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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Crosby v. Pittman, Court of Appeals of Georgia, August 20, 2010. 

Facts:  Crosby retained Pittman to represent him with respect to a traffic citation.  Pittman advised Crosby that he would need to pay $350 to resolve the citation.  Crosby gave Pittman $350, only to learn that the citation was for $300 and it had never actually been paid.  

Crosby then sued Pittman for fraud and breach of fiduciary duty.  The lower court dismissed Crosby's complaint for failure to file an affidavit of merit pursuant to OCGA Section 9-11-9.1.  Crosby appealed.

Issue:  Is an affidavit of merit necessary for claims against an attorney other than legal malpractice, ie. fraud and breach of fiduciary duty?

Ruling:  No.  

The applicable Georgia statute requires that any complaint alleging professional malpractice against an attorney be accompanied by an expert affidavit setting forth at least one negligent act or omission claimed to exist and the factual basis for each such claim.  The appellate court, therefore, held that by its very language, the statute was only applicable to professional malpractice actions. The Court further noted: 

Additionally, claims for breach of fiduciary duty do not require an expert affidavit as they are not based on negligence involving the performance of the professional's services.

Accordingly, the appellate court reversed the dismissal of Crosby's complaint. 

Lesson:  In Georgia, plaintiffs need not obtain an affidavit of merit to pursue claims of fraud or breach of fiduciary duty against their former attorney.

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 Oster v. Kirschner, et al 2010 NY Slip Op. 05981 (App Div, 1st Dept. 7-6-2010)

NY: Underlying Private  investment

FACTS: A NJ law firm, Lum, Danzis, Drasco & Positan,LLC lost its bid to stay out of a NY law suit brought by investors in a private investment  plan named Cobalt,  which turned out to be a Ponzi scheme  operated by a convicted felon with the help of an admitted criminal with numerous convictions for securities violations and  who was banned from the securities industry.  Investors lost over $22 million. As Cobalt's attorneys,  the law firm is accused of preparing the private placement memorandum  (PPM) which failed to disclose the criminal histories  of the investment's managers, although the Firm's attorneys were aware of it.  Also, the PPM allegedly contained other affirmative misrepresentations to which plaintiffs pointed in their "aiding and abetting" , fraud and breach of fiduciary duty Complaint. The Law Firm also served as the  escrow agent for the investment transactions. The Law Firm "did not seriously dispute that they had knowledge of [their clients'] criminal backgrounds." It just claimed that knowledge and the knowledge of misrepresentations in the PPMs--"the admitted vehicle by which investment in the Ponzi scheme was carried out--does not sufficiently allege actual knowledge..."

ISSUE: Does the Complaint adequately plead fraud, or should the trial court's dismissal of the Complaint be reversed?

HELD: Order dismissing Complaint reversed. Complaint re-instsated.

1. A plaintiff alleging an aiding and abetting fraud claim must allege the existence of he underlying fraud, actual knowledge and substantial assistance.  Actual knowledge of fraud can be "discerned from surrounding circumstances."

2. The Law Firm's preparation of the PPM, including, significantly, a backdated amendment to it that showed the investment managers criminal past which it had not previously disclosed, constitutes "substantial assistance."

The PPMs authored by defendant attorneys were the means by which the Cobalt...entities were able to solicit funds for ...[the] Ponzi scheme. The PPM is the very mechanism by which investments such as Cobalt are placed in the marketplace, and the admitted "but for" cause of plaintiff's investment losses. Yet defendants assert that "loss causation" is lacking because it has not been adequately pleaded that defendant attorneys had actual knowledge that their clients--whom they admittedly knew to be criminals, banned from the securities industry for engaging in fraudulent investment schemes--would operate...Cobalt...as a Ponzi scheme. If the facts and circumstances herein do not support an inference of actual knowledge, then it is doubtful that any action for aiding-and-abetting fraud could be sustained against any attorney, who, like defendant attorneys, consciously chose to look the other way when their clients asked them to prepare the PPM...To say that defendant attorneys merely furnished legal services to help solicit investments in...Cobalt..., and did not have knowledge of the fraud they helped perpetrate...[is] simply not tenable. The Court cannot and will not endorse what is essentially a "see no evil, hear no evil" approach. 

LESSON:  Is the NY Court expanding the duty of vigilance of the lawyer regarding disclosure of information that non-clients should be entitled to know?  Will there be an appeal from this ruling? Let's wait and see. 

For an interesting NJ case involving a different NJ law firm also involved in composing a "defective" PPM, see Profit Sharing Trust v. Lampf Lipkind, 630 A.2d 1191 (1993).

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O’Callaghan v. Weitzman, 436 A.2d 212 (Pa. Super. Ct., 1981)

PA Underlying Tort Action.

Student Contributor: Colleen Gaedcke

Facts: The plaintiffs, husband, wife and daughter, brought a fraud and legal malpractice action against the defendant resulting from the defendant’s representation of in a vehicular negligence accident. The defendant hired a colleague to handle the plaintiff’s case who in turn hired another attorney to institute the suit on the plaintiff’s behalf. By the time the attorney attempted to commence the action, the statute of limitations had run as for the two adult plaintiffs. The attorney alerted the defendant and his malpractice insurer as to his error. Without any authority to do so, the defendant negotiated with the attorney’s insurer and obtained a $9,000 settlement offer for the plaintiffs. The plaintiffs accepted the offer under the impression that the settlement was for the original automobile accident. The defendant deducted 40% contingent fee from the $9,000 and gave the plaintiffs a personal check for the remainder of the balance. When the plaintiffs learned the truth behind the settlement they brought this action against the defendant for fraud and legal malpractice.

Issue: Whether the lower court erred in granting the plaintiffs motion for a new trial on the issue of fraud?

Ruling: No. The plaintiff’s evidence was sufficient to warrant submission of the issues of fraud and damages to the jury.
1. “Fraud is composed of a misrepresentation fraudulently uttered with the intent to induce the action undertaken in reliance upon it to the damage of its victim..[and] the evidence must be sufficient to ‘enable the jury to come to a clear conviction, without hesitating, of the truth of the precise facts in issue’.”
2. The jury could come to a clear conclusion that the defendant defrauded the plaintiffs because the defendant failed to truthfully inform the plaintiff about the nature of the settlement in an effort to avoid being sued for malpractice.
3. Furthermore, as a result of the defendant’s actions the plaintiff was denied the opportunity to have a disinterested advocate pursue a malpractice claim against the attorney for missing the statute of limitations.

Lesson: A deliberate nondisclosure by a lawyer of a material will amount to fraud and legal malpractice for which the client can sue the lawyer.

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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.

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