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

Keesling v. Baker & Daniels, 571 N.E.2d 562 (Ind. Ct. App. 1991)

IN: Underlying bankruptcy action

Student Contributor: Jeff Cain

Facts: Lawyers represented clients in a Chapter 11 bankruptcy case. When the lawyers discovered that they may have a conflict of interest with one of their creditors, they had the clients hire other lawyers to represent them in that matter. After the bankruptcy court approved their reorganization plan, the lawyers withdrew their representation of the clients. Two years and twelve days later, the clients sued the lawyers for malpractice.

Issue: Is the statute of limitation for lawyer malpractice tolled for fraudulent concealment?

Ruling: The statute of limitations for lawyer malpractice is two years in Indiana. But a statute of limitations stops when a lawyer, “by deception or a violation of duty, has concealed material facts from the plaintiff thereby preventing concealment of a wrong.” This doctrine of fraudulent concealment includes instances where lawyers conceal malpractice from their clients, and when lawyers fail to disclose information from their clients. The clients in this case alleged that the lawyers actively concealed their malpractice, but they did not present any evidence to support that allegation.

Even if they did show that the lawyers concealed their malpractice, the doctrine of fraudulent concealment does not reset the statute of limitations on the malpractice action. A client who discovers lawyer malpractice has the responsibility to begin a lawsuit within a reasonable time. Since the clients did not explain why they filed a suit more than two years after their representation ended, their suit was barred by the statute of limitations.

Lesson: When a lawyer conceals his malpractice from a client, a lawyer malpractice lawsuit must be brought within a reasonable time after discovery of the malpractice.
 

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Dessel v. Dessel and Donohue,431 N.W.2d 359 (Sup. Ct. 1988).

Iowa underlying partnership dissolution

Student contributor: Cheryl Neuman

Facts: Two brothers, James and George, were partners in a business and wanted to dissolve the partnership. Both brothers retained one lawyer, the defendant in the present action. The agreement stated that James’ share of the partnership would be sold to George and the accounts receivable would be divided equally between the two brothers.   After the partnership was dissolved, James died. James’ wife was appointed executor of the estate and she also retained defendant attorney as her attorney. James’ wife and George got into an argument regarding the division of the accounts receivable. Defendant counseled both George and James’ wife during the dispute. After the dispute could not be resolved, defendant, acting for the estate, sued George, claiming he breached his fiduciary duties in collecting the accounts receivable. George retained separate counsel and filed a legal malpractice case against defendant.

Issue 1: Was defendant liable for inserting a “hold harmless clause” in the dissolution agreement, as it was the sole basis for James’ wife’s suit against George?

Ruling 1: Yes, because this specific provision was inserted by mistake and in direct violation of the brother’s wishes and instructions. Defendant was therefore negligent.

Issue 2: Did defendant attorney have a conflict of interest in representing both George and James’ wife?

Ruling 2: Yes, because George stopped taking the 6% fee that James and George had orally agreed upon as a result of defendant’s advice. Defendant would not have given this advice had he not been retained to represent James’ wife. Furthermore, defendant’s negligence in inserting this clause, proximately caused George to pay legal expenses to defend the estate’s suit against him. Defendant’s advice to George was clearly the reason George surrendered the commission he had earned.

Lesson: A lawyer should not represent two parties in a matter when there is a clear conflict. There was information in this case that defendant questioned George about his activities and then used that information as the basis for the lawsuit against George; a clear violation of the professional rules of conduct. Rather than trying to retain the most amount of clients for the most amount of profit, it is wise to only represent those parties that are proper to represent and steer clear of malpractice litigation.  

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Meara v. Hewitt, 455 Pa. 132; 314 A.2d 263 (1974)

PA Underlying Mortgage Transaction

Student Contributor: Natalie Resto

Facts: The client had executed a mortgage on a real estate he owned to a corporation, which was wholly owned by his attorney. The mortgage was given in exchange for stock representing 25 percent interest in the corporation. The client then died and the attorney was appointed executor of his estate pursuant to the client’s will. That year the corporation through the attorney assigned the mortgage to the Hewitts for a consideration of $100. A couple of years later the mortgagee corporation became insolvent. The estate brought an action against the attorney arguing that the attorney took advantage of the attorney-client relationship when he allowed him to enter into a mortgage in favor of a corporation of which the attorney was the sole owner. The lower court found that the attorney and the client did have a confidential relationship but that there was no abuse of that relationship. The estate appealed.

Issue: Who has the burden of showing whether the attorney-client relationship has been abused?

Ruling: The attorney has the burden to prove that he did not abuse the relationship, that he fully disclosed the facts of the transaction to his client, and that the transaction is fair and conscionable. The court remanded to see whether the attorney met his burden.

Lesson: The standard of conduct that must prevail between an attorney and client when it involves business transactions is that:

“[N]o shadow of anything like deception or unfair dealing upon the  part of any attorney can be countenanced…Owing to confidence bestowed upon him, the attorney is presumed to be able to strongly influence his client; hence the law often declares transactions between them void which between other persons would be objectionable.”

Id. at 135 (quoted Kribbs v. Jackson, 387 Pa. 611, 129 A.2d 490 (1957)).

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Phoenix Founders, Inc. v. Marshall, 887 S.W.2d 831 (1994)

TX: Conflict of interest; disqualification

Student Contributor: Amber R. Gilchrest*

Facts: A paralegal working at the law firm of Thompson & Knight quit her job to work for David & Goodman,  where she spends 6/10th of an hour on a collection suit by Phoenix Founders against Ronald and Jane Beneke. The Benekes were represented by David & Goodman while Phoenix Founders was represented by Thompson & Knight. The paralegal later quit David & Goodman and returned to Thompson & Knight while the litigation against the Benekes continued.  The paralegal was not questioned by Thompson & Knight about any potential conflicts of interest and was not screened from the case. Counsel for the Benekes sent a letter demanding that Thompson & Knight withdraw from representing Phoenix Founders; Thompson & Knight refused,  at which point counsel for the Benekes filed a motion to disqualify. After initially overruling the motion, the trial court granted the motion because the confidential information known by an employee is imputed to the employer; in this case the paralegal imputed the confidential information to Thompson & Knight.

Issue: Whether a law firm must be disqualified from representation after employing a non-lawyer formerly employed by opposing counsel even though the law firm takes sufficient precautions to reduce the risk of the disclosure of confidential information?

Ruling: No, a law firm is not required to be disqualified from representation by employing a non-lawyer former employer of opposing counsel if the law firm takes sufficient precautions to reduce the risk of disclosure of confidential information to an acceptable level. In a case of first impression, the court looked to the Coker rule which states that lawyers are disqualified when they represent a client in pending suit that is “substantially related” and adverse to the interests of a former client. NCNB Texas Nat’l Bank v. Coker, 765 S.W.2d 398 (Tex. 1989). Furthermore, the court discussed the Petroleum Wholesale rule which states that any confidential information known by a lawyer is presumed to be shared with other members of the firm because of the nature of the relationship among firm members. Petroleum Wholesale, Inc. v. Marshall, 751 S.W.2d 295 (Tex. App. –Dallas 1988). The court agreed that the Coker rule applies to non-lawyers as well as lawyers,  but refused to extend Petroleum Wholesale  to non-lawyers provided that law firm can prove it took formal screening measures sufficient to protect confidential information. The nature of the involvement, time spent on the case, and the substantiality or the relation between the current and former case are all factors. The case was remanded for determination of whether the law firm took sufficient precautions to screen the paralegal.

Lesson: Lawyers and law firms should always ask every new employee or rehired employee about previous employment or other experience that may create conflicts of interest. Furthermore, law firms should have screening procedures and policies in place to ensure that confidential information is protected and not disclosed.

* Amber R. Gilchrest is in her final year at Texas Tech University School of Law.   She earned her B.A. with a double major in Government and Psychology from the University of Texas at Austin and wants to pursue a career in public service.  

  

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With this post, Legal Malpractice Law Review  inaugurates a new section called "Brain Teasers".

 All too often, common transactions we  come across  give rise to complicated legal malpractice (and ethics) issues. With "Brain Teasers" we challenge you to see the issues and discuss how you would approach their resolution. Feel free to post  and share with all of us your comments.

If you have a "Brain Teaser" to share, please email it to us at: experts@legalmalpractice.com. Make sure to use fictitious names. And we'll post it so that everyone can benefit. 

And now, Bill Freivogel, shares with us the Inaugural "Brain Teaser":

Eighteen months ago Tom represented the borrower in a loan transaction. Tom’s client is now in deep trouble and may be headed for bankruptcy court. One of the bankruptcy lawyers in the firm, Bob, while reviewing the loan transaction, notices that the remedies opinion in Tom’s closing opinion did not contain a critical provision dealing with bankruptcy. Bob goes to Tom and asks whether that omission was intentional. In looking at his notes Tom quickly realizes that his assistant had misinterpreted one of his edits. This could further complicate life for Tom’s already shaky client and for Tom’s law firm. Tom goes to his firm’s general counsel, Barbara and asks for guidance. Barbara pulls in another partner, Jerry, for a second opinion about what should have been done.

While the above scenario raises many issues, here are a few. First, what, if anything, must Tom tell his client? The trickier question is when must Tom tell his client. Second, are any of the communications that have just occurred within Tom’s law firm among Tom, Bob, Bill, Barbara, and Jerry, protected by the attorney-client privilege? This second issue will almost certainly arise if either Tom’s client or the lender sues Tom and his law firm for the mistake. Last, when, if ever, should the law firm notify its malpractice carrier or broker. What should the notice say?

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