Jul 31 2017

Legal Malpractice Law Update 7/31/17

Supreme Court of Rhode Island

Evidence of Attorney-Client Relationship: Plaintiffs’ mere testimony regarding their belief in the existence of an attorney-client relationship with legal malpractice defendant was insufficient to defeat summary judgment.  Fogarty v. Palumbo, 2017 WL 2713289 (R.I. 6/23/2017)

This case arises from the purchase of a large parcel of land (the “Parcel”), which the plaintiffs intended to develop into a mixed-use commercial development. The plaintiffs were two of four shareholders of a corporate entity (“Owner”), which originally held title to the Parcel. A disagreement arose among the shareholders, which resulted in a decision to sell the Parcel to a separate buyer or one or more of the shareholders. The plaintiff shareholders allegedly retained the services of a CPA and a corporate attorney to assist in producing a buyout plan so that the plaintiffs could purchase the interest of the other two shareholders. The plaintiffs testified that they did not sign a retainer agreement with the attorney and met with the attorney once to discuss the potential for placing the corporate entity into receivership. The plaintiffs also testified that the attorney was “doing all of the paperwork” and was representing them from November 2004 through the end of December 2004. Instead of moving forward with the buyout plan, the plaintiffs executed an asset purchase agreement on April 6, 2005 with another corporate entity (“Buyer”), whose principals included the corporate attorney. The agreement was signed by all four shareholders and the Buyer. The agreement called for a closing date thirty days following execution. When the closing did not occur within thirty days, the agreement lapsed. In July 2005, one of the plaintiffs and a separate partner made an offer to purchase the Parcel. On the day prior to closing, the plaintiffs’ closing agent (also an attorney) discovered that a deed had been executed on August 15, 2005 conveying the Parcel to the Buyer without the plaintiffs’ knowledge or consent. Three years later, on August 14 and 18, 2008, the plaintiffs each filed separate pro se complaints against the corporate attorney who was a principal of the Buyer and title insurance company and escrow agent that facilitated the sale of the Property (the “defendants”). The plaintiffs subsequently retained counsel and the matters were consolidated. The plaintiffs’ consolidated amended pleadings were identical and included a negligence claim sounding in legal malpractice against the title insurance company and escrow agent, a breach of contract claim against the corporate attorney, as well as claims for tortious interference with contractual relations, interference with prospective contractual relations, fraud, and civil conspiracy. During discovery, the plaintiffs learned that the title insurance agent sought unanimous consent of the shareholders to authorize the sale to Buyer but did not obtain the plaintiffs’ consent. Nonetheless, the closing progressed without unanimous consent. After five years of discovery, the defendants filed four motions for summary judgement, two jointly and two separately. The defendants’ central arguments in favor of summary judgement concerned the expiration of the applicable statutes of limitations, the absence of an attorney-client relationship, and the failure to demonstrate damages. On December 1, 2014, the trial court granted all four motions. The appeal followed. The plaintiffs attempted to overcome the expiration of the three-year statute of limitations for legal malpractice claims by raising the discovery exception. The Supreme Court of Rhode Island found that the Plaintiffs were aware that a potential claim existed as of August 15, 2005 when the allegedly fraudulent transaction was discovered. Therefore, the Supreme Court affirmed summary judgment in favor of the negligence claim sounding in legal malpractice against the title insurance company and escrow agent. With respect to the breach of contract claim against the corporate attorney, the Supreme Court found there was insufficient evidence of an attorney-client relationship and that it was undisputed that the corporate attorney was acting as a buyer of the Parcel. The plaintiffs’ mere allegation, absent any corroborating evidence, was insufficient to make the existence of an attorney-client relationship a disputed fact. The Supreme Court affirmed summary judgement as to the breach of contract claims on the same basis, holding that the plaintiffs could not prove the existence of an attorney-client relationship.  

Court of Appeals of Ohio, Eleventh District, Lake County

Claim of Ineffective Assistance of Counsel in Criminal Matter Did Not Collaterally Estop All Claims for Civil Legal Malpractice: Plaintiff could not bring identical claim of civil legal malpractice against his attorney after he brought an unsuccessful claim of ineffective assistance of counsel in a related criminal matter, where claims were identical, actually litigated, directly determined, and essential to the judgment in the prior underlying criminal action; however, the plaintiff could bring claims for legal malpractice as to those claims that were not identical and already actually litigated in the prior criminal action. Knoefel v. Connick, 2017 WL 2831022 (Ohio App. 6/30/2017)

The plaintiff in the instant action was originally convicted in the underlying criminal matter. On direct appeal of his criminal convictions, the plaintiff argued ineffective assistance of counsel, which was rejected by the Ohio Court of Appeals. The plaintiff later filed a civil claim for legal malpractice against the same counsel. Summary Judgment was granted to defendants on the basis that the plaintiff was collaterally estopped from bringing a claim for civil legal malpractice because the plaintiff’s judgment for ineffective assistance of counsel in the criminal matter on the same facts had already been litigated, decided, and rejected. The Court of Appeals of Ohio affirmed the judgment in part, and reversed in part to be remanded accordingly. In the plaintiff’s appeal of the lower court’s grant of summary judgment, the plaintiff focused on whether the lower court erred in granting summary judgment to defendants based on collateral estoppel. Relying on earlier case law from the Ohio Supreme Court, the Court of Appeals defined collateral estoppel as precluding the re-litigation, in another separate action, of an issue that has been actually and necessarily litigated and determined in an earlier, different, cause of action. The Court of Appeals explained that the doctrine of res judicata requires that a plaintiff bring every cause of action and ground for relief that can be brought in the first action, or else the plaintiff is otherwise barred from asserting those causes or grounds again at any other later time. The Court of Appeals further explained that its review of a Summary Judgment motion of the lower court occurs de novo, thus their grant or non-grant of the res judicata/collateral estoppel doctrines is theirs to make without giving deference to the lower court’s decision on the same issue. The Court of Appeals relied upon Ohio Supreme Court precedent holding that where a claim of ineffective assistance of counsel has been raised in a prior criminal action, collateral estoppel can preclude further litigation on the issue, such as a civil claim for legal malpractice against the same attorney(s), as long as due process is met. To this end, in considering the application of collateral estoppel, the party seeking the preclusion of the issue must prove that the issue is identical to the one being raised in the subsequent action, and that the identical issue was actually litigated, directly determined, and essential to the judgment in the prior action. The Court applied the standards set forth by the Ohio Supreme Court, holding that collateral estoppel could be used to bar identical claims that were actually already litigated in the prior criminal action, but that it may not be used to bar claims that were not sufficiently identical and not actually already litigated. The Court in turn reviewed the plaintiff’s complaint for legal malpractice against the issues already litigated in the prior criminal action, and determined that out of the six claims for legal malpractice brought by the plaintiff, only one of said claims had actually already been litigated in the prior action. Hence, the five remaining legal malpractice claims could be brought against the defendants since they were not raised and actually litigated in the criminal appeal. The Court of Appeals of Ohio did caution that its decision in this case was strictly limited to the application of collateral estoppel and further re-litigating identical issues. In order to succeed on his claim of legal malpractice against defendants, the plaintiff still must prove the elements of a cause of action for legal malpractice arising out of the defendants’ representation of the plaintiff in the prior criminal action.  

Court of Appeals of Ohio, Eighth District, Cuyahoga County

Relation Back Doctrine and Statute of Limitations: A new party may not be added to an original action under the relation back doctrine after the statute of limitations has expired. Krzywicki v. Gay, 2017 WL 2817594 (Ohio App. 6/29/2017)  

The Court of Appeals of Ohio affirmed a trial court’s decision to deny a plaintiff’s motion to amend her complaint in order to assert direct claims against a third-party defendant. Plaintiff sustained serious injuries from a dog-bite in April of 2010. She then retained defendant-attorney to represent in her in litigation regarding the incident. Plaintiff filed this legal malpractice action against the defendant-attorney in October of 2013, alleging that the defendant served as her attorney from May 2011 to February 2012. The complaint further alleged that the defendant failed to fully investigate the claims relating to the dog-bite incident, failed to timely file claims, and failed to include all responsible parties in the complaint that was filed on her behalf regarding the incident. The trial court granted the defendant attorney leave to file a third-party complaint against a different lawyer (“Lawyer 2”) who served as co-counsel of record with the defendant on the dog-bite case. The third-party complaint further alleged that, during the time of the alleged negligent representation, Lawyer 2 was primarily responsible for investigating the underlying circumstances that resulted in the plaintiff’s injuries, handling discovery and conducting depositions. According to the third-party complaint, Lawyer 2 was equally or more responsible for any loss or damage proximately caused by the legal malpractice. The jury returned a verdict in favor of the defendant in the underlying dog-bite case in February 2014 and the plaintiff filed a motion to stay proceedings in the legal malpractice case until her appeal regarding the underlying case was resolved. This motion was subsequently granted by the court. The judgment in favor of the defendant in the dog bite case was upheld by the Court of Appeals of Ohio. Nine months later, in May of 2016, the plaintiff filed a motion to reactivate the legal malpractice case. The motion was granted by the trial court and the plaintiff subsequently filed a motion to amend her complaint to assert direct claims against Lawyer 2 for the first time. Lawyer 2 opposed and asserted that the plaintiff’s claims against her were time-barred by the statute of limitations for legal malpractice claims, and that she was attempting to “backdoor” those claims by adding her in an amendment to the original complaint filed against the defendant. In response to the plaintiff’s motion, the defendant-attorney filed a motion to enforce a settlement agreement that he had reached with the plaintiff in January 2015 while the case was stayed. The settlement release stated that the plaintiff agreed to dismiss the case in consideration of $65,000 from the defendant. The defendant noted that the plaintiff had received the money from the settlement but had not dismissed the case as agreed. The trial court denied the plaintiff’s motion to amend her complaint, holding that “an amended complaint adding a party does not relate back when the plaintiff was aware of the new defendant’s identity, but had previously chosen not to sue him.” The trial court noted that Lawyer 2’s identity was available to the plaintiff prior to the filing of the motion to amend complaint; however, the plaintiff chose not to bring suit against Lawyer 2 until now. The trial court further found that the plaintiff had settled her claims against the defendant-attorney and dismissed the case with prejudice. The Court of Appeals of Ohio affirmed the decision of the trial court. Under the Ohio Revised Code, specifically R.C. 2305.11(A), an action for malpractice “shall be commenced within one year after the cause of action accrued.” The plaintiff’s proposed amended complaint admitted that her relationship with Lawyer 2 terminated more than one year before she sought to assert her claims against Lawyer 2. Further, the plaintiff certainly should have been aware of a potential legal malpractice claim against Lawyer 2 as of January 2014, when the defendant-attorney filed his third-party complaint against Lawyer 2. Instead, the plaintiff waited until May 2016 to file the motion to amend her complaint. The Court of Appeals also found that the plaintiff should have been put on notice of a potential legal malpractice claim against Lawyer 2 when she signed the settlement release with the defendant-attorney in January 2015 because the release stated that it did not cover any of the plaintiff’s claims against Lawyer 2. Despite all of this knowledge, the plaintiff did not file her motion to amend her complaint until May 2016, rendering her claims against Lawyer 2 clearly time-barred and outside of the statute of limitations. The Court of Appeals further held that the plaintiff could not assert untimely claims against Lawyer 2 under Civ. R. 14(a) simply because the defendant-attorney timely filed a third-party complaint against Lawyer 2. Ohio Rule of Civil Procedure 14(a) provides, in pertinent part, “the plaintiff may assert any claim against the third-party defendant arising out of the transaction or occurrence that is the subject matter of the plaintiff's claim against the third-party plaintiff. . .” The plaintiff argued that because the defendant-attorney filed a third-party complaint against Lawyer 2, she was entitled to amend her complaint to assert her own claims against Lawyer 2, regardless of the timing of those claims. The Court of Appeals held that the plaintiff cited to no authority to support that argument because there is none, in fact, all authority is to the contrary. The Court of Appeals further stated that Civ. R. 14 does not alter the application of Civ. R. 15 regarding when an amended complaint may be used to assert a claim. The court held that the primary purpose of Civ. R. 15(c) is to preserve actions that may have been filed against the wrong person through mistaken identity of misnomer, neither of which are present in this case and “Civ. R. 15(c) does not allow for the adding of a new party to an original action under the relation back doctrine after the statute of limitations has expired.”  

United States Court of Appeals, Seventh Circuit

No Duty of Care to Adverse Party: Attorney for borrower owed no duty of care to lender’s agent to support a legal malpractice claim where attorneys for the lender failed to notice a critical error in closing documents drafted by the attorney for the borrower.  Oakland Police & Fire Retirement System v. Mayer Brown, LLP, 2017 WL 2791101 (7th Cir. 6/28/2017)

A borrower engaged in two separate large secured transactions whereby it borrowed money from two different consortiums of lenders, represented by the same agent, several years apart. When the first transaction was maturing and needed to be paid off, the borrower’s attorney prepared drafts for a closing to effectuate that pay-off, as well as documents that were intended to release the first lender’s security interest in the collateral for the first loan. Instead, borrower’s attorney erroneously drafted documents releasing both lenders’ security interest in collateral securing both loans, leaving the second lender without security. The mistake was not discovered until the borrower entered bankruptcy. The attorney for the borrowers sent its first drafts of the documents to attorney for the lenders, as both lenders were represented by the same agent, and lenders’ attorney did not notice the error. Lender, instead of suing its own lawyer for failing to notice the error, sued borrower’s lawyer for legal malpractice and negligent misrepresentation. Borrower’s attorney succeeded in obtaining the dismissal of these claims by Rule 12(b)(6) motion on the basis that it did not owe lender, the adverse party, a duty of care. The lender appealed and the United States Court of Appeals for the Seventh Circuit affirmed. The Seventh Circuit was not persuaded by lender’s first argument that its attorney-client relationship with borrower’s attorney in other, unrelated matters created a duty of care in the instant matter, reasoning that modern large law firms rely on mechanisms like conflict-waiver agreements and ethics screens to represent many clients in transactions and litigation in which their clients are adverse. The Court noted that lender’s argument, if adopted, would charge attorneys with a duty to look out for their adversary and place attorneys in conflict with their own clients. Lender’s second argument, that borrower’s attorney assumed a duty to the lender by drafting the closing documents to be used by both sides, was rejected by the Seventh Circuit as an attempt to avoid the consequences of the primary purpose role, which stands for the proposition that a duty owed by an attorney to a non-client may only arise when the primary or direct purpose of the attorney-client relationship was to benefit the non-client. The Seventh Circuit reasoned that the borrower’s attorney’s undertaking to draft legal documents for the use of adverse parties was not sufficiently similar to cases where there is true third-party reliance on an attorney’s services, such as where a lawyer is retained to draft an opinion letter, because the instant case lacked true reliance by the third-party. Lender’s final argument was that its claim passes the primary purpose test because the primary purpose of borrower’s attorney’s work was to influence it, the lender. The Seventh Circuit rejected this argument, reasoning that the borrower’s attorney was not “attorney to the transaction” because the parties to the transaction were adverse, both sides were independently represented, and the transaction was highly complex.  

Court of Appeals of Texas – Fort Worth

Quasi Estoppel of Legal Malpractice Claims: Neither the doctrine of quasi estoppel, nor public policy favoring enforcement of settlements barred a client’s claim that her attorney’s negligence caused the client to accept an unfavorable divorce settlement. Parker v. Glasgow, 2017 WL 2686474 (Tex. App. 6/22/2017)

The Court of Appeals of Texas affirmed the trial court’s order affirming summary judgment on the appellant’s breach of contract claim but sustaining the appellant’s other two issues on appeal, holding that neither principles of quasi-estoppel, nor public policy bar the appellant’s legal malpractice claim. The appellant hired the appellees (attorney and law firm) to represent her in her divorce petition. The appellant claimed the appellees told her that hiring an accounting expert was too expensive and she just needed the tax appraisal values of the properties to determine a proposed property division. The appellant attended mediation with her ex-husband. She stated that she knew that settling the property issues at mediation would finalize the divorce more quickly and less expensively than going to trial, and she claimed she was told that the offer she received from her ex-husband at mediation “was the best [she] could do at mediation.” The appellant admitted she voluntarily and of her own free will agreed to a binding property division at mediation but claimed she was told by the appellees that mediation was her “only choice.” The appellant claimed that after the divorce she found out that the market value of the properties was much higher than the tax appraisal value. She then filed suit against the appellees alleging legal malpractice breach of contract. The appellees filed motions for summary judgment and the trial court granted both motions. The appellant filed her appeal and alleged that the appellees provided her with very little reliable information upon which to make her settlement decision at mediation and that she accepted the settlement agreement on the advice of her attorneys. The appellant further alleged that the appellees breached a contract with her by failing to properly investigate the underlying facts, failing to properly prosecute and manage the litigation and giving her erroneous legal advice and opinions. In their motion for summary judgment, the appellees alleged that the appellant’s legal malpractice claim was barred by principals of quasi-estoppel because, where the appellant voluntarily settled her property-division with her ex-husband and accepted a benefit from the settlement, it would be unconscionable to allow the appellant to assert that the property division was not just and right and that the appellant’s suit was barred by public policy favoring the enforcement of voluntary settlement agreements. The Court of Appeals held that summary judgment was not proper on quasi-estoppel grounds. Quasi-estoppel precludes a party from asserting, to another’s disadvantage, a right inconsistent with a position previously taken. It applies when it would be unconscionable to allow a person to maintain a position inconsistent with one to which he acquiesced, or from which he accepted a benefit. Quasi-estoppel requires mutuality of parties and may not be asserted by or against a “stranger” to the transaction that gave rise to the estoppel. The appellees were not a party to the appellant’s settlement with her ex-husband. The appellant did not litigate or settle in her divorce any claims against appellees for their pre-settlement legal advice or representation, nor did her legal malpractice claims against the appellees involve the standard of care in representing her during the divorce, precluding the application of quasi-estoppel to her claims. The Court held that whether the appellant’s settlement agreement was a result of the appellees’ negligent advice or lack of discovery is not an issue that was litigated or settled in the divorce, therefore, the doctrine of quasi-estoppel did not bar the appellant’s legal malpractice claim. The Court of Appeals also agreed that the appellant’s claim should not be barred because of Texas’ general public policy favoring settlements. The appellant did not allege that the appellees were negligent in making a judgment call about the value placed on the real property or the marital estate in general or in recommending settlement. Instead the appellant alleged that she was negligently advised that there was no need to seek an expert to value the properties and she was not informed she could have attempted to seek to have the trial court order her ex-husband to pay the fees for a property valuation expert. Appellant argued that, as a result, her settlement, although voluntary, was not made with full knowledge of her rights and the law. The Court held that allowing the appellant’s legal malpractice claim would not discourage settlements or violate the public policy of the State of Texas. As to her third issue, the Court of Appeals held that the appellant’s breach of contract claim was nothing more than a recasting of her legal malpractice claim. The appellant contended that her claim was not barred by the anti-fracturing rule. The anti-fracturing rule is based on the nature of a professional negligence claim. In such a claim, the gravamen of the complaint focuses on the quality or adequacy of the attorney’s representation. For the anti-fracturing rule to apply to bar a claim pled in the alternative to a legal malpractice claim, the crux of the complaint must focus on the quality or adequacy of the attorney’s representation. The Court of Appeals found that the gravamen of the appellant’s complaint, that the appellees failed to properly investigate the underlying facts of the divorce, failed to properly prosecute and manage the divorce, and gave her erroneous legal advice and opinions, focused on the quality of adequacy of the appellees’ representation in the divorce action. Therefore, the Court held that the breach of contract claim was barred by the anti-fracturing rule. The Court of Appeals affirmed the grant of summary judgment on the appellant’s breach of contract claim, but reversed summary judgment on her legal malpractice claim and remanded the case to the trial court for further proceedings on the legal malpractice claim.  

Massachusetts Superior Court

Vicarious Liability: Insurer not vicariously liable for actions of attorney who represented insured, notwithstanding that the insurer paid the attorney’s legal fees, where insurer did not retain some control over the manner in which the work was performed because the attorney is an independent contractor. Langadinos v. Acadia Insurance Group, LLC, -- Mass. L. Rptr. -- (Super. Ct. 7/21/2017)

Plaintiff filed suit against insurer’s insured. Insurer issued a reservation of rights letter stating that its policy might not provide coverage for the plaintiff’s claims. The insured retained counsel and the insurer paid the counsel’s legal fees. The insured’s counsel made statements that the plaintiff alleged were defamatory. Plaintiff then filed suit against the insurer, alleging that the insurer was vicariously liable for the defamatory statements of the attorney whom the insurer paid to represent the insured. The insurer moved for summary judgment on the grounds that it did not hire the attorney, gave no direction to the attorney, did not instruct the attorney to make the statements plaintiff alleged to be defamatory and had no advance knowledge of the alleged defamatory statements. The Superior Court of Massachusetts cited the Supreme Judicial Court precedent of Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 439 Mass. 387, 407-09 (2003) for the principle that “a lawyer hired by an insurer to represent an insured owes an unqualified duty of loyalty to the insured and must act at all times to protect the insured's interests. . .It is the lawyer who controls the strategy, conduct, and daily details of the defense. . .In these circumstances, an insurer cannot be held vicariously liable for the lawyer’s negligence.” In support of the insurer’s motion for summary judgment, the insurer submitted affidavits from its Senior Vice President of Claims and claim’s handler attesting that they did not play any role in the hiring of the insured’s counsel or oversight of the attorney. In opposition to the insurer’s motion for summary judgment, the plaintiff submitted affidavits from the plaintiff and plaintiff’s attorney. The Superior Court rejected the affidavits submitted by plaintiff as insufficient to survive the insurer’s motion for summary judgment where the affidavits did not contradict the affidavits submitted by the insurer and, instead, requested only the opportunity to conduct further discovery. In granting the insurer’s motion for summary judgment, the Superior Court held that the plaintiff did not demonstrate a reasonable expectation that further discovery would reveal evidence to support its claim. The Court further noted that, even had the insurer selected the attorney who represented the insured, the insurer still would not be vicariously liable for the attorney’s conduct because, under Massachusetts law, the attorney selected by the insurer is an independent contractor and is not an agent of the insurer.

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