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

Schenck v. K.E David, Ltd.  446 Pa.Super. 94, 666 A.2d 327 (1995)

PA Underlying Settlement paid by lawyer on behalf of client

Student Contributor: Maninder (Meena) Saini 

Facts: Plaintiff/attorney, Schenk claimed that defendant/client, K.E. David, Ltd. was unjustly enriched when he refused to reimburse the plaintiff with $32,000 that the defendant owed to satisfy a settlement agreement between the defendant and the Commonwealth. Plaintiff represented defendant and negotiated a settlement amounting to $82,000. In the agreement, the Commonwealth was to collect $32,000 from another settling defendant, who owed the defendant that amount. Unfortunately, the settling defendant died before paying the debt. So, the law firm advanced the outstanding amount to the Commonwealth on behalf of the client. The client/defendant then refused to reimburse the law firm. So, the law firm sued for reimbursement. The defendant counterclaimed for legal malpractice because the plaintiff failed to explain that the defendant would have to pay the $32,000 if the other defendant was unable to pay. The jury found that plaintiff did not commit malpractice and held the client/defendant had been unjustly enriched. The defendant then appealed.

Issue: Was the lawyer entitled to get back what he paid on behalf of the client in view of the clients not understanding the ramifications of the settlement agreement?

Ruling: The appellate court found that it was unjust for the defendant to retain the benefits of the law firm’s payment to the Commonwealth, especially after the plaintiff/lawyer obtained successful results for the defendant. 

The law will find that a quasi-contract exists when unjust enrichment is found. The beneficiary will be required to pay the plaintiff the value of the benefit conferred.
The elements of unjust enrichment are:
• Benefits conferred on defendant;
• Appreciation of such benefits by defendant; and
• Acceptance and retention of such benefits under circumstances that make it inequitable for defendant to retain the benefit without payment of value.

Lesson: The lawyer’s work was successful for the client. What if the underlying matters were not successful because the lawyer was negligent? Would the lawyer be entitled to reimbursement of the monies he advanced? In applying the “unjust enrichment” doctrine, one must focus on whether the enrichment of the defendant is unjust and not on the intention of the parties. Accordingly, an attorney should consider using the theory of “unjust enrichments” to seek full compensation for work performed. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Boyer v. Walker, 714 A.2d 458 (Pa. Super. Ct. 1998)

PA Underlying Commercial Action

Student Contributor: John Anzalone

Facts: Plaintiffs became junior lien holders when they issued a mortgage to property owners who had outstanding prior mortgages, including two held by a bank. Upon default by the property owners, the bank foreclosed on its mortgages. Plaintiffs were aware of the foreclosure. Notice of judgment for the bank, and of the attendant sheriff's sale of the property, was sent to the defendant attorney who represented the plaintiffs when they issued the mortgage. Plaintiffs discovered this after the sale occurred, and subsequently sued the attorney for professional negligence as a result of his failure to forward the notice of the sheriff's sale. More specifically, plaintiffs alleged that had they received notice of the foreclosure sale, they would have appeared at the sale and would have attempted to purchase the property, inasmuch as they believed that the property was worth far in excess of the bank’s liens.

Issue: Was the attorney liable for plaintiffs’ damages as a result of his failure to forward the notice of the sheriff's sale?

Ruling: The Court ruled that the attorney was not liable based on the following considerations:
1) Attorneys can only be held liable for professional malpractice where (1) an attorney-client relationship is established between the plaintiffs and the defendant attorney; (2) the attorney failed to exercise ordinary knowledge and skill; and (3) that failure proximately caused the plaintiffs’ damages.
2) As junior lien holders, plaintiffs lost all interest in the property when it was sold at the sheriff's sale, but plaintiffs failed to show that this harm would have been prevented if the attorney had forwarded them notice of the sale, since they failed to present evidence concerning the purchase price at the sheriff's sale, the bids made at the sheriff's sale, the amount of money they were prepared to bid at the sheriff's sale, and whether other bidders were ready and able to bid.
3) Thus, plaintiffs failed to establish that they suffered damages proximately caused by the attorney’s alleged negligence.

Lesson: Proximate cause requires establishing the identity of the damages suffered with reasonable certainty.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

PA. Underlying Will Action

Student Contributor: Melissa Goldberg

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

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

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

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

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

PA Underlying Action-Criminal Defense

Student Contributor: Candice L. Deaner

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

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

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

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

PA Underlying med mal and personal injury cases

Student Contributor: Evan Michael Hess 

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

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

Ruling: The Supreme Court of Pennsylvania held that:

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

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

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

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

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Salamoni v. Karoly, 2005 WL 3823056, 74 Pa. D. & C.4th 378 (Pa.Com.Pl. 2005)

PA Underlying personal injury claim

Student Contributor: Christopher S. Henn

Facts: Plaintiff suffered personal injuries after being struck by a car. Plaintiff engaged the Defendant attorney, Karoly, to seek recovery for his injuries in the accident. Defendants filed for issuance of a summons one day before the expiration of the applicable two-year statute of limitations. It was issued the same day but expired a month later because it was never delivered to the sheriff for service.

After the summons was reinstated, however, Plaintiff's case was dismissed on summary judgment because of the expiration of the statute of limitations. Subsequently, Plaintiff filed suit against Defendant Karoly and his associate for legal malpractice. Despite naming two Defendants, Plaintiff submitted a single certificate of merit as to both defendants. The Clerk of the Court, therefore, dismissed the malpractice action for failure to prosecute.

Issue: Is a single certificate of merit sufficient where there are multiple defendants?

Ruling: The Court held:

It was not the clerk's function to evaluate the sufficiency of this certificate. The clerk was without authority to enter a judgment of non pros under these circumstances…Where several defendants acting together are responsible for the same negligent act or omission, a single certificate of merit naming both or all defendants [is sufficient].

Lesson: The purpose of filing a certificate of merit is to ensure that the Plaintiff has not asserted a frivolous claim against the Defendant for professional negligence. Although the Plaintiff here did not comply with the technical requirements of Pennsylvania’s Certificate of Merit rule for each separate Defendant, the Court found that the purpose of the requirement had been fulfilled “[w]here both parties [were] jointly responsible for the same negligent act or omission”.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Collas v. Garnick, 425 Pa. Super. 8; 624 A.2d 117 (1993)

Underlying PA Tort Action

Student Contributor: Colleen Gaedcke

Facts: The plaintiff employed the defendant to represent her in an automobile tort action. The defendant reached a settlement with the plaintiff for $245,000. The plaintiffs were asked to sign a general release, which discharged the driver and all other parties who might be liable for the damages. The plaintiff asked the defendant whether the release would have any effect on her desire to sue the manufacturer of the vehicle. The defendant responded that it would not. In reliance on his advice she signed the release. She subsequently filed an action against the manufacturer, which the court dismissed stating that the action was barred by the release. The plaintiff then filed this action against the defendant for legal malpractice.

Issue: “If a lawyer negligently advises a client regarding the effect of a release and the client, in reliance on the lawyer’s advice, signs a release which unintentionally has the effect of barring an action contemplated by the client, is the lawyer immune from liability because the release was executed as part of the settlement of a prior, separate action?”

Ruling: No.

1) A lawyer has a duty to know how a proposed settlement will affect his client…conducting  legal research sufficient to allow the client to make an informed decision.

2) Here,

the fact that the written agreement was prepared as part of the settlement of their prior action was incidental; it did not relieve counsel of an obligation to exercise care in determining the effect of the agreement which his clients were being asked to sign…counsel was required to exercise the same degree of care as he or she would have exercised in advising a client about a complex agreement not a part of the settlement of a legal action. 

Lesson: An attorney is not expected to be perfect.  But, where the attorney gives erroneous advice that falls below standards that the client has a right to expect form their lawyer they will be held liable for malpractice.

• Email This
• Print
• Comments (3)
• Trackbacks
• Share Link

Cost v. Cost, 450 Pa. Super. 685 (1996)

PA Underlying Commercial Action

Student Contributor:  Rachel Morris

Facts: In connection with the “buyout” of ownership interests in several family businesses, the Plaintiff signed various agreements including “spousal joinder” forms. The spousal joinder forms created an indemnification obligation and release on the part of the Plaintiff in favor of the party selling the ownership interests and another third-party. Plaintiff subsequently filed an action against the attorney for the seller alleging breach of his professional duty to explain the legal ramifications of the buyout, and more specifically, the consequences of the various forms signed by the Plaintiff to complete the transaction.

Issue: Is a lawyer liable for malpractice because he failed to explain to a non-client the legal ramifications of entering into a particular transaction or signing certain documents?

Ruling: No, absent any written or oral retainer agreement between the lawyer and the complainant. Here, the court found that there was (1) no express contract for legal representation between the lawyer and the Plaintiff, (2) the Plaintiff never sought advice or assistance from the lawyer, and (3) the lawyer never expressly or impliedly agreed to represent the Plaintiff. Therefore, the court ruled that the Plaintiff could have had no reasonable expectation that the lawyer was looking out for her interests, much less that he had any duty to explain the legal significance of the documents she signed.

Lesson: A plaintiff’s subjective belief that an attorney is representing her interests is insufficient, absent other indicia of an express or implied attorney-client relationship, to successfully assert a cause of action in legal malpractice.

• Email This
• Print
• Comments (5)
• Trackbacks
• Share Link

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

PA Underlying Legal Ethics Matter

Student Contributor: Lisa Larato

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

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

Ruling:

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

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

• Email This
• Print
• Comments (5)
• Trackbacks
• Share Link

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. 

• Email This
• Print
• Comments (8)
• Trackbacks
• Share Link

Student Comment by Candice Deaner, 3L

PA: Judicial Corruption and Immunity

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

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

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

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

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

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

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

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

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

Editors Note: Comments, Please.  

• Email This
• Print
• Comments (10)
• Trackbacks
• Share Link

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

Student Contributor: Melissa Goldberg

PA Underlying personal injury action.

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

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

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

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

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

3) He received the full judgment.

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

• Email This
• Print
• Comments (10)
• Trackbacks
• Share Link

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

PA underlying sale of business interest : conflict of interest

Student contributor: Cheryl Neuman

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

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

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

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

• Email This
• Print
• Comments (7)
• Trackbacks
• Share Link

Jackson v. Gary L. Sweitzer Enterprises, Inc., 67 Pa. D. & C.4th 239 (York County 2004)

Student contributor: Justin Lieberman

PA: Underlying Real Estate Matter

Facts: Plaintiffs filed a complaint against multiple Defendants, including Attorney Sedor, in December 2003 for professional negligence, fraud, and violation of Pennsylvania’s Consumer Protection Law. The complaint alleged that their attorney was aware, or should have been aware, that appraisals of Plaintiffs’ properties were inflated. Plaintiffs were allegedly damaged as a result of this negligence in that they were unable to obtain mortgages due to these inaccurate appraisals.

Counsel for the Plaintiffs failed to file a certificate of merit against the defendnant attorney, within 60 days of filing the complaint, as required under Pennsylvania Law (Pa.R.C.P. 1042.3) in cases alleging a professional liability claim. Defendant Sedor, therefore, moved for judgment non pros. The trial court entered judgment  in favor of Defendant Sedor.

Issue: Will the failure to file a certificate of merit bar all causes of action against an attorney?

Ruling: The Court denied Plaintiffs’ petition with respect to their claim of professional negligence against the attorney, but granted it on the remaining fraud and consumer protection law violation claims. The Court reasoned that the certificate of merit requirement was created to prevent frivolous professional negligence claims, not to bar all other causes of action a plaintiff may have against his attorney.

Lesson: The failure to file the required certificate of merit in a professional negligence claim will not preclude plaintiff’s other causes of action which are not based on professional negligence, against the defendant-attorney:

When a plaintiff fails to file a certificate of merit in an action alleging professional negligence, only those claims based on professional negligence should be dismissed.

• Email This
• Print
• Comments (5)
• Trackbacks
• Share Link

Antonis v. Liberati 821 A.2d 666 (Pa. Cmwlth. 2003)

Student Contributor: Evan Kusnitz

PA Underlying Mortgage Transaction

Facts: Plaintiff hired Attorney to prepare a mortgage and note as a security on a loan to Borrower. Attorney delivered the documents to the Recorder of Deeds. Plaintiff called Attorney several times to ask if the mortgage was recorded correctly, and Attorney repeatedly assured him that it was. However, due to a clerical error, the mortgage was in fact not recorded correctly. As a result, Borrower was able to sell the land subject to the mortgage without disclosing the existence of the mortgage, and without paying anything to Plaintiff. Plaintiff successfully sued Attorney. On appeal, Attorney argued that the trial court erred by not requiring expert testimony to show that he had a duty to Plaintiff to ensure that the mortgage was recorded correctly. Attorney also argued that Borrower’s fraud was an intervening cause of Attorney’s harm.

Issue:

1. Is expert testimony required to show that an attorney has a duty to a client to ensure that a mortgage is recorded correctly?
2. Is a borrower’s fraud––selling mortgaged land without disclosing the incorrectly recorded mortgage––an intervening cause of any harm caused by an attorney’s failure to ensure the mortgage was correctly recorded?

Ruling: In affirming the decision of the trial court, the appellate court ruled:

1. Expert evidence . . . is not required when the issue of negligence is clear enough to be concluded as a matter of law.

Since it is the responsibility of the mortgagee to ensure that the mortgage has been properly recorded, that duty undoubtedly falls upon his attorney, who represents him in the matter.

2. A borrower’s fraud is not an intervening cause of the harm caused by an attorney who failed to ensure that a mortgage was correctly recorded. If the attorney did not breach his duty to his client, the fraud could have never happened.

Lesson:

1. A mortgagee’s attorney has a duty to ensure that the mortgage is recorded correctly.

2. When an attorney’s negligence is obvious, expert evidence may not be required.

• Email This
• Print
• Comments (11)
• Trackbacks
• Share Link

Muhammed v. Strassburger, McKenna, Messer, Shilobod and Gutnik
526 Pa. 541, 587 A.2d 1346 (Pa. 1991)

PA Underlying Medical Malpractice Litigation

Student Contributor: Justin B. Lieberman

Facts: Former client sued attorney for legal malpractice after the client was unhappy with the settlement received in the underlying medial malpractice action. In the underlying action clients accepted a settlement offer at a pre-trial conference, and then recanted the acceptance after their lawyer informed the opposing side of acceptance. The opposing side sought enforcement of the settlement and the trial court, at an evidentiary hearing, upheld the settlement, as did the Superior Court on appeal. The clients filed suit against the attorneys. The law firm defended on the following grounds: that the action should be dismissed as the claims were too speculative and settling clients were seeking to relitigate the settlement. The case was brought to the Supreme Court of Pennsylvania.

Issue: Can a settling defendant sue his/her lawyer for malpractice although they agreed to settle the underlying claim?

Ruling: A client cannot bring a malpractice claim against a former attorney because of their later dissatisfaction of a settlement to which they agreed,  unless they can show some fraudulent conduct by the attorney  in advising the client on accepting the settlement. Here, the clients, were dissatisfied not able to renegotiate their settlement after they had already voluntrarily accepted an offer. They were thus, not fraudulently induced to settle by their attorney.

We foreclose the ability of dissatisfied litigants to agree to settlement and then file suit against their attorneys in the hope that they will recover additional monies.

Lesson: An attorney may not be held liable when a client later decides they are unsatisfied with a settlement they willingly agreed to at a prior time, unless the attorney fraudulently induced or intentionally misadvised the client to accept the settlement.

Editor's note: This was the law in PA for many years. The stringent rule in this case, of barring a malpractice suit against the lawyer who represented the settling party-- has  since  been substantially limited  and liberalized.

See, e.g., McMahon v. Shea, 441 Pa. Super. 304, 657 A.2d 938 (1995).

The holding in Muhammad has been rejected in New Jersey (Ziegelheim v. Apollo, 128 N.J.250, 607 A.2d 1298 (1992) and Connecticut (Grayson v. Wofsey, Rose, Kweskin & Kuriansky, 231 Conn. 168, 646 A.2d 1994).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Hedlund Mfg. Co., Inc. v. Weiser, Stapler & Spivak, et ano.
517 Pa. 522, 539 A.2d 357 (1988)

Facts: Martin hired attorney Spivak to apply for a patent for a machine that Martin had invented and manufactured. Spivak prepared the application but he did not timely file it. Hedlund Manufacturing purchased Martin's business, including the rights to all pending patents. When Hedlund learned that Spivak had filed the patent application late, they had Martin assign to them all rights and causes of actions arising out of the lawyer's malpractice. Hedlund then sued Martin's lawyer for legal malpractice alleging negligence and breach of contract.

Issue: Can Hedlund (the assingee) sue the assignor's lawyer based on the assignment of the legal malpractice claim, even though there is no attorney-client relationship between the assignor and the lawyer?

Ruling: The PennsylvaniaSupreme Court said yes, reversing the lower court that had held that lack of privity barred the malpractice suit. The Court held legal malpractice claims can effectively be assigned and that "privity is not an issue involving an assigned claim because the assignee stands in the shoes of the assignor and does not pursue the cause of action in the assignee's own right." Thus, the assignment of a cause of action for legal malpractice is valid and can be used by the assignor to circumvent the privity defense. It might also be viewed as a "hidden" asset in the sale of a business.

New York: Assignment of legal malpractice claims are permitted. See, Tawil v. Finkelstein, et al 646 NYS2d 691 (App Div. 1st Dept, 1996). But they probably have to be explicit and unambiguous CALPERS v. Shearman & Steling, 95 N.Y. 2d 427 (2000).

New Jersey: Assignment of legal malpractice are not permitted for public policy reasons. Alcman Services Corp. v. Bullock 925 F. Supp. 252 (DNJ 1996).

• Email This
• Print
• Comments (5)
• Trackbacks