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Professional Liability Claims Against Attorneys Responding to Claims and Minimizing Malpractice Risks
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WEDNESDAY, FEBRUARY 29, 2012
Presenting a live 90-minute webinar with interactive Q&A
Kristopher M. Dennis, Partner, Kaufman Borgeest & Ryan LLP, New York
Jonathan B. Bruno, Partner, Kaufman Borgeest & Ryan, New York
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Professional Liability Claims Against Attorneys
February 29, 2012
© KBR 2012
Long Island 1205 Franklin Ave., Suite 200 Garden City, New York 11530 Tel: (516) 248-6000 Fax: (516) 248-0677
Manhattan 120 Broadway, 14th Floor New York, New York 10271 Tel: (212) 980-9600 Fax: (212) 980-9291
California 23975 Park Sorrento, Suite 370 Calabasas, CA 91302 Tel: (818) 880-0992 Fax: (818) 880-0993
New Jersey 9 Campus Drive Parsippany, New Jersey 07054 Tel: (973) 451-9600 Fax: (973) 451-0150
Westchester County 200 Summit Lake Drive Valhalla, New York 10595 Tel: (914) 449-1000 Fax: (914) 449-1100
Jonathan B. Bruno, Esq.
[email protected] Kristopher M. Dennis, Esq.
Presentation Overview
• Identifying Malpractice Claims Against Attorneys
• Defense Strategies and Tactics
• Loss Prevention and Techniques
6
Common Themes in LPL Claims
• Fee Disputes
• Conflict of Interest
• Poor Communications/”Bedside Manner”
• Failure to Document Opening/Closing
• Performing Services Beyond Expertise
• Self-Dealing
• No Supervision/Lack of Internal Control
7
Part I Identifying Malpractice Claims
Against Attorneys
8
Legal Malpractice Claims & Defenses
• Negligence-Based Claims – Legal Malpractice – Breach of Contract – Breach of Fiduciary Duty
• Four Elements – Duty of Care – Deviation from Standard of Care – Proximate Causation – Actual Damages
9
Duty of Care: Attorney-Client Relationship
• Privity/Third-Party Exposure – Attorney-Client Relationship Typically Required
• Retainer Not Required – Attorney-client relationship can arise from “explicit undertaking to perform a
specific task” – No good deed goes unpunished
• Third-Party Claims – Rare but can arise from facts/circumstances, i.e. non-client reasonably relied on
advice of attorney, and attorney should have reasonably foreseen that non-client would rely on such advice
10
Duty of Care: Privity
• Generally the client may sue an attorney for legal malpractice.
• Absent fraud, collusion or malicious or tortious act, a third party may not sue an attorney.
• An individual’s unilateral belief that the attorney represents the individual does not confer the status of client. There must be an explicit undertaking to perform a specific task.
11
Privity: Factors
• Factors in determining whether an attorney-client relationship has been entered into include:
– Whether a fee arrangement was entered into or a fee paid; – Whether a written engagement letter demonstrates acceptance of the retention; – Whether there was an informal relationship in which the attorney rendered
services gratuitously; – Whether the attorney actually represented the plaintiff in one aspect of the
matter; – Whether the attorney excluded the plaintiff from some aspect of the
representation in order to protect another; – Whether plaintiff had a reasonable belief that the attorney was representing him
or her.
12
Privity: Exception
• So close as to approach privity – The attorney must be aware the services were being used for a particular
purpose. – The third party relied upon those services. – The attorney demonstrates some understanding of the third party’s reliance.
• Exception narrowly applied: – Third party opinion letters – Suit by excess insurer against insured’s attorney – Will beneficiary cases/Executor claims
13
Scope of Engagement
• An attorney seeking to limit the scope of an engagement must explicitly define the activities being undertaken
• Engagement letters
• Must take care to advise the client as to the areas where the attorney is not representing the client and that the client may need to seek counsel in those area
14
Breach of Duty of Care
• Applicable Standard of Care – Care, skill, and diligence commonly possessed and exercised by a member of
the legal community.
• Expert Witness Proof – Certain states (e.g. New York) do not require specialists in a particular legal
discipline to be certified.
15
Standard of Care: Necessity of an Expert
• Plaintiff must prove, through expert testimony, that the attorney departed from acceptable legal standards in the community. The failure to timely designate an expert may result in the dismissal of plaintiff’s legal malpractice case.
– Exceptions:
• When the ordinary experience of the fact-finder is sufficient to judge the adequacy of the services or
• The conduct fell below any standard of care.
• The expert cannot opine that certain conduct is legal malpractice.
16
Standard of Care: Ethical Violations
• A claimed ethical violation without more will not support a legal malpractice action.
• However, a violation of provision of the Disciplinary Rules, which sets forth minimum standards of conduct expected of attorneys, may be some evidence of negligence.
• A conflict of interest alone will not support a legal malpractice action.
17
Proximate Causation
• “But For” Proximate Causation Standard – The legal malpractice plaintiff must plead and prove that “but for” the attorney’s malpractice,
the client would have achieved a different result in the underlying matter.
• “Case Within a Case” – A hypothetical re-examination of the events at issue absent the alleged legal malpractice.
• Rare Exception to “But For” Standard – Gotay v. Breitbart (1st Dept. 2005) the “but for” requirement relaxed in legal malpractice
action where plaintiff unable to establish underlying proof due to 25 year delay in the prosecution of underlying medical malpractice claim—attorney neglect.
• Other jurisdictions rely on a “substantial factor” causation standard
18
“But For” – Case Within a Case
• Plaintiff must prove each and every element in the underlying case as well as the elements of the legal malpractice claim.
• “But for” causation requires a tighter causal nexus between the conduct alleged and the injury claimed than proximate cause.
• The “but for” standard applies to breach of fiduciary duty claims brought against attorneys where relief sought is money damages.
19
Actual and Ascertainable Damages
• Speculative Damages Not Permitted – The mere possibility that the plaintiff will suffer damages in the future is not
enough to sustain a legal malpractice action, as the damages are not “actual or ascertainable.
• Economic Damages – The plaintiff must prove that he/she sustained economic damages directly
resulting from the alleged negligence- the basic measure of damages is the difference between (1) the plaintiff’s current economic position; and (2) what it should have been “but for” the alleged legal malpractice.
• Non-Liquidated Damages – Jury required to measure the value of the claim that was lost.
20
Damages: Punitive
• Punitive damages are not recoverable in the absence of conduct that is “so outrageous as to evince a high degree of moral turpitude and showing such wanton dishonesty as to imply criminal indifference to civil obligations.”
• In most jurisdictions, an attorney will not be held liable for the loss of a claim for punitive damages which were intended to punish the underlying wrongdoer.
21
Damages: Collectibility and Emotional Distress
• Collectibility – In certain jurisdictions, it is the attorney’s burden to plead and prove the
damages would not have been collectible.
• Emotional distress damages are not recoverable in the context of a legal malpractice action
22
Damages: Attorney Fees and Interest
• Varies by Jurisdiction – Attorney fees incurred prosecuting a legal malpractice action are not
recoverable, although reasonable fees incurred by the client to cure an error may be. (NY and NJ Rule)
• Interest charged by a taxing authority as a result of the late payment of taxes allegedly caused by an attorney is not a recoverable item of damages.
23
Breach of Fiduciary Duty
• Breach of Fiduciary Duty – Apart from the obligations set forth in the Disciplinary Rules, an attorney has two separate
fiduciary obligations to his client: (1) confidentiality; and (2) undivided loyalty.
• Elements – Same elements of proof (duty, breach of standard of care, causation) apply.
• Redundant Pleadings – Generally, a separate breach of fiduciary duty against an attorney cannot be premised on the
same operative set of facts as an accompanying negligence-based legal malpractice claim.
• A fiduciary relationship may be owed to a non-client if the attorney assumes the role as an escrow agent or trustee or if the attorney is aware that the non-client is relying upon the attorney to act on his behalf.
24
Elements of a Fraud Claim • The attorney made a material misrepresentation;
• That was knowingly false – scienter;
• Upon which the plaintiff reasonably relied; and
• Which caused damages to plaintiff
25
Breach of Contract, and Misc. Causes of Action
• Breach of Contract – Need to establish promise to achieve specific result to give rise to separate,
distinct contractual damages- otherwise, breach of contract claim is redundant of negligence-based claim of legal malpractice.
• Conflicts of Interest – Same elements (duty, breach of standard of care, proximate causation) apply.
26
Part II Defense Strategies and Tactics
27
Common Defenses: Statute of Limitations
– Period – Whether plaintiff characterizes the claim as one for breach of the retainer
agreement or in tort for malpractice (limitations periods differ by jurisdiction)
– Accrual – The cause of action for malpractice accrues at the time of the act, error or
omission, even if it is discovered later.
28
Continuous Representation Toll
• The accrual of the three-year New York statute of limitations is tolled during the period of the lawyer’s continuous representation in the same matter out of which the malpractice arose.
• There must be a continuing relationship of trust and confidence between lawyer and client.
• The plaintiff bears the burden of pleading its application.
• The continuous representation toll is action specific such that the continuing representation must be in connection with the particular transaction or matter from which the malpractice allegedly arose.
29
Common Defenses: Absence of Privity (No Standing)
• Since a claim of malpractice requires the existence of an attorney client relationship based upon contractual privity, the absence of privity is a defense to a claim of malpractice.
– Privity with a husband does not mean privity with wife or children unless expressly
undertaken; – Privity with a corporate client does not mean privity with an officer or shareholder or investor
of the corporation; – Privity with the testator does not create attorney-client relationship between the attorney and
beneficiaries – generally only the testator is in privity with the attorney. – Exception: Executor and administrator are permitted to bring claim on behalf of estate.
30
Common Defenses: Collateral Estoppel/Res Judicata
• A prior adjudication in the underlying matter may have a res judicata collateral estoppel effect for the resolution of the issue in the legal malpractice action
31
Common Defenses: Judicial Estoppel – Estoppel
• Failure To List Malpractice Claim As An Asset In Bankruptcy – A client who fails to list the malpractice claim in a bankruptcy schedule will be
barred under judicial estoppel principles from pursuing a claim.
• Estoppel To Deny Voluntary Settlement – Estoppel has been applied to bar pursuit of a malpractice action where a client
acknowledges the voluntariness of a settlement on the record in an underlying court proceeding and later brings a malpractice action on the theory of a coerced settlement.
32
Common Defenses: Absence of Collectibility
• Jurisdictions vary on who bears the burden of proving the collectibility of the hypothetical judgment against the underlying tort-feasor as part of their prima facie case.
• In New York, the intermediary appellate courts are split with three departments ruling that the plaintiff has the burden of proof. In contrast, one appellate department has concluded that the ultimate collectibility of any judgment that could have been obtained in the underlying action is a matter of mitigation of damages to be pleaded and proved by the defendant as an affirmative defense.
33
Common Defenses: Prematurity/Ripeness
• Since a claim of legal malpractice requires non-speculative pecuniary loss where an underlying action in which the lawyer’s error occurred is still pending, the injury claimed (lost or diminished recovery) cannot be established and the claim is not ripe for adjudication.
34
Common Defenses: Waiver/Assumption of Risk
• A waiver defense to a malpractice claim can occur when a client knowingly and voluntarily waives a right.
– That client cannot later sue for legal malpractice complaining that the attorney did not protect the interest the client knowingly surrendered.
• Assumption of the risk can also be pleaded as an
affirmative defense.
35
Common Defenses: Ratification
• Even unauthorized acts by counsel can be ratified by the client’s failure to object and acceptance of benefits. Such ratification can be a bar to a subsequent malpractice action based upon the unauthorized act.
36
Common Defenses: Client or Third-Party Negligence
• Where damages claimed are attributable to the client’s own inaction, negligence, or wrongful act and not the lawyer’s conduct, courts have not hesitated to dismiss the client’s legal malpractice claim.
• An attorney is not liable for acts or omissions which did not occur during his or her representation, or due to acts of a predecessor or successor counsel.
37
Common Defenses: Attorney Judgment Rule
• A lawyer is not held to a standard of infallibility and may take chances.
– If the lawyer errs on a question not elementary or conclusively settled by authority, that error is one of judgment for which he is not liable. Malpractice claims based upon a client’s after-the-fact criticism of a lawyer’s strategic judgment will not be sustained.
• Settlement Recommendations
– Lawyers make recommendations regarding settlement everyday. Such recommendations may be based upon a litany of tangible and intangible factors. Such judgment may also be based on unsettled issues of law. Such recommendations will not be the subject of a malpractice claim unless palpably unreasonable.
38
Defenses to Breach of Fiduciary Duty
• Statute Of Limitations – Generally in New York, a three-year period of limitations applies where money
damages are sought. Like malpractice, the claim accrues when injury is sustained, regardless of plaintiffs’ discovery.
– The claim has been held subject to the continuous representation toll. – Where the relief sought is equitable in nature, like rescission, accounting,
disgorgement, etc., a six-year period of limitations has been applied.
• Redundant Malpractice Claim – Where a breach of fiduciary duty claim is premised on the same facts and seeks
the identical relief as a legal malpractice claim it will be dismissed as redundant.
39
The Auditor’s Defenses
“In pari delicto” • Fraudulent conduct of a corporate office is imputed
to the corporation if committed in the course of the officer’s employment and for the benefit of the corporation
• Similar to comparative or contributory negligence defense, however it is stronger because it can operate to bar tort, contract, and equity claims
Source: The Legal Intelligencer, Feb 8, 2011.
40
Retaliatory Claims
• Malicious prosecution
• Abuse of process
• Defamation
• Prima facie tort
• Interference with contractual relations
• Spoliation of evidence – E-discovery
41
Legal Malpractice Defense: Litigation Strategy
• Pre-Trial Discovery/Motion Practice – Targeting Discovery for Summary Judgment – Deposition Strategies
• Trial Tactics – Jury Selection – Evidentiary Issues – Expert Testimony – Jury Instructions
42
Part III Loss Prevention and Techniques
43
Why Legal Malpractice Risk Management Is Essential
• No Good Deed Goes Unpunished – Clients Present Risk – Managing Client Relationships – Clarify Scope of Representation – Communicate, Communicate – Finish as You Start
44
Law Firm Organization and Structure
• Firm Organization – Training and Supervising lawyers – Reporting Structure- Accountability – Avoid Ivory Tower
• File Opening/Closing Procedures
• Accounting – Billing – Accounts Receivables
45
Financial Planning/Accounting
• Accounts Receivables – Sign of Trouble- Possible Dissatisfaction – Aged Accounts Invite Trouble – Fee Suits
• Avoiding Personnel Turnover – Continuity Issues- Staff and Professionals – Training – Leaving “Ticking Time Bombs”
46
File Opening
• Know Your Client – Who, What and Why? – Due Diligence- Investigate – Past History
• New Client Self-Audit – Expectations Test
• Are Client’s Expectations Reasonable? • Will Firm Be Able Meet Those Expectations?
– Scope of Representation – Fee Arrangements
47
Retainer Letters
• Every Case – Not Just for Contingency Cases – Friends and Family – Return and Repeat Clients – Rare exceptions – check your state laws
• Should Include: – Scope of Services: Set Parameters
• Services to Perform • Distribution of Responsibilities
– Basis for Fees and Expenses – Right to Arbitrate Fee Dispute – Client Rights
48
New Matter Intake and Conflict Avoidance
• Why have a “system”? – It is a disciplinary violation in certain states to not to have a system by which
proposed engagements are checked against current and previous engagements.
• How elaborate must the “system” be? – Solos and very small firms need to check their records and consult with other
attorneys in the firm about questions triggered by their records; – Larger firms need to install software systems and determine whether those
systems are reliably identifying conflicting information. – Systems should be supplemented with electronic and communications methods
to reach attorneys with relevant information.
49
New Matter Intake and Conflict Avoidance
• What is the system supposed to be checking for? – Conflicts Re: Simultaneous Representations: DR 5-105 – Conflicts Re: Former Representations: DR 5-108
• What information is needed? – Client names: Full name of each client represented by the firm. – Adverse party names: Parties whose interests are materially adverse. – Description of engagement: A brief description of the engagement.
• Best source of information: intake attorney who has relationship with the prospective client.
– Cooperation by attorneys in the firm. Does the firm have an intake policy? – Does the firm policy include penalties for lawyers who fail to check for conflicts or accept matters despite
known conflicts? – Does the firm have the ability to analyze information in order to determine the existence of a conflict of
interest? – Who reviews the intake information? – What happens to information once a match in names appears? – Who resolves disputes concerning conflicts?
50
New Matter Intake and Conflict Avoidance
• Is the client an individual or entity? – If an individual, what relationships does the individual have that could present a
conflict? Shareholder, director and employment relationships. – If an entity, what is the relationship between the entity and other entities
represented by the Firm? Will the simultaneous representation present a conflict down the road?
• Questions to Ask – Names of all officers, directors, and major shareholders – Names of all parents, subsidiaries, affiliates, sister corporations
• The Multiple Client Problem
51
Multiple Representation
• Waiver of Conflict Permissible if: – Appropriate disclosure – Client able to understand implications, advantages and risks – Disinterested lawyer would believe that the law firm can competently represent
all clients
• Blanket Waivers – Limited to sophisticated clients – Waiver limited to undisputed transactional matters – Client confidences will be maintained
52
Calendar, Docketing, and Billing Controls
• Calendar Control – Checks and Balances – Systematic Review
• Limitations of Computerized Software – Cannot Replace Hands-On Management – “Soft” Deadlines
• Billing Controls – Sign of Problems – Old Bills Never Paid – Fee Suits- Avoid at All Costs
53
Calendar, Docketing, and Billing Controls
• Advantages of Computer Calendars – Each person can set their own day-planner – One person can remind others – Multiple opportunities to meet deadlines – Add entries for lawyers in remote offices
• Malpractice insurers want you to have a computer calendar – Application for legal malpractice insurance asks about calendars – Computer-based? – Accessible to multiple people?
• Garbage In, Garbage Out-the Effective use of a Calendar System
– Having a computer calendar is not enough – Need a system for complete and accurate data entry – Multiple sources of deadlines can lead to ball dropping between the outfielders – Designate one person to enter all case dates-consistent format and accountability – All dates must be on multiple calendars – Proper ticklers are critical
54
Calendar, Docketing, and Billing Controls
• Use the calendar for internal procedures: – Conflicts reports – Sending out an engagement letters – Receiving a signed copy of the engagement letter – Docketing statute of limitations – Vacations and office absences
55
Actions for Fees
• If the bills get too large, a suit for fees will be impelled
• The firm will pay the costs of collection
• There will be a counterclaim for malpractice
• The firm will pay its deductible
• The firm will lose billable time
• The firm may lose fees it has already been paid
• Don’t leave it to the billing attorney
56
Good Billing Is Good Business
• Poor billing practices lead to conflicts with clients.
• Conflicts with clients lead to claims for malpractice.
• Solution: implement clear and consistent billing procedures on all matters
• Tips: – Be Short But Concise
• Entries should alert the client to what they are paying for • Entries should viewed as means of communicating with client
– Be Consistent • Hourly rate must match retainer • Costs and expenses must be detailed in both the retainer and bill
– Be Careful • Clients study every word of your bill - proofread
57
Communication Breakdown
• Uninformed or Misinformed Client is a Malpractice Claim Waiting to Happen
• Solution: Constant/prompt/truthful communication with the client
58
Tips for Enhancing Communication
• The “cc” – The client pays for your services and deserves to know what is going on – Get into the habit of copying your client on every communication – This will keep your client informed as to what is going on and serve as a status update
• Forward Key Documents to the Client – Settlement Proposals – Motions/Orders – Time of the Essence Letters
• Return Phone Calls – Matter of Common Courtesy – Client needs to know he/she is important and that you are actively engaged in the handling of their case
• Deliver Bad News – Promptly and Completely- Delay doesn’t make the bad news go away and can lead to distrust and
potentially a claim
• Manage Expectations from the Outset – Never over promise and under deliver – Provide the client with an objective analysis of the matter at the outset and update your analysis as
developments occur
59
File Closing and Disengagement Letter
• Why is a closing letter important? – Lets client know that matter is concluded, and provides an opportunity to clarify who is
responsible for any future follow-up items. Barnes v. Turner, 278 Ga. 788, 606 S.E.2d 849 (2004).
– Clarifies whether there is a continuing attorney-client relationship – Marks a clear period in time after which the attorney is no longer responsible for the matter. – Treats matter as closed for conflict checking purposes. Important distinctions exist between
current and former clients.
• Disengagement (or non-engagement) letters should warn generally of the existence of any suspected statute of limitations issue without creating a risk that negligent advice is being provided.
– For example: “There are statutes of limitation that may in the future, or may already have limited your rights and claims, and it is therefore essential that you engage counsel to advise you at your earliest opportunity.” Lopez v. Clifford Law Offices, P.C., 2005 WL 3372732 (Ill. App. Dist. Dec. 12, 2005).
60
Questions?
Long Island 1205 Franklin Ave., Suite 200 Garden City, New York 11530 Tel: (516) 248-6000 Fax: (516) 248-0677
Manhattan 120 Broadway, 14th Floor New York, New York 10271 Tel: (212) 980-9600 Fax: (212) 980-9291
California 23975 Park Sorrento, Suite 370 Calabasas, CA 91302 Tel: (818) 880-0992 Fax: (818) 880-0993
New Jersey 9 Campus Drive Parsippany, New Jersey 07054 Tel: (973) 451-9600 Fax: (973) 451-0150
Westchester County 200 Summit Lake Drive Valhalla, New York 10595 Tel: (914) 449-1000 Fax: (914) 449-1100
Jonathan B. Bruno, Esq.
[email protected] Kristopher M. Dennis, Esq.
61
