United States Court of Appeals for the Fifth Circuit
Attorney Debt to Client Nondischargeable in Bankruptcy: Attorney’s promissory note to induce client not to file legal malpractice action against him was not dischargeable under fraud-based exception in the attorney’s bankruptcy proceeding where the attorney did not have the ability to pay the promissory note, and the attorney did not inform the client that she should seek the advice of independent legal counsel.
Matter of Selenberg
2017 WL 1822310 (5th Cir. 5/8/2017)
The United States Court of Appeals for the Fifth Circuit held that the Bankruptcy Court did not commit clear error in finding that a Chapter 7 debtor-attorney, in persuading his former client to refrain from filing a legal malpractice action against him in exchange for an unsecured $275,000 promissory note that the attorney did not have the ability to pay, had acted with intent to deceive, and, thus, the debt was not dischargeable in bankruptcy. The legal malpractice action stemmed from the attorney’s representation of the former client who was seriously injured in an accident. The client had previously retained a different attorney to represent her in a personal injury action. That attorney however failed to file suit before the statute of limitations expired. The client then retained a second attorney to represent her in a malpractice action against the first attorney. However, the second attorney failed to file a malpractice claim against the first attorney before the statute of limitations expired, and the case was dismissed. The attorney met with the client to inform her that her case was dismissed. He also informed her that he did not have malpractice insurance, and no money with which to compensate her. A few days later, the attorney met with the client to discuss her potential malpractice claim against him. The attorney offered to give the client a $275,000 promissory note, plus attorneys’ fees of up to 25% of the note’s value. He informed the client that he might be able to compensate her when he received money in the future from a different case. According to the attorney, the client would have five years to file suit to collect on the promissory note, and only one year to bring a malpractice claim against him. He also informed her that if she filed an attorney disciplinary complaint against him, she would never recover any amount from him. The client accepted the offer, and the attorney sent her the promissory note. The attorney however never made any payments on the note. About six months later, the client filed a disciplinary complaint against the attorney. Almost two years after receiving the note, the client filed a state court collection action. A few months later, the attorney filed for Chapter 7 bankruptcy, which stayed the state court collection action. The client filed an adversary proceeding seeking to have the promissory note declared nondischargeable under 11 U.S.C. § 523 (a)(2)(A)-(B). After a bench trial, the bankruptcy court agreed, holding that the debt was nondischargeable. On appeal, the attorney argued that he did not receive an extension of credit from the client; and, he gave the note to the client as an “option,” and she could have filed a malpractice suit against him within one year, or could wait up to five years to collect on the promissory note. In response, the client argued that the attorney gave her the promissory note to induce her to forego any attempts to pursue a malpractice claim against him. The Fifth Circuit, in affirming, concluded that because the promissory note the attorney executed had its intended effect of giving him more time to pay the client, it was in essence an extension of credit. The attorney also argued that he did not use actual fraud to obtain any such extension of credit because he did not make false representations, he did not intend to deceive the client, and the client did not sustain losses as a proximate result of the representations. He also contended that he did not settle the malpractice claim with the client, but simply gave her an additional way to recover from him. The client however claimed the attorney failed to disclose material information. The Court ruled that the attorney failed to comply with Rule 1.8(h)(2) of the state Rules of Professional Conduct requiring a lawyer not to “settle” an actual or potential malpractice claim with an “unrepresented client or former client unless that person is advised in writing of the desirability of seeking, and is given a reasonable opportunity to seek, the advice of independent legal counsel in connection therewith.” The attorney never advised the client to seek independent counsel before entering into the agreement, which the Court ruled constituted making “a false representation for purposes § 523 (a)(2).” The Court agreed with the bankruptcy court that the attorney’s main concern was to convince the client that taking the promissory note was her only option, his “primary intent was to buy some time…” and the attorney acted with intent to deceive the client. Finally, the attorney argued the client had not sustained a loss because she did not give up anything by accepting the note. The court however said the client never received payment on the promissory note, and, she lost the opportunity to pursue her malpractice claim against the attorney by relying on his advice that she could collect on the note. The Court thus affirmed the Bankruptcy Court’s ruling that the fraud-based dischargeabilty exception, under 11 U.S.C.A. § 523(a)(2)(A) applied, preventing the discharge of the debt owed by the attorney to his former client.
Second District Court of Appeal of California
Duty of Care: Attorneys did not breach duty of care for failing to advise client of potential malpractice claim arising out of bankruptcy attorney’s handling of the right to sue in connection with assignment of a lease to plaintiff where such advice was beyond scope of representation and not reasonably apparent to attorney, and breach of fiduciary duty claim against attorney failed as duplicative of professional negligence.
Broadway Victoria, LLC v. Norminton, Wiita & Fuster, et al.
10 Cal. App. 5th 1185, 2017 WL 1398470 (4/19/2017)
Plaintiff company owned and leased commercial real estate. Plaintiff company, represented by counsel (“bankruptcy attorney”), was the highest bidder for the assignment of a commercial lease. Two years later, plaintiff company learned that the landlord allegedly had breached a right of first refusal owed to the debtor. Plaintiff company retained defendant attorney to file a breach of contract action against the landlord, under the theory that it had purchased all rights under the commercial lease, including the commercial tenant’s cause of action against the landlord. Plaintiff company and defendant attorney lost on summary judgment where the court found for the landlord on the basis that neither the bankruptcy court order not the motion to approve the lease assignment transferred the cause of action against the landlord to the plaintiff company. Plaintiff company then sued defendant attorneys for legal malpractice and breach of fiduciary duty on the grounds that attorney breached the standard of care by failing to advise plaintiff of a potential claim it had against bankruptcy attorneys over the handling of the assignment of the right to sue the landlord, and defendant attorney’s failure to seek clarification from the bankruptcy court about whether the claim against the landlord was transferred with the lease assignment. The breach of fiduciary duty and legal malpractice cases were based on the exact same conduct and acts. Following the case in chief, the trial court granted nonsuit on the breach of fiduciary duty claim and part of the professional malpractice claim, and a jury returned a defense verdict on the remaining professional negligence issues. Plaintiff company appealed, and the Second District Court of Appeal of California affirmed. The Court found that defendant attorneys did not breach any duty of care to plaintiff company because advising as to potential malpractice claims was beyond the scope of its representation. Moreover, while an attorney may still owe a duty to clients to alert it to legal problems which are reasonably apparent and which fall outside of the attorney’s limited scope of representation, the Court reasoned that the issue of bankruptcy attorney negligence was too much of a “close call” to make a legal malpractice claim foreseeable. The Court found support in the defendant attorney’s successful opposition of the landlord’s motion for judgment on the pleadings based on lack of standing and a prior discovery motion in the same action; in the fact that legal malpractice is a specialty, and defendant attorneys recommended plaintiff company consult an attorney specializing in legal malpractice; and in the fact that plaintiff’s standard of care expert herself relied on specialized bankruptcy knowledge to formulate her opinion. As to the plaintiff’s second claim, that attorneys breached their fiduciary duty to client for choosing to litigate the transfer of the lease assignment in state court rather than seeking bankruptcy court clarification, the Court found that there was no evidence to support assigning improper motives to counsel. In fact, the evidence failed to support a breach of fiduciary duty claim because it merely duplicated the evidence for professional negligence. The decision was the first in California to integrate the “widely-accepted proposition” that a breach of fiduciary duty claim requires some further violation of the obligation of trust, confidence or loyalty to a client into a holding. Accordingly, the Court found that the breach of fiduciary duty claim was properly dismissed as duplicative.
Court of Appeals of Ohio, Eighth District, Cuyahoga County
Strict Privity Rule in Estate Planning: Beneficiary, Personal Representative and Executor of estate lacked standing to pursue a legal malpractice claim against testator’s attorney for personal damages and not damages belonging to the estate.
Meisler v. Weinberg
2017 WL 1507339 (Ohio App. 8th Dist. 4/27/2017)
The Court of Appeals of Ohio, Eight District, Cuyahoga County affirmed an order of the Court of Common Pleas granting summary judgement in favor of the defendant attorney in a legal malpractice action. The defendant attorney was retained by an elderly woman to prepare a trust and additional estate planning documents to be executed upon her death. After her death, the personal representative, beneficiary and executor of the decedent’s estate (hereinafter “the plaintiff”), filed an action for legal malpractice against the attorney claiming that he had improperly and negligently drafted the trust contrary to the wishes of the decedent and contrary to plaintiff’s interests as a beneficiary. The plaintiff alleged that the trust failed to convey the property intended to be conveyed to her and failed to include proper successor language indicating that it replaced an earlier trust executed by the decedent. The plaintiff further alleged that her damages included the loss of 10 percent of the residual estate, an amount which she claimed she would have been entitled but for the attorney’s negligence. The defendant attorney maintained that the trust and other estate planning documents were prepared at the direction of the decedent, and as requested by the decedent, were designed to provide additional options and flexibility with regard to the eventual disposition of assets. Following the initial proceedings, the attorney filed for a motion for summary judgment that argued the plaintiff lacked standing to bring a legal malpractice claim, which the court granted. On appeal, the plaintiff’s sole assignment of error claimed the trial court erred in granting summary judgment. The Court of Appeals explained that the Supreme Court of Ohio held that “attorneys in Ohio are not liable to a third party for the good-faith representation of a client, unless the third party is in privity with the client for whom the legal services were performed.” Citing Ohio’s strict privity requirement in the area of estate planning, the Court of Appeals further explained that generally, potential beneficiaries to a will did not have standing to file a negligence suit against the attorney who drafted the decedent’s will. The plaintiff argued that as the executor of the estate, she had standing to bring a cause of action for legal malpractice. The Court of Appeals disagreed and explained that a personal representative of a decedent’s estate may pursue claims of the decedent “for the benefit of [the decedent’s] estate.” However, the only damages sought in this matter were individual to the plaintiff, as opposed to the benefit of the estate as a whole. The Court of Appeals determined that the record lacked sufficient evidence to establish that the plaintiff had an attorney-client relationship with the defendant and the plaintiff could not circumvent the strict privity rule under the guise of being the executor of the decedent’s estate. Affirming the order of the Court of Common Pleas, the Court of Appeals concluded that the plaintiff lacked standing to pursue a legal malpractice claim and, even if standing were assumed, there was a lack of evidence to establish the attorney was negligent in the preparation of the trust.
Supreme Court of Vermont
Strict Privity Rule in Estate Planning: In the absence of strict privity between beneficiaries and the decedent’s estate planning attorney, a legal malpractice action cannot be brought by the beneficiaries against the estate planning attorney.
Strong v. Fitzpatrick
2017 VT 35, 2017 WL 2001170 (5/12/2017)
Plaintiff’s mother retained defendant attorney for estate planning services following the execution of the mother’s first will. When the mother was subsequently hospitalized, the plaintiff contacted the defendant attorney to convey his mother’s alleged request that the defendant prepare an amended will, favorable to the plaintiff, and bring it to the hospital for the mother to sign. The defendant did not follow the plaintiff’s instructions. Thereafter the plaintiff’s mother died. The defendant wrote to the plaintiff to inform him of a prior conversation he had with the plaintiff’s mother, but that no change to her will had been requested and, therefore, the entire Estate would be divided equally among the mother’s siblings. The plaintiff filed suit against the defendant for legal malpractice and consumer fraud. The plaintiff alleged that the defendant committed legal malpractice by failing to draft a codicil reflecting the mother’s intent. The defendant successfully moved to dismiss the consumer fraud count. Thereafter, the plaintiff filed an amended complaint to add a second count of legal malpractice. The second count alleged that the defendant breached a duty of care owed to the plaintiff by failing to challenge the validity of the mother’s original will. In granting the defendant’s motion for summary judgment, the trial court held that an attorney does not owe a duty to a non-client who is a “prospective beneficiary of a nonexistent will or estate planning document.” The plaintiff’s appeal argued for the adoption of an exception to the general rule that, in the absence of strict privity between beneficiaries and the decedent’s estate planning counsel, a legal malpractice action cannot be brought by the beneficiaries. In affirming the trial court’s grant of summary judgment, the Supreme Court of Vermont reiterated the consequences of adopting such an exception. The Supreme Court emphasized that exposing estate planning attorneys to potential liability to beneficiaries of estate planning instruments would inevitably lead to a concurrent conflict of interest. Specifically, the attorney’s undivided loyalty to his or her client may be undermined by concerns of future lawsuits by unsatisfied beneficiaries. Consequently, the Supreme Court of Vermont affirmed both its adherence to the strict privity requirement in the estate planning context and summary judgment to the defendant attorney.
Court of Appeals of Ohio, Eleventh District, Trumbull County
No Expert Testimony Required Where Malpractice is Obvious: Expert testimony is not necessary to sustain a claim of legal malpractice where the alleged errors are so simple and obvious that expert testimony is not necessary to demonstrate the breach of the attorney’s standard of care.
Paldino v. Johnson
2017 WL 1881167 (Ohio App. 11th Dist. 5/8/2017)
The Court of Appeals of Ohio reversed the trial court’s order denying the client’s motion for summary judgment and granting the attorneys’ motions for summary judgment. The client hired Attorney 1 to represent him in a case alleging damages resulting from cohabitation and false marriage representations. At issue was the value of the real estate at the time the couple stopped residing with each other as well as the mortgage. The client retained Attorney 1 and paid a retainer of $1,500.00. Attorney 1 filed an Answer to the complaint and filed a Motion for Relief from Judgment. The client asserted that Attorney 1 should have filed a counterclaim for the value of the couples’ vehicles. The client further contended that Attorney 1 filed no motions to dismiss, did not conduct discovery, did not file a motion for summary judgment, did not prepare him for trial, offered no exhibits, and did not make a closing argument. The client also maintained that Attorney 1 did not file an objection to the magistrate’s decision, did not properly communicate with him, made false promises, did not file an appeal, and failed to inform him that he had been suspended from the practice of law in Ohio. The client also argued that Attorney 2, who had been hired by Attorney 1 as co-counsel, knew Attorney 1 had been suspended from the practice of law and intentionally failed to inform him; that Attorney 2 knew that the denial of the motion for relief from judgment filed by Attorney 1 was a final appealable order and failed to inform the appellant; that Attorney 1 filed a motion for reconsideration as co-counsel without any attempts to correct the flaws in the motion, instead of filing another motion for relief from judgment as promised. The client further alleged that after the motion for reconsideration was denied, Attorney 2 failed to immediately inform him and the client discovered the denial from checking the docket. The client also alleged that he contacted Attorney 2 regarding an appeal; Attorney 2 requested $650 to handle the appeal; Attorney 2 filed an appeal but did not file an appellate brief; the appeal was dismissed for failure to prosecute; and the appellant was unaware that the appeal had been dismissed. The client filed a legal malpractice action against both Attorney 1 and Attorney 2 seeking damages for malpractice, negligent misrepresentation, emotional distress, breach of fiduciary duty and fraud. Both the client and the Attorneys filed motions for summary judgment. The Attorneys included in their motions for summary judgment the opinion of an expert who opined that the Attorneys had complied with the standard of care, while the client did not submit an expert opinion. The trial court denied the client’s motion for summary judgment and granted the Attorneys’ motions for summary judgment. On the client’s appeal, Attorney 1 argued that the client was required to present expert testimony and that his failure to do so justified summary judgment. The client responded that expert witnesses are not required where the malpractice is obvious to a judge or jury, which was the case with respect to the Attorneys’ actions here. The Court of Appeals of Ohio found that, despite the supportive opinion of the Attorneys’ expert, because the actions or inactions by the Attorneys fell far below the standard of care on their face, the client was not required to provide an expert witness. The client argued that if Attorney 1, either at trial, in an objection to the magistrate’s decision or in the motion for relief from judgment, would have properly prepared, submitted and informed the court that there was in fact an outstanding balance on a mortgage at the time the client’s partner left the property, the client’s liability would have been reduced by some $40,000.00. The Court noted that such evidence had been critical to the client’s defense and that a lay person knows that the equity in property is the value of the property reduced by what is owed, i.e., the mortgage. As a result, the Court held that Attorney 1’s breach of duty was within the ordinary knowledge and experience of the average layman and was not the result of professional judgment, thereby rendering expert testimony unnecessary. The Court further held that Attorney 2 charged the appellant $650.00 for an appeal that he knew or should have known was not going to win, as it was an appeal of a void order. As a motion for reconsideration of a final appealable order is a legal nullity, it should have been obvious to the trial court that Attorney 2’s actions constituted malpractice. Since Attorney 2’s malpractice was also obvious, an expert is not required to support the appellant’s legal malpractice claims against either attorney.
Supreme Court of Texas
Speculative and Conclusory Expert Testimony Insufficient for Summary Judgment Purposes: Plaintiff failed to raise a factual issue on causation necessary to defeat defendants’ motion for summary judgment on plaintiff’s legal malpractice claim as plaintiff’s own fraud preceded attorney’s alleged negligence in drafting investment agreement, plaintiff’s expert testimony regarding causation was not competent evidence to defeat summary judgment (i.e., speculative and conclusory), and failure of attorney to communicate settlement offer did not amount to legal malpractice.
Rogers v. Zanetti
2017 WL 1553154 (Tex. 4/28/2017)
Plaintiff who lost a jury trial as a defendant brought a legal malpractice action against the attorney who represented plaintiff in the underlying litigation, as well as the attorney who drafted a relevant investment agreement. Plaintiff had entered into an investment agreement to obtain a majority share in a home-healthcare company. A jury found that plaintiff defrauded the founders of the home-healthcare company, and the trial court declared the investment agreement void because it was procured by fraud, was unconscionable, and lacked consideration. The Court of Appeals affirmed the trial court’s judgment. Several years later, plaintiff brought a legal malpractice action against the defendants seeking damages for negligence, breach of fiduciary duty and disgorgement of attorney’s fees. Defendants moved for summary judgment, which was allowed by the trial court and affirmed by the court of appeals. The issue addressed by the Court of Appeals was whether plaintiff presented any evidence that raised a disputed material fact as to causation, as the parties did not argue duty or breach elements. The Court of Appeals held that plaintiff failed to raise a factual issue about whether defendants’ alleged negligence cause his injury. On appeal to the Supreme Court of Texas, plaintiff argued that one attorney was negligent in drafting the investment agreement, and the litigation attorney failed to join the drafting attorney and his law firm as third-parties to the lawsuit, failed to advise plaintiff of a settlement offer that might have ended litigation, and failed to timely designate an expert to rebut the home-healthcare company’s expert in the underlying litigation that led to an excessive damages award. Regarding plaintiff’s claim alleging negligence in drafting the investment agreement, the Supreme Court of Texas held that plaintiff failed to raise a factual issue as to causation because plaintiff previously committed fraud sufficient to render the agreement unenforceable regardless of its language. Similarly the antecedent fraud supported the liability imposed upon him rendering as moot his claim alleging failure to join the investment-agreement-drafting attorney and the law firm as a third-party defendants. The Supreme Court of Texas also held that plaintiff failed to raise a factual issue as to causation on the allegation that the litigation attorney failed to timely disclose an expert. Plaintiff offered expert testimony in opposition to the defendants’ summary judgment motion that provided a valuation of the home-healthcare business and made various assertions regarding the litigation attorney’s actions and causal relationship to his alleged damages. However, the experts’ opinions failed to establish that alternative expert valuation testimony was available and that the testimony would have probably altered the verdict. The Supreme Court of Texas held that the experts’ opinions regarding the probability that a different expert would have altered the verdict was speculative, conclusory, or not probative of causation and did not create an issue of fact sufficient to defeat summary judgment. Addressed last was plaintiff’s argument that he was harmed by defendants’ failure to communicate an offer of settlement in the underlying litigation. Plaintiff argued that had he known of the offer, he might have settled the case and avoided the adverse judgment. The Court held that plaintiff’s claim failed to raise a factual issue as to causation because he presented no evidence that the case would have actually settled on the proposed terms or otherwise, or that plaintiff was capable of meeting the proposed settlement demands or any alternative demand. Therefore, the Supreme Court of Texas affirmed the judgment of the court of appeals.