Feb 1 2017

Legal Malpractice Law Update 1/31/17

United States Court of Appeals, Seventh Circuit

"Lost Defense” Requires Causation and Actual Harm: Client failed to state a cause of action for legal malpractice because its allegations did not set forth a plausible description of causation and actual harm, as required to establish claim for “lost defense.”

Court of Appeals of Georgia

Waiver Clause in Promissory Note: Client waived malpractice claim by executing promissory note concerning unpaid legal fees, where promissory note contained broad waiver provision.

New York Supreme Court, Appellate Division, First Department

“Special Circumstances” Exception to Privity Requirement: Corporate client had standing to bring malpractice action against law firm because “special circumstances” exception to the privity requirement applied where defendant law firm would otherwise be insulated from liability for its alleged wrongdoing.

Court of Appeals of Minnesota

Insufficient Expert Disclosure: Plaintiff’s insufficient expert disclosure was fatal to her legal malpractice claim where the expert affidavit did not provide substantive discussion of the proximate causation between the defendants’ alleged breach and the plaintiff’s harm, but, rather, was only conclusory in nature.

Court of Appeals of Ohio, Eleventh District, Portage County

Termination of the Attorney/Client Relationship and Statute of Limitations: Former client’s legal malpractice claim was barred as untimely under Ohio’s one-year statute of limitations where client both consulted with other counsel on the same subject matter and also expressed dissatisfaction with the defendant law firm’s representation more than one year prior to filing legal malpractice action.

Superior Court of Pennsylvania

Proximate Cause/Damages: Failure of attorney to sue proper party where a judgment was obtained against named party but judgment was alleged to be uncollectable may be a viable basis for a legal malpractice claim and claim was not subject to dismissal as a matter of law.


Case Summaries

United States Court of Appeals, Seventh Circuit

"Lost Defense” Requires Causation and Actual Harm: Client failed to state a cause of action for legal malpractice because its allegations did not set forth a plausible description of causation and actual harm, as required to establish claim for “lost defense.”

West Bend Mutual Insurance Company v. Schumacher, et al. 2016 WL 7395708 (7th Cir. 12/21/2016)

The United States Court of Appeals for the Seventh Circuit affirmed an order of the District Court for the Northern District of Illinois allowing the defendant law firm’s motion to dismiss the plaintiff’s complaint for failure to state a claim. In this case, the plaintiff hired the defendant attorney to provide legal representation to defend a workers’ compensation claim filed by an employee (“the claimant”). The defendant attorney did not speak with or take the deposition of the IME doctor who conducted the claimant’s independent medical examination and agreed with the claimant’s counsel to put a redacted version of the doctor’s IME report into evidence, without seeking the approval of the plaintiff, his client. The defendant attorney also did not speak to any other witnesses or potential witnesses until the day before the hearing and learned that a witness with relevant testimony was unavailable to testify the following day. The defendant attorney did not investigate the claimant’s contrary statements nor did he verify them with the claimant’s former supervisor. On the day of the workers’ compensation hearing, the defendant attorney represented that the plaintiff would accept liability of the workers’ compensation claim, without the plaintiff’s knowledge or agreement. The plaintiff filed a legal malpractice action, alleging that the plaintiff was “forced to accept a disadvantageous position which greatly compromised its ability to defend the claim.” The plaintiff’s complaint also alleged that as a result of the defendant attorney’s unauthorized actions and representations, the plaintiff was forced to make significant payments. The Northern District of Illinois granted the defendant attorney’s Fed. R. Civ. P. 12(b)(6) motion to dismiss the plaintiff’s second amended complaint, holding that the plaintiff had failed to state a claim in three successive complaints, specifically that the plaintiff’s complaints did not explain how any of the alleged acts and omissions harmed the plaintiff’s defense. The plaintiff appealed to the Seventh Circuit. The Court of Appeals noted that the plaintiff’s complaint described its claims in “summary fashion” and general language, which allegations were conclusory assertions and did not set forth a plausible description of a lost defense. The language employed by the plaintiff that the Court of Appeals concluded were conclusory assertions were: “[p]rior to August 2006, there existed certain factual defenses and a medical causation defense” to the workers’ compensation claim; the plaintiff “was forced to accept a disadvantageous position which greatly compromised its ability to defend the claim”; and the plaintiff’s loss of “valuable factual and legal defenses that would have eliminated or substantially reduced any liability of [the plaintiff] to the claimant.” The elements of a cause of action for legal malpractice under Illinois law demand that the malpractice plaintiff present two cases, one showing that its attorney performed negligently, and a second “case within a case” showing that the plaintiff had a meritorious claim [or defense] that was lost due to the attorney’s negligence. Having failed to provide any description of how any evidence would have produced a successful outcome, the Seventh Circuit affirmed the Northern District of Illinois’ allowance of the defendant attorney’s motion to dismiss.

Court of Appeals of Georgia

Waiver Clause in Promissory Note: Client waived malpractice claim by executing promissory note concerning unpaid legal fees, where promissory note contained broad waiver provision.

OTS, Inc. et al. v. Weinstock & Scavo, P.C. 793 S.E.2d 672 (Ga. Ct. App. 11/16/2016)

A client business brought malpractice claims against its law firm concerning the law firm’s defense of the client in a sexual harassment lawsuit. The law firm counterclaimed against the client for client’s breach of a note and failure to pay attorneys’ fees arising from the representation. The underlying sexual harassment lawsuit was handled by an attorney from the law firm until two weeks before trial when the attorney was named as a fact witness based on his many years spent representing the client business in employment matters. At that point the law firm was replaced by alternate counsel. The jury in the underlying matter returned a verdict against the client. After the underlying trial, and while the client’s malpractice action against the law firm was pending, the client agreed to execute a promissory note in compromise of amounts it owed to law firm for outstanding legal fees. The promissory note contained a waiver provision that stated that the maker waived and released “any and all claims, rights, demands, obligations and liabilities and causes of action…” against the holder of the note. At trial on the legal malpractice claims, the jury found in favor of the law firm on the legal malpractice claims, but found that in favor of client on the counterclaims. The client appealed, claiming that the trial court erred by ruling that (1) it could not recover its attorney’s fees for pursuing the legal malpractice action instead of arbitration, (2) it could not assert claims of breach of fiduciary duty and breach of duty of good faith and fair dealing in addition to malpractice, (3) certain claims were released by the promissory note, (4) the firm’s liability was derivate of its attorney, and (5) the trial court abused its discretion by excluding expert testimony. The law firm also appealed, claiming that the trial court erred by denying its motion for summary judgment on its counterclaim, and denying its claim for attorney’s fees and costs. The Court of Appeals found that the client’s claim of malpractice for failure to compel arbitration was properly dismissed as too speculative. The Court of Appeals held that the client was not prejudiced by the court’s exclusion of claims for breach of fiduciary duty and the duty of good faith and fair dealing because the client failed to show that it was prevented from presenting evidence of intentional conduct by the defendants that would constitute a breach of either duty, and moreover, the jury was instructed on breach of fiduciary duty. The Court of Appeals found that summary judgment on the legal malpractice claims was proper because of the waiver contained within the promissory note. The Court of Appeals held that the client failed to show authority supporting its argument that the law firm bore independent liability separate from that derived from its agent, the attorney. As to the law firm’s counterclaims, the Court of Appeals agreed that the trial court erred by denying the firm’s motion for summary judgment on the basis that the terms of the note were breached by the client’s failing to pay as agreed. The Court of Appeals vacated the trial court’s denial of law firm’s request for attorney’s fees in defending the malpractice claim and remanded to the trial court for further consideration.

New York Supreme Court, Appellate Division, First Department

“Special Circumstances” Exception to Privity Requirement: Corporate client had standing to bring malpractice action against law firm because “special circumstances” exception to the privity requirement applied where defendant law firm would otherwise be insulated from liability for its alleged wrongdoing.

Deep Woods Holdings, LLC v. Pryor Cashman, LLC, 145 A.D.3d 447, 43 N.Y.S. 3d 27 (N.Y.A.D. 1st Dept. 12/6/2016)

The New York Supreme Court, Appellate Division, reversed a trial court order that had allowed defendant law firm’s motion to dismiss plaintiff’s complaint. In this case, plaintiff, a former corporate client, an assignee of a right to exercise a call option to purchase shares of stock in a bank, filed a malpractice action against its attorney for failing to exercise the call option in a timely manner. The law firm had represented an individual non-party in a transaction designed for him to purchase $10 million in stock of a non-party bank. However, before the closing of that transaction, a savings deposit insurance fund non-party entity (“deposit insurance fund”) sued the holder of 99% of the bank’s shares, and also obtained a restraining order to prevent any transfer of the shares. Nevertheless, on June 22, 2004, the individual non-party and the deposit insurance fund entered into an agreed upon stipulation, pursuant to which the individual would have the right to exercise a call option to buy shares of stock in the bank for a specific amount, provided that the individual exercised his right within 45 days after the deposit insurance fund was able to deliver the shares. The deposit insurance fund then delivered the shares on July 12, 2005. However, the law firm did not exercise the individual’s call option until November 2, 2005, well after the 45-day limit. The deposit insurance fund then refused to honor the individual’s call option. Thereafter, the law firm suggested to the individual that he form a corporate entity, along with other individual non-parties (the bank’s chairman and another individual), and that the individual then assign the call option to the newly formed entity, which could then sue the deposit insurance fund to exercise the call option. In or about 2007, the law firm organized the new corporate entity (“new entity”). The law firm drafted the assignment from the individual, and acted as counsel to the new entity in litigation against the deposit insurance fund. The Court noted that the law firm did not draft the assignment to specifically reference the assignment of any tort claims the individual might have had in connection with the exercise of the call option to the new entity. In the underlying federal court litigation, the new entity obtained a $25.3 million judgment. However, on appeal, the United States Court of Appeals for the Second Circuit reversed, holding that the call option had not been exercised in a timely manner. The Supreme Court denied certiorari, after which the new entity brought this action against its law firm, alleging, inter alia, malpractice due to the firm’s failure to exercise the call option in a timely manner. The trial court allowed the law firm’s motion to dismiss so much of the malpractice claim that was based on the failure to timely exercise the call option. The court ruled that the new entity lacked standing to sue the law firm because (1) the assignment the law firm had drafted did not specifically assign the individual’s tort claims; and (2) the malpractice alleged occurred while the individual, not the new entity, owned the call option. On appeal, the new entity argued that the assignment was sufficiently broad to have assigned the tort claims. In its decision, the Appellate Division found that the trial court was correct that the assignment did not expressly assign tort claims to the new entity. However, the Appellate Division agreed with the new entity, that it had sufficiently pleaded that the law firm should be equitably estopped from arguing that the assignment did not assign tort claims. The Appellate Division explained that, contrary to the law firm’s argument, estoppel can be based on silence as well as conduct. The Appellate Division held that, under the circumstances of this case, where the law firm drafted the assignment at a time when it represented both the individual and the new entity, and where interpreting the assignment to exclude tort claims would mean that neither the assignor nor plaintiff, as the assignee, would be able to sue the law firm for malpractice for failing to exercise the call option in a timely manner, the “special circumstances” exception to the privity requirement applies. The Court concluded that to hold differently could insulate the law firm from liability for their alleged wrongdoing. Thus, firm was equitably estopped from arguing that tort claims were not assigned to plaintiff.

Court of Appeals of Minnesota

Insufficient Expert Disclosure: Plaintiff’s insufficient expert disclosure was fatal to her legal malpractice claim where the expert affidavit did not provide substantive discussion of the proximate causation between the defendants’ alleged breach and the plaintiff’s harm, but, rather, was only conclusory in nature.

Walsh v. Walsh, 2016 WL 7439087 (Minn. App. 12/27/16)

This legal malpractice action arises from the defendant law firm and its partner’s (collectively, “defendants”) representation of the plaintiff’s ex-husband in the plaintiff’s divorce and the defendants’ subsequent joint representation of the plaintiff and her ex-husband in estate planning matters. The defendants were retained to represent the plaintiff’s ex-husband in their divorce, which plaintiff dismissed two months after filing the complaint. Following dismissal, the plaintiff executed a conflict waiver and the defendants began representing both plaintiff and her ex-husband in the creation of estate planning instruments, including two irrevocable trusts and an LLC. After the creation of the trusts and the LLC, the plaintiff initiated a second divorce proceeding. During that litigation, the plaintiff discovered that all the marital assets had been transferred into the two irrevocable trusts. The plaintiff then filed suit against her ex-husband, their son, both trusts, the LLC and the defendants. All claims were settled except for the plaintiff’s malpractice claims against the defendants. To prevent frivolous malpractice claims, prevailing Minnesota law requires a plaintiff to file a two part expert disclosure. A plaintiff must file an affidavit of expert review with the initial pleading. This affidavit must be signed by the plaintiff and affirm that an attorney has reviewed the facts of the case with an expert who will opine that the defendant deviated from the applicable standard of care, which caused the plaintiff’s injuries. Within 180 days of that filing, the plaintiff must then serve an affidavit of expert disclosure upon the defendant. In a legal malpractice action where an expert is required, the affidavit of expert disclosure must provide an explanation of each element of the plaintiff’s prima facie case. Minnesota law further requires that a trial court dismiss a malpractice action, with prejudice, for failing to provide adequate affidavits. A plaintiff may avoid dismissal under a 60-day “safe harbor rule” by curing minor defects in the disclosure within the allotted 60 days. Following receipt of plaintiff’s expert disclosure, the defendants moved to dismiss, as the disclosure did not adequately explain the expert’s opinions as to the alleged impropriety of the defendants’ conduct. The trial court denied the motion, holding the defects in the plaintiff’s expert disclosure were only technical. Prior to moving for reconsideration of the motion to dismiss, the Minnesota Supreme Court issued a decision holding that the safe harbor rule is only intended to cure minor deficiencies “in an otherwise legally sufficient expert disclosure.” Upon reconsideration and in light of the new decision, the trial court granted the defendants’ motion to dismiss. Plaintiff appealed. Upon review of plaintiff’s expert disclosure and the propriety of the trial court’s dismissal, the Court of Appeals found that the affidavit of expert disclosure failed to provide a sufficient discussion of each element of a malpractice claim. The only statements addressing causation were conclusory in nature and the Court of Appeals held that a legally sufficient expert disclosure cannot rely upon the logical implication of proximate cause. The court affirmed the trial court’s allowance of the defendants’ motion to dismiss.

Court of Appeals of Ohio, Eleventh District, Portage County

Termination of the Attorney/Client Relationship and Statute of Limitations: Former client’s legal malpractice claim was barred as untimely under Ohio’s one-year statute of limitations where client both consulted with other counsel on the same subject matter and also expressed dissatisfaction with the defendant law firm’s representation more than one year prior to filing legal malpractice action.

Sean O’Driscoll v. Robert Joseph Paoloni, Esq., et al. 2016 WL 7626345 (Ohio App. 11th Dist. 12/30/16)

A former client appealed the entry of summary judgment on his legal malpractice claim against the defendant law firm. In August of 2006, the defendant law firm began its representation of the client by filing a divorce complaint on the client’s behalf. The divorce proceedings resulted in a trial before a magistrate, who issued a decision on May 2, 2008. Whether to file objections to the decision was discussed between the client and defendant law firm. The law firm advised the client that filing objections would delay a final entry of the divorce decree, and that filing objections could very well be detrimental to the client. According to the client, he wanted to file objections because he believed that the magistrate judge failed to adequately address a host of various financial issues related to the divorce. The law firm did not file objections within the time allotted under Ohio R. Civ. P. 53, but did file a motion for clarification of three issues regarding these financial issues. A hearing on this motion was held on July 28, 2008 in which the court denied said motion. The decree for divorce was entered on August 4, 2008, and the law firm formally withdrew from the case on June 11, 2009. In the instant legal malpractice action filed on May 18, 2010, the client alleged that the defendant law firm represented the client up until the formal withdrawal of the law firm on June 11, 2009 despite the fact that the law firm and the client had no contact with each other after the hearing on the motion for clarification which took place on July 28, 2008. On December 4, 2015, defendant law firm filed a motion for summary judgment on the client’s legal malpractice claim arguing that their client did not file his complaint within the one-year statute of limitations. The defendant law firm argued that the client had also consulted with attorneys from another law firm following the magistrate’s decision in May of 2008. Included in those email conversations were statements of the client expressing extreme dissatisfaction and irritation with the defendant law firm. The client alleged that the consulting law firm was retained for matters outside of the scope of the case in which he had retained the defendant law firm, specifically, matters relating to the custody of his son. One email, however, sent by the client to the consulting law firm on April 28, 2009 was described in the subject line as an issue not relating to the custody of his son, in which he asked the consulting firm to represent him in financial matters relating to his divorce. The Court of Appeals of Ohio determined the central issue on appeal is whether the client’s claims were barred by Ohio’s one-year statute of limitations for legal malpractice claims. The Court of Appeals noted that the statute of limitations begins to run when there is an event that can be remembered whereby the client discovers, or should have discovered, that the injury he or she sustained was related to the attorney’s action or non-action, putting the client on notice of a need to pursue possible remedies against that attorney, or when the attorney client relationship with that attorney terminates, whichever occurs later. The Court of Appeals also stated that an attorney-client relationship generally can be terminated upon an affirmative act by either party, such acts including, but not limited to, the client’s retention of another attorney for representation in the same matter for which the client had retained previous counsel. The Court of Appeals noted that, typically, the termination of the attorney-client relationship is a question of fact, however, if either party has undertaken an affirmative action that is plainly inconsistent with the continued attorney-client relationship, a court may decide this issue as a matter of law, if such action is clear and unambiguous, such that reasonable minds could not reach any other conclusion. In the instant case, the Court of Appeals reasoned that the content of the client’s April 28, 2009 email to consulting counsel clearly demonstrated that the client wished for consulting counsel to handle the remaining issues surrounding the divorce, and also demonstrated that the client’s desire to end the relationship with the defendant law firm. The court further reasoned that the April 28, 2009 email could be classified as an affirmative act that ended the attorney-client relationship. The Court of Appeals held that the statute of limitations for the client’s legal malpractice claim accrued on the date of the client’s April 28, 2009 email, therefore, the client’s May 18, 2010 filing of the legal malpractice action was untimely.

Superior Court of Pennsylvania

Proximate Cause/Damages: Failure of attorney to sue proper party where a judgment was obtained against named party but judgment was alleged to be uncollectable may be a viable basis for a legal malpractice claim and claim was not subject to dismissal as a matter of law.

Heldring v. Lungy Beldecos & Milby, P.C. 2016 WL 6946583 (Pa. Super. 8/31/2016)

Former client (“plaintiff”) filed a legal malpractice action against defendant attorney arising out of the attorney’s failure to collect a judgment awarded to the plaintiff arising out of non-performance of a construction contract. In the underlying action, the attorney brought suit on behalf of plaintiff against a company that allegedly owed plaintiff money for supplying steel for a construction project. The attorney obtained a judgment against the company for approximately $130,000 following a bench trial. Following the trial, the attorney allegedly recognized that he had sued the company under the wrong name, a holding company with no assets, and asked the trial court to apply the judgment to the holding company’s affiliates. The trial court denied the attorney’s motion and, believing the judgment to be uncollectable, plaintiff and its president individually brought suit against attorney for legal malpractice and unjust enrichment alleging, among other things, that a Pennsylvania lawyer exercising reasonable skill and knowledge would not expect there to be any assets titled to a holding company and that other potential parties would have been found liable and able to pay the judgment. The attorney filed preliminary objections in the nature of a demurrer asserting that the correct party had been sued in the underlying matter, the unjust enrichment claims could not stand because the parties’ relationship arose from a contractual agreement, and the plaintiff’s president could not recover individually because he was not a party to the contract for legal services. The trial court sustained the objections and dismissed plaintiff’s legal malpractice complaint. Plaintiff appealed. The Superior Court affirmed the dismissal of the claims of the plaintiff’s president, as he was not a party to the contract for legal services, thus there was no attorney-client relationship between the president and the attorney. Additionally, the president was not listed as a party in the underlying lawsuit. As for plaintiff’s claims, the Court held that plaintiff may have a viable negligence claim against the attorney by alleging that the attorney could have sued a party from whom a judgment could have been satisfied. In rejecting the attorney’s assertion that he met his duty by obtaining a judgment despite the subsequent uncollectability, the Superior Court cited cases from other jurisdictions holding that a lawyer may be liable for malpractice when an incorrect party is sued and a lower court case from Pennsylvania stating that collectability of a judgment is an important consideration in pursuing litigation and one that lawyers must take into account. The Superior Court also rejected the attorney’s argument that plaintiff’s malpractice claim was barred by collateral estoppel by pointing out that the parties and issues between the underlying case and the malpractice action were different, as well as plaintiff having had no opportunity to litigate the malpractice issue in the underlying action. Finally, the Superior Court affirmed the trial court’s dismissal of plaintiff’s unjust enrichment claim. The Court noted that a cause of action for unjust enrichment arises only when a transaction is not subject to a written or express contract and there was a contract for legal services in this action. Thus, there could be no claim for unjust enrichment against the attorney. Therefore, the dismissal of plaintiff’s claim for legal malpractice was reversed, the dismissal of claims brought by plaintiff’s president individually and claims for unjust enrichment were affirmed, and the case was remanded for further proceedings.


Legal Malpractice Law Update is a publication of Morrison Mahoney’s professional liability practice group. It is intended to provide information regarding recent legal malpractice law and not to provide legal advice or counsel or to imply or establish standards of care applicable to any attorney in any particular circumstance. This publication has been sent as a service by Morrison Mahoney LLP and may be considered an advertisement or solicitation under state or federal law. The distribution list is maintained at the Boston Headquarters of Morrison Mahoney LLP at 250 Summer St., Boston MA., 02210.

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