Jan 31 2018

Legal Malpractice Law Update - January 31, 2018

  • Wisconsin Court of Appeals

Causation, damages: Summary judgment in favor of law firm affirmed where former client failed to show he suffered any damages from representation in underlying case, because he could not establish the financial losses he suffered for a condominium construction project would have been less, but for the underlying defendant’s conduct.

  • Louisiana Court of Appeal, First Circuit

Running of Peremption Period: One-year peremption period on plaintiff’s legal malpractice claims began to run when plaintiff learned that insurance company had moved for summary judgment in the underlying matter, not when plaintiff learned that summary judgment had been granted to the insurance company.

  • Illinois Appellate Court, Third District

Duty: Incidental beneficiaries of trust could not sustain legal malpractice claim against lawyer who drafted trust because lawyer owed incidental beneficiaries no duty. United States Court of Appeals, District of Columbia Circuit

Discovery Rule: Former clients plausibly alleged that they exercised reasonable diligence to discover former attorney's alleged legal malpractice as required for discovery rule to extend accrual date, for limitations purposes, of legal malpractice claim against attorney, where clients alleged that they contacted attorney approximately every three months for a year and one-half to ask about their case against promissory note holder, and that, during those calls, attorney informed clients that he was working on the litigation.

  • Maine Supreme Judicial Court

Arbitration of Malpractice Claims: An attorney must obtain a client’s informed consent as to the scope and effect of contractual provisions that require the client to submit malpractice claims to arbitration.

  • Court of Appeals of Tennessee

Statute of Limitations: Once a client asserts the discovery rule, the client has impliedly waived the attorney-client privilege as to communications with successor counsel relevant to when the client discovered the claims at issue.

  • Wisconsin Court of Appeals

Causation, damages: Summary judgment in favor of law firm affirmed where former client failed to show he suffered any damages from representation in underlying case, because he could not establish the financial losses he suffered for a condominium construction project would have been less, but for the underlying defendant’s conduct.

By: Jacqueline A. Welch Mentell v. Erhard & Payette, LLC 2017 WL 6063127 (Wis. Ct. App. 12/07/17)

Developer retained attorney to file an action against a real estate appraiser in a construction loan development project that ultimately resulted in the developer’s filing bankruptcy. The developer, who purchased the land in June 2004, hoped to construct a 12-unit condominium project, and hired an appraiser. The July 2004 appraisal of $2,625,000 came in just below the $2,650,000 condition for financing that the bank required, but the bank financed the project anyway. The project failed and the developer sued the appraiser, claiming that the appraisal overvalued the proposed condominium project and that without the negligent appraisal, the bank never would have financed the project. The appraiser moved for summary judgment. Up until the hearing, the law firm representing the developer had argued two theories of damages that resulted from the appraisal. At the summary judgment hearing, however, the attorney abandoned these damages arguments, and moved the court for permission to assert a new theory of damages. The court denied the motion, and found that the developer had abandoned the previously asserted damages theories. The court granted summary judgment in the appraiser’s favor because the developer failed to establish a genuine issue of fact regarding damages allegedly resulting from the appraisal. In the ensuing case by the developer against his former attorney, the lower court granted summary judgment to the attorney, concluding that the former client could not establish that, but for the law firm’s negligence, he would have won his lawsuit against the appraiser. On appeal, the former client argued that, but for the law firm’s negligence, he would have prevailed in his claim against the appraiser, because the appraisal did not properly value the proposed condominium project, as a result of which he suffered financial losses that he would not have suffered because the bank would not have financed the project and he would have likely sold the land, further mitigating his financial losses. The developer argued that the appraisal overvalued the property by $475,000 and relied on an email he wrote to the bank to indicate the bank would not have provided financing had the appraisal been accurate. In affirming summary judgment to the law firm, the Court of Appeals held that no evidence was presented, including the client’s email to the bank, to establish a value at which the bank would have been unwilling to provide the loan. The Court also believed there was insufficient evidence that the developer could have mitigated his losses if the appraisal had been accurate. In addition, the former client did not present any persuasive arguments that a reasonable attorney, in the position for the firm at issue, would have known from the start that litigation against the appraiser was fruitless. The Court thus affirmed the summary judgment ruling against the former client.  

  • Louisiana Court of Appeal, First Circuit

Running of Peremption Period: One-year peremption period on plaintiff’s legal malpractice claims began to run when plaintiff learned that insurance company had moved for summary judgment in the underlying matter, not when plaintiff learned that summary judgment had been granted to the insurance company.

By: Ashley Johnson

Honore v. Brouillette 2017 WL 6524664 (La. App. 1st Cir. 12/21/17)

The plaintiff previously owned a home and, on July 11, 2011, the plaintiff’s mortgage company filed a petition for executory process to foreclose on the property. Before the property could be sold at a judicial sale, the plaintiff filed for bankruptcy on February 20, 2012, precluding the judicial sale. During the bankruptcy proceedings, the plaintiff represented to the bankruptcy court on two different occasions that the home had a fair market value of $450,000 and a liquidation value of $405,000. The plaintiff’s mortgage company force-placed $600,000 of insurance on the property on March 26, 2013. About three months later, on June 18, 2013, the plaintiff applied for and subsequently obtained property insurance through an insurance company. Shortly thereafter, however, on August 13, 2013, the insurance company cancelled the plaintiff’s insurance due to liability concerns regarding the propertys' being over-insured compared to its estimated value. Three days after the insurance company sent its notice of cancellation to the plaintiff, the plaintiff’s house and all of its contents were destroyed by a fire. The plaintiff subsequently filed a claim with the insurance company for the losses sustained in the fire. The insurance company hired an independent adjusting firm to investigate the fire and the investigation revealed that there were unanswered questions regarding the cause and origin of the fire that were related and material to the loss. Based on these unanswered questions, the insurance company asked the plaintiff to submit to an examination under oath, and also that the plaintiff provide an inventory of all of his damaged property. The plaintiff then hired the defendants to represent him during the examination under oath as well as to assist him with the processing of the insurance claim. Instead of submitting to the examination under oath and providing the document inventory, the plaintiff filed suit against the insurance company in federal court. Shortly thereafter, on January 22, 2014, the insurance company filed a motion for summary judgment on the basis that the plaintiff failed to take an examination under oath and produce necessary documents required by the terms of the plaintiff’s insurance policy. A copy of this motion was forwarded to the plaintiff three days after it was filed. After plaintiff received this copy, he hired an additional lawyer to represent his interests. Additional counsel filed a successful motion to enroll as lead counsel and filed a motion for extension of time to answer the motion for summary judgment, which was denied. Subsequently, on February 13, 2014, the defendants filed an untimely opposition to the insurance company’s motion for summary judgment. On September 15, 2014, the insurance company’s motion for summary judgment was granted and the plaintiff’s claims against the insurance company were dismissed with prejudice. The plaintiff did not appeal this ruling by the federal court. One year later, on September 15, 2015, the plaintiff filed a legal malpractice suit against the defendants alleging that they were negligent in their representation of the plaintiff in his case against the insurance company. Specifically, the plaintiff alleged that the defendants negligently advised him that he was accused of insurance fraud, that he should file suit rather than submit to the examination under oath and produce an inventory, and that they filed the lawsuit against the insurance company prematurely. Following discovery in the malpractice action, the defendants filed a motion for summary judgment on the basis that the plaintiff’s claim was perempted pursuant to Louisiana law. In support of their motion, the defendants argued that the plaintiff was aware of the acts giving rise to his action more than one year prior to filing. The trial court granted defendants’ motion for summary judgment on the basis of peremption, and the plaintiff appealed. On appeal, the Court first noted that the peremption statute provides that no damages against an attorney for providing legal services will be allowed unless it is filed within one year from the date the alleged act, omission, or neglect is discovered or should have been discovered, with a three-year limitation from the date of the alleged act, omission, or neglect to bring such claims. The Court further analyzed the discovery rule, which states that a claim is not perempted if it is proven that the plaintiff was reasonably unaware of malpractice prior to the date of discovery of same and the delay in filing suit was not due to the plaintiff’s willful, negligent, or unreasonable action. Further, the Court explained that the date of discovery by a plaintiff of the wrongful conduct by a defendant is the date the negligence was discovered or should have been discovered by a reasonable person in the plaintiff’s position. Here, the Court held that the defendants met their burden of proving that no genuine issue of material fact existed regarding when the plaintiff obtained actual or constructive knowledge of the defendants’ alleged negligence. The defendants successfully argued that the plaintiff acquired this knowledge in February of 2014, when the plaintiff became concerned about the defendants’ representation of him, hired additional counsel to represent his interests, knew that the opposition to the insurance company’s motion for summary judgment was untimely, and knew that this was “not good.” Though the plaintiff argued that he was not aware that any potential legal malpractice may have been committed until the federal court granted the insurance company’s motion for summary judgment in September of 2015, the Court found this argument unavailing as the peremption statute and the discovery rule focuses on when the plaintiff reasonably should have known that malpractice occurred, not when the court or attorneys potentially notify a plaintiff of a decision. As a result, the court affirmed the trial court’s grant of the defendants’ motion for summary judgment on the basis of peremption.  

  • Illinois Appellate Court, Third District

Duty: Incidental beneficiaries of trust could not sustain legal malpractice claim against lawyer who drafted trust because lawyer owed incidental beneficiaries no duty.

By: Rebecca A.G. Robertson

Johnson v. Stohan Law Office, P.C. 2018 WL 388875 (Ill. App. (3d) 01/12/18)

The Illinois Appellate Court affirmed summary judgment to an attorney who drafted a trust for the plaintiff’s mother on the ground that the attorney owed no duty to the plaintiffs. The plaintiffs’ suit arose based on their claim that the attorney owed them a duty of care based on their status as beneficiaries and having been named as successor co-trustees of the trust. The plaintiffs’ suit against the attorney related to amendments that were made to the trust after their mother had been diagnosed with Alzheimer’s disease and what they alleged were questionable disbursements from the trust. The attorney moved for summary judgment, which was granted. The Illinois Appellate Court reviewed the grant of summary judgment de novo. In order to sustain a claim for legal malpractice in Illinois, “the plaintiff must establish (1) the defendant attorney owed the plaintiff a duty of care that arose from an attorney-client relationship, (2) the defendant breached the duty, and (3) the plaintiff was damaged as a proximate result of the attorney’s breach.” The existence of a duty is a question of law, and an attorney is generally liable only to his client and not to third-parties. A non-client can sustain a legal malpractice claim only if he proves the attorney-client relationship’s purpose and intent was to benefit or influence the non-client as a third-party, as a third-party beneficiary. The Court held that summary judgment was properly granted because the firm, the estate planning attorneys, never owed plaintiffs a duty. Although an attorney representing a trust owes a duty to a co-trustee, plaintiffs never became co-trustees of the subject trust and the firm never represented them. The firm did not owe the plaintiffs a duty as a third-party beneficiary of the trust because the trust was not created to benefit them, but instead was created to benefit their mother. An incidental beneficiary, inheriting only if funds remain after the primary beneficiary’s death, is not an intended third-party beneficiary and is not owed a duty by the attorney drafting and later amending a trust. Merely the possibility that a person could benefit from a trust is insufficient to create a duty. Plaintiffs could not establish that the firm owed them a duty as either a successor co-trustee or third-party beneficiary and, therefore, summary judgment on the legal malpractice claim was affirmed.  

  • United States Court of Appeals, District of Columbia Circuit

Discovery Rule: Former clients plausibly alleged that they exercised reasonable diligence to discover former attorney's alleged legal malpractice as required for discovery rule to extend accrual date, for limitations purposes, of legal malpractice claim against attorney, where clients alleged that they contacted attorney approximately every three months for a year and one-half to ask about their case against promissory note holder, and that, during those calls, attorney informed clients that he was working on the litigation.

By: Christopher S. Storm

Momenian v. Davidson

2017 WL 6629027 (D.C. Cir. 12/29/2017)

Clients sued attorney for legal malpractice for failing to inform them that the settlement that they reached with counterparties to several real estate transactions pertaining to amounts due under a promissory note meant that all of their claims were fully and finally dismissed. The settlement occurred on October 12, 2010, with the former clients executing a praecipe stating that "the Clerk of [ ] Court will dismiss with prejudice this action." Former clients believed that portions of the case remained alive and that the attorneys continued to represent them in pursuit of relief. Former clients drew support from an invoice for a period ending May 15, 2011, showing time entries related to the litigation dated December 2010, and January through April 2011. Additionally, clients claimed that they called the attorney approximately every three months for a year and a half to discuss the litigation and another matter, and asked when he would have an opportunity to go before a judge, to which the attorney responded that he was "working on it." On May 7, 2012, the transaction counterparties issued a notice of foreclosure against the clients. Clients retained new counsel to stop the foreclosure and challenge the amounts claimed due, and eventually settled the foreclosure litigation. The clients filed a legal malpractice action against their former counsel on May 6, 2015, who removed the action to federal court and moved to dismiss under Rule 12(b)(6), contending the action was untimely because the plain text of the praecipe dismissing the litigation "with prejudice" gave clients notice of any claims arising from the dismissal. Clients argued that the limitations period did not commence until May 7, 2012, when they received the foreclosure notice and, moreover, the date on which they learned of injury due to counsel's wrongdoing was a question of fact not appropriate for summary judgment. The district court granted attorney's motion to dismiss the complaint as time-barred, rejecting the argument that the plain language of the praecipe put plaintiffs on actual notice of their claims because, as lay persons, they were entitled to a reasonable period of time after malpractice to discover their claims. However, the court found that the reasonable period elapsed before the foreclosure notice issued because by that time the clients already believed they had been injured by overpaying the transaction counterparties on the promissory note, and could have exercised diligence to examine the status of the litigation by checking public court records, consulting with the defendant, or consulting a different lawyer. The court nevertheless allowed the clients leave to amend and the clients filed an amended complaint on February 10, 2016, arguing that the statute of limitations was tolled by the attorney's alleged continuing representation, evidenced by the May 2011 billing statement, and conversations about when the clients could go before a judge. The district court again dismissed, now with prejudice, finding that a reasonable plaintiff would have done more over eighteen months between settling and being served with a foreclosure notice, which would have revealed attorney's alleged malpractice. The United States Court of Appeals, District of Columbia Circuit reversed and remanded. The Court cited authority for the proposition that courts should be hesitant to dismiss a complaint on statute of limitations grounds based solely on the face of the complaint because statute of limitations issues often depend on contested questions of fact, and the complaint must survive unless it appears beyond doubt that the plaintiff can prove no set of facts that would entitle him to relief. The Court also noted that the existence of a fiduciary relationship heavily influenced the reasonableness of a client's conduct in a discovery rule analysis. Whereas ordinarily the discovery rule holds that the cause of action accrues when the plaintiff is deemed to be on inquiry notice of the existence of the injury, its cause in fact, and some evidence of wrongdoing, the existence and nature of a fiduciary relationship may reduce the significance of any lack of diligence on a plaintiff's part to discover the elements of a claim. Courts have given a heightened protection to a client's reliance upon counsel's advice and representations when evaluating a plaintiff's reasonable diligence in investigating malpractice claims. The Court concluded that the clients' allegations plausibly demonstrated reasonable diligence under the discovery rule. The court held that a plaintiff calling his attorney every three months for a year and a half, and receiving assurances that the lawyer is "working on" the case, constitutes reasonable diligence, particularly in light of the fiduciary relationship. The court further reasoned that it is common knowledge that litigation often lasts for years, and that the clients were reasonable to rely on their fiduciary's reassurances, since the nature of the fiduciary relationship encourages a client to rely on counsel. Finally, the court reasoned that, based upon claims pled in the complaint, it was plausible that some malpractice claims did not accrue prior to May 6, 2012, rendering the tolling analysis irrelevant.  

  • Maine Supreme Judicial Court

Arbitration of Malpractice Claims: An attorney must obtain a client’s informed consent as to the scope and effect of contractual provisions that require the client to submit malpractice claims to arbitration.

By: Kevin C. Costa

Snow v. Bernstein, Shur, Sawyer, & Nelson, P.A.

2017 WL 6520900 (Me. 12/21/17)

The Maine Supreme Judicial Court affirmed a superior court’s denial of a law firm’s motion to compel arbitration based on an agreement to arbitrate between the firm and a former client. Plaintiff retained the firm in May 2012 to represent her in a civil action. The firm’s engagement letter set forth the scope of the representation and above the signature line on the last page was a bold-faced sentence that stated: “I agree to the terms of this letter including the attached standard terms of engagement.” On the last page of the terms of engagement was a provision entitled “Arbitration.” This provision stated, in pertinent part: “[a]ny fee dispute that you do not submit to arbitration under the Maine Code of Professional Responsibility, and any other dispute that arises out of or relates to this agreement or the services provided by the law firm shall also, at the election of either party, be subject to binding arbitration.” Plaintiff signed the engagement letter. At no time did the law firm explain to plaintiff that she was agreeing to submit any future malpractice claims against the firm to binding arbitration. Plaintiff subsequently filed suit against the firm in 2016 alleging that the firm committed legal malpractice. The law firm—relying on the arbitration provision in the engagement letter—filed a motion to compel arbitration. The superior court denied the law firm’s motion. On appeal, the Supreme Judicial Court began by noting that, under Maine Law, courts will ordinarily enforce arbitration agreements if the parties have generally agreed to arbitrate disputes. However, Maine’s Uniform Arbitration Act provides that arbitration clauses may be nullified “upon such grounds as exist at law or in equity for the revocation of any contract.” One of the grounds for nullification is if the agreement contravenes public policy. Looking to opinions from the Maine Professional Ethics Commission and the ABA Standing Committee on Ethics and Professional Responsibility, the Court determined that, in order to enforce a contractual provision that prospectively requires a client to submit malpractice claims against the law firm to arbitration, an attorney must have first obtained the client’s informed consent as to the scope and effect of that provision. In order to obtain this informed consent, an attorney must effectively communicate to the client that malpractice claims are covered under the agreement to arbitrate and ensure that the client understands the differences between the arbitral forum and the judicial forum. In order to ensure that a client is informed to the extent reasonably necessary to permit the client to make an informed decision, the attorney should take into account the client’s capacity to understand the information and his/her experience with the arbitration process. The Court held that the law firm did not fully inform plaintiff of the scope and effect of the agreement to arbitrate as it did not 1) inform plaintiff that the engagement letter contained an arbitration provision; 2) explain to plaintiff the scope of the arbitration provision; or 3) explain to plaintiff the differences between the arbitral forum and the judicial forum. As a result, the Court affirmed the denial of the motion to compel arbitration because the law firm’s written arbitration provision was not sufficiently clear to inform the plaintiff that she was agreeing to submit malpractice claims against her attorney to arbitration.

  • Court of Appeals of Tennessee

Statute of Limitations: Once a client asserts the discovery rule, the client has impliedly waived the attorney-client privilege as to communications with successor counsel relevant to when the client discovered the claims at issue.

By: Jillian McGrath

Outpost Solar, LLC v. Henry, Henry & Underwood, P.C.

2017 WL 6729292 (Tenn. Ct. App. 12/29/17)

The petitioners, a joint venture, retained the respondent attorneys to prepare articles of organization, an operating agreement and other documents for their companies. The articles were filed on January 14, 2009, with the respondents serving as the petitioners’ registered agents until September 13, 2011. In August 2011, the respondents prepared a bill of sale that included provisions stating that the respondents drafted the documents “at both parties’ request,” and that they “have been advised a conflict may exist between them and have requested that this instrument be prepared jointly for the Company’s attorney and consent thereto and waive any conflict of interest.” The petitioners then leased space in an industrial park with the respondents’ representing the lessor and the petitioners. The respondents prepared the lease agreement, which was executed on September 6, 2011. In December 2011, a dispute arose between the individuals involved in the joint venture and the respondents wrote the majority owner advising him that the respondents no longer represented the petitioners and the attorney-client relationship was terminated. On several occasions thereafter, in February 2012, the lessor requested that the petitioners release their option to lease. The lessor and the petitioners were not able to agree on the terms of a release. On October 11, 2012, the respondents sent the majority owner a letter on behalf of the lessor advising him that the petitioners were in default of the lease and that the lessor may exercise its option to terminate the lease. On November 9, 2012, the petitioners, through new counsel, gave the lessor notice that the petitioners were exercising their option to lease the additional acreage and, on November 12, the lessor executed a temporary easement in favor of a third party. In May 2013, the petitioners vacated the premises. On October 11, 2013, the petitioners filed the instant suit against the respondents, their former counsel, alleging that they had a conflict of interest and committed legal malpractice in representing the petitioners while also representing the lessor. The respondents served a subpoena on the petitioners’ new counsel, seeking all correspondence, e-mails and other written communication between the petitioners’ new counsel and the petitioners. The petitioners filed a motion to quash the subpoena, arguing that the documents were protected by attorney-client privilege and/or the work product doctrine. The court ordered the petitioners to provide a privilege log and, after the petitioners had amended their complaint the respondents moved for summary judgment contending that the petitioners had actual or constructive knowledge of the facts giving rise to the cause of action more than a year before the Amended Complaint was filed, therefore barring the petitioners’ malpractice claim. The respondents also filed a motion asking the court to compel the petitioners to produce documents that had been subpoenaed from their new counsel. The petitioners submitted a total of 172 documents to the appointed master who reported that 8 of the documents contained information relevant to the defense. The court ordered the petitioners to produce the 8 privileged documents, holding that the petitioners put their privileged information at issue by pleading the discovery rule. The petitioners then filed an interlocutory appeal to determine whether the trial court erred in holding that the petitioners impliedly waived the attorney-client privilege when they invoked the discovery rule in response to the respondents’ assertion of the statute of limitations defense and ordering production of the documents. The Court of Appeals noted that a party asserting the attorney-client privilege “has impliedly waived it through the party’s own affirmative conduct” where (1) assertion of the privilege was a result of some affirmative act, such as filing suit, by the asserting party; (2) through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and (3) application of the privilege would have denied the opposing party access to information vital to his defense. The Court disagreed with the petitioners’ argument that a client impliedly waives the privilege only if the client uses privileged information to support a claim or defense. The Court agreed with the trial court that the petitioners’ assertion of the discovery rule in response to the respondents’ statute of limitations defense led the petitioners to argue that the documents were privileged. This assertion made the documents potentially relevant to the defense. The Court of Appeals also failed to see how the documents were not vital to the respondents’ defense. The Court of Appeals did not discern any error in the portion of the trial court’s holding that the petitioners’ “actual or constructive knowledge is vital to” the respondents’ argument that the petitioners did know of its claim more than a year in advance of the petitioners’ filing and, therefore, affirmed the judgment of the trial court requiring the petitioners to produce the documents at issue.

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