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

Don v. Soo Hoo, 75 Mass. App. Ct. 80 (2009)

MA: Underlying Botched Bankruptcy Proceedings

Student Contributor: Jason W. Hake

Facts: A client retained the defendant law firm to file a bankruptcy petition on her behalf while he earned $8,000.00 per year. The attorneys forgot to file his petition and discovered their error three (3) years later when the client was earning $30,000.00 per year. The attorneys filed the petition and the bankruptcy trustee concluded that she could pay her debts and dismissed the petition. The client sued his attorneys for negligence, breach of contract, breach of the covenant of good faith and fair dealing, and for violation of Mass. Gen. Laws Ann. Ch. 93A. The jury awarded the client $16, 913.00 in damages. The attorneys appealed for judgment notwithstanding the verdict.

Issue: Did the jury properly find in favor of the client?

Ruling: Yes. The evidence properly supported the jury’ finding that but for the attorney’s negligence, the client would have received a discharge of her debts at an earlier date when she was making only $8,000.00 per year. The jury’s finding was also supported by the evidence which demonstrated that the client’s creditor’s were still interested in commencing lawsuits against her, as she was receiving demand letters and was no longer ‘judgment proof”. The amount of damages awarded by the jury were also supported by the evidence documenting the debt owed by the client.

Lesson: Beware of skeletons in the closet. It is extremely important to manage your case-load and document important dates and client goals and anticipate changes in circumstances which could adversely affect your clients.  

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Rice v. Forestier,  414 S.W.2d 711 (Civ. App. 1967)

TX. underlying bankruptcy proceeding

Student contributor: Cheryl Neuman

Facts: Plaintiff retained defendant attorney for various matters, both in business and personally. Plaintiff suffered damages as a result of a default judgment filed against him in a bankruptcy proceeding. The plaintiff was served with citations. There is conflicting testimony regarding whether plaintiff delivered the citations (from the underlying cause of action) to the defendant’s office. Nevertheless, defendant was aware that the citations were in his office and defendant’s secretary actually prepared answers to the citations but was told not to file them because the business was in bankruptcy. The secretary placed the documents in a file and stored them away. These documents were then given to another attorney hired by plaintiff, in another matter. The new attorney testified that he received two citations from defendant’s file.

Issue: Whether defendant had a duty to inform plaintiff that he was not going to file an answer on plaintiff’s behalf?

Ruling: Yes. Since defendant knew that the citations were in his possession, he was obligated to inform plaintiff that he decided not to answer the citations. Defendant did, however, have the right to decline representation in this matter, but should have told plaintiff of his decision. The failure of the defendant to file the answer on plaintiff’s behalf and notify plaintiff that he would not be representing him was the proximate cause of the monetary loss as a result of the default judgment taken against him.

Lesson: A lawyer is free to choose his clients, but if the lawyer decides not to represent a longstanding client in a subsequent matter, it is prudent to inform the longstanding client of this decision. This is especially true, because, as seen in this case, a lawyer can be held liable to a client who he doesn’t inform that he will not be representing him.

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Wright v. Meyers & Spencer, LLP, 849 N.Y.S.2d 274 (N.Y. App. Div. 2d Dep't 2007)

NY Underlying Bankruptcy Action

Student Contributor: Melissa Goldberg

Facts: This is an action for legal malpractice arising out of Defendants' representation of Plaintiff in a bankruptcy proceeding. Plaintiff alleges in the verified complaint that he made a transfer to his “daughter” Plaintiff and this disclosed in the bankruptcy petition. The bankruptcy trustee brought an adversarial proceeding alleging that the transfer was fraudulent because it was made within one year of the filing of the bankruptcy proceeding. Plaintiff claimed that the Defendants should have advised Plaintiff to delay filing for bankruptcy until one year after the transfer was made to avoid the adversarial proceeding.

Issue: Does the Plaintiff have standing to file this suit against the Defendants?

Result: No, the Plaintiff did not have standing because
• Any legal malpractice cause of action necessarily accrued prior to the filing of the Plaintiff's bankruptcy petition so,
• Upon commencement of the Plaintiff's bankruptcy proceeding, the malpractice cause of action became "property of the estate" pursuant to the Bankruptcy Code.

Lesson: In a Bankruptcy action, any cause of action that arises prior to a bankruptcy proceeding beginning is property of the estate and not the individual. Only a person with standing can sue.

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

TX: Underlying personal injury then bankruptcy, post judgment

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

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

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

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

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

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

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

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

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

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