San Antonio Jury Hits Akin Gump With $72.6 Million Verdict

Last Thursday, a San Antonio jury returned a $72.6 million dollar verdict against Akin, Gump in a case where the plaintiff alleged that the patent lawyers failed to properly obtain patents on a device that the plaintiff invented.

The verdict is another in the trend of larger verdicts against large law firms.  The American Bar Association publishes a semi-regular survey of legal malpractice claims as reported by legal malpractice insurers.  In September 2008, the ABA’s latest version came out, covering claims from 2004-2007.   The previous study looked at claims from 2000-2003.  One of the more stunning statistics in the study is that claims that were in excess of $1 million doubled from the 2003 survey to the 2007 survey.  It’s my hypothesis, not mentioned or addressed in the study, is that one of the reasons is more successful claims against mega-firms.

Interestingly, Akin, Gump is also a party to a legal malpractice case (Akin, Gump v. Nat’l Development and Research Corporation) currently before the Texas Supreme Court, and the ultimate decision promises to be critical to the legal malpractice jurisprudence of our state.

Corporate Lawyers – Advise The Officers And Employees Who You Represent

It’s not an uncommon fact pattern.  A corporate officer or employee will be testifying at a deposition or in a courtroom with the corporation’s lawyer present.  The officer/employee says something bad that subjects themeselves to liability.  And when things go south, the officer/employee ends up suing the corporation’s attorney for not protecting the officer/employee.

In such a situation, the fight is almost always whether an attorney client relationship existed between the officer/employee and the attorney.  In Texas, the relationship can be created where (1) the attorney told the officer/employee he was being represented, or (2) it was reasonable for the officer/employee to make the assumption the officer/employee was being represented and the attorney did nothing to dispel that understanding. (The two leading cases on this, Parker v. Carnahan, 772 S.W.2d 151 (Tex. Civ. App. – Texarkana 1989, writ denied) and Perez v. Kirk & Carrigan, 822 S.W.2d 261 (Tex. App. – Corpus 1991, writ denied), just happen to be sitting on my desk for a brief.)

A high profile version of that fact pattern is playing itself out now.  You may have seen that Laura Pendergest-Holt, the former Chief Investment Officer of Stanford Financial Group, is currently facing criminal prosecution.  But she’s not being prosecuted for stealing money; she’s being prosecuted for lying to Securities and Exchange Comm’n investigators.   You see, at the suggestion of a company lawyer, Ms. Pendergest-Holt sat down with the SEC for an interview.  The company attorney was then there at the interview.

During the interview, the attorney repeatedly told SEC investigators that he was there on behalf of the company and not as Ms. Pendergest-Holt’s personal attorney, but did he really explain to her what that means?  I’m not sure.  I just know it’s a strange situation.  The lawyer withdrew from representation of the company just a few days after the interview, and then he wrote the SEC disavowing everything he had told them about the client.  I don’t know how this is going to turn out, and if it wasn’t so hard to bring a legal malpractice case against criminal lawyers in Texas, I might think a legal malpractice case was a certainty.  You can read more details on this mess in a recent article.

This fact pattern should be a “teaching moment” for all attorneys that represent entities.  In my speeches on how to avoid legal malpractice claims, one emphasis is always to clarify who you represent, and maybe more importantly, who you DON’T represent, with a warning that the unrepresented should get their own counsel.

Hat tip to Texas appellate lawyer Don Cruse for the link to the story.

Ponzi Schemes Make For Strange Bedfellows

Lawsuits about Ponzi schemes seem to be all the rage now.  At the end of last year, mega-firm Holland & Knight formed a Madoff Advisory Group.  The head of the group stated that:

Holland & Knight is already assisting a number of companies, financial institutions, charitable foundations and individuals who have been impacted by the Madoff entities. We are providing important guidance in assessing claims against the Madoff entities, in positioning our clients to reduce the likelihood of third party claims against them, and in accessing and providing avenues for governmental relief for aggrieved parties.

And at the end of last week, Texas law firm Strasburger & Price was one of two law firms that filed a multi-billion dollar lawsuit against insurers stemming from R. Allen Stanford’s alleged Ponzi scheme.

The problem?  In May, Holland & Knight was sued for allegations that its conduct contributed to the Ponzi scheme of Florida investment advisor Arthur Nadel.  And Strasburger & Price was a defendant in a lawsuit alleging that the firm helped one of its clients defraud investors through an oil and gas Ponzi scheme.

I don’t know how the case against Strasburger turned out or how the case against Holland and Knight is going to turn out.  But I think it makes sense that if you’re hiring a firm to pursue a claim based on a Ponzi scheme that you ought to make sure the firm hasn’t been accused of participating in Ponzi schemes itself.

Billy Blanks Loses More Than Body Fat

In 2005, Tae Bo creator Billy Blanks won a $30 million legal malpractice verdict against Seyfarth Shaw based on allegations that the firm failed to file court papers on time in the right venue.  Earlier this week, a California appellate court found that the damage instructions were improper and sent the case back to the trial court, wiping out the huge legal malpractice verdict.  Fortunately for Blanks, the finding of malpractice appears to still stand.

A plaintiff always likes going to a jury and not asking whether the plaintiff is owed something, but only asking how much.

Posted on: February 25, 2009 | Tagged

Two New Legal Malpractice Opinions Show The Importance Of The Case Within A Case

In the last two weeks, Texas appellate courts have decided two legal malpractice cases on behalf of the attorneys because the client couldn’t prove that he would have prevailed in the underlying case.

Last Friday, in Hackett v. Littlepage & Booth, 2009 Tex. App. Lexis 1166 (Tex. App. – Austin, Feb. 20, 2009), the Court upheld summary judgment in favor of the defendant lawyers.  Hackett hired Littlepage & Booth to file claims against Celebrex alleging that Celebrex caused one of his medical conditions.  That suit was eventually dismissed, and Hackett filed suit against the firm for not suing the two physicians that prescribed the Celebrex.

In the legal malpractice claim, Hackett retained a physician expert that offered opinions that Celebrex caused his condition and that the physicians should not have prescribed the drug.  Littlepage & Booth challenged the expert’s testimony as unreliable, arguing that there were no epidemiological studies to support the link between Celebrex and Hackett’s condition.    The trial court (Judge Stephen Yelenosky here in Travis County) granted the motion.  Once the expert was deemed unreliable, Hackett didn’t have any evidence to support the case within a case, and the court granted the law firm’s motion for summary judgment.

The Austin Court of Appeals upheld both rulings, and Hackett lost because he could not prevail on the case within a case.  There was also an interesting issue regarding Deceptive Trade Practices Act claims in the legal malpractice context, but I think I’ll save that discussion for a later post.

A similar result was reached in Simon v. Miller & Associates, PLLC, 2009 Tex. App. LEXIS 989 (Tex. App. – Houston [14th Dist.], Feb. 12, 2009).  Simon filed a small claims suit against his apartment complex, and the judge told him that he had sued the wrong defendants.  Simon then hired the law firm to pursue the claim, but the law firm never amended to add the correct parties.  The firm then withdrew from representing Simon shortly before the trial.  Simon’s claim was eventually dismissed because he had the wrong parties.

After the dismissal, Simon filed suit against the law firm pro se (meaning he was acting as his own attorney).  At trial, all of the parties agreed that the firm breached its duty and was negligent.  However, the trial court heard the evidence, decided that Simon would not have won his suit, and ruled for the defendant.  That finding was upheld by the Court of Appeals.

Both of these cases help demonstrate that the most fruitful defense in many legal malpractice cases is the challenge to causation.  In many suits, there is no question that the defendant breached its duty to the client, but the defendant is able to make some hay as a defense by arguing causation.

This often produces a weird dynamic in cases against plaintiff’s lawyers, particularly when they had the underlying case on a contingent basis.  The defendant lawyer is essentially arguing that the claim that he was pursuing in the underlying case, even if he agreed to do it on a contingent basis, was a frivolous claim.  These defenses can lead to some fun depositions for the legal malpractice plaintiff’s lawyer.

Posted on: February 22, 2009 | Tagged

An Example of Why Legal Malpractice Claims Are So Expensive

I often have the misfortune of having to explain to prospective clients that even though their previous attorneys had acted in a way that is almost unthinkable, I can’t help them because they weren’t hurt enough.  I have to explain that legal malpractice cases are expensive and that the damages have to be significant to justify the expense.

Today’s Lodi, California newspaper has an article on a legal malpractice case that serves as a perfect example of what I tell potential clients.   From late 1996 to early 2004, attorney Michael Donovan represented the city of Lodi in a lawsuit over groundwater contamination.  After criticism from the judge overseeing the case, the city fired Donovan and hired another lawyer.  The city eventually settled with all the parties.

After the firing, the city sued Donovan for legal malpractice.  Donovan, though paid over $14 million by the city, countersued saying that the city still owed him fees.  Donovan claimed he was owed millions more, a percentage of all the settlements, and interest.

The case settled with the city agreeing to pay Donovan an additional $1 million.  The primary motivating factor was the potential cost of the litigation.  Through the settlement, the city had spent $2.5 million on the case and expected to spend an additional $1 million for the planned six week trial and another $1 million for a potential appeal.  The city noted that the city’s attorneys took more than forty depositions in the case and would have to call numerous experts to talk about the underlying claim.

Admittedly, this is an extreme case.  The underlying case involved complicated issues and more than 100 parties.  But the same principles apply.  It’s a tough row to hoe having to hire experts to prove up any underlying case and then also having to hire attorney experts to prove up the legal malpractice claims.  But despite all the reasons and rationales, it doesn’t make it any easier to tell clients that have been wronged that you can’t help them.

Posted on: February 10, 2009 | Tagged

Lawyers – Avoid the Unintended Client

Part of my standard spiel to lawyers on “how to avoid malpractice claims” is for the lawyer to take steps to avoid becoming the unintended lawyer.  Any time there are multiple potential parties who think they may rely on the attorney’s advice, the attorney needs to clarify in writing who the attorney does and does not represent. This problem can occur in any number of fact patterns, but I tell lawyers that one of the most common fact patterns is when an attorney represents a corporate entity in litigation, and employees of the entity are being deposed and think the lawyer represents them individually.

If you don’t do what I recommend, then you may end up with a case like Bergthold v. Winstead Sechrest & Minick, a case decided by the Ft. Worth Court of Appeals last week.

Bergthold was an employee of Southwestern Bell Yellow Pages. SWB was sued by its employee, Bingham, and Winstead was hired to defend SWB. During Bingham’s lawsuit, Bergthold was cooperating with Bingham and his attorneys, meeting with Bingham’s attorneys to discuss the facts in the lawsuit and to discuss the possibility that Bergthold might file his own suit against SWB.

During the course of the Bingham suit, Bergthold and several other SWB employees were deposed. Mr. Bergthold spoke to a Winstead attorney a couple of times before the deposition, but Bergthold continued to cooperate with Bingham, even having private conferences with Bingham’s lawyer during breaks in the depo. When Bergthold was asked during his depo about his meetings with Bingham’s lawyer, Bingham’s lawyer objected based on attorney-client privilege.

At the depo, Bergthold brought several confidential SWB documents that the Winstead attorney did not know about it. After the depo, the Winstead attorney told Bergthold that Bergthold could be in trouble for bringing the docs. Sure enough, Bergthold was later fired.

Bergthold filed suit against Winstead, contending that in his two or three conversations with the Winstead attorney, the Winstead attorney told Bergthold that the attorney represented SWB and its employees. Bergthold made two arguments in his suit: (1) Winstead was his attorney and was negligent for failing to tell him not to produce the documents; or (2) Winstead was negligent for not advising him that Winstead was not acting as his lawyers. The trial court granted Winstead’s summary judgment, and the case went to the Fort Worth court of appeals.

At the Court of Appeals, all three judges on the panel concluded that there was no attorney-client relationship, but the court was split 2-1 on whether Winstead was negligent for failing to inform Bergthold that there was no attorney-client relationship.  Had the Winstead lawyer sent Bergthold a simple form letter saying “I represent the company, and I’m not representing you” the case would have been a slam dunk.  Instead, even with Bergthold cooperating with the opposing party and relying on the advice from the other side, one appellate judge still thought Berthold was entitled to pursue his claim.

This case should serve as a cautionary tale for all of us.   As I said, this is a fairly common fact pattern, and Winstead should have had simple forms clarifying its role.  But because it didn’t, it was involved in costly and protected litigation.

It should also serve as a warning that even the best of us can be victims of legal malpractice claims.  Winstead is a very good firm (I have several friends in the local office), and they know better.  But even the best lawyers can get in trouble when not following routine advice.

Posted on: February 5, 2009 | Tagged

Legal Malpractice By Neglect

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.

Posted on: January 21, 2009 | Tagged

Sometimes Lawyers That Make Errors Can Get Off The Hook

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.

Posted on: January 14, 2009 | Tagged

Blackwater’s Legal Malpractice Claim Is Thrown Out Again

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.

Posted on: January 9, 2009 | Tagged

Schuelke Law maintains offices in Austin, Texas. However, our attorneys and lawyers represent clients throughout the state of Texas, including Dallas, Houston, San Antonio, Forth Worth, El Paso, New Braunfels, San Marcos, Kyle, Buda, Round Rock, Georgetown, Lockhart, Bastrop, Elgin, Manor, Brenham, Cedar Park, Burnet, Marble Falls, Temple and Killeen. By Brooks Schuelke

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