A trial last week was a great example of a common malpractice scenario: simple neglect of the file. A jury rendered a $338,000.00 verdict against a lawyer that simply refused to prosecute a worker’s compensation claim. According to an article discussing the case, the lawyer was hired, but the case was dismissed for failure to prosecute and then the lawyer didn’t timely file a motion to reinstate the case.

During the legal malpractice case, the plaintiff obtained a summary judgment on negligence, and the only question at the trial was the damages. To find this, the jury was asked to determine the extent of the man’s disability, which would set the value of the claim.

It’s not uncommon to find cases where attorneys simply fail to prosecute the claims. We’ve seen several different reasons for this (from simple mistake to lawyer’s depression and disability), but a prevalent theme is the selection of the case. In many neglect cases, the attorney has taken a case that he or she just doesn’t want to work on. The case may be outside the attorney’s expertise; the client may be difficult to deal with; or the attorney may have made an initial error about the value of the case. Whatever the reason, many of these cases could be avoided by the attorney making better choices up front about case selection.

The US Eighth Circuit Court of Appeals decided a case yesterday that demonstrates that ethics violations aren’t enough in legal malpractice claims.  Greatly simplifying the case, the law firm, Dorsey & Whitney, prepared a package of loans for an investment bank.  The investment bank sold the package to 32 independent banks who loaned the money to the Mohawk tribe for casino operations.

There were two problems with the firm’s advice.  First, at the time of closing, the National Indian Gaming Commission had not approved the project.  The firm told the investment bank to go ahead with the closing anyway.

As litigation cases are want to do, the deal went bad.  The banks sued the tribe for the amount due, and the tribe then claimed that the loans weren’t valid because the National Indian Gaming Commission had not given approval.  Some of the banks ended up suing the firm.  A U.S. Bankruptcy Court and a U.S. District Court both held that the banks were beneficiaries of the legal services, and entered substantial judgments against the firm.  In reaching the decision, the bankruptcy court noted:

If Dorsey can escape liability for activities that constitute malpractice in this situation on a standing defense, the integrity of these types of commercial transactions are at risk…It cannot be sued for malpractice by the loan participants because they do not have standing; it cannot be sued by Miller & Schroeder [the investment bank firm] because Miller & Schroeder has no damages.

The Eighth Circuit disagreed, finding that the banks were not clients of the firm and reversing the judgment.

One other item of note from the case was some additional conduct of concern by the firm that was unrelated to the holding of this decision.  After the deal went bad, a lawsuit was filed against the investment bank.  The firm was faced with the question of whether it could ethically defend the bank in the lawsuit when the heart of that case was whether the firm had given the proper advice.  The firm apparently had no problem with this, and chose to represent the bank in the lawsuit.  At least one court reportedly said a motive for the firm’s decision was the prospect of losing the investment bank’s business to a rival firm.

AmLaw Daily has its own synopsis of the case.

I’ve chronicled the suit filed by Blackwater against its law firm, Wiley Rein. After losing a suit brought by the families of four employees who were killed in Iraq, Blackwater sued the firm saying that the firm committed legal malpractice by not invoking the proper statute in an effort to remove the suit from state court to federal court.

In a blog post made when the suit was filed, I wrote:

The reports on the suit are limited so it’s difficult to know the exact substance of Blackwater’s claims. But it’s hard to see from the information available how Blackwater can prove that it would have prevailed on the matter in federal court but lost in state court.

It turns out I was right.  On December 29, the legal malpractice claim was thrown out for the second time.  The cited article noted:

Two judges have now dismissed the case, concluding that Blackwater’s argument that a federal court would have ruled differently than the state court is purely speculative because the federal court might well have ruled that the private security company’s employees were not federal officers.

The case is a good example of showing the need to prove causation. It’s not enough that a plaintiff show that the lawyer made an error; the plaintiff must also show that the error caused harm to the plaintiff. In the litigation context, as in the Blackwater case, that is usually proven by proving the “case within a case.” If the lawyer represented a defendant in the underlying litigation, the client must prove that absent the lawyer’s error, it would have prevailed in the suit or at least been hit with a smaller judgement. Because Blackwater couldn’t prove that they would have prevailed in the absence of the error, they couldn’t make a legal malpractice claim. If the lawyer represented a plaintiff in the underlying litigation, the client must prove that absent the lawyer’s error, the client would have obtained a judgment and that the judgment would have been collectible. If the client can’t prove the case within a case then the client can’t win a legal malpractice claim.

Having said that, there is a growing trend among some jurisdictions, inlcuding Texas (though it’s not well settled), that allow a client to prove causation by presenting evidence that the lawyer’s conduct affected the settlement value of the case. This certainly makes sense given the falling number of trials.

We had earlier reported that defense contractor, Blackwater, filed a legal malpractice case against its law firm for failing to properly remove the case to federal court, where Blackwater thought the wrongful death claims brought against it would be dismissed. Today, the Blog of Legal Times, reports that the legal malpractice claims were dismissed. The trial judge dismissed the claims arguing that the damages were too speculative. It’s a tough argument to assert that the federal judges would rule on an issue differently than the state judges, who let the wrongful death claims proceed. However, the case was dismissed without prejudice, so Blackwater could re-file the suit at a later date.

A few weeks ago, I posted portions of a speech I gave that discussed  ”8 Ways to Avoid Legal Malpractice Claims.”  Number 5 on that list was:

5. Say “I’m Sorry.”  If you make a mistake, you have an obligation to tell your client, and in the process, let them know that you’re sorry.  A simple apology goes a long way to reducing legal malpractice claims.

Today, Susan Cartier Liebel at her Build A Solo Practice blog had a post that provided a great story showing how effective an apology can be at helping avoid potential problems as a result of a mistake.

I would normally paraphrase the post, but doing so wouldn’t do it justice.  Please take one minute to read Susan’s post.

Earlier this month, the Texas Supreme Court heard arguments in a legal malpractice case that could have far-reaching implications on damage claims.

The case stems from Akin, Gump’s representation of National Development & Research Corp. in underlying litigation.  NDR hired Akin, Gump to represent it in a lawsuit against some of NDR’s business partners.  At trial, the jury returned a verdict that was favorable to both NDR and its partner, but the judge granted a judgment notwithstanding the verdict against NDR because Akin, Gump didn’t submit all the jury questions necessary to support the verdict.  NDR, with Akin, Gump as counsel, appealed that decision to the court of appeals and lost.

Following that loss, NDR successfully sued Akin, Gump.  Part of the damages that NDR received included over $200,000 to compensate NDR for the fees that it paid Akin, Gump as a result of the appeal because the appeal would not have been necessary had Akin, Gump correctly submitted the jury questions.  (As an aside, it’s almost incomprehensible to me how a firm could bill $200,000 for an appeal to a court of appeals.  My friend Todd Smith would have been a much better option, I’m sure.)

At the Supreme Court, Akin, Gump made two arguments that could have far reaching implications.  First, it argued that the trial judge improperly awarded damages for the appellate fees.  The argument is based on the general rule that a party cannot recover attorneys’ fees unless authorized by statute or contract.

It is my opinion that this argument should fail.  The Texas courts of appeal have long held that while attorneys’ fees incurred in prosecuting the suit against the defendant are not recoverable unless authorized by statute or contract, a plaintiff can recover attorneys’ fees as damages if the fees are incurred in another context as a result of the defendant’s negligence.

For example, if Smith sues Jones, Smith generally can’t recover the attorneys’ fees incurred in the lawsuit between the two.  However, if Jones’ underlying negligence caused Smith to incur attorneys’ fees in a separate lawsuit or other similar context, then the amount of attorneys’ fees incurred in that lawsuit or context are recoverable as damages.

If the Supreme Court follows the current law, the appellate fees should be recoverable.

The second, and potentially more interesting, issue is whether damages in a legal malpractice suit should be offset by the contingent amount that was due the defendant lawyer.  In this case, Akin, Gump was hired on a hybrid hourly/contingent agreement where it received a reduced hourly rate and then was to get 10% of any recovery.  At the Supreme Court, Akin, Gump argues that any award against it should be reduced by 10% because it would have received that much as a fee for its services.

This argument is interesting.  Akin, Gump says that if you look at the “but, for” analysis, if NDR had prevailed then they would have had to pay 10% to Akin, Gump so the damages are reduced by that.  NDR argued that a contingent-fee credit would unjustifiably benefit a legal malpractice defendant for its negligence.  The Restatement, which is not binding on the Supreme Court, supports the plaintiffs.

I am optimistic that the results will be favorable to the plaintiffs.  While the Supreme Court generally finds in favor of big businesses or insurance companies, legal malpractice plaintiffs are the one set of plaintiffs that do well before the Supreme Court, with very important decisions granting plaintiff’s rights handed down in 2005 and 1998.

Mega law firm Quinn Emanuel Urquhart & Hedges has been hit with a legal malpractice lawsuit that claims the firm botched a $48.8 million settlement, even as the firm collected approximately $12 million in contingency fees on the deal.

Todd Kurtin hired Quinn Emanuel to represent him in the unwinding of his business relationships.  Under the terms of the agreement, Quinn Emanual was to receive 50% of the settlement up to $20 million and 20% thereafter.

In four short months, the parties negotiated a settlement whereby Kurtin would receive $48.8 million in four payments.  The first two payments were made, which resulted in Kurtin and Quinn Emanual each receiving about $12 million, but Kurtin’s former partner apparently defaulted on the remaining two payments.

Kurtin asked Quinn Emanual to enforce the settlement agreement.  The firm apparently offered to do so on a reduced hourly basis, but not under the contingent agreement.  Kurtin responded by suing the firm, claiming that they didn’t advise him of the meaning and ramifications of the settlement agreement.

It’s hard to know what to make of the suit since I don’t know what underlying advice was given.  But, some issues stand out.  First, when negotiating settlements with payment plans there is always a risk of default.  It’s not clear what options were investigated to protect Kurtin or to disclose the risks to him, but that’s sure to be a focus of the case.

The second thing that is apparent is this is a question of what is the scope of the representation.  What did the original fee agreement say about Quinn Emanual’s obligation to continue representing Kurtin in the collection proceedings?  When can they withdraw?  Are they obligated to collect the payments? etc.

The final quick thing is the effect of the sliding scale.  I don’t know if it was planned this way, but the payments made essentially equal the $20 million under the fee agreement that Quinn Emanual had a 50% fee, and the uncollected amounts were due under the lower portion of the fee agreement.  I have a hard time saying it’s okay for the firm to take the quick settlement under the high fee amount, but then end the representation when the work gets hard and the fee goes to a lower percentage.

An interesting set of facts all around.

Thanks to Max Kennerly of Philadelphia’s Beasley Firm for the tip.

On November 19, I gave a speech to a joint meeting of the Austin Bar Association’s Solo and Small Firm and Women’s Lawyer Sections. Part of that speech was 8 ways to avoid legal malpractice claims, and I’ve been asked by one of the attorneys in attendance to post those tips here. I can’t repost the entire speech, but the brief summary is as follows:

1. Define who you represent. When multiple parties are involved, make it clear who you are and are not representing.

2. Define the scope of the representation. You need to tell clients what matters you are representing them on, and if applicable, what matters you are not providing advice on.

3. Define when the representation ends. If you accept representation, you need to send a letter when the matter is closed letting the client know that you will not be taking any more action on their behalf. Similarly, if you decline representation, send a non-engagement letter letting them know that you will not be representing them.

4. Communicate! Communicate! Communicate! The number one cause of grievances is that lawyers don’t communicate with their clients. You need to communicate with your clients. And when you do communicate, do it effectively. People don’t want to sue those that they like. If your clients know that you care about them, they will be much more forgiving of any errors you make.

5. Say “I’m Sorry.” If you make a mistake, you have an obligation to tell your client, and in the process, let them know that you’re sorry. A simple apology goes a long way to reducing legal malpractice claims.

6. Have a calendaring/deadline system that works. Missed deadlines may be the number one cause of legal malpractice claims. Have a system that reminds more than one person in the office about deadlines and make sure you calendar the proper deadlines in matters.

7. Think twice about entering into a business deal with a client. Not only are these deals regulated by the disciplinary rules, but if the deal goes bad, there is a presumption that the transaction was not fair to the client.

8. Think twice about suing clients for fees. A grievance or legal malpractice counterclaim is almost a guaranteed result.

I hope this is helpful, and I’d be interested in hearing others’ thoughts on this matter.

Louisville lawyer Hans Poppe reports today on a Louisville lawyer that has been accused of stealing from his clients.  Most notably, a $1 million estate seems to have disappeared.  Unfortunately, Mr. Poppe appears to think the case may be an example of what we consider the #1 rule of legal malpractice cases:  the attorney’s culpability is inversely related to his or her ability to pay a judgment.  There are exceptions to this, of course, but as long as bar associations don’t require attorneys to either (1) carry malpractice insurance or (2) disclose to clients that they don’t carry insurance, then unwitting consumers will always be faced with the prospect that they’ll be stuck when they are the victims of legal malpractice.

I know some lawyers disagree, but I strongly believe that lawyers have an obligation to their clients to carry malpractice insurance in case the lawyer makes an error.

The Poppe Law Firm (who I thought were Louisville personal injury attorneys) have another great legal malpractice post.  This time, the post describes an Augusta criminal law firm that has been sued for legal malpractice 23 times. I won’t detail the post, but it’s worth a read.

On a similar topic, we have previously posted on Texas legal malpractice claims in the criminal context.