Sep 29 2017

Legal Malpractice Law Update 9/29/17

Florida District Court of Appeal, Fourth District

Standing to Pursue Malpractice Claim: Neither plaintiff's knowing and voluntary entry into the marital settlement agreement nor the fact that the marital settlement agreement was subject to modification in the family court barred plaintiff's legal malpractice action against her divorce attorney.
Miller v. Finizio & Finizio, P.A., 2017 WL 3616392 (Fla. 4th DCA 8/23/2017)

The District Court of Appeal of Florida, Fourth District, reversed the trial court’s amended final judgment on the pleadings entered in favor of the defendants, holding that the plaintiff’s complaint alleged each of the elements of a legal malpractice claim, her voluntary acceptance of a settlement in the underlying dissolution case did not bar her legal malpractice claim, and her claim was not premature. The legal malpractice action stemmed from the defendants’ representation of the plaintiff in the marital dissolution proceedings between her and her former husband. The plaintiff had entered into a marital settlement agreement with her husband, which largely dealt with custody and child support issues. At the final hearing in the dissolution action, the parties announced that they had reached an agreement on all issues in the case. The parties agreed that: (1) the plaintiff would pay $60,000 to the trust account of the husband’s lawyer in exchange for a quitclaim deed to the marital home; (2) both parties would waive alimony; and (3) everything else would be covered by the marital settlement agreement. The plaintiff stated under oath that she agreed to be bound by the marital settlement agreement and by the terms that her lawyer announced on the record. Two months later, the family court entered a final judgment of dissolution of marriage, incorporating the terms of the written marital settlement agreement as well as the terms of the agreement announced in open court. After final judgment of dissolution, the plaintiff, through counsel, filed a legal malpractice action against the defendants, alleging that the defendants violated the standard of care in numerous ways, including, among other things: (1) failing to obtain the required financial disclosures from the husband; and (2) informing the plaintiff that she could just sign the marital settlement agreement, and that the plaintiff and her counsel would pursue the financial disclosures and equitable distribution at a later date. The plaintiff further alleged that as a result of the defendants’ violations of the standard of care, she was damaged in that she relied upon the defendants’ advice and signed a highly disadvantageous agreement, resulting in a final judgment that was much less favorable than would have otherwise been the case. The legal malpractice case was abated while the plaintiff pursued multiple unsuccessful motions to vacate the final judgment of dissolution of marriage. After the legal malpractice case was reopened, the defendants eventually filed an Amended Motion for Judgment on the Pleadings, arguing that: (1) because the plaintiff knowingly and voluntarily entered into the martial settlement agreement, her legal malpractice action was improper; and (2) the plaintiff could not prove redressable harm because a marital settlement agreement is always subject to modification in the family court based on changed circumstances. Following a hearing, the trial court granted the Amended Motion for Judgment on the Pleadings. In reversing, the Court of Appeal held that contrary to the defendants’ first argument, the plaintiff’s voluntary acceptance of the marital settlement agreement did not bar her legal malpractice action as a matter of law because attorneys are not insulated from liability for failing to exercise ordinary skill and care in resolving settlement issues. The Court reasoned that that under Florida law, a client’s mere acceptance of a settlement in a prior case does not automatically foreclose the client from bringing a malpractice suit against the attorney who handled the case. The Court further held that the defendants’ second argument was inconsistent with Florida’s bright-line rule on accrual of legal malpractice claims. Under Florida law, redressable harm for legal malpractice arising out of litigation occurs when the litigation is concluded by final judgment. In this instance, the hypothetical possibility of obtaining a modification of the dissolution judgment did not change the fact that redressable harm occurred at the moment the dissolution judgment became final. Additionally, some portions of the dissolution judgment were non-modifiable, including the alimony waiver and the property settlement. Therefore, the plaintiff’s legal malpractice claim was not premature as the plaintiff had sustained some damages and the claim had accrued when the underlying dissolution litigation had concluded by final judgment. Thus, the Court reversed the trial court’s order granting the defendants’ Amended Motion for Judgment on the Pleadings and remanded the case to the trial court for further proceedings.

Oregon Court of Appeals

Existence of Attorney-Client Relationship: Summary judgment in favor of a lawyer reversed on grounds that there were triable issues of fact concerning whether an attorney-client relationship existed between the lawyer and the president of a company where the lawyer represented the company at an arbitration hearing at which the president was held personally liable.
Jensen v. Hillsboro Law Group, PC, 2017 WL 4018897 (Or. App. 9/13/2017)

Plaintiff sued his former counsel for negligence and breach of contract. Plaintiff had sought legal advice from the lawyer in connection with a fee dispute between the company of which he was president and another law firm for which the company and the client had received a demand for arbitration. Plaintiff did not wish to be involved personally in the fee dispute, and the lawyer advised him to decline arbitration and state that he was not a party to the claim. As to the company, the lawyer advised Plaintiff to consent to arbitration on behalf of the company. Plaintiff followed the lawyer’s advice, and the lawyer represented the company in the arbitration proceedings. In an e-mail confirming the representation, both the individual and the company were identified as the client. In a written fee agreement, only the individual was identified as the client. The lawyer issued his invoices for legal services to the individual only. Plaintiff appeared as a witness for his company at the arbitration hearing with the understanding that he was not a party to the proceedings. Following the hearing, the arbitration panel issued a joint award against the company and Plaintiff individually. Plaintiff asked the lawyer to correct what he viewed as an error but the lawyer refused on grounds that he only represented the company. Plaintiff hired a different attorney who was unsuccessful in vacating the award against him personally. Plaintiff sued the lawyer, and the lawyer admitted that he had not advised Plaintiff that he would be appearing at the arbitration hearing pro se or that opposing counsel and the panel had been advised that the lawyer would be representing only the company at the hearing. At his deposition Plaintiff testified that the lawyer did not represent him at the arbitration hearing. The lawyer moved for summary judgment on grounds that his initial advice to Plaintiff concerning declining arbitration had been accurate, that he did not have an attorney-client relationship with Plaintiff during the arbitration proceedings, and that Plaintiff could not establish his damages. The trial court granted summary judgment on grounds that Plaintiff did not have an expert to establish liability. On appeal, Plaintiff argued that there were issues of fact concerning whether the lawyer agreed to represent him personally and whether the arbitration panel made an error in holding him personally liable. In addition, Plaintiff argued that the court should not have required him to present an expert opinion where, under Oregon rules, a party is only required to produce evidence on issues raised in the opposing party’s motion, and the lawyer had never argued that the client needed an expert. The Court of Appeals began its analysis by noting that an attorney-client relationship need not be explicit and may instead be inferred from the circumstances. What is required is for the client to subjectively believe that an attorney-client relationship exists and for that belief to be objectively reasonable such that the lawyer should understand that the relationship exists. The Court determined that the client’s testimony that the lawyer did not represent him at the arbitration hearing was taken out of context and was meant to describe the client’s feeling about the lawyer’s services following the hearing, and thus was not dispositive. The Court also cited to the e-mail exchange, fee agreement and invoices, all of which named the client personally, as evidence sufficient to create a question of fact as to whether an attorney-client relationship existed. Therefore, the Court reversed and remanded the case for further proceedings.

Massachusetts Appeals Court

Existence of Attorney-Client Relationship: An attorney-client relationship may continue to exist even after the attorney’s formal withdrawal of appearance.
Cesso v. Todd, 92 Mass. App. Ct. 131 (8/28/2017)

Plaintiff, former client, appealed from summary judgment entered in favor of the defendant attorney on claims of legal malpractice and misrepresentation. The plaintiff contended that his attorney-client relationship with the defendant commenced on May 28, 2008 when the plaintiff spoke with the defendant regarding the defendant possibly taking over the representation of the plaintiff in his divorce action that was set for trial shortly thereafter. On June 6, 2008 the plaintiff met in person with the defendant to continue discussions regarding this potential representation, and on June 30, 2008 the defendant introduced the plaintiff to another attorney at the defendant’s law firm and told the plaintiff that this other attorney would assist the defendant in his representation of the plaintiff. On July 3, 2008, the plaintiff’s attorney who had previously been handling his divorce filed his notice of withdrawal of appearance. On July 7, 2008, the plaintiff asked the defendant and the other attorney to send him a client agreement and for them both to file their notices of appearances in his divorce matter, and two days later, both did so. On July 25, 2008 the other attorney left the defendant’s firm to begin his own law firm, and the defendant alleged that he notified the plaintiff on July 21, 2008 of the other attorney’s intention to leave the law firm. The defendant also alleged that he let the plaintiff know that he could remain represented by the defendant, or choose to be represented only by the other attorney. The plaintiff contended that he never received the notification. The parties did not dispute that on July 28, 2008, the defendant and his law firm filed a notice of withdrawal of appearance dated July 25, 2008. Also on July 25, 2008, the defendant sent a separate letter to the plaintiff stating that the other attorney had left the defendant’s firm and that the defendant would continue to work with the other attorney in a consulting capacity on the plaintiff’s case, but that the case files would be transferred to the other attorney’s new office. In this letter, the defendant asked the plaintiff to agree to this by signing and sending the letter back to the defendant’s office. As it turns out, the July 25th letter was improperly addressed and the plaintiff did not receive the July 25th letter until the other attorney hand delivered it to the plaintiff on August 6, 2008, and the plaintiff signed it on that day. There was no dispute by the parties that the plaintiff had no in-person communications with the defendant after July 25, 2008, and that also was the last date the defendant and his firm billed the plaintiff. The defendant only billed a minimal amount of hours to the plaintiff’s case while the other attorney, while at the defendant’s firm, billed the bulk of the charges. Over the course of the following weeks, the plaintiff sent multiple e-mails to the other attorney, and copied the defendant on each e-mail. The plaintiff also requested that the defendant appear at hearings along with the other attorney. On August 4, 2008, the plaintiff requested a conference with both the other attorney and the defendant to discuss strategy, though also in that same email, the plaintiff demonstrated knowledge that the defendant was withdrawing from the case as he asked what the defendant and the other attorney’s joint roles would be going forward, and if the resources of the defendant’s firm would still be utilized. The defendant never answered any of these emails, and the record did not show any emails from the plaintiff to the defendant after August 21, 2008. The plaintiff asserted that the defendant continued to consult on the case after July 28, 2008, even if the defendant did not bill the plaintiff for the work. On the lawyer’s motion for summary judgment, the court held that the defendant’s attorney-client relationship ended with the plaintiff on the same day that the defendant’s formal withdrawal of appearance entered. The Appeals Court disagreed, finding that a trier of fact could find that the relationship between the defendant and the plaintiff continued after July 28, 2008, even if the defendant had formally withdrawn his appearance in the divorce matter with the court, as the withdrawal only was effective to end his formal appearance in the divorce action. The Court reasoned that, despite the formal withdrawal, there was evidence that the plaintiff believed that the defendant, being more experienced, was the “architect” of the divorce case and was continuing to work in an advisory manner with the other attorney on the case. The Court noted that the defendant told the plaintiff after his withdrawal that he would continue to work together and consult on his case, which is consistent with the defendant establishing and setting a strategy, while the other attorney carried out that strategy. The Appeals Court recognized that the record was thin, but that there was enough to permit a fact finder to draw the inference that the plaintiff believed that the defendant was still continuing to consult and work with the other attorney in the background and, therefore, summary judgment was inappropriate on the legal malpractice claim with regard to the existence of an attorney-client relationship prior to September 12, 2008. As of September 12, 2008, the plaintiff knew that the defendant was not appearing at trial, was not responding to any communication or direction from the plaintiff, and asked the defendant’s firm to transfer the remaining retainer to the other attorney. The Court also pointed out that any pleadings filed after the defendant’s formal withdrawal on July 28, 2008 could not form the basis for a legal malpractice claim as the other attorney would have been responsible for any subsequent court filings. Finally, the Appeals Court addressed the issue of plaintiff’s misrepresentation claims. The plaintiff alleged that the defendant misrepresented his intention to represent him in the divorce action, and thereafter abandoned him. The plaintiff claimed that the defendant secretly withdrew his appearance in the divorce action, but yet, an August 4, 2008 email showed that the plaintiff knew that the defendant withdrew, and further, the other attorney was involved prior to the defendant’s even having signed a client agreement with the plaintiff, and the other attorney indeed performed the bulk of the work on the case at the outset. The Court held that the plaintiff had failed to identify any evidence in the record on summary judgment that would support a conclusion that the defendant misrepresented his actual intention, therefore, the dismissal of the plaintiff’s misrepresentation was affirmed.

Illinois Appellate Court, First District, Second Division

Collateral Source Rule: Collateral source rule does not apply to legal malpractice action where surety and indemnity company could not prove damages resulted from alleged malpractice of surety counsel, and surety and indemnity company failed to name re-insurers (who had paid underlying claim) as plaintiffs and real parties in interest, justifying lower court’s dismissal of complaint. Developers Surety and Indemnity Co. v. Lipinski, 2017 WL 3663804 (Ill. App. (1st) 8/22/2017)

This legal malpractice action stemmed from an underlying dispute among subcontractors regarding construction of a new building for a large university. One of the subcontractors paid a premium to a surety and indemnity company that issued performance and payment bonds, guaranteeing its work to the lead subcontractor as obligee. A lawsuit was filed, and the lead subcontractor’s attorney drafted a settlement agreement in 2005. The parties however did not reach a settlement. After extensive discovery, the parties settled in 2010, and the surety and indemnity company paid $3.7 million to the lead subcontractor. In 2012, the surety and indemnity company filed a complaint for legal malpractice against surety counsel, alleging that the attorney breached the standard of care and as a result, the surety and indemnity company lost the opportunity to settle the underlying case back in 2005 for a smaller amount. After the court denied a motion for summary judgment, the parties filed motions in limine, and both argued the issue of whether the collateral source rule applied. The issue focused on the surety and indemnity company’s alleged damages, given that it had been reimbursed by other insurers (and re-insurers) for a substantial amount of its loss. The surety and indemnity company argued that the collateral source rule applied and therefore the fact that it already had been reimbursed for any portion of its loss, and the amount of the reimbursement, was not relevant. The defendant attorney argued that the collateral source rule does not apply in legal malpractice actions, and thus he should be able to present evidence of the surety and indemnity company’s recovery from another insurer and reinsurers, and use that recovery to offset any damages awarded to the insurer. The surety and indemnity company then conceded that if the court ruled in the attorney’s favor, then it could not prove damages because “100 percent of the plaintiff’s provable damages are covered by reinsurance.” The defendant attorney then moved to dismiss the complaint and the trial court dismissed the insurer’s complaint, holding that the collateral source rule does not apply in legal malpractice actions, and the surety and indemnity company could not prove any damages from the alleged malpractice. The surety and indemnity company moved to amend the complaint to add a count for subrogation, claiming it was obligated to enforce its rights of salvage and subrogation on behalf of the other insurers. The trial court denied the motion as futile, and the surety and indemnity company appealed. On appeal, the surety and indemnity company argued that evidence of reimbursement should have been barred because the reinsurers did not count as collateral sources. The defendant attorney argued that the trial court correctly applied the legal malpractice exception to the collateral source rule. The appellate court affirmed the lower court’s decision, but for different reasons. The appellate court acknowledged that it had authority to affirm the judgment on any grounds, even if not argued by the parties. The court emphasized that section 2-403(c) of the Illinois Code states that any action brought through a subrogation provision, must be brought “either in the name or for the use of the subrogee” as the real parties in interest. Because the surety and indemnity company had not listed the re-insurers and the other insurer as plaintiffs in the original complaint, or in the proposed amended complaint, dismissal of the complaint and denial of the motion to amend were warranted.

Washington Supreme Court

No Conflict of Interest For Insurance Defense Counsel: Insured’s legal malpractice claim alleging that appointed insurance defense counsel had a conflict of interest based on its longstanding relationship with the insurance company, failed for lack of proof of damages. Arden v. Forsberg & Umlauf, P.S., 2017 WL 4052300 (Wash. 9/14/2017)

Homeowner insureds requested defense under insureds’ homeowner’s insurance policy against civil claims brought by their neighbors after one insured, allegedly suffering a post-traumatic stress disorder attack, shot and killed the neighbors’ six-month old Labrador puppy. The insurer initially denied coverage based on the policy's intentional torts exclusion, but reconsidered its coverage position and agreed to wholly fund a settlement, after the insureds involved private coverage counsel. The insurer hired defendant law firm to defend the insureds and settle the underlying claim. The law firm had a longstanding relationship with the insurance company reviewing coverage matters and defending its insureds, which was not disclosed to the insureds. During extended efforts to settle the underlying claim, a difference of opinion arose regarding the fair settlement value of the underlying claim, between the insureds, who sought a prompt settlement at a higher value, motivated by avoiding criminal liability, and the law firm. Also, pursuant to information gleaned through discovery, the insurer issued a reservation of rights letter to the insureds. Next, the insureds filed a bad faith claim against the insurer and legal malpractice claims against the law firm, asserting failure to disclose the law firm's relationship with the insurance company, and also alleging that the law firm did not obtain insureds' approval before communicating each settlement offer to the plaintiffs in the underlying matter. The trial court held that there was no disqualifying conflict of interest, and therefore no breach of fiduciary duty, and no support for damages, in granting law firm's motion for summary judgment. The appeals court affirmed the dismissal of the insureds' claims, reasoning that retained counsel in a reservation-of-rights case with a long-standing relationship with the insurer has no duty to disclose the relationship to its insured, and there was no evidence of damages. The Supreme Court of Washington affirmed solely on the basis that the insureds failed to identify recoverable damages caused by the law firm's alleged breaches. The Court disagreed with the insureds that the law firm should be disqualified per se from representing them based on the extensive prior relationship, though the court reiterated the rule requiring disclosure of potential or actual conflicts in the context of insurance defense practice. Crucial to the Court's affirming dismissal was the insureds' lack of damages. The insureds paid no legal fees, and incurred no cost in settling the underlying case, as both the defense and indemnity were funded wholly by the insurance company. The insureds’ damages claim involved claimed entitlement to disgorgement of fees received by law firm and emotional distress based on constructive trust theory, both were rejected by the Court. The Court reasoned that there was nothing to disgorge where the insureds paid no fees, and there was no evidence that further consultation between insurance defense counsel and the insureds would have resulted in any different result where the insurance company funded the settlement and defense. Notably, in its holding, the Court did not rely on the lack of duty argument advanced by the appeals court, on the basis that Rule of Professional Conduct 1.7 required disclosure of conflicts where there is a "significant risk" that the representation of one client will be materially limited by a lawyer's responsibilities to another party, where the phrase "significant risk" underscores that the conflicts inquiry does not require a fully materialized conflict, but rather the potential for conflict, in guiding counsel's disclosure. In dicta, however, the Court opined that an attorney with an established relationship with an insurer could be "materially limited," per the rules of professional conduct, in his or her ability to represent solely the interests of the insured.

Wisconsin Court of Appeals

Admissible Evidence Required to Defeat Motion For Summary Judgment: Plaintiff in legal malpractice action could not defeat summary judgment in the absence of expert testimony and a list of witnesses who could testify at trial was also insufficient to defeat summary judgment because admissible evidence is required at the time a motion for summary judgment is considered. Biemeier v. Campbell, 2017 WL 3841506 (Wisc. Ct. App. 8/31/2017)

The Plaintiff in this legal malpractice action raised claims against her divorce attorney (“defendant”). The defendant represented the plaintiff throughout her divorce proceedings. During her marriage, the plaintiff and her ex-husband jointly signed the note and mortgage with the lender in purchasing their marital home. As part of the division of the marital property, the Divorce Court ordered the plaintiff’s ex-husband to make the remaining mortgage payments on the marital home and “hold the [plaintiff] harmless thereon.” The judgment of divorce did not contain any language affirmatively terminating the plaintiff’s responsibility for the mortgage payments or otherwise requiring her ex-husband to take steps to refinance or sell the marital home. The defendant subsequently instructed the plaintiff to execute a quitclaim deed and real estate transfer forms pertaining to the marital home. Approximately one year after the judgment entered, the ex-husband stopped making payments on the mortgage due to illness and the lender initiated foreclosure proceedings. The plaintiff’s request to be removed as a defendant in the foreclosure proceedings was denied and thereafter the marital home was sold at a sheriff’s sale for approximately $60,000 less than the outstanding mortgage. The lender did not seek a deficiency judgment and therefore the outstanding debt was discharged. The plaintiff subsequently initiated her malpractice action. The plaintiff alleged that the defendant failed to obtain an order in the divorce action that would have required her ex-husband to refinance the mortgage so as to affirmatively eliminate the plaintiff’s responsibility for the mortgage. The plaintiff argued that, due to this omission, she suffered emotional distress, incurred damage to her credit, was held responsible for the mortgage debt and incurred penalties and interest from taxes due to the discharge of the debt. The plaintiff, however, failed to produce expert testimony or any evidence that absent the defendant’s alleged failures, the plaintiff would not have incurred the alleged monetary damages. The defendant filed a motion for summary judgment on multiple grounds, which was granted by the Circuit Court. Plaintiff appealed. On appeal, the Court of Appeals examined the plaintiff’s failure to demonstrate that the summary judgment record contained any evidence upon which a jury could rely in finding causation and damages. The Court of Appeals expressly found that the plaintiff failed to produce evidence and answer four questions central to her case, namely: (1) whether the divorce court would have granted the purported request for an order to refinance the marital home; (2) if so, whether the ex-husband would have complied with the order; (3) if so, whether the refinancing would have actually absolved her from liability on the mortgage; and (4) whether all of that would have come to fruition prior to the ex-husband’s default. The Court of Appeals held that the plaintiff’s complete failure to proffer expert testimony and evidence in answering the aforementioned questions was fatal to her claim. Finally, the Court of Appeals rejected plaintiff’s argument that a list of witnesses who “could have shared with a jury ‘expertise in business, banking, and finance,’ presumably because these potential witnesses could provide evidence that answers one or more of the questions [posed] above” was sufficient to survive summary judgment. Rather, the Court held that “admissible evidence is required at the time a motion for summary judgment is considered.” The judgment of the Divorce Court was therefore affirmed.

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