Tuesday, June 17, 2008

Duty To Investigate

The South Carolina Supreme Court affirmed a sanctions award against an attorney for instituting a frivolous claim against another attorney. Attorney Malloy was retained to represent a seriously injured client through the client's elderly mother. An agreement was reached and settlement proceeds received by Malloy. The mother testified that she was thereafter unable to reach Malloy and that she "thought [he] had either kept or spent the settlement proceeds."

Mother then consulted attorney Gregory. He determined that the settlement check had been presented for payment and advised the client to file a bar grievance to "shake [the money] loose." Mother fired Malloy and hired Gregory and another lawyer. Gregory filed suit against Malloy and included a conversion claim. The suit was filed because of concern about the statute of limitations. Gregory felt that a "shoot first, ask questions later" approach was necessary.

News reports of the suit resulted in Malloy immediately tranferring the trust funds to Gregory. Malloy had held the funds as a result of unresolved third-party claims. The suit was dismissed seven weeks later. Malloy sought and won a sanction award against Gregory for filing suit without reasonable investigation, particularly with respect to the conversion claim. Gregory had not contacted Malloy or sought the file prior to filing suit. The court here concluded:

The court correctly found that, had appellant conducted a reasonable investigation, he would have known there was no basis for the conversion action.  We find it troubling that appellant was willing to speak with a news reporter and make statements that he would have known to be false if he had conducted any type of meaningful investigation.  Without a reasonable basis, appellant relied on his client’s statements that she did not know where the settlement money was to make inflammatory statements to the newspaper, i.e. accusing respondent of commingling funds and of keeping the settlement money “in his pocket” and collecting all the interest on it.

There was evidence appellant had time to investigate whether respondent had contacted Medicaid and that he could have realized much sooner that respondent was not engaging in any wrongful conduct by holding the settlement money.  In fact, the associated attorney, Barroll, had suggested to appellant that he contact respondent, but appellant refused.  Had appellant spoken with respondent and relayed Melton’s worries over the money, then the suit would have never been filed.  Under the particular facts of this case, a simple phone call may have led to an explanation by respondent as to why the money was being held.  Such a discussion between the attorneys could have prevented the grievance and suit from being filed against respondent.

We find that while an attorney or a pro se litigant does not have a duty to consult with a potential defendant prior to filing suit, before alleging conversion against an attorney for misappropriation of client funds or legal malpractice, a reasonable investigation is necessary.

A concurring opinion warns:

I concur in the result reached by the majority but am troubled by the imposition of a new duty forcing an attorney to conduct a “reasonable” investigation so as to comply with § 15-36-20.  In my opinion, this new responsibility places upon an attorney an additional requirement not currently required by statute.  I would not create a blanket rule that precludes an attorney from obtaining a reasonable belief in the merits of a case based solely on information related to him by a client.

I agree that, based on the facts of this case, appellant filed the action primarily for a purpose other than securing the proper adjudication of the claim upon which the proceedings were based.  I would affirm the lower court but see no need to impose additional duties on an attorney beyond that which is required by statute.

(Mike Frisch)


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