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

Senate Ins. Co. v. Tamarack Am. 14 A.D.3d 922; 788 N.Y.S.2d 481 (2005)

NY Underlying Real Estate Transaction

Student Contributor: Natalie Resto

Facts: The attorney, who was employed full time by the Lawrence Group, Inc. as its general counsel, represented the plaintiff when it purchased some real estate property for $2,600,000. The Lawrence Group was a holding company for various insurance underwriting and agency components, which included the plaintiff. The Lawrence Group and the seller of the land later filed for bankruptcy. The plaintiff argued that because of the lien on the property it was out $2,600,000. The attorney then left the Lawrence Group and affiliated with a firm on an “of counsel” basis.
The plaintiff brought this legal malpractice action against the attorney. The attorney provided notice of the action to the defendant insurance company, which had issued a “claims made” policy to the firm. The defendant insurance company denied the coverage because it was provided “only to the extent such lawyer performs services on behalf of the named insurance,” and since the attorney rendered services as an employee of a corporation separate from the named insured, his acts fell within an exclusion contained in the policy. The defendant moved for summary judgment and the lower court granted the motion based on the policy language with respect to an attorney acting “of counsel.” The plaintiff appealed.

Issue: Does a policy issued to the law firm provide coverage for legal malpractice of an attorney who is affiliated with the law firm on an “of counsel” basis?

Ruling: Not when the policy at issue defined an “insured” to include, among others, “each lawyer acting as ‘of counsel,’ but only to the extent such lawyer performs services on behalf of the firm.” Id. at 923.

Lesson: New York’s Code of Professional Responsibility provides that the term “of counsel” nay be used “if there is a continuing relationship with a lawyer or law firm, other than as a partner or associate.”

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

Mentzer & Rhey, Inc. v. Ferrari, 367 Pa. Super. 123 (Pa. Super. Ct. 1987)

PA. Underlying Real Estate Transaction

Student Contributor: Melissa Goldberg

Facts: Bruno Ferrari, the original Defendant, sold a parcel of land located in Westmoreland County to Mentzer and Rhey, Inc., the Plaintiff. A portion of the land located on Mentzer & Rhey's used car lot collapsed, creating a dangerous hole. Mentzer & Rhey filed an action for damages alleging the cause of the collapse to be a defective culvert constructed by Ferrari and fraudulently concealed by him during the sales transaction. Ferrari filed a complaint to join Fisher, Long and Rigone, the law firm representing Mentzer & Rhey in the property sale. The complaint alleged that Mentzer & Rhey's lack of knowledge of the existence of the culvert was due to the attorneys' negligence in performing the title search and that therefore the proposed third-party attorneys should be solely liable to Mentzer & Rhey for damages or in the alternative should be jointly liable with original Defendant.

Issue: Were the attorneys who performed a title search for buyers of property properly joined as third-party Defendants under Pa.R.C.P. 2252(a) where the buyers sue the seller for damages resulting from an allegedly fraudulently concealed and defective culvert and the attorneys failed to discover the existence of the culvert in their title search?

Result: A party must show an attorney-client relationship or a specific undertaking by the attorney furnishing professional services as a necessary prerequisite for maintaining a suit.
• Ferrari is not in privity with Plaintiff's attorneys, he has no cause of action against them and thus may not, under Pa.R.C.P. 2252(a), join the attorneys as third-party Defendants

Lesson: The general rule in Pennsylvania is that an attorney will be held liable for negligence only to his client. In the absence of special circumstances, he will not be held liable to anyone else.

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

First American Title Ins. Co v. Jordan W. Kapchan,  Superior Court of NJ App Div. Docket No. A-5953-08T2 (decided April 12, 2010)

NJ Underlying mortgage loan

Facts: Plaintiff title insurer from California,  had to pay out $150,000 to 5 intended payees of mortgage proceeds—all from outside NJ, who did not receive payment from mortgage closing related to NJ property. Title Insurer now sues its closing attorney for not following closing instructions. The closing attorney was located in New York. He was not admitted to practice in NJ, had no office in NJ and did not solicit business in NJ. There was no physical loan closing in NJ. The loan proceeds were deposited by the California mortgage lender into the closing attorney’s trust account in NY and was disbursed by the closing attorney from NY. The NY closing attorney sent the mortgage for recordation in Mercer County, NJ to the title agency, which was in NJ.
The trial court dismissed for lack of personal jurisdiction over the NY attorney.
The Appellate Division reversed and found that NJ had personal jurisdiction over the NY attorney.

ISSUE: How little must a NY closing attorney do to be subject to suit for legal malpractice in NJ?

RULING:

The NJ property “itself, provides a very tangible and central nexus between [the NY closing attorney] and the State of New Jersey.” 

The only other NJ contact was that the NY lawyer mailed the marked up title binder, the HUD-1 and the mortgage for recordation to the title agency in NJ. And that was all done from NY.

LESSON: The case shows how  truly “minimal” the out-of-state closing attorney’s contacts with the State of NJ needs to be and how very long NJ’s jurisdictional arm can be. Other issues to be decided: Choice of law. Will the NY lawyer’s conduct be measured by NY or NJ standards? Will the California title insurer be entitled to recover consequential damages such as its attorney’s fees and litigation expense under Saffer v. Willoughby or will the law of some other state apply?

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

Garten v. Shearman & Sterling LLP, 859 N.Y.S.2d 80 (N.Y. App. Div. 1st Dep't 2008)

Student Contributor: Melissa Goldberg

NY: Underlying Commercial  Real Estate Transaction

The Facts: Plaintiff stated a cause of action for legal malpractice by alleging that "but for" Defendant's failure to prepare and procure documents necessary to provide him with a first-priority security interest, he would have been able to recover the amounts owed to him by the defaulting borrower. The agreement between Plaintiff and Defendant mentioned the  "Documentation relating to Security Agreement".  Defendant's closing documents checklist included "[e]vidence that all other action that the Lender may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement has been taken (including, without limitation, UCC-3 termination statements)."

Issue:
1) Did the Defendant commit legal malpractice by failing to prepare and procure documents that would be necessary to provide Plaintiff with a first priority security interest?

Ruling:
1) The documentary evidence did not establish a defense because Defendant was obligated not only to prepare the loan documents, but also to protect Plaintiff's expectation that the agreement that he would hold a senior security interest was effective.
• Neither the borrower's failure to repay the loan nor the senior creditors' eventual failure to act honorably and adhere to the understanding that their liens were to be junior to Plaintiff's relieves Defendant of potential liability for its negligence.
• The Plaintiff is not responsible for his own loss simply because he executed the documents that Defendant prepared for him.

Lesson: Generally, the actions of other parties do not relieve a Defendant’s liability for its own legal malpractice. A lawyer has a duty to protect his client’s interests, first and foremost. 

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

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.

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

West Vil. Assoc. LP v. Balber Pickard et al.,  PC, 854 N.Y.S.2d 340 (App. Div. 1st Dep't 2008)

NY Underlying Real Estate Action

Student Contributor: Melissa Goldberg

Facts: Plaintiff alleged that Defendant failed to take appropriate steps to assure property would be free from rent regulation. Plaintiff claims that she received ongoing advice regarding rent regulation from the Defendant.

Issue: Was the Plaintiff barred by the statute of limitations?

Ruling:  No.  Under the "continuous representation" doctrine, a client cannot reasonably be expected to assess the quality of the professional service while it is still in progress. The continuous representation doctrine is "generally limited to the course of representation concerning a specific legal matter," Here,
1. The Plaintiff’s complaint went beyond mere allegations that Defendants continuously represented Plaintiffs in a general professional relationship after the specific act of malpractice occurred.
2. The Plaintiff specifically alleged the continued advice they received from Defendants regarding rent regulation.

Lesson: A legal malpractice claim accrues when the malpractice is committed, not when the client discovers it. To fall under the continuous representation doctrine, the pleading must assert more than simply an extended general relationship between the professional and client, and the facts are required to demonstrate continued representation in the specific matter directly under dispute.

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

Conklin v. Hannoch Weisman,  281 N.J.Super. 448 (App. Div. 1995)

Student Contributor: Maninder (Meena) Saini

NJ Underlying failure to explain contract terms leading to loss of equity in realty.

Facts: A New Jersey partnership, Conklin Farms (plaintiff), was represented by Kemph and his law firm, Hannoch Weisman, P.C. (defendants) in the sale of undeveloped land. Initially, plaintiff used that land for mining, but due to rezoning laws, the plaintiff sold the land to a developer because the value of their land increased significantly. Through advice from the defendants, the plaintiff agreed to subordinate the mortgage to institutional construction-money mortgages. The sale closed and the development project failed. The property was foreclosed by the mortgage lenders and left no equity for the plaintiff. In addition, the plaintiff’s buyers and guarantors all filed for bankruptcy, leaving the plaintiff with a substantial loss. The plaintiff then filed a lawyer malpractice lawsuit claiming that the defendants’ explanations to plaintiff of the meaning and risks of the subordination agreement were inadequate and inaccurate.

Issue: Did the defendants adequately inform the plaintiff of the meaning and risks of the subordination agreement?

Ruling: The appellate court held that the defendant was negligent in representing the plaintiffs in connection with explaining subordination and the risks associated with it.

An attorney has a legal duty to explain to their clients the meaning of an agreement and to further warn them of its risks, even if the risks are not reasonably foreseeable. The duty to advise the client fully and truthfully is inherent in the attorney-client relationship.

Lesson: An attorney must always fully and truthfully explain any agreements into which its client is entering. Further, the attorney must alert its clients of all risks so they can make an informed decision. This rule is even more important whenever the client raises any doubt as to the agreement because the court may instruct the jury to apply a “subjective standard” in deciding the negligence claim; that is, would the plaintiff, not the objective  "prudent person", have declined to enter into the agreement knowing all the risks? This subjective standard is easier to overcome and may be damaging to the attorney’s case.

Note: Make sure to see the NJ Supreme Court decision in this case which held that to prove proximate cause in a legal malpractice case, the negligence of the attorney need be a "substantial factor" in causing the damages. 145 N.J.395 (1996)

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

Commonwealth Land Title. & Citicorp Mortgage. v. Kurnos 340 N.J.Super. 25 (App. Div. 2001)

NJ Underlying mortgage refinance

Student Contributor: Maninder (Meena) Saini 

Facts: New Jersey property owners (the borrowers) wanted to refinance their home mortgage and retained attorney/defendant (Kurnos). The plaintiffs to this action are Citicorp Mortgage (the bank) and Title Insurance Company (the title company). The defendant was to refinance the property by discharging the existing liens on the property. The title company was to provide title insurance certifying that the bank’s mortgage was the first lien on the property. One of the existing liens on the home was held by Midlantic National Bank (Midlantic). Midlantic issued a letter to the defendant indicating that a written statement instructing Midlantic to close the account was required. However, no letter was sent and Midlantic’s mortgage became the first lien on the property. So, the bank’s mortgage was actually the second lien instead of the first. In June 1991, within nine months of the error, the title company knew of the defendant’s error. The borrowers then withdrew money on their available line of credit from Midlantic. In 1996, the borrowers defaulted on the loan, forcing a foreclosure. The bank paid Midlantic the outstanding balance in order to protect their interest and then filed a malpractice lawsuit against the defendant in 1998, alleging that he failed to secure the bank’s first lien position.

Issue: When did the six-year statute of limitation for the attorney’s malpractice start to run?

Ruling: The six-year statute of limitation commenced at the time the negligent conduct was discovered by plaintiffs even though monetary damages were not readily ascertainable at the moment of discovery. The appellate court held that the statute began running in June 1991 when the title company first became aware of the attorney’s error.

The cause of action accrues when the mortgagee knows or has reason to know that its lien has been impaired or endangered by the defendant’s negligence. At that time of negligent discovery, the mortgagee has suffered a legal injury.

Lesson: The lawyer committed malpractice by failing to secure the plaintiff’s first lien on the property. At the moment an individual discovers an error, a legal injury had occurred even though monetary damages are not present. According to N.J.S.A. 2A:14-1, after six years of discovery, the client is barred from collecting damages.

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

Petrillo v. Bachenberg, 139 N.J. 472 (1995)

Student Contributor: Evan Kusnitz

NJ Underlying Real Estate Transaction

Facts: A purchaser of real estate sued the seller and the seller’s attorney. The seller’s attorney had forwarded to the seller an incomplete copy of the results of percolation tests conducted by a previous owner to determine the subject property’s ability to hold a septic tank. During negotiations, the seller gave the incomplete copy of the test results to the purchaser. When the purchaser performed her own tests after the contract had been signed, she became aware of the actual quality of the land and told the seller that the contract was null and void. The seller refused to return the purchaser’s deposit. The purchaser subsequently brought suit against the seller’s attorney for, among other claims, breach of fiduciary duty.

Issue: Does an attorney who represents a seller in a real estate transaction owe any duty to the purchaser of the subject property?

Ruling: The court applied a “relaxed” privity rule, holding that an attorney for a real estate seller who makes affirmative misrepresentations by providing misleading information concerning the subject of the transaction, violates a fiduciary duty to a purchaser who will rely on the material misrepresentations to his detriment.

Lesson: A seller’s attorney has a fiduciary duty of care to the buyer and this duty exists when the attorney knows, or should know, that non-client will rely on the attorney’s affirmative misrepresentations.

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

Ellison v. Schenck, Price, Smith & King, 654 A.2d 1024 (N.J.Super.A.D. 1995)

NJ: Underlying Real Estate and Litigation

Student Contributor: John J. Anzalone

Facts: Plaintiff's entered into a lease for developing cemetery grounds. Defendant represented both Plaintiff and the Cemetery. The Defendant also represented the plaintiff in negotiating the terms of the sublease of leased land. After the lease had become unprofitable for Plaintiff, Plaintiff sued Defendant. Plaintiff asserted that they relied on defendant's advice to enter into the contract because they were wrongly led to believe there was nothing preventing the lawful lease of the land. Plaintiff also claimed they suffered loses because the defendant failed to put an escalation clause in the contract with the person they sublet to.

Issue: Could the statute of limitations only have started to run when Plaintiff's income from the property decreased and thus entitle defendant to dismissal of the case?

Ruling: In affirming the lower court's decision on other grounds, the Appellate Division held that the lower court erred in dismissing the case based on the statute of limitations because there was a question of fact regarding when the actual damages occurred, based on the following consideration:
1) The cause of action arises when the plaintiff knows or should have known that they were actually damaged by the attorney's negligence.
2) The actual damage did not necessarily occur when Plaintiff's profits were lessened by the increased rent, they could have also occurred when the rate increase made the sublease unprofitable.

Lesson: Statute of limitations for legal malpractice start to run once the Plaintiff knew or should have known that they were actually damaged by the attorney's negligence. This determination is fact sensitive. Thus, in practice a lawyer bringing a suit against the other lawyer for malpractice should not assume that the actual damage that the plaintiff knew or should have known about occurred when it seems the Plaintiff was first injured by the alleged negligence. 

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

Ellison v. Schenck, Price, Smith & King, 654 A.2d 1024 (N.J.Super.A.D. 1995)

NJ Underlying Real Estate and Litigation

Student Contributor: John J. Anzalone

Facts: Plaintiff's entered into a lease for developing cemetery grounds. Defendant represented both Plaintiff and the Cemetery. The Defendant also represented the plaintiff in negotiating the terms of the sublease of leased land. After the lease had become unprofitable for Plaintiff, Plaintiff sued Defendant. Plaintiff asserted that they relied on defendant's advice to enter into the contract because they were wrongly led to believe there was nothing preventing the lawful lease of the land. Plaintiff also claimed they suffered loses because the defendant failed to put an escalation clause in the contract with the person they sublet to.

Issue: Did plaintiff's failure to sue the attorney in the suit against the cemetery preclude them from later suing the attorney? 

Ruling: The court affirmed the dismissal of the suit by holding that Plaintiff was barred from suing he should have sued the attorney as well in an earlier suit against the cemetery, based on the following considerations:
1) Under New Jersey's "Entire Controversy Doctrine", any suit against an indispensable party that should have been added to a prior suit, results in the inability to bring a suit against that party that is part of the same dispute.
2) Parties are indispensable when the case cannot be decided between the parties present in the suit without judging or affecting the interest of the party that should have been added.
3) Had the plaintiffs won, the Defendant would have been hampered by the decision in protecting itself from being found liable for substantial damages.

Lesson: New Jersey's "Entire Controversy Doctrine" provides an effective shield from suits by client-plaintiffs who fail to add a claim against an allegedly negligent lawyer to a suit that is ongoing and in which the lawyer's alleged negligence took place.

NOTE: In response to an uproar from its decision in Circle Chevrolet v.Giordanno Halleran & Ciesla, 142 N.J. 280 (1995) which held that the entire controversy doctrine bars subsequent legal malpractice claims, the Supreme Court of New Jersey reversed that holding in Olds v. Donnelly, 150 N.J. 424 (1997) and held that legal malpractice cases are exempt from the entire controversy doctrine. Thus, this case is no longer good law on the issue of the entire controversy's applicability to legal malpractice actions. 

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

Helmar v. Harsche, 296 N.J. Super. 194 (App. Div. 1996)

NJ: Underlying real estate transaction

Student Contributor: Michael H. Park

Facts: Plaintiff purchased a triplex rental property from broker partly based upon broker's representation that the building was up to code and did not require any licenses in order to rent the premises. The broker told plaintiff to retain an attorney to review the contract and to handle the closing. The plaintiff then retained an attorney, who failed to check that the building was in compliance with all laws and regulations. Subsequently, the property was inspected and found to be in violation of twenty-one different codes. Plaintiff filed a complaint against broker alleging, fraud, consumer fraud, and negligence. Before a motion judge and again at trial, the broker sought to name attorney as a third-party defendant, contending that his malpractice was the superseding intervening cause of the plaintiff's damages. However, the broker’s motion was dismissed and judgment was entered for plaintiff. The broker appeals the dismissal of its motion.

Issue: Was the motion to join the attorney as a third-party defendant properly dismissed?

Ruling: In reversing the decision by the Superior Court, Law Division, the Appellate division held that the broker should have been allowed to join attorney as a third party defendant for the following reasons:
1) In Stewart v. Sbarro, 142 N.J.Super. 581 (App.Div.), certif. denied, 72 N.J. 459 (1976), the court held:

“[When] an attorney undertakes a duty to one other than his client, he may be liable for damages caused by a breach of that duty to a person intended to be benefited by his performance.”

2) The broker presented expert testimony that established that once hired, it was the attorney’s duty to make sure the property was in compliance with the regulations. The expert opined that the attorney owed a fiduciary duty to the broker. Therefore, had the attorney done his job, there was a possibility that all the violations would have been revealed prior to closing.

Lesson: In cases where an attorney is called upon to handle a transaction between his client and a third party, a fiduciary duty may be owed to the third party. This duty demands that the attorney not only diligently pursue his client's interests, but also the interests of the third party in successfully completing the transaction. If this duty is breached, the attorney can be held liable for any damages arising from his negligence.

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

 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.  

• Email This
• Print
• Comments (6)
• 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

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

Student Contributor: Jason Klein

NJ Underlying Real Estate Transaction

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

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

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

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

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

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

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

• Email This
• Print
• Comments (13)
• Trackbacks
• Share Link

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

Student Contributor: Anthony J. Forzano

NJ Underlying Real Estate Transaction

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

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

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

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

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

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

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

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

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

Fraser v. Bovino, 317 N.J.Super. 23 (App. Div. 1998)

Student Contributor: Lisa Larato

NJ Underlying Real Estate/Land Use Transaction

Facts: A deal for the sale of land fell through due to delays caused by challenges to the municipal approval of a condominium project. The real estate agent (Fraser) and the landowners (Genlaws) brought an action against the adjoining landowner (Defendant Bovino) who objected to the condominium project, his attorney, and others involved in ruining the deal. Fraser asserts that Bovino’s attorney (Allen) committed malpractice and acted unethically. The Genlaws also filed a claim against their attorneys Martini and Blessing who had been retained to prosecute their action against Bovino and his attorney.

The only claims still viable for the Genlaws were those which fell under the six year statute of limitations. It was undisputed that the attorneys returned the Genlaws’ file to them a few weeks before this statute of limitations expired, on January 28, 1997. The complaint, however, was not filed until April 25, 1997.

The Superior Court, Law Division, granted summary judgment to certain defendants in both actions. Appeals were filed and consolidated.

Issues: (1) Is Bovino’s attorney liable to the real estate agent, Fraser, for legal malpractice? (2) Are Martini and Blessing liable to the Genlaws for failure to file a timely complaint?

Ruling: (1) Bovino’s attorney (Allen), representing an individual who contested the proposed land use application, did not owe Fraser, the broker, even a limited duty of care. (2) Since Martini and Blessing returned the Genlaws’ file to them several weeks before the statute of limitations on their claims expired, their withdrawal from representation did not adversely affect the clients’ interests so as to warrant liability.

Lesson:

• Allen, who was not Fraser’s attorney, but the attorney of his adversary, did not owe Fraser any level of a duty of care so as to make him liable to Fraser under a professional malpractice claim.
• Under New Jersey Rule of Professional Conduct 1.16, Martini and Blessing did not commit malpractice because they (1) did not wait for the statute of limitations to run before withdrawing, and (2) left enough time for the Genlaws to file their complaint within the statute of limitations. That the Genlaws failed to file their complaint with the prescribed period of time, was entirely their own negligence, and bore no relation to the decision of Martini and Blessing to withdraw as counsel in a timely manner.

Editor's Note: In  all cases, make sure that before withdrawing, there is a reasonable amount of time left for the client to get substitue counsel to file a complaint before the statute of limitations runs. If it's getting close, consider filing a pro se complaint for the client thus giving the client even more time to get new counsel and thereby preventing the client's claim from becoming time barred. Do what is reasonable to help the client preserve their cause of action if you're not going to continue with representation, at least until they get new counsel.

• Email This
• Print
• Comments (10)
• 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

Cherry Hill Manor Associates v. Faugno (N.J.Super.A.D., 2004) (PDF) reversed by 182 N.J. 64 (2004)

NJ Underlying Real Estate and Litigation

Student Contributor: John Anzalone

Facts:   Plaintiff retained Attorney 1 to represent it in a real-estate purchase. After the transaction failed, Plaintiff retained Attorney 2 to recover its deposit from seller. Attorney 2 failed to add a claim for legal malpractice against Attorney 1 in the suit. Plaintiff then hired Attorney #3, the Defendant, to file a malpractice claim against Attorney 1, but the suit was dismissed because he should have been sued in the case against the seller Attorney #2. Plaintiff then filed a malpractice complaint against Attorney 2 for failure to include Attorney 1 in the suit against the seller, but the suit was dismissed because he should have been sued in the case against Attorney 1. Plaintiff then sued Defendant and his law firm for failing to add a claim against Attorney 2 to the suit against Attorney 1. Defendant and his law firm added Attorney 2 and Attorney 1 to the case under a New Jersey statute providing for indemnification and contribution by those also responsible for Plaintiff's damages.

Issue:   Could the defendant attorney seek reimbursement for damages paid to the Plaintiff from the lawyers the plaintiff previously retained to try to recover its deposit?

Ruling:   In reversing the lower court, the Appellate Division held that an attorney could seek to recover from the lawyers Plaintiff previously retained to try to recover its deposit, based on the following factors:
1) The Defendants' liability and the predecessor attorney's potential liability to the plaintiff were all for failing to protect the interest of the Plaintiff.
2) All liability in the case followed from Attorney 1's potential malpractice in protecting the Plaintiff's interest in its contract with the seller.
3) Defendant was liable for failing to protect Plaintiff's claim against Attorney 2, who was potentially liable for failing to protect Plaintiff's claim against Attorney 1, who was potentially liable for failing to protect Plaintiff's interest against the seller.

Lesson:   When attorneys are sued for failing to protect the plaintiff's interest by a subsequent lawyer for that plaintiff, the attorneys remain potentially liable to the paying defendant lawyer for the extent of the damages to the plaintiff that they caused.

Editor's Note: This summary is posted for educational purposes only, as the Appellate Division decision summarized above was reversed by the NJ Supreme Court. See, 182 N.J. 64,76 (2004). (PDF)

The Supreme Court stated:

...we are dismayed by the cottage industry of litigation that was spawned by a rather commonplace real estate transaction that occurred eighteen years ago. By this opinion, we bring this matter to an end today. We, therefore, hold that, under the circumstances of this case, the prior tortfeasors are not liabile for statutory contribution to the subsequent tortfeasor because the prior and subsequent tortfeasors were not jointly or severally liable to plaintiff for the same cause of action.  We further hold that the subsequent totfeasor cannot claim statutory contribution form the prior tortfeasor inasmuch  as the "injury" inflicted by the prior  tortfeasrn is not the "same injury" as the one inlficted by the subsequent tortfeasor.

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

Hernandez v. Baugh, 401 N.J. Super. 539; 951 A.2d 1095 (App. Div. 2008)
NJ Underlying commercial transaction, real estate.

Student Contributor: John Anzalone

Facts: Plaintiff consulted with attorney to represent him in the purchase of a business with Plaintiff's uncle. In representing both the Plaintiff and uncle, the attorney created two corporations, one to own the business, the other to own the real estate on which it sat. Plaintiff was only given stock in the corporation that owned the real estate. Plaintiff had an unwritten understanding with the uncle regarding his role in the business, and asked the attorney if his interests in the business were protected with such an arrangement. The attorney did not change the agreement to give Plaintiff partial ownership of the business. Plaintiff sued the uncle for breach of their understanding and settled for less than he alleged he would be entitled to had the attorney not failed to protect his interests in the business.

Issue: Since the settlement agreement stated that the settlement was "fair and reasonable” was plaintiff barred from bringing a legal malpractice action against the attorney?

Ruling: In reversing the lower court, the Appellate Division held that the settlement agreement’s wording did not entitle the attorney to dismissal of suit against her, based on the following factors:

1. The wording of the settlement, "in light of all relevant factors" included the attorney's alleged negligence in weakening plaintiff’s case against the uncle.

2. The plaintiff was forced to settle for less because his claim seeking an ownership interest in the business had been weakened by the attorney's alleged negligence.

Among the factors that plaintiff had to take into consideration in negotiating the settlement [with his uncle] were the legal hurdles he faced in proving that he held an ownership interest in [the business]; those hurdles, he contended, were the result of defedant [attorney's] negligence.

The Lesson: If the attorney's negligence caused a reduced value of the former client's settlement because it made the client's case weaker, the attorney can be held liable even if the settlement is called “fair and reasonable” in light of the circumstances. At the outset of the relationship, the attorney should have counseled the plaintiff to get his own lawyer or, if permitted by law, to get a full waiver of the conflict in representing the plaintiff and uncle. The lawyer should also have made clear, in writing and at the beginning who he represented and who he did not represent.

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

Grubbs v. Knoll,
376 N.J. Super. 420, 870 A.2d 713 (App. Div. 2005)

Student Contributor:  Cheryl Neuman

NJ Underlying real estate transaction

Facts: Plaintiff was involved in a real estate transaction wherein the Defendant and his real estate agent failed to disclose evidence revealing that the real estate was situated above wetlands, which would result in building and construction limitations. Plaintiff's attorney similarly failed to bring this critical information to light.  Upon learning of these constraints, Plaintiff sued the Defendant for common law fraud, the Defendant’s real estate agent for violation of the Consumer Fraud Act ("CFA"), and his own lawyer for legal malpractice. The jury awarded the plaintiff $75,650 in compensatory damages for common law fraud, consumer fraud, and legal malpractice and allocated 60% of the liability for compensatory damages to the broker, 30% to vendors, and 10% to plaintiff’s counsel.  The trial court increased the damages under the CFA to $226,950. The plaintiff settled with the defendant for $20,000 and with the real estate agent for $500,000. The malpractice claim, however, did not settle, and plaintiff subsequently sued the allegedly negligent attorney for reimbursement of attorney's fees incurred in the malpractice action.  

Issue: Will a negligent attorney sued for malpractice be liable for the legal fees incurred by his former client in the malpractice action?  

Ruling: As a general rule, New Jersey Courts ascribe to the American Rule:  there is no fee shifting between parties irrespective of who prevails.  Legal malpractice cases, however, are an exception.  Legal fees incurred by a former client in a legal malpractice action are considered additional compensatory damages in instances where the client prevails.  The Grubbs Court found that the negligent attorney was liable for one-third of the attorney's fees and costs incurred by his former client in the malpractice action. 

Lesson: A negligent attorney is responsible for the reasonable legal expenses, costs, and attorney's fees incurred by a former client in prosecuting the legal malpractice action against the negligent attorney.

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

LaBracio Family Partnership v. 1239 Roosevelt Avenue, Inc.,
340 N.J. Super. 155, 773 A.2d 1209 (App. Div. 2001)

Student Contributor:  Cheryl Neuman

N.J. Underlying real estate transaction

Facts:  Sevdalis was represented by his attorney, Kroop in selling his diner. Zervas, the buyer, was represented by his lawyer, Abazia. There were two mortgages involved in this transaction:
1.    Zervas was supposed to assume the first mortgage to a party named LaBracio, and
2.    Sevdalis was going to take the purchase money mortgage which would be secondary to the LaBracio mortgage.
At the closing, Abazia (buyer’s lawyer) took the deed and Sevdalis’s mortgage and said he was going to record them. He didn’t record them. Subsequently, Zervas physically assaulted Abazia, and took his files, the deed, and mortgage. Abazia told Kroop that the mortgage and deed were never recorded, but Abazia was then fired and Zervas hired a new lawyer, Burger.
Burger also did not record the deed or mortgage, and he gave the documents to his client, Zervas. During this time, Zervas granted mortgages on the property to unrelated mortgagees, thereby giving these new liens priority over the Sevdalis mortgage.  Sevdalis then brought a legal malpractice suit against  Kroop (seller's attorney)  Abazia (buyer's attorneys) and Burger (seller's second attorney).

Issue : Whether Burger was negligent and if so, how should responsibility be allocated between the three lawyers?

Ruling: Burger was negligent and is therefore responsible for 25%, Abazia is responsible for 25%, and Kroop is responsible for 50% of the award. The court used the substantial factor test in determining whether Burger would be held responsible. Since his actions were a substantial factor in causing the injuries, he was indeed responsible.

Lesson: N.J. recognizes the existence of duties owed not only to an attorney’s client but also to third parties, such as  opposing counsel:

 attorneys may owe a duty of care to non-clients, when the attorneys know or should know, that non-clients will rely on the attorneys’ representations and the non-clients are not too remote from the attorneys to be entitled to protection.

LaBracio, 340 N.J. Super. 155, 163. 

The court further said that:

a duty to a non-client third party depends on balancing the attorney’s duty to represent clients vigorously, Rule of Professional Conduct, Rule 1.3 (1993) with the duty not to provide misleading information on which third parties foreseeably will rely, Rule of Professional Conduct, Rule 4.1 (1993).
 

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