress. Therefore, the client can go forward with his claim of emotional distress due to the extra twenty months he spent in a maximum-security penitentiary allegedly due to negligent representation.

Lesson: The Court makes a point to distinguish between a loss of liberty and loss of economic interest. Typically, legal malpractice actions revolve around a loss of economic interest. Courts generally do not allow emotional distress claims when it is just loss of economic interest at stake in a legal malpractice case. Guatam v. DeLuca, 215 N.J. Super. 388, 521 A.2d 1343 (App. Div. 1987).

7th Cir. No harm, no malpractice, even if the underlying settlement is "coerced".

McKnight v. Dean, 270 F. 3d 513

Underlying legal malpractice action

Student Contributor: Clem Durham

Facts: A dispute then arose between McKnight and Gingras, the lawyer who had handled the case in the district court, concerning attorneys’ fees. This dispute led Gingras to sue McKnight in a Wisconsin state court. One of McKnight's defenses in that suit was that Gingras had committed malpractice. McKnight's new lawyer, Kenneth Dean, the principal defendant in the present case filed on McKnight's behalf a diversity suit against Gingras in federal court, charging Gingras with malpractice and thus essentially duplicating the defense that McKnight had raised in Gingras's suit. Gingras obtained a judgment against McKnight in Wisconsin— and then pleaded it as res judicata in the federal malpractice suit that McKnight. The district judge held that the res judicata defensewas valid  as to any claim pertaining to Gingras's handling of the trial of the  underlying discrimination suit (but not the appeal or remand), and thus wiped out any complaint about Gingras's failure at the trial to present evidence in support of reinstatement or his claimed outstanding pay, or to calculate back pay correctly. Gingras had malpractice insurance with a cap of $1 million to cover both
liability and attorneys' fees, and the insurance company had expended $235,000 on the
defense of McKnight's malpractice suit against him. The company offered to settle the case for
the difference between that amount and the $1 million cap, that is, for $765,000 ($475,000 after
Dean deducted his fee). Dean is alleged by McKnight to have told him that this was the most he could expect to obtain, and so he "must" settle for it — concealing from him the fact that any judgment against Gingras could be satisfied out of Gingras's personal assets as well as out of the proceeds of the insurance policy. So McKnight settled, thus setting the stage for this malpractice suit. McKnight claims that Dean committed malpractice in dropping the malpractice defense in the suit that Gingras had brought in the Wisconsin state court and in forcing him to settle for $765,000 rather than holding out for a larger settlement and if necessary proceeding to trial.

Issue: Can there be a malpractice claim for coercing a client to settle when the coercion does not harm the client?

Ruling: No. Although coercing a client to accept a settlement is a violation of a lawyer’s ethical duty to his client, it is sometimes harmless in the context of legal malpractice. McKnight argues that to repel summary judgment all he had to prove was that Dean's malpractice had caused him some injury, however slight — and that would be true if Dean had obtained no money for McKnight. But Dean obtained $765,000, so that his negligence injured McKnight only if, had it not been for that negligence, McKnight could have expected to obtain more than that amount in his suit against Gingras. That he has failed to show.

Lesson: Just because a lawyer’s actions are unethical, does not mean that a malpractice claim will be successful.
 

FRCP Rule 11 Liability for Lawyers

Hays v. Sony Corp. of America, 847 F. 2d 412 (7th Cir. 1988)

Underlying copyright dispute

Student Contributor: Clem Durham

Facts: The plaintiffs, Stephanie Hays and Gail MacDonald, teach business courses at a public high school in Des Plaines, Illinois. In 1982 or 1983 they prepared a manual for their students on how to operate the school's DEC word processors, and distributed copies to students and to other faculty members. In 1984 the school district, having bought word processors from Sony Corporation of America, gave Sony the plaintiffs' manual and asked Sony to modify it so that it could be used with Sony's word processors. Sony proceeded to do so, resulting in a manual very similar to — in many places a verbatim copy of — the plaintiff's manual. In February 1985 the plaintiffs, presumably spurred by knowledge of Sony's manual, registered their own manual with the Copyright Office, and in July they filed this lawsuit in federal district court. Sony filed several motions for sanctions under Rule 11 of the Federal Rules of Civil Procedure, seeking reimbursement of some $47,000 in attorney's fees and related expenses, and the district judge had heard, but not decided, the motions several days before he dismissed the action. Several months later, on February 18, 1987, the judge awarded Sony $14,895.46 in sanctions against the plaintiffs' counsel, Emmanuel F. Guyon, but not against the plaintiffs. Guyon appealed.

Issue: Is an award of sanctions permissible, under FRCP Rule 11, against an attorney for filing a complaint that is not frivolous but was ineffectively pursued?

Ruling: Yes. In the Rule 11 setting the victims are the lawyer's adversary, other litigants in the court's queue, and the court itself. By asserting claims without first inquiring whether they have a plausible grounding in law and fact, a lawyer can impose on an adversary and on the judicial system substantial costs that would have been — and should have been — avoided by a reasonable prepleading inquiry.

Lesson: The Rule 11 standard, like the negligence standard in tort law, is an objective standard. Therefore, one must know the law before bringing claims, even if one is not an expert in the field. Otherwise, a lawyer may get sanctioned.  

NJ: No Privity, No Problem

Rathblott v. Levin, 697 F. Supp. 817 (D.C. N.J. 1988)

NJ Underlying Probate Action

Student Contributor: Christopher S. Henn

Facts: The decedent, an attorney, suffered esophageal cancer for ten years until his passing. During his final days he executed several wills with the aid of the defendant, a partner in the decedent’s law firm. The last will was unsuccessfully challenged by the decedent’s children from his former marriage against his wife.

The wife, who had been successful in the underlying probate action, alleged that the defendant had been negligent in preparing the wills by (1) failing to establish testamentary capacity, and (2) by choosing Florida as decedent’s domicile instead of New Jersey. Due to this alleged negligence, the plaintiff averred that she suffered expenses in defending the will contest that effectively nullified her husband’s estate.

On plaintiff's motion for summary judgment, the defendant’s primary defense was that he owed no duty to the plaintiff, since she had no attorney-client relationship with him.

Issue: Whether the lack of privity is a defense to a legal malpractice action?

Ruling: The United States District Court, District of New Jersey recognized that:

[a] defendant owes a duty of care to take reasonable measures to avoid the risk of causing economic damages…to particular plaintiffs…comprising an identifiable class with respect to whom defendant knows or has reason to know are likely to suffer such damages from its conduct.

             ***

[There is no] valid legal difference between a plaintiff who loses the right to one-half of an estate and a plaintiff who loses one-half of an estate in protecting her rights. If either was caused by an attorney's negligence in drafting, that attorney should be liable.

The Court qualified its holding to the facts of this particular case and provided:

The extent to which this opinion represents an expansion of the exception to the privity requirement stems wholly from the unusual facts in this case…

Lesson: If an attorney knows or should know that individuals other than his client will suffer damages as a result of his negligence on a particular matter, he may be held responsible for their losses despite the lack of an attorney-client relationship.

IL: Suicide as a Proximate Cause of Lawyer Malpractice? No Way!

Cleveland v. Rotman, 297 F. 3d 569 (7th Cir. 2002)

IL: Underlying tax advice

Student Contributor: Clem Durham

Facts: In 1996 Cleveland retained Rotman for advice in resolving the tax dispute. At the time, Cleveland's therapist informed Rotman of Cleveland's poor financial status, his severe depression, and his suicidal tendencies. Rotman advised Cleveland that he needed to file tax returns for a 10-year period, but Cleveland claimed that he was unable to calculate his income and expenses for this period because his financial records had been lost during office moves and discarded by others during divorce proceedings. As a result, it is alleged that Rotman told Cleveland to estimate his income and expenses for the relevant years. Apparently, Cleveland's estimates did not agree with IRS figures and the IRS decided to audit him again. On January 26, 1998, shortly before the audit was scheduled to take place, Cleveland shot himself in the head. Cleveland's estate alleges that Rotman committed malpractice, which triggered the IRS's proposed 1998 audit, which in turn triggered Cleveland's suicide. The estate argues that the district court erred in ruling that, as a matter of law, a plaintiff's allegations were insufficient under Rule 12(b)(6).

Issue: Whether under Illinois law a plaintiff may recover for a decedent's suicide following a breach of contract?

Ruling: No. It is well-established under Illinois law that a plaintiff may not recover for a decedent's suicide following a tortious act because suicide is an independent intervening event that the tortfeasor cannot be expected to foresee. The 7th circuit agreed with the district court and found this rationale equally applicable in the contract context and therefore dismissed the estate's claims arising from Cleveland's suicide. Cleveland's suicide was an independent intervening event that broke the chain of causation from Rotman's alleged malpractice to Cleveland's death. Cleveland was an adult, and the estate has not alleged that he was mentally unstable. Essentially, Cleveland's estate seeks to impose on Rotman a duty to foresee and avoid a client's suicide. Although an Illinois court imposed such a duty on a psychiatrist who knew of his patient's history of suicidal depression and yet failed to protect the patient from self-harm, the estate here points to no case law extending such a duty to the attorney-client context. Because of the differences between the psychiatrist-patient relationship and the attorney-client relationship, we see no justification for extending such a duty to attorneys. Psychiatrists are health care professionals trained to care for their patients' mental and emotional health. By contrast, attorneys are medical laypeople who cannot be reasonably expected to anticipate the mental health consequences of their legal advice.

Lesson: Lawyer’s cannot be liable for a client’s suicide as a result of their giving of poor legal advice. A client’s suicide is unforeseeable because attorneys are not trained medical practitioners; and therefore, should not be responsible for foreseeing a client’s likelihood of committing suicide.

IL: Lawyer Duty of Care to Adversaries--Privity No Bar to Liability

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.  
 

IL: Loss of Procedural Advantage as Malpractice

Jones Motor Co. v. Holtkamp, Liese, Beckemeier & Childress, PC, 197 F. 3d 1190 (7th Cir. 1999)

7th Cir. IL: Underlying personal injury lawsuit

Student Contributor: Clem Dunham

Facts: The underlying suit had been filed in a state court in St. Clair County and assigned to a judge who we are told, and accept for purposes of deciding this appeal, has the reputation of favoring plaintiffs in personal injury suits. Jones's lawyers negligently failed to make a timely effective request for a jury because they failed to accompany the request with payment of the fee for a jury trial. As a result the case was tried to the judge, who entered a judgment of $2.8 million for the plaintiff; the suit was then settled for $2.5 million. In the present case, the malpractice case, Jones tendered the opinion of an experienced lawyer in St. Clair County that had the case been tried to a jury, the verdict would have been in the neighborhood of $500,000. Jones and its insurer, which paid a part of the $2.5 million settlement, are suing for the $2 million difference.

Issue: Can the loss of a procedural advantage give rise to a malpractice suit even if the advantage was not essential to the protection of the client's substantive rights?

Ruling: No. A malpractice plaintiff cannot prevail merely by showing that his claim which his lawyer booted, though baseless, had some nuisance value. To impose malpractice liability for booting a nuisance suit would—like deeming a plaintiff who obtains a nuisance settlement a prevailing party for purposes of entitlement to an award of attorneys' fees, which courts also refuse to do, simply encourage nuisance suits, of which we have enough already. There is a difference, however, between saying that a claim can be meritorious without its being certain to prevail at trial and saying that one of the parties would have done better than the other, had it not been for the negligence of his lawyer, regardless of the relative merits of the parties' positions. We hesitate to rule out the possibility of convincing an Illinois court to allow a malpractice suit to go forward on the basis of an argument that the plaintiff lost a procedural entitlement even though it was not an entitlement necessary to avert an unjust outcome. But given the uncertainty of harm we think the plaintiff in such a case must do more than the plaintiffs have done here to show that they can prove damages to a reasonable certainty.

Lesson: Even though a client may be correct in asserting that an advantage was lost by its lawyer’s failure to capitalize on a procedural entitlement; courts in Illinois will not permit a malpractice claim to go forward on this theory unless, the plaintiff can prove damages to a reasonable certainty. 

DC: Brand New Claim Against Lawyers? "Tortious Involvement in Litigation"

Perry v. Scholar, U.S.D.C., District of Columbia, March 19, 2010.

Facts: From 1985-2005, Perry, an accountant, served as a paid plan administrator for a pension plan.  At the same time, Scholar served as the plan's attorney.  In or about 2006, the plan filed suit against Perry, Scholar and other defendants for breach of fiduciary duty and other claims.  

Subsequently, Perry filed a claim against Scholar alleging that he had been forced to spend over $150,000 defending himself in the litigation commenced by the plan due to Scholar's legal malpractice.

Scholar moved to dismiss on the basis of a lack of privity.

Issue: Was Perry required to establish an attorney-client relationship to proceed with his claim against Scholar? 

Ruling: No.  The Court held that Perry's claim sounded in "tortious involvement in litigation":

[T]he essential elements that must be established for this claim are: (1) the plaintiff must have incurred the fees in the course of prior litigation, (2) ordinarily that litigation must have occurred between the plaintiff and the third party who is not the defendant in the present action, and (3) the plaintiff must have become involved in the underlying litigation as a consequence of the defendant's tortious act.

An attorney-client relationship is unnecessary.  The Court noted, however, that "a plaintiff can have no claim against a defendant for wrongful involvement in litigation if the plaintiff is found liable for any portion of the underlying litigation."  

Significantly, even though an attorney-client relationship is not required, plaintiff must establish that the attorney owed him a duty and that the breach of that duty was the proximate cause of his alleged damages.  

Lesson: In DC, third parties may proceed against attorneys whose negligent conduct resulted in their involvement in litigation if they can establish a duty on the part of the attorney and damages resulting from a violation of that duty.

PA: Circuit Court Comments on the Need for a Certificate of Merit

Donnelly v. O'Malley & Langan. P.C., U.S. Court of Appeals, Third Circuit (March 16, 2010).

Facts: Donnelly filed an action for legal malpractice against his former attorneys who had represented him in a workers' compensation matter. He raised claims of invasion of privacy under state law, breach of contract, legal malpractice, and violation of his state and federal constitutional rights.


On Defendants' motion, the District Court dismissed Donnelly's breach of contract/legal malpractice claim, holding that he failed to submit a Certificate of Merit, which is required under Rule 1042.3(a) of the Pennsylvania Rules of Civil Procedure, absent a reasonable explanation or legitimate excuse.

Donnelly filed an appeal arguing that he did not need a Certificate of Merit, since his claim sounded in breach of contract.  Further, he argued, the allegation that employment law was beyond the expertise of the Defendants was easy for an ordinary person to understand.

Issues: Did Donnelly need to submit a Certificate of Merit to continue with his legal malpractice action? 


Ruling: Yes.

Regardless of how he chooses to characterize his claim, however, Donnelly's allegations pertain to the quality of the O'Malley defendants' professional representation of him, and thus a [Certificate of Merit] is required.

The Court noted, however, that involuntary dismissal under Pennsylvania's Certificate of Merit Rule is not dismissal with prejudice.


Lesson: Err on the side of obtaining a Certificate of Merit in Pennsylvania for any claim which sounds in legal malpractice, no matter how it is characterized, or risk dismissal.

NJ: Lawyers' Duty to Third Parties

Rathblott v. Levin, 697 F. Supp. 817 (D.N.J. 1988)

NJ: Underlying dispute over a will

Student Contributor: Laura Binski

Facts: Albert Rathblott (the client) died from cancer on October 19, 1979. Mr. Rathblott was survived by his two adult children and his third wife, Elizabeth. Rathblott created his first will in 1963, and in 1973 added a bequest of $10,000 to Elizabeth. In the last week of his life, Rathblott made several changes to his will with the help of his lawyer, Jay Levin. Mr. Rathblott’s final will (executed two days before his death) was challenged by his children in New Jersey state court on the grounds that Rathblott lacked testamentary capacity and free will in the last days of his life when the will was executed. His wife Elizabeth, the beneficiary of the will, now sues Mr. Levin for negligence. Elizabeth asserts that although she was successfully granted the $10,000 bequeath, she has lost significant amounts of money defending the contest of the will. In response, the lawyer moved for the case to be dismissed, saying that he owed no duty to the Elizabeth because there was no privity between them.

Issue: Should a lawyer be able to use a lack of privity defense when a beneficiary who did not lose her rights under the will but did lose money defending the will sues him for negligence in the drafting of the will?

Ruling: No. Under New Jersey law, a lawyer may be held liable to the beneficiary of a will (even when there is a lack of privity between the two) for negligent drafting when it caused the beneficiary to spend considerable money defending the contest of the will. The Court recognized that in this case, there was a possibility of privity through reliance, which would need to be determined in a trial. As a result, the lawyer’s motion for summary judgment was denied.

Lesson: There is no real difference between a person who loses her rights to half of her estate and a person who loses half her estate defending her rights. A lawyer must take all reasonable measures to avoid the risk of causing economic harm to any person he has a reason to know may suffer as a result of his actions.  

7th Cir: A Claim, By Any Other Name...

Hoagland v. Sandberg, Phoenix & Von Gontard, 385 F. 3d 737 (2004)

7th Cir.: Underlying legal malpractice claim

Student Contributor: Clem Durham

Facts: The district court determined after a bench trial that Hoagland's suit failed as a suit for legal malpractice. Hoagland doesn't disagree. His grievance is that he should have been allowed either to amend his complaint to make clear that his claim, which he believes the district judge misunderstood, is not malpractice but is rather breach of contract or alternatively breach of fiduciary duty, or allowed to dismiss his suit without prejudice and start over. The claim, in substance and without regard to how it might be characterized, is that the Sandberg law firm represented the adversaries — a corporation (Midwest) and its swindling president — in a derivative action and used its dual representation to prevent the corporation from recovering assets of which the president had wrongfully deprived the corporation; that the law firm had wrongfully accepted payment of its fees from the corporation (the client whose interests the firm had sacrificed); and that it should therefore be required to rebate ("disgorge") the fees to Hoagland for the benefit of the corporation.

Issue: Is it proper to dismiss a claim as duplicative, when a breach of fiduciary duty claim is based on the same operative facts as a legal malpractice claim, and results in the same injury?

Ruling: Yes. Hoagland cannot be permitted, by recharacterizing the claim — whether by calling the conflict of interest a breach of fiduciary obligation or by contending that his contract with the law firm contained an implied promise not to commit such conflicts — to get around the requirement of presenting expert testimony. That is the kind of formalist move that courts rightly reject. Illinois courts hold that "when a breach of fiduciary duty claim is based on the same operative facts as a legal malpractice claim, and results in the same injury, the later claim should be dismissed as duplicative." The fact that restitution was sought instead of conventional damages also does not alter the nature of the suit. Restitution is a remedy, at least when sought as here as reparations for a tort. Asking for restitution doesn't change the cause of action.

Lesson: Make sure all claims are included in the initial complaint, because if a new theory of recovery is brought too late, it may be deemed duplicative. 

First Circuit: Emotional Distress Damages in Legal Malpractice

Wagenmann v. Adams, 829 F.2d 196 (1st Cir. September 9, 1987).

Facts:  After what appeared to be a series of misunderstandings between Wagenmann and his family members, Wagenmann was searched and arrested without a warrant, brought to a holding cell, and ultimately, involuntarily admitted to a mental hospital.  His court-appointed attorney, Healy, entered a general appearance on Wagenmann's behalf in connection with the commitment proceedings, bail and criminal charges.  

Allegedly, Healy never inquired as to what had happened, but did say that he was a friend and fellow parishioner of one of the individuals who had been responsible for reporting Healy to the police.  When Wagenmann asked Healy to withdraw and get him another lawyer, Healy apparently refused.  Healy also refused Wagenmann's requests to be brought before a judge.  

Instead, Healy proposed that Wagenmann immediately leave town or agree to be committed to a mental hospital. Wagenmann refused and a psychiatrist present at the time saw no grounds upon which Wagenmann could be admitted.  Healy then commented "maybe in New York you're something, but [in Massachusetts], you're nothing," and left.  

Wagenmann was later informed that he had in fact been committed to a mental hospital for a twenty day observation period.  After some time, Wagenmann was visited by a psychiatrist who saw no basis to justify his admission and arranged for his immediate release.

Wagenmann subsequently sued Healy for legal malpractice, requesting damages for emotional distress.  Wagenmann was awarded damages against Healy and Healy appealed.

Issue:  Is a Plaintiff in a legal malpractice suit entitled to damages for emotional distress? 

Ruling:  Yes, if it is foreseeable from the attorney-client relationship that a breach of the applicable standard of care will cause the client to suffer a loss of liberty or social stigma.

The Court noted that "an attorney who commits malpractice is liable to client for any reasonably foreseeable loss caused by his negligence."  If it were otherwise, especially in situations where the attorney-client relationship was based on something other than the client's economic concerns, the attorney would effectively be immunized from liability even though he exposed his client to a "parade of horribles."

Here, Wagenmann was entitled to damages for emotional distress -- He had been involuntarily confined to a mental hospital as a result of his attorney's negligence and alleged misconduct.  This, in turn, caused Wagenmann continuing anguish and fear that others, including prospective employers, would learn of it and question his sanity.  Consequently, the Court concluded: 

That Healy was guilty of malpractice in the defense of commitment proceedings, rather than in the prosecution of a civil claim for damages, is no reason artificially to shield him from the condign consequences of his carelessness. 

Lesson:  Emotional damages are recoverable in legal malpractice action where the client's damages include something other than a purely economic loss, i.e. incarceration, false imprisonment, or significant injury to reputation. 

Third Circuit: Violation of RPC 1.7 Does Not Require Automatic Disqualification

Wyeth v. Abbott Laboratories, 692 F.Supp.2d 453 (D.N.J. 2010)

Facts:  Wyeth brought a motion to disqualify Howrey LLP from representing Boston Scientific Scimed, Inc. ("BSC") in an underlying patent infringement action.  Wyeth alleged that it was a conflict of interest for Howrey to represent BSC against Wyeth in the underlying action, while representing Wyeth in a separate, ongoing patent matter in Europe.  More specifically, Wyeth contended that Howrey's conduct was in violation of RPC 1.7(a)(1).  

The Court held that Howrey's conduct was in violation of RPC 1.7 and disqualified Howrey, interpreting applicable case law as requiring mandatory disqualification for a violation of RPC 1.7. Howrey appealed.

Issue:  Can a law firm represent an adversary of a current client in another, unrelated matter? 

Ruling:  Perhaps. 

The Court first determined that BSC, a defendant in the underlying patent litigation, and Wyeth, a plaintiff in that litigation, were adversaries, and that Howrey was representing Wyeth in the separate European patent matter, thus creating a current attorney-client relationship between Wyeth and Howrey.  

RPC 1.7(a)(1) provides that a concurrent conflict of interest exists if the representation of one client will be directly adverse to another client. Accordingly, the Court then moved on to the question of whether a violation of RPC 1.7 requires disqualification.  In making this determination, the Court stated:

The Court of Appeals for the Third Circuit has noted that "[a]lthough disqualification ordinarily is the result of a finding that a disciplinary rule prohibits an attorney's appearance in a case, disqualification never is automatic." U.S. v. Miller, 624 F.2d 1198, 1201 (3d Cir.1980). The question of whether disqualification is appropriate is committed to the sound discretion of the district court, which "means that the court should disqualify an attorney only when it determines, on the facts of the particular case, that disqualification is an appropriate means of enforcing the applicable disciplinary rule." Id.

The Court then set forth twelve factors to be considered in determining whether disqualification was warranted: 

(1) prejudice to Wyeth; (2) prejudice to BSC; (3) whether's Howrey's representation of Wyeth in the [European] matter allowed BSC access to any confidential information relevant to this case; (4) the cost—in terms of both time and money—for BSC to retain new counsel; (5) the complexity of the issues in the case and the time it would take new counsel to acquaint themselves with the facts and issues; (6) which party, if either, was responsible for creating the conflict; [7] whether the two matters at issue are related in substance; [8] whether both matters are presently active; [9] whether any attorneys from the firm have been involved in both matters; [10] whether the matters are each being handled from offices in different geographic locations; [11] whether the attorneys from the law firm work with different client representative[s] for each matter; and [12] the relative time billed by the law firm to each matter.

Ultimately, the Court found that there was no evidence that Howrey's independent professional judgment would be impaired if it was permitted to continue as counsel for BSC, since the matters were completely unrelated and no Howrey attorneys overlapped on the two matters.  Additionally, Howrey had put up an "ethical wall" with regard to the attorneys working on the matters, as well as the confidential information with regard to each matter.  With regard to prejudice to each party, the Court noted: 

Given Howrey's historical representation and the complex technologies at issue in this case, depriving BSC of its counsel of choice deprives BSC of Howrey's depth of experience and expertise. Additionally, if BSC were required to obtain new counsel, there would likely be some delay in this litigation as well as certain additional costs incurred by BSC while new counsel familiarized itself with this case. In contrast, Wyeth has not identified any prejudice that it will suffer if Howrey is not disqualified from this matter.

Consequently, the Court allowed Howrey to continue as counsel for BSC in the underlying patent litigation. 

Lesson:  Whether or not a law firm will be disqualified for a concurrent conflict of interest under RPC 1.7 is a fact sensitive determination.  It will depend on, among other factors, the remoteness of the two matters at issue, the existence of an ethical wall, the historical relationship between the law firm and the two clients, and potential prejudice to either party.

PA: Certificate of Merit Required for Malpractice Claim Characterized as "Breach of Contract"

Donnelly v. O'Malley & Langan, P.C., et al., United States Court of Appeals, Third Circuit, March 16, 2010

Facts:  Plaintiff, proceeding pro se, filed suit against his former attorneys who had represented him in his underlying workers compensation claim.  He alleged that his attorney has failed to adequately investigate his claim prior to negotiating a settlement, and tendered his letter of resignation to his employer before settlement.  Plaintiff raised breach of contract and legal malpractice amongst other claims.

The attorneys moved to dismiss based, in part, on Plaintiff's failure to produce a Certificate of Merit.  The District Court granted the attorneys' motion as to both the breach of contract and legal malpractice claims for failure to produce a Certificate of Merit.  It held that Plaintiff provided no reasonable explanation for failing to file the certificate, and his promise to produce a legal expert in the future did not satisfy the requirement.

Plaintiff appealed and argued that no certificate of merit was necessary as to his breach of contract claims, since that claim did "not call for expert testimony to explain the [attorney's] lapses in judgment or failures in performance."

Issue:  Can Plaintiff proceed with a breach of contract claim against his former attorney without an affidavit/certificate of merit?  

Ruling:  No.

Regardless of how [Plaintiff] chooses to characterize his claim...[his] allegations pertain to the quality of [his former attorney's] professional representation of him, and thus a [Certificate of Merit] is required. 

Since Plaintiff could offer no reasonable explanation or legitimate excuse for his failure to furnish the certificate of merit, the Court dismissed Plaintiff's claim without prejudice.  Unlike New Jersey, the Pennsylvania statute does not require dismissal with prejudice for failure to file the required certificate of merit.

Lesson:   A certificate of merit must be filed in Pennsylvania with regard to any claim that requires the analysis of whether or not an attorney breached the applicable standard of care.  Whether the claim is characterized as beach of contract or legal malpractice is of no consequence. 

Attorney-Client Relationships When You Don't Represent a Client

U.S. v. Costanzo, 625 F.2d 465 (D.N.J., 1980)

3d Cir.  Underlying Criminal Defense (Attorney-Client Relationship and Duty of Confidentiality) 

Student Contributor: Maninder (Meena) Saini

Facts: Defendant (Costanzo), a government informant, was convicted of conspiracy to possess and possession of stolen checks. In the past, the defendant was represented by attorney (Frank Paglianite) on various civil and criminal matters. Additionally, the defendant consulted Paglianite on numerous illegal activities. Paglianite even arranged for the defendant’s bail after his arrest on the instant matter. The defendant retained another attorney to represent him with the conspiracy charge because Paglianite had a conflict of interest in this matter. The defendant alleged that he discussed trial strategies and tactics with Paglianite during the trial proceeding in which Paglianite relayed that information to F.B.I. agents. The defendant claimed that Paglianite was an informant of the F.B.I during the course of their relationship. Defendant appealed from an order of the district court denying both his motions for a new trial and to vacate the sentence he was then-currently serving. The Appeals Court remanded for an evidentiary hearing as to defendant’s claim of a Sixth Amendment violation.

Issue: Did the defendant make disclosures to Paglianite in his capacity as attorney-adviser with the expectation that it was confidential?

Ruling: The  court held that the fact the attorney was not representing defendant in the instant action does not preclude a finding that an attorney-client relationship existed. A relationship between an attorney and client does not need a payment of fee or a formal contract to be formed. The relationship can be formed implicitly, and any communications are privileged when they concern legal advice of any kind sought from an attorney in such capacity.

Lesson:  The question of whether a person is a client or not is crucial to the issue of what duties the lawyer owes to that person. A relationship can form when the clients seeks legal advice from a lawyer in a professional capacity. Attorneys have an ethical duty of confidentiality not to disclose information received from clients.  The rule of confidentiality is to encourage clients to fully and truthfully disclose information relevant to their case. Attorneys cannot take that information and relay it to others for their disadvantage without impeding their role and the administration of justice.

Malpractice Action Preempted by ERISA?

Taylor v. UAW-GM Legal Services Plan, et al., United States District Court, N.D. Ohio, August 13, 2010.

Facts: Plaintiff, a participant in the UAW-GM Legal Services Plan, filed the instant action for legal malpractice, breach of contract, and quantum meruit against the Plan after requesting and, allegedly, receiving negligent legal services from a Plan attorney.

In bringing the three causes of action, Plaintiff alleged that she was improperly denied benefits, i.e. competent legal services,  under the Plan.  The lower court dismissed her cause of action, in part, because the her state law claims were preempted by the federal statute governing the Plan, the Employee Retirement and Income Security Act ("ERISA").

Issue:  Is a claim for legal malpractice preempted where it arises from an attorney's negligence to provide services that are governed by a federal statute? 

Ruling:  Yes, if the Plaintiff's allegations rely upon the attorney's failure to provide services governed by the federal statute.

Despite their different captions, all three claims allege that Defendants denied Plaintiff the legal services she was entitled to under the Plan...It is not the label placed on a state law claim that determines whether it is preempted, but whether in essence such a claim is for recovery of an ERISA plan benefit...This is not to say that all common law legal malpractice or quantum meruit claims against plan attorneys would be preempted by ERISA.  But the thrust of Plaintiff's allegations in this case is that she was improperly denied benefits under the Plan.

Lesson:  Plaintiffs must be careful in how they frame their claim of legal malpractice.  Alleging denial of benefit under a particular plan governed by ERISA may void the state law negligence claim, whereas an allegation of breach of the standard of care applicable to attorneys, independent of plan benefits, may preserve the malpractice claim.

E.D.Pa. Attorneys Fees a Damages Offset in Legal Malpractice Actions?

Duncan v. Lord, 409 F.Supp. 687 (E.D. Pa, 1976)

Underlying action: legal malpractice money damages

Student Contributor: Ryan O'Donnell

Facts: Attorney was found liable for malpractice. In a post trial brief, he asserted that the amount plaintiff would have recovered should be reduced in the malpractice action by the amount of what the attorney’s fee he would have collected.

Issue: Should an award of damages in a malpractice action be reduced by the amount of attorney’s fees the attorney would have collected?

Ruling: No. A deduction of a hypothetical contingent fee fails to compensate a plaintiff fully for a loss of settlement or jury verdict. Any fee which a plaintiff in a malpractice action might have had to pay had the attorney successfully prosecuted the underlying matter or transaction is cancelled out by the attorney’s fees the plaintiff incurred in retaining counsel to establish that the defendant committed malpractice.

Lesson: Courts will not deduct a hypothetical contingent fee from an award because the plaintiff has to incur those expenses and possibly more to prosecute the malpractice action. To take away that hypothetical fee from the award would not fully compensate a plaintiff to “make them whole” again.
 

Law of the Case Doctrine: Not Always a Viable Defense

Speeney v. Powers, et al., United States Court of Appeals, Third Circuit, March 11, 2010

Facts: Appellants were alleged victims of harassment by a university professor. The university retained a law firm to represent it in connection with the professor's de-tenure hearing and to defend the university in a lawsuit instituted by the professor. Appellants believed they had an attorney-client relationship with the law firm. Eventually, the university settled with the professor, but appellants were not consulted during the settlement negotiations.

Appellants thereafter filed suit against the law firm, the professor, and the university. As against the law firm, appellants alleged that the firm violated the attorney-client relationship and breached its fiduciary duty and ethical obligations. Appellants also moved to disqualify the law firm as counsel to the university based on a conflict of interest between appellants and the firm.

The court held an evidentiary hearing to make a determination on the motion to disqualify. The Court found that there was no attorney-client relationship between appellants and the law firm. The firm then moved for summary judgment with respect to appellants' malpractice claims based on the "law of the case" doctrine.

Issue: Can a factual determination made to determine one issue in a case also decide another claim in the same matter that has not otherwise been fully litigated?

Ruling: No. The "law of the case" doctrine limits relitigation of an issue once it has been decided in an earlier stage of the same litigation in order to promote finality, consistency, and judicial economy. The doctrine, however, is discretionary rather than a restriction on the Court's power. It only precludes relitigation of issues that the parties had a full and fair opportunity to litigate.

Here, the Court had made it clear that the evidentiary hearing was not a trial of the merits of appellants' claims and was limited to the issue of disqualification. Moreover, appellants' lawyer had stated that if he had been trying to prove his malpractice case, he would have pursued more discovery.

Appellants further argued that there is an exception to the "law of the case" doctrine when new evidence is presented. The Court agreed:

Reconsideration of a previously decided issue may, however, be appropriate in certain circumstances, including when the record contains new evidence...This exception to the law of the case doctrine makes sense because when the record contains new evidence, the question has not really been decided earlier and is posed for the first time...But this is only if the new evidence differs materially from the evidence of record when the issue was first decided and if it provides less support for that decision.

Lesson: A factual determination during one phase of a matter will not necessarily be determinative of a professional negligence claim where the claim has not otherwise been fully litigated, or new evidence has since been uncovered to support the claim.

Duty to Communicate Settlement Offers

Moores v. Greenberg 834 F.2d 1105, (1st Cir. 1987)

Fed'l Underlying Longshoreman's Act 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  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.

Third Circuit: Applies Baxt and Distinguishes Petrillo

Flaherty-Wiebel v. Morris, Downing & Sherred, Court of Appeals, Third Circuit, June 10, 2010

Facts:  At the request of their client, Wiebel (Plaintiff's former husband), the Defendant attorneys drafted a pre-nuptial agreement.  Plaintiff was advised that Defendant attorneys had drafted the agreement on behalf of Wiebel.  Plaintiff was represented by separate counsel during the negotiation of the agreement.

The agreement provided that Plaintiff owned 49% of a certain entity ("Entity") and Wiebel owned 51%.  In actuality, Wiebel owned 99% and his son owned the remaining 1%.  Upon the execution of the pre-nuptial agreement, Plaintiff married Wiebel. 

Approximately four years later, Wiebel filed for divorce.  Plaintiff subsequently brought this litigation, alleging (1) that the Defendant attorneys' misrepresentations in the pre-nuptial agreement concerning her ownership interest in the Entity disadvantaged her in the negotiation of her property settlement agreement, and (2) that the attorneys' allegedly breached certain Rules of Professional Conduct.

Issue:  Does a violation of the Rules of Professional Conduct constitute legal malpractice?  What is the extent of an attorney's duty to a non-client? 

Ruling:  The Court affirmed the New Jersey Supreme Court's holding in Baxt v. Liloia, 714 A.2d 271 (1998), and held that a violation of the Rules of Professional Conduct cannot sustain a cause of action for legal malpractice: 

New Jersey does not recognize an independent cause of action for the violation of the Rules of Professional Conduct, but violations of these rules may be used to support a claim of legal malpractice.  New Jersey courts have defined legal malpractice as negligence relating to an attorney's representation of a client.

Accordingly, the Court held that it was necessary for Plaintiff to establish that she was the Defendant attorneys' client.  Plaintiff could not do so and argued that Defendants owed her a limited duty under Petrillo v. Bachenberg, 655 A.2d 1354 (N.J. 1995). 

In Petrillo, the Court held that an attorney representing the seller of property had a duty not to provide misleading information regarding the property to potential buyers who the attorney knew, or should have known, would rely on the information.  In order to determine whether the duty applied here, the Court first ascertained the purpose of the document.  The Court concluded that the attorneys had drafted the pre-nuptial agreement to memorialize the parties' agreement, not to induce either party to enter into the agreement.  Accordingly, the Court held that Petrillo did not apply:

[A]n attorney who puts into writing an agreement between two parties does not vouch for the representations either party has made to the other. The attorney only puts into writing the representations that the parties intend to make to each other. The act of drafting does not make the attorney responsible for the accuracy of the statements placed on paper.

Lesson:  A violation of the Rules of Professional Conduct, in and of itself, cannot serve as a basis for a malpractice action.  An attorney, by undertaking the task of setting forth the understanding of two individuals in a writing, does not owe non-clients the duty to verify the accuracy of a party's representations therein.

Privity in Admiralty Botched Wrongful Death Settlement

Chatterjee v. Due, 511 F. Supp. 183, 1982 A.M.C. 2970 (E.D. Pa. 1981)

Admiralty Law: Wrongful Death Settlement

Student Contributor: John Anzalone

Facts: Decedent was killed in a maritime ship collision in Pennsylvanian waters. Plaintiff, mother of the deceased, sues Defendant Law Firm that negotiated on behalf of one ship owner with her son-in-law in his suit to collect damages for her son's death. Plaintiff claims no settlement regarding son's death occurred because her son-in-law was not authorized to represent her interest as her son's sole heir. Defendant entered into the settlement without her consent and her son-in-law received the proceeds of the settlement based on his forgeries.

Issue: Did Defendant-Lawyers owe the non-client Plaintiff any legal duty? 

Ruling: The court granted Defendant's motion to dismiss, holding that Defendant owed the plaintiff no legal duty of representation, based on the following considerations:
1) The theory allowing beneficiaries to sue a testator's attorneys despite a lack of privity is not applicable here because the protection of a beneficiary's interest and the testator's intent only occurs if a will is validly drawn. Further, in a will, an attorney is on notice that the testator's intent depends on their services. Will beneficiaries are allowed to sue because they are intended successors to a continuing attorney-client relationship between the attorney and the testator
2) Here, there is no will involved that would become defective through the acts of Defendant
3) Additionally, a reasonable attorney would have no reason to question his opponent's authority to enter into a settlement.
4) Furthermore, Plaintiff's claim fails because she cannot show that she was damaged by Defendant's negligence unless she was foreclosed from some right or property because the settlement was valid and not effected by fraud. Her allegations against her son-in-law undermine this because if they were true, the settlement would be invalid and not binding upon her.
5) Even if there was a valid settlement binding upon her, there is no duty running between Defendant and Plaintiff.

Lesson: A plaintiff has to be actually damaged before they can sue a lawyer for malpractice. Additionally, attorneys can agree to make payments from their client to their adversary if a reasonable lawyer would conclude that there was no reason to doubt their adversary's authority to agree to the settlement. 

TX: Legal Malpractice Actions Don't "Arise Under" Federal Law

Roof Technical Services, Inc. v. Hill, 679 F.Supp.2d 749 (N.D.Texas 2010)

Underlying Patent/Trademark Matter

Facts:  Plaintiff invented a roof venting technique and retained Defendant Hill to secure patent protection.  In the instant action, Plaintiff alleged that it was unable to obtain patent protection due, in part, to Defendant's failure to timely submit a conforming application to the U.S. Patent and Trademark Office.  Based on that allegation, Plaintiff filed suit in the United States District Court, Northern District of Texas.  Since there was no diversity of citizenship, the Court examined whether the action "arose under" federal patent law to establish jurisdiction.

Issue:  Can a legal malpractice action based on underlying patent law issues be brought in federal court? 

Ruling:  Not where a determination of the professional negligence action requires only application of federal law. 

Plaintiff argued that it properly brought the malpractice action in federal court, since a determination would require the Court to (1) analyze whether its invention was patentable under federal law; (2) the standard of care against which Defendant's conduct would be measured requires reference to patent regulations and guidelines; and (3) the determination of damages requires a valuation of the allegedly lost patent. 

The Court, however, found Plaintiff's argument to be unpersuasive and held that the action was "traditionally" a state case.  The Court found that federal jurisdiction would be inappropriate, since there was, apparently, no need to "determine the meaning of federal patent law".  Rather, the issues raised required "only application of federal law to the specific facts of the case". 

Furthermore, the Court explained that while "there is a federal interest in the uniform application of patent laws...that interest is not implicated here, where no patent rights are actually at stake."

No patent has issued for [Plaintiff's] invention and none will issue.  Thus, even if the Court must decided patent law issues, those decisions will not create or destroy any patent rights such that uniformity in the way patents are issued or enforced will be threatened.  In other words, the determinations that might occur in this action do not justify resort to the experience, solicitude, and hope of uniformity that a federal forum offers on federal issues.

***

Boiled down, this action is about Defendant's [alleged] failure to meet deadlines and communicate with their clients.  Patent issues are merely floating on the periphery.  Thus, this action does not belong in federal court.

Lesson:  Actions that require only the application of federal law to make a determination with regard to plaintiff's legal malpractice claims, do not sufficiently "arise under" federal law for purposes of establishing federal jurisdiction.

Coverage Issues: Claims Made Policies and the Late Notice Defense

Berry & Murphy, P.C. v. Carolina Casualty Ins. Co., 586 F.3d 803 (10th Cir. 2009).

Underlying Legal Malpractice Action

Facts:  The Burkhardts retained Plaintiff to represent them in a personal injury lawsuit in or about January, 2005.  More than a year later, in March, 2006, Murphy, the attorney responsible for the Burkhardt matter left the Plaintiff law firm to join a new firm.  Murphy initially took the Burkhardt matter with him, but shortly thereafter, filed a motion to withdraw as counsel for lack of cooperation by the Burkhardts.  

The Burkhardts’ claim was eventually dismissed without prejudice for failure to prosecute in June, 2006. The Burkhardts hired new counsel, moved for reconsideration, and successfully reinstated their complaint.  In December, 2007, however, the Burkhardts’ claim was again dismissed for failure to provide discovery.

In the meantime, the Burkhardts’ new counsel had sent Murphy a letter in January, 2007 advising him that she intended to file a legal malpractice claim against him due to his failure to submit witness disclosures.  Murphy did not provide a copy of this notice to his former firm.  

In January, 2008, the Burkhardts did in fact file a legal malpractice claim against Murphy and his former firm.  Murphy's former firm was was insured by Carolina Casualty Insurance Company under a claims made policy in effect from February 6, 2008, to February 6, 2009.  The firm was served with the lawsuit on July 23, 2008 and promptly reported it to Carolina Casualty. Carolina Casualty denied coverage on the grounds that the alleged malpractice claim was first made against an insured, Murphy, prior to the effective date of the policy.  

Issue:  Does a carrier have a duty to provide a defense or indemnity under a claims made policy on a claim initially reported to an insured prior to the commencement of the coverage period and over a year prior to service of the complaint?  

Ruling:  No. The District Court ruled in favor of Carolina Casualty and the Plaintiff law firm appealed.  On appeal, the Tenth Circuit held that a claims made policy confers coverage for claims presented during the policy period. The policy stated that a claim will be deemed to have been first made at the time notice of the claim is first received by any insured. The policy further stated that "all claims based upon or arising out of the same wrongful acts or any related wrongful acts, or one or more series of any similar, repeated, or continuous wrongful act or related wrongful acts, shall be considered a single claim". The court, determining that the wrongful acts alleged in the Burkhardts' January, 2007 letter were related to the acts alleged in the malpractice claim, and that Murphy was an insured under the terms of the policy, held that Carolina Casualty was entitled to disclaim coverage.
 

Lesson:  Law firms and individual insureds must advise their professional liability carriers immediately upon receiving notice of a potential claim to avoid a disclaimer of coverage based on the "late notice defense".  A claims made policy will not cover claims that were reported prior to the inception of the policy period.

NJ: Duties to Third-Parties

O’Brien v. Cleveland, 2010 Bankr. LEXIS 171 (Bankr. D.N.J. Jan. 22, 2010).

Underlying commercial action

Facts: Debtors filed a chapter 13 bankruptcy after falling behind on their mortgage payments. Even after the Chapter 13 filing, however, the debtors were unable to keep up with their payments under the the court ordered plan. Eventually, the first mortgage holder commenced a mortgage foreclosure on the debtors’ home. To avoid a sheriff’s sale of their property, the debtors entered into a mortgage rescue arrangement with Cleveland.

The rescue plan was a scam by Cleveland to defraud the debtors. It required the debtors to transfer title in their property, worth over $800,000, to Cleveland, with an option to buy it back at $650,000. Cleveland was to take out a new mortgage on the property, pay off the debtors’ old mortgage and some other outstanding debts in bankruptcy, and permit the debtors to continue to occupy the house in exchange for a payment of $5,000 per month to be used to service the new mortgage.

Cleveland’s attorney, William E. Gahwyler, Jr., prepared all of the closing documents for this transaction, including the HUD-1 statement. The statement contained a number of misrepresentations, including an incorrect sale price, a misrepresentation of Cleveland’s investment in purchasing the property, and a misrepresentation of the debtors’ proceeds from the sale. Moreover, the transaction was never reported by Gahwyler to the bankruptcy court for approval.

The debtors subsequently learned that Cleveland had mortgaged their property for over $100,000 in excess of the outstanding mortgages for its personal benefit. Likewise, the debtors’ $5,000 monthly payments were not being used to satisfy the debt on the property. Eventually, the lender moved to foreclose on the property, and the debtors filed an adversary complaint against Cleveland and its attorney, Gahwyler, alleging fraud, legal malpractice, conspiracy, and violation of a number of statutes.

Issue: Did Gahwyler owe a duty to the debtors in his capacity as attorney for Cleveland?

Holding: The court held that the debtors were entitled to a judgment against Cleveland based on causes of action arising in fraud, violation of the New Jersey Consumer Fraud Act, Truth in Lending Act, Home Ownership and Equity Protection Act, and New Jersey Home Ownership Security Act of 2002.

The court further held that the lack of an attorney-client relationship between the debtors and Gahwyler was no bar to obtaining relief against him:

Mr. Gahwyler should have withdrawn from representing Mr. Cleveland as soon as the nature of the transaction became known to him…[a]s an attorney, Mr. Gahwyler had an ethical obligation to prepare an accurate closing statement and should have withdrawn from representing Cleveland rather than create an inaccurate closing statement . . . had Gahwyler fulfilled his ethical responsibilities, Cleveland could not have carried out his plot. Gahwyler’s failure to perform his ethical obligations proximately caused damages to the debtors in the amount of the increased debt encumbering this house.

Lesson: An attorney who knowingly participates in the fraudulent scheme of his client will be held responsible for damages proximately sustained by a third-party as a result of the deceptive conduct.

US Supreme Court: FDCPA: No Bona Fide Error Defense for Mistakes of Law

Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA et al., 2010 WL 1558977 (U.S. April 21, 2010).

Facts:  Jerman sued Carlisle, McNellie, Rini, Kramer & Ulrich (the “Defendant law firm”) for, allegedly, violating the Federal Debt Collection Practices Act (“FDCPA”) by representing to Jerman that her debt would be assumed valid unless she disputed the debt “in writing” even though the FDCPA does not require a written dispute.
 

The Defendant law firm argued that their mistake was excused under the FDCPA’s bona fide error defense:

A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.

Issue:  Can attorneys avoid liability for a mistake of law under the FDCPA's bona error defense? 

Ruling:  The Supreme Court reversed the Appellate Division and held that the bona fide error defense does not apply to a violation resulting from a debt collector’s mistaken interpretation of the legal requirements of the FDCPA. The Court declined to adopt an expansive reading of the defense and relied upon the “common maxim” that “ignorance of the law will not excuse any person, either civilly or criminally”.

The Court reasoned that the bona fide error defense’s requirement of maintaining “procedures reasonably adapted to avoid any such error…naturally evokes procedures to avoid mistakes like clerical or factual errors”:

The dictionary defines procedure as a series of steps followed in a regular orderly definite way…In that light, the statutory phrase is more naturally read to apply to processes that have mechanical or other such regular orderly steps to avoid mistakes…But legal reasoning is not a mechanical or strictly linear process.

The Court next considered the Defendant law firm’s argument that Congress’ decision to amend only the bona fide error defense in the Truth in Lending Act to specifically exclude “errors of legal judgment” evidenced its intent to include mistakes of law in the FDCPA’s bona fide error defense. The Court disagreed:

[I]t is not obvious that the amendment changed the scope of TILA’s bona fide error defense in a way material to our analysis, given the uniform interpretations of three Courts of Appeal holding that the TILA defense does not extend to mistakes of law.

Furthermore, the Court stated that Congress likely did not intend the defense to apply to mistakes of law, since Congress did not expressly include mistakes of law in any of the parallel bona fide error defenses elsewhere in the U.S. Code.

In response to the argument that the threat of liability under the FDCPA might create an irreconcilable conflict between an attorney’s personal financial interest and her ethical obligation of zealous advocacy on behalf of a client, the Court noted that “an attorney’s ethical duty to advance the interests of his client is limited by an equally solemn duty to comply with the law and standards of professional conduct”.

Finally, the Court noted that the FDCPA contains a safe harbor defense for “any act done or omitted in good faith in conformity with any [Federal Trade Commission] advisory opinion” that is more tailored to address the mistake at issue than the bona fide error defense. Although the Court recognized that the Federal Trade Commission has issued only four opinions in the past decade, and has an average processing time in excess of three months, the Court concluded that the existence of this separate, more apposite provision weighs against “stretching” the bona fide error defense to provide protection for mistakes of law.

Lesson:  An attorney cannot rely upon the FDCPA's bona fide error defense for misinterpretations of the statute's legal requirements.

Editor's Note:  Jerman involves only a mistake of law under the FDCPA. Accordingly, it is not clear whether Jerman is applicable to mistakes of state law or federal law on issues other than the FDCPA.  The Courts of Appeal have expressed different views on this issue.

Getting Snagged for Legal Malpractice by Plaintiff's Successor in Interest

 In re Segerstrom 247 F. 3d 218 (5th Cir. 2001)

TX: Underlying personal injury then bankruptcy, post judgment

Student Contributor: Brad Kvinta (J.D. (2010), Texas Tech University School of Law, B.S. (2006)Texas A & M University)

FACTS: In 1995, a vehicle driven by Kayla Segerstrom (Segerstrom) was involved in a collision with a vehicle driven by the Colvins. The collision caused one death and other serious injuries. The Colvins sued Segerstrom, her parents, and her parents’ sole proprietorship (“defendants”). The defendants’ insurance company hired Touchstone as defense counsel. A judgment was then entered solely against Segerstrom. Shortly thereafter, “the Colvins filed an involuntary bankruptcy petition against Segerstrom.” The bankruptcy estate (“estate”) then filed a complaint against Touchstone and the insurance company. “The complaint alleged that Touchstone had an inherent conflict of interest in representing Segerstrom, her parents, and her parents’ sole proprietorship as defendants in the same litigation.” “In October 1998, Segerstrom’s personal liability to the Colvins was discharged.” Summary judgment was entered against the estate, and the trustee appealed.

ISSUE: Whether Segerstrom’s bankruptcy estate included a legal malpractice claim against Touchstone and, if so, whether Touchstone, and the insurance company, are liable under that claim?

RULING: On appeal, the court indicated that Segerstrom’s bankruptcy estate included a legal malpractice claim against Touchstone. “As of the commencement of Segerstrom’s bankruptcy case, a legal malpractice claim against Touchstone had accrued to Segerstrom according to Texas law.” See In re Swift, 129 F.3d 792, 795-96 (5th Cir. 1997). “Segerstrom never denied or waived that malpractice action prior to the commencement of her bankruptcy.” Thus, the court indicated that the estate could maintain a legal malpractice claim against Touchstone.

Although the court indicated that a legal malpractice action could be filed on behalf of the estate, the estate did not prove that “but for the manner in which Touchstone conducted her defense, Segerstrom would have obtained a better result in the prior litigation.” In other words, the estate failed to prove the Segerstrom suffered any injury as a result of the alleged malpractice.

The court based this conclusion on Segerstrom’s post-petition affidavit, which denied the existence of a legal malpractice claim. The court noted that although this affidavit is irrelevant to the existence of a legal malpractice claim, it “carries considerable weight in determining whether the estate has met its burden of establishing injury and causation in accordance with Texas law.” Therefore, summary judgment in favor of Touchstone was proper.

Further, “Texas requires that insurance companies act with reasonable care in fulfilling their duty to defend under insurance contracts.” See Meridian Oil Production, Inc. v. Hartford Accident, 27 F.3d 150, 153 (5th Cir. 1994). The court indicated that the estate pointed to no authority in Texas that shows this duty requires the insurance company to identify conflicts and take steps to address them prior to hiring legal counsel for its insured. The court also indicated that even if this duty existed, there is insufficient evidence presented to support a breach of that duty. Therefore, summary judgment in favor of the insurance company was proper.

LESSON: Lawyers may be liable for legal malpractice to a plaintiff’s successor in interest. A successor in interest is a person entitled to the same legal rights as the plaintiff. In other words, a successor in interest is free to pursue any claim that the plaintiff was entitled to pursue. Thus, a lawyer must defend a legal malpractice claim against a successor in interest so long as the successor in interest is legally entitled to pursue such a claim and meets all requirements to successfully prosecute the claim.


In this case, legal malpractice claims survive the initiation of bankruptcy proceedings, even if personal liability in the underlying lawsuit has been discharged. Trustees (the successor in interest in this case) are free to pursue any claims which the debtor could have pursued prior to the initiation of a bankruptcy proceeding. Further, there is no duty under Texas law for an insurance company to identify conflicts and take steps to rectify said conflicts prior to the commencement of any legal proceeding.

Standing to Assert Legal Malpractice: The Wagoner Rule, Adverse Interest Exception, and Sole Actor Rule

Cobalt Multifamily Investors I, LLC v. Shapiro, 2009 WL 2058530 (S.D.N.Y. July 15, 2009)

Facts:  Receiver for the defunct Cobalt Multifamily Investors I, LLC entities (“Cobalt”) filed suit against three sets of attorneys and their law firms for malpractice, looting, aiding and abetting conversion, conversion, unjust enrichment, breach of fiduciary duty, and breach of contract.  

The defendants moved to dismiss for lack of standing under the Wagoner Rule and the Court granted their motion.  The Wagoner Rule provides that a bankrupt corporation, and by extension, an entity that stands in the corporation’s shoes, lacks standing to assert claims against third parties for defrauding the corporation where the third parties assisted corporate managers in committing the alleged fraud. The Court rejected the Receiver’s argument that the adverse interest exception applied and granted the motion to dismiss, holding that the managers’ misconduct provided at least some financial benefit to the Cobalt entities, and therefore, they did not totally abandon the interests of the corporation, and were not acting entirely for their own or another’s purpose.  The Receiver filed a Motion for Reconsideration.  

Issue:  Did the Receiver have standing to bring a professional malpractice claim against the law firm defendants on behalf of Cobalt?

Ruling:  The Receiver had standing to bring a malpractice suit on behalf of the defunct entity. 

Applicability of the Adverse Interest Exception to the Wagoner Rule:

In granting the Motion for Reconsideration, the Court rejected the notion that a benefit to the corporation from the wrongdoer’s conduct precludes application of the adverse interest exception, and instead held that a corporation’s manager can totally abandon a corporation’s interests even if the manager’s actions somehow benefit the corporation because the relevant inquiry is whether the manager intended to benefit the corporation. 

Under this standard, the Court agreed that the Receiver’s allegations supported the conclusion that Cobalt’s managers had the intent to totally abandon Cobalt’s interests by utilizing investor funds for their personal benefit.  

The Court rejected the attorneys’ argument that the adverse interest exception is inapplicable because the managers set up a corporation expressly for the purpose of defrauding outsiders and by doing exactly that, they actually furthered the corporation’s interests:

Implicit in this argument is the view that the interests of the corporation should be defined solely by considering the interests of the managers, and not by considering the interests of the shareholders as well. Law Firm Defendants offer no compelling legal support for this position. Moreover, this position runs contrary to basic principles of corporate law that take into account the interests of the shareholders when defining the interest of the corporation.

Applicability of the Sole Actor Rule to the Adverse Interest Exception:

The Law Firm Defendants argued that even if the adverse interest exception applied to the Wagoner Rule, the sole actor rule would still preclude the Receiver’s standing to bring claims against them. The sole actor rule is an exception to the adverse interest principle and applies where the principal and agent are one and the same. In such instances, the agent’s knowledge is imputed to the principal, unless the corporation had owners or managers who were innocent of the fraud. 

The Court held that the sole actor rule would not prevent the Receiver from pursing his claims against the Law Firm Defendants, since the corporation (the principal) had 300 innocent shareholders versus three fraudulent managers. More importantly, the shareholders had the authority to stop the fraud, and would have done so had they known about it.

The Law Firm Defendants argued that the managers dominated and controlled the corporation, and therefore, the sole actor rule must apply notwithstanding the innocent shareholders. The Court found no merit to this argument, however, since the managers of Cobalt did not have “complete control”, i.e. the shareholders had the authority to remove them.

Lesson:  A Receiver will be allowed to bring professional malpractice claims where he can establish the insiders' intent to benefit themselves at the expense of the corporation and its shareholders.

FDCPA: The Bona Fide Error Defense

Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, 538 F.3d 469 (6th Cir. 2008)

Facts:  Plaintiff alleged that the Defendant law firm violated the Federal Debt Collection Practices Act (“FDCPA”) by representing to her that her debt would be assumed valid unless she disputed the debt “in writing” even though the FDCPA does not require a written dispute.  Defendants filed a motion for summary judgment on the basis that that they qualified for the FDCPA bona fide error defense. The district court granted the motion and Jerman appealed on two grounds: (1) the district court erred in concluding that the FDCPA’s bona fide error defense may apply to mistakes of law, and (2) even if the defense does apply to mistakes of law, a question of fact remains as to whether defendants maintained procedures reasonably calculated to avoid the violation.
 

Issue:  Was the Defendant law firm's mistake a bona fide error under the FDCPA?

Ruling:  Yes.

The FDCPA bona fide error defense (15 U.S.C. § 1692k(c)) provides:

A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.

Whether the bona fide error defense applies to mistakes of law or procedural/clerical error was an issue of first impression for the Court. The Court reviewed the case law from the Sixth Circuit as well as other jurisdictions, and ultimately rejected Jerman’s argument that the FDCPA bona fide error defense should apply only to clerical mistakes because the Truth In Lending Act (“TILA”) bona fide error defense applies only to clerical errors, since the TILA, unlike the FDCPA, is explicitly limited to “clerical, calculation, computer malfunction and programming, and printing errors, except that an error of legal judgment with respect to a person's obligations under this subchapter is not a bona fide error.” The FDCPA, on the other hand, has no such provision.

The Court also rejected Jerman’s argument that the phrase “maintenance of procedures reasonably adapted to avoid any such error” references clerical errors because “ it makes no sense that a collector can maintain procedures reasonably adapted to avoid mistakes of law”.  The Court stated:

[T]here is nothing unusual about attorney collectors maintaining procedures, such as frequent education and review of the FDCPA.

After concluding that mistakes of law may be considered bona fide errors, the Court held that defendants had , in fact, set up satisfactory procedures in an effort to avoid such errors by:

  • Designating a principal of the firm for handling compliance issues;
  • Regularly attending seminars on FDCPA issues;
  • Subscribing to relevant publications; and
  • Counseling attorneys and other employees on the firm’s obligations under the FDCPA and providing them with a procedures manual;

Finally, the Court rejected Jerman’s argument that adoption of the model language contained in the International Guide to the FDCPA of the American Collector’s Association is the only acceptable procedure to avoid the legal error at issue.

Lesson:  Attorneys may be able to rely on the bona error defense to avoid liability under the FDCPA for mistakes of law by incorporating compliance mechanisms into their practice, keeping abreast of pertinent developments, and educating support staff of the firm's obligations under the FDCPA.

Note: The US Supreme Court has granted cert. See 129 S.Ct. 2863 (2009),  as  there is conflict among the circuits with the 2d, 8th and 9th circuits holding that the bona fide error defense does not apply to violations resulting from legal mistakes. Stay tuned. We will keep  you posted as soon as the Court rules. 

Underlying Criminal Defense Malpractice: A Study in Client "Chutzpah"!

Sash v. Schwartz,  2007 WL 30042 (S.D.N.Y. 2007).

N.Y. underlying criminal conviction

Student contributor: Cheryl Neuman

Facts: Plaintiff was represented by defendant attorney in a criminal proceeding. Plaintiff was arrested for unlawfully possessing and producing N.Y.P.D. badges and selling counterfeit police badges. He was also arrested for possession of counterfeit bar code stickers for merchandise at K-Mart stores. After appearing before the magistrate judge, plaintiff pled guilty to two counts. He was  sentenced to eight years of supervised release. The Second Circuit affirmed the conviction but decreased the supervised release to three years. Plaintiff was also indicted for fraud, arising from filing false insurance documents claiming that his wife had been killed in the World Trade Center attacks on 9/11. Plaintiff claims that but-for defendant’s negligent representation, he would not have pled guilty to the various crimes with which he was charged.

Issue: Is the defendant liable to the plaintiff for legal malpractice?

Ruling: No, the defendant is not liable to the plaintiff for legal malpractice because a criminal defendant must show that the alleged legal malpractice was the “cause of the conviction.” Claudio v. Heller, 119 Misc.2d 432 (N.Y. Sup. Ct. 1983). The standard for a criminal defense malpractice claim differs from the standard for civil legal malpractice.  A plaintiff must allege his innocence of the underlying offense to successfully bring a legal malpractice case against his attorney in an underlying criminal proceeding. The elements of a malpractice case in N.Y. are:
1) A duty
2) A breach of the duty, and
3) Proof that actual damages were proximately caused by breach of the duty

Lesson: “A criminal defendant may be able to prove that but for the action of his counsel he would have invoked the 5th amendment or succeeded in suppressing evidence.” Carmel, 70 N.Y.S.2d 173. A criminal defendant, however, who pled guilty or was found to be guilty, cannot assert his innocence. It is for that reason that a criminally convicted plaintiff cannot bring a legal malpractice cause of action under these circumstances. Had the conviction been overturned or vacated, then plaintiff’s claim might  not have been barred.

US Supreme Court: Padilla v. Kentucky: New Constitutional Dimensions of Legal Malpractice Announced

SUPREME COURT OF THE UNITED STATES
Syllabus
PADILLA v. KENTUCKY
CERTIORARI TO THE SUPREME COURT OF KENTUCKY
No. 08–651. Argued October 13, 2009—Decided March 31, 2010


Petitioner Padilla, a lawful permanent resident of the United States for over 40 years, faces deportation after pleading guilty to drug-distribution charges in Kentucky. In postconviction proceedings, he claims that his counsel not only failed to advise him of this consequence before he entered the plea, but also told him not to worry about deportation since he had lived in this country so long. He alleges that he would have gone to trial had he not received this incorrect advice. The Kentucky Supreme Court denied Padilla post conviction relief on the ground that the Sixth Amendment’s effective-assistance-of-counsel guarantee does not protect defendants from er-roneous deportation advice because deportation is merely a “collateral” consequence of a conviction.

Held: Because counsel must inform a client whether his plea carries a risk of deportation, Padilla has sufficiently alleged that his counsel was constitutionally deficient. Whether he is entitled to relief depends on whether he has been prejudiced, a matter not addressed here. Pp. 2–18.

(a) Changes to immigration law have dramatically raised the stakes of a noncitizen’s criminal conviction. While once there was only a narrow class of deportable offenses and judges wielded broad discretionary authority to prevent deportation, immigration reforms have expanded the class of deportable offenses and limited judges’authority to alleviate deportation’s harsh consequences. Because the drastic measure of deportation or removal is now virtually inevitablefor a vast number of noncitizens convicted of crimes, the importance of accurate legal advice for noncitizens accused of crimes has never been more important. Thus, as a matter of federal law, deportation is an integral part of the penalty that may be imposed on noncitizen de-fendants who plead guilty to specified crimes. Pp. 2–6.

(b) Strickland v. Washington, 466 U. S. 668, applies to Padilla’s claim. Before deciding whether to plead guilty, a defendant is entitled to “the effective assistance of competent counsel.” McMann v. Richardson, 397 U. S. 759, 771. The Supreme Court of Kentucky rejected Padilla’s ineffectiveness claim on the ground that the advice he sought about deportation concerned only collateral matters. However, this Court has never distinguished between direct and collateral consequences in defining the scope of constitutionally “reason-able professional assistance” required under Strickland, 466 U. S., at 689.

The question whether that distinction is appropriate need not be considered in this case because of the unique nature of deportation. Although removal proceedings are civil, deportation is intimately related to the criminal process, which makes it uniquely difficult to classify as either a direct or a collateral consequence. Because that distinction is thus ill-suited to evaluating a Strickland claim concerning the specific risk of deportation, advice regarding deportation is not categorically removed from the ambit of the Sixth Amend-ment right to counsel. Pp. 7–9.

(c) To satisfy Strickland’s two-prong inquiry, counsel’s representation must fall “below an objective standard of reasonableness,” 466 U.S., at 688, and there must be “a reasonable probability that, but for counsel’s unprofessional errors, the result of the proceeding would have been different,” id., at 694. The first, constitutional deficiency, is necessarily linked to the legal community’s practice and expectations. Id., at 688. The weight of prevailing professional norms supports the view that counsel must advise her client regarding the deportation risk. And this Court has recognized the importance to the client of “ ‘[p]reserving the . . . right to remain in the United States’ ”and “preserving the possibility of” discretionary relief from deporta-tion. INS v. St. Cyr, 533 U. S. 289, 323. Thus, this is not a hard case in which to find deficiency: The consequences of Padilla’s plea could easily be determined from reading the removal statute, his deportation was presumptively mandatory, and his counsel’s advice was incorrect. There will, however, undoubtedly be numerous situations in which the deportation consequences of a plea are unclear. In those cases, a criminal defense attorney need do no more than advise a noncitizen client that pending criminal charges may carry adverse immigration consequences. But when the deportation consequence is truly clear, as it was here, the duty to give correct advice is equally clear. Accepting Padilla’s allegations as true, he has sufficiently alleged constitutional deficiency to satisfy Strickland’s first prong.Whether he can satisfy the second prong, prejudice, is left for the Kentucky courts to consider in the first instance. Pp. 9–12.

(d) The Solicitor General’s proposed rule—that Strickland should be applied to Padilla’s claim only to the extent that he has alleged affirmative misadvice—is unpersuasive. And though this Court must be careful about recognizing new grounds for attacking the validity of guilty pleas, the 25 years since Strickland was first applied to ineffective-assistance claims at the plea stage have shown that pleas are less frequently the subject of collateral challenges than convictions after a trial. Also, informed consideration of possible deportation canbenefit both the State and noncitizen defendants, who may be able toreach agreements that better satisfy the interests of both parties. This decision will not open the floodgates to challenges of convictions obtained through plea bargains. Cf. Hill v. Lockhart, 474 U. S. 52,58. Pp. 12–16. 253 S. W. 3d 482, reversed and remanded.


STEVENS, J., delivered the opinion of the Court, in which KENNEDY, GINSBURG, BREYER, and SOTOMAYOR, JJ., joined. ALITO, J., filed an opin-ion concurring in the judgment, in which ROBERTS, C. J., joined. SCALIA, J., filed a dissenting opinion, in which THOMAS, J., joined

The Damage of "Justice Delayed" is not "Actual Damage"

Boerger v. Levin, 812 F. Supp. 564 (E.D.Pa 1993)

PA: Underlying mortgage foreclosure

Student Contributor: Joshua D. Aronson

Facts: The plaintiff hired the defendant to represent him in a mortgage foreclosure action. The plaintiff is suing the defendant for malpractice for his handling of the matter. He claims that the defendant failed to bring the foreclosure action to trial before the defendant in the foreclosure action filed for bankruptcy, thereby staying the foreclosure proceedings. Although the foreclosure action is still pending in the courts, the plaintiff claims this negligence thereby delayed, reduced, and possibly eliminated the plaintiff’s mortgage recovery. The plaintiff is also claiming that he must bring this malpractice action now because of the statute of limitations on the malpractice claim.

Issues: 

1) Can a client bring a malpractice action against his attorney for anticipated loses when an actual injury to the client has yet to be established?

2) When does the statute of limitations start on a malpractice claim when the underlying action is still pending in the courts?

Ruling:

1) As to Issue #1 the court held that the plaintiff can point to no actual loss which can constitute an injury at the hands of the defendant. The court further held that since the underlying suit in which the defendant represented the plaintiff had not yet concluded, the plaintiff cannot show that the defendant’s performance proximately caused his injury or even that he was slightly injured at all.
*This holding hinged on Pennsylvania case law which established that legal malpractice plaintiffs must prove actual loss resulting from the defendants conduct.

2) As to Issue #2 the court held that the statute of limitations on a malpractice claim such as this one will not start running until the plaintiff suffers actual damage. In this case since the claim has not yet been settled, the limitations period cannot yet begin.

Lesson:

1)Under Pennsylvania law, a client cannot bring a malpractice claim against his attorney until he suffers an injury as a consequence of his attorney’s negligence.

2) The statute of limitations on a malpractice claim does not start running until the plaintiff suffers actual damage.

 

Smith v. Spisak: Supreme Court Bars Ineffective Assistance of Counsel Claim Based On Client's Admissions

Smith v. Spisak, 130 S.Ct. 676 (Jan. 12, 2010).

Underlying Criminal Matter

Facts:  Frank G. Spisak, Jr. was convicted in an Ohio trial court of three murders and two attempted murders. He was sentenced to death. He filed a habeas corpus petition in federal court alleging constitutional errors at trial. Spisak claimed that he suffered significant harm, in part, as a result of his counsel’s inadequate closing argument at the penalty phase of the proceeding. The Federal Court of Appeals accepted Spisak’s argument and ordered habeas relief. The State of Ohio sought certiorari and the United States Supreme Court granted the petition.

Spisak claimed that his counsel’s closing argument at the sentencing phase of his trial was so inadequate as to violate the Sixth Amendment. In his closing argument at the penalty phase, Spisak’s counsel allegedly portrayed him as “sick, twisted and demented…[that he] was never going to be any different”, and that even if Spisak was not legally insane so as to warrant a verdict of not guilty by reason of insanity, he nonetheless was sufficiently mentally ill to lessen his culpability to the point where he should not be executed. Counsel further argued that “humanity” required the jury to weigh the evidence “fairly”.

Spisak claimed the closing argument was constitutionally inadequate because it (1) emphasized the gruesome nature of the killings and Spisak’s threats to continue his crimes, (2) understated the facts that demonstrated Spisak’s mental illness; (3) said nothing about mitigating circumstances; and (4) made no explicit request for a verdict against death.

Issue:  Did the flaws in counsel's oral argument constitute valid grounds for Spisak's claim for ineffective assistance of counsel? 

Ruling:  The Supreme Court found that there was no reasonable probability that a better closing argument would have made a significant difference, given counsel’s concerted effort to bring Spisak’s mental illness to the forefront by producing three experts who testified at length with respect to the connections between Spisak’s crimes and his mental illness. More importantly, the Court found that Spisak’s own damning testimony that Adolf Hitler was his “spiritual leader in a war for survival…[and] his duty [was] to inflict the maximum amount of casualties on the enemies…again and again and again and again” left no doubt that counsel’s closing argument did not make any significant difference in the jury’s decision to sentence Spisak to death. Furthermore, the Court noted that Spisak could point to no mitigating circumstances, and counsel’s references to “humane people” and “humane society” were sufficient appeals for mercy.

Lesson:  Any inadequacies in counsel's arguments at trial may be rendered moot if the client's admissions leave no reasonable probability that a more adequate performance by counsel would have changed the jury’s verdict.  

Breach of Fiduciary Duty and a Lighter Burden of Proof: The Prophylactic Rule

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”.

Defenses: Collateral Estoppel on Ineffective Assistance of Counsel

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.

 

Damages for Loss of Liberty for Legal Malpractice

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.  

Ineffective Assistance of Counsel: Bar to Civil Action for Legal Malpractice

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.

PA: Duty to Communicate Settlement Offers

Builders Square, inc. v. Saraco,  868 F. Supp. 748 (E.D. Pa. 1994).

PA. underlying products liability suit

Student contributor: Cheryl Neuman

Facts: Plaintiff was a defendant in an underlying products liability lawsuit. Plaintiff was a retailer of the allegedly defective product. The distributor of the product was also named as a defendant. The distributor had $1 million of liability insurance coverage. Plaintiff retained defendant lawyer in the product liability suit. The plaintiffs in the underlying products liability offered to settle for $1 million, which was the limit of the insurance policy. Defendant lawyer, however, rejected the offer to settle and did not inform his client (plaintiff) about the settlement offer. After plaintiff found out about the settlement offer defendant attorney withdrew from representation. At trial, the parties agreed to settle for $4.25 million, of which the plaintiff was responsible for $3.25 million. Plaintiff therefore alleges that defendant’s failure to pursue the earlier settlement agreement placed plaintiff in a much weaker position to defend or settle the case.

Issue: Does a lawyer have the duty to explore and timely communicate to his client all settlement offers?

Ruling: Yes. An attorney had the duty to tell his client about all settlement offers as well as other important information relating to the representation.

Lesson:  The plaintiff in this case was dissatisfied  at having to settle a case on terms that were more disadvantageous than the terms of  the initial settlement negotiations.  Allowing this type of lawsuit to go forward heightens awareness and provides incentives to lawyers to fully communicate all settlement offers to their clients. It is, after all, the client's right to settle the case. 

Editor's Note: See RPC 1.4 re the lawyer's duty to communicate to the client. 

"Loss of Liberty": Damages for Negligent Infliction of Emotional Distress in Legal Malpractice

Lawson v. Nugent, 702 F. Supp. 91 (D.N.J. 1988)

NJ Underlying Criminal Action

Student Contributor: Colleen Gaedcke

Facts: The plaintiff retained the defendant attorney as defense counsel after being indicted for the robbery of a post office. Upon the advice of the defendant attorney, 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. Eventually, he was released after serving 5 years.
Upon release, plaintiff brought a legal malpractice suit against the defendant attorney alleging that, but for the defendant’s negligent legal representation, he would have served a maximum of only 40 months in prison. The plaintiff sought damages for emotional distress as a result of the anguish he suffered for the additional 20 months he spent in prison, allegedly, as a result of his attorney’s ineffective representation.

Issue: Can a criminal defendant recover damages for emotional distress in a legal malpractice action?

Ruling: Yes. The United States District Court, District of New Jersey, held that the plaintiff may pursue emotional distress damages if he could first establish (1) the existence of some egregious or extraordinary circumstance; and (2) the allegedly negligent attorney was retained to protect something other the plaintiff’s economic interests.

Lesson: Given that the attorney-client relationship in a criminal proceeding is predicated upon the protection of the client’s interest in his freedom and sovereignty, “an attorney who commits malpractice is liable to his client for any reasonably foreseeable loss caused by his negligence, including emotional distress resulting from [his] loss of liberty."

NJ:Local Counsel's Duty to Litigants

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). 

US: Back to Basics: Privity

 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.  

PA: Duty to Communicate Settlement Offers to Client

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.