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

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.

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Martos v. Concilio, 642 A.2d 1096 (Pa. Super. Ct., 1993)

Underlying PA Divorce Action.

Student Contributor: Colleen Gaedcke

Facts: Plaintiff retained the defendant to represent him in renegotiating a property settlement agreement with his former wife. The new agreement was made part of a stipulation that settled personal property and child custody issues. The stipulation became a court order and a court appointed master decided the remaining issues. Both the plaintiff and his ex wife filed exceptions to modify the master’s recommendations, resulting in the plaintiff owing $250,000.00 to his ex-wife. The plaintiff then filed a legal malpractice and breach of contract action against the defendant claiming that the defendant was not competent in advising him that the plaintiff’s initial settlement agreement with his ex-wife should be opened by stipulation that allowed for the renegotiation of items that were already settled.

Issue: Whether an action for legal malpractice covers claims made by the client against their attorney for fraud in the inducement?

Ruling: No.

Citing the Pennsylvania Supreme Court in Muhammad v. Strassburger, McKenna, Messer, Shilobod and Gutnick, 587 A.2d 1346 (Pa., 1991), the court stated, “…in light of our longstanding public policy which encourages settlements…we will not permit a suit to be filed by a dissatisfied plaintiff against his attorney following a settlement to which that plaintiff agreed, unless that plaintiff can show he was fraudulently induced to settle the original action. An action should not lie against an attorney for malpractice cased on negligence and/or contract principles when that client has agreed to a settlement. Rather, only cases of fraud should be actionable.”

Lesson: Where a client is unhappy with the outcome of a settlement agreement their only redress against their attorney is fraud by inducement, not legal malpractice. An attorney should make sure that his or her client explicitly agrees to any modifications to a stipulation in order to protect him or herself from a legal malpractice claim where their client was dissatisfied with the outcome

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McMahon v. Shea, 547 Pa. 124 (1997)

Student Contributor: Justin Lieberman

Underlying Divorce Matter

Facts: The husband in an underlying divorce action brought a professional malpractice suit against his attorneys, claiming that they had failed to properly advise him in his divorce settlement. More specifically, the husband claimed that his attorneys had failed to advise him as to the length of his duty to pay alimony and to generally read and review the alimony agreement in its entirety.

The wife remarried two months after the divorce was finalized, and husband moved to terminate his alimony payments. The court denied the termination of alimony payments, holding that the alimony agreement survived the divorce since it was not merged with the divorce decree. The court ordered continued payment of alimony until the parties’ youngest child turned twenty-one. Consequently, husband further alleged that his attorneys had been negligent in advising him to stipulate that the alimony agreement be incorporated but not merged with the divorce decree.

The attorneys argued that husband’s action had to be dismissed, since a dissatisfied plaintiff may not file a malpractice suit following a settlement to which he agreed, unless he could show he was fraudulently induced into settling the action.

Issue: Can an attorney be held liable for advice rendered to a client in a settlement to which the client subsequently agreed?

Holding: The Court rejected the attorneys’ argument and held that an attorney’s use of ordinary skill and knowledge extends to the conduct of settlement negotiations:

The fact that the legal document at issue had the effect of settling a case should not exempt his attorneys from liability…An attorney may not shield himself from liability in failing to exercise the requisite degree of professional skill in settling the case by asserting that he was merely following a certain strategy or exercising professional judgment.

Lesson: Negligence in failing to advise a client as to the controlling law applicable to a contract is actionable as malpractice, even if the contract serves to settles the underlying dispute.

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

CA Underlying divorce action

Student Contributor: Evan Michael Hess

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

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

Ruling: The Supreme Court of California held:

I.

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

II.

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

III.

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

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

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

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Martos v. Concilio, 427 Pa. Super. 612; 629 A.2d 1037 (1993)

Student Contributor: Christopher Henn

PA Underlying divorce- property settlement agreements

Facts: The plaintiff retained defendant to represent him in his divorce. Plaintiff and his former spouse agreed to a property settlement. The parties then executed a new property settlement agreement that modified the first. The second settlement resolved property distribution and custody of their children. Alimony, debt repayment and other obligations were submitted for judicial determination. The trial court appointed a master to make recommendations after the property settlement agreement was incorporated by court order. Following the master’s recommendations, plaintiffs financial burden exceeded $250,000. Dissatisfied, the Plaintiff brought a malpractice suit against defendant attorney alleging inadequate representation. The Plaintiff was especially displeased that the terms reached by the first settlement agreement had been renegotiated in the second settlement agreement.

Issue: Whether the plaintiff was required to allege fraud in the inducement of the property settlement agreement.

Ruling: The court distinguished its prior holding in Collas v. Garnick, 425 Pa. Super. 8 (1993) by noting that there were two separate and distinct actions in that case; “[t]he prior action in which they signed the release had been completely settled; the action which they planned to bring against the seatbelt manufacturer was a separate and distinct action.” Id. at 615.

After recognizing the judicial preference for settlement, the court recited its holding in Miller v. Berschler, 423 Pa. Super. 405 (1993) as dispositive of the issue;

a party dissatisfied with the settlement agreement can only seek redress if it can establish that it was fraudulently induced into agreeing to settle, and it is incumbent on the client to plead with specificity fraud in the inducement.

The Lesson: Once a client expressly agrees to settle a dispute he will not be permitted to recover against his attorney on a malpractice claim absent fraudulent conduct by the attorney. However, if the settlement of one dispute serves to prevent subsequent actions against third parties, without the client’s knowledge, the client may be permitted to recover on a malpractice theory.

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Ponden v. Ponden,  374 N.J. Super. 1 (App. Div. 2004)

Student Contributor: Maninder (Meena) Saini

NJ Underlying Matrimonial Action

Facts: Plaintiff (client) sued defendant (attorney) who represented her in a divorce action. The defendant committed an error that gave the plaintiff’s ex-husband an opportunity to empty the accounts and depart the country. The defendant failed to submit particular letters that would have placed a restraining order on two different accounts and prevented the plaintiff’s ex-husband from obtaining the funds. Plaintiff then filed a lawsuit, claiming defendant negligently failed to pursue proper and effective means to protect her interests against her ex-husband’s anticipated unlawful behavior. At the end of the discovery period, plaintiff switched attorneys. The defendant submitted his expert report the very last day of the discovery period. Plaintiff’s new counsel sought permission to serve a new expert report after the discovery period ended because the former expert report was inadequate. The trial court held that under the “Best Practices” rule, its discretion was narrowed and it did not have the authority to grant relief from the discovery cut-off date.

Issue: Was it fair to reject the plaintiff’s request to present a new expert report when the defendant submitted his report on the last day of discovery? Did the plaintiff deserve some leeway since the defendant’s negligence adversely affected the plaintiff?

Ruling: The plaintiff raised valid reasons for the need to extend discovery. Therefore, the trial judge mistakenly exercised its discretion by denying a brief extension of discovery to allow an essential piece of evidence.

Even though the “best practices” rule amendments were intended to improve efficiency and expedition of civil proceedings, the rule amendments “were not designed to do away with substantial justice on the merits or to preclude rule relaxation when necessary to secure a just determination”.

Lesson: As seen in this case, an attorney will not necessarily overcome a well-founded claim of negligence by “playing the game according to the rules”. The lawyer submitted his expert report on the very last day of discovery that caused a disadvantage to the plaintiff. A court should allow an extension for discovery when it is necessary to one’s case. Court rules are only a framework for obtaining fair and just results.

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

NJ Underlying Divorce Action Settlement

Student Contributor: John Anzalone

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

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

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

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

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

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

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

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

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

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

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

NY Underlying matrimonial action; holding marital assets in trust

Student Contributor: Jason Zemsky

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

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

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

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

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Wallenstein v. Cohen, 45 A.D.3d 674, 845 N.Y.S.2d 428 (App. Div. 2007)

NY Underlying  Fee Arbitration

Student Contributor: Maninder (Meena) Saini

Facts: Defendant-attorneys represented the plaintiff-client in a matrimonial action that resulted in a judgement for divorce pursuant to a stipulation of settlement. The plaintiff then complained to the grievance committee that the defendants over-charged her for their services and did not protect her interests. The case was transferred to Fee Arbitration. During the arbitration, it was found that defendants were entitled to the fees, which they sought. Two years later, the plaintiff commenced an action, alleging that defendants charged excessive fees and committed legal malpractice in representing plaintiff.

Issue: Can plaintiff re-litigate the issue of excessive attorney’s fees that was formerly resolved in arbitration?

Ruling: The Appellate Division held in this case that the action was barred by fee arbitration award and by collateral estoppel because all of the allegations in the complaint were “reasonably and plainly comprehended to be within the scope of the dispute submitted to arbitration.”

[T]he determination fixing the value of the defendants' services necessarily determined that there was no malpractice.

Lesson: If the excessive fee allegation in the complaint was resolved by previous arbitration, the fee awarded to the attorney during arbitration may ultimately conclude that there is no malpractice. This is a fact sensitive ruling.  The  jurisdiction of the Fee Arbitration Committees in New Jersey, however, does not extend to deciding issues of legal malpractice, even if they are raised in the fee arbitration proceeding. 

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Newell v. Hudson,
376 N.J. Super. 29, 868 A.2d 1149 (App. Div. 2001)

Student Contributor:  Natalie Resto

NJ Underlying matrimonial action

Facts: Hudson, an accountant, retained Newell as her attorney to defend her in a matrimonial action filed by her then husband. After lengthy negotiations and discussions with Newell, Hudson signed an Interspousal Agreement, which provided that she would receive monthly limited payments for four years based upon his income plus a discretionary bonus. Before Hudson signed the agreement, Newell explained to her the concept of alimony, and advised her that the amount she received might depend, in part, on the marital standard of living. After entering into the agreement Hudson and her husband each testified that they understood and voluntarily consented to the terms of the agreement.

About a day later, Hudson contacted Newell stating that she felt “pressured and intimidated by her husband’s counsel, the Judge and Newell,” and called into question his preparation and legal representation. Newell later filed a suit against Hudson for failing to pay outstanding legal fees. She filed a counterclaim alleging that Newell had committed legal malpractice by, among other things, failing to serve interrogatories on her husband, and failing to secure documents reflecting the status of certain investment accounts.

Issue: Can a litigant, dissatisfied with her decision to enter into a settlement, bring a claim for legal malpractice alleging that she actually had not understood the agreement, and was forced to enter into it, or will she be judicially estopped from bringing such a claim? 

Ruling: The court barred Hudson’s legal malpractice claim:

Hudson’s self-serving behavior is precisely the type of inconsistent judicial position-taking that the doctrine of judicial estoppel is designed to prevent. To permit this litigant to assert a contrary position in the malpractice action presumably to bolster her counterclaim in an effort to defeat Newell’s legitimate claim for counsel fees would result in a miscarriage of justice and impugn the integrity of the judicial process. Id. at 47.

Lesson:  New Jersey does not allow litigants to sue for legal malpractice based on settlement agreements that were entered into voluntarily, freely, and willingly in the underlying action.  Superficial allegations of duress and intimidation will not be countenanced by the Court.  Dissatisfaction with a settlement agreement is not grounds for a legal malpractice action in New Jersey. 

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