Friday, April 3, 2009

Malpractice Not A Compulsory Counterclaim In Lien Action

In a decision released today, the Kansas Supreme Court addressed issues relating to the collateral consequences of an action to enforce an attorneys' lien in Missouri :

Jerome S. Tilzer, individually and as plaintiff ad litem for Rita Tilzer, Todd A. Tilzer, and Jill Jokelson, (hereafter collectively referred to as Tilzers) appeal the granting of summary judgment in favor of the defendants, Grant L. Davis and Davis, Bethune & Jones, LLC, (hereafter collectively referred to as Davis), in this legal malpractice action. Tilzers raise four issues on appeal: (1) whether Tilzers' legal malpractice claims are compulsory counterclaims to Davis' motion to enforce an attorney lien in a prior Missouri state court action and therefore barred by res judicata in the present action; (2) whether Tilzers' claims are barred by collateral estoppel based upon the litigation in the Missouri action; (3) whether the district court erred in ruling that the "Global Settlement" in the Missouri action was not an "aggregate settlement" within the meaning of Rule 4-1.8(g) of the Missouri Rules of Professional Conduct (Rule 4-1.8[g]); and (4) whether the district court erred in ordering certain documents to be sealed. We find that the district court did not abuse its discretion in ordering that the confidential settlement documents be filed under seal. However, the court did err in holding that Tilzers' claims were compulsory counterclaims in the Missouri action and that collateral estoppel applied to the aggregate settlement issue. Therefore, we reverse and remand.

The Court noted the legal significance of purported ethical violations by the law firm:

The Missouri court announced that its order enforcing the attorney's fee lien would not affect Tilzers' malpractice claims against Davis. Apparently, the court viewed the task presented by the attorney's fee lien motion to be a calculation of the amount of fees that Tilzers contracted to pay Davis and a determination of the reasonableness of those fees. In that event, the aggregate settlement issue was only relevant, if at all, to the question of whether Tilzers were entitled to an offset against Davis' attorney's fee lien based on malpractice. If the Missouri court was declining to rule on the malpractice claim, it had no reason to reach the subissue within that claim regarding any violations of the disclosure requirements of Rule 4-1.8(g). In other words, the ruling on the aggregate settlement issue was gratuitous and unnecessary to the decision rendered on the attorney's fee lien.

Perhaps more fundamentally, Rule 4-1.8(g) is a rule of professional conduct defining an unethical conflict of interest for an attorney representing two or more clients in a particular action. It is not a statutory provision governing the validity of settlement agreements, i.e., rendering aggregate settlements unlawful as a matter of law. Indeed, if all of the plaintiffs in the Missouri lawsuit had been represented by separate counsel, Rule 4-1.8(g) would not have applied, regardless of the terms of the settlement.

Likewise, compliance with the ethical rule is not necessarily a condition precedent to the enforcement of an attorney's fee lien. The preamble to the Kansas Rules of Professional Conduct (KRPC) Rule 226 (2008 Kan. Ct. R. Annot. 391) explains the scope and function of the rules, clarifying that an ethical violation does not establish a per se claim for malpractice:

"Violation of a Rule should not itself give rise to a cause of action against a lawyer nor should it create any presumption in such a case that a legal duty has been breached. In addition, violation of a Rule does not necessarily warrant any other nondisciplinary remedy, such as disqualification of a lawyer in pending litigation. The Rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for civil liability. Furthermore, the purpose of the rules can be subverted when they are involved by opposing parties as procedural weapons. The fact that a Rule is a just basis for a lawyer's self-assessment, or for sanctioning a lawyer under the administration of a disciplinary authority, does not imply that an antagonist in a collateral proceeding or transaction has standing to seek enforcement of the rule." KRPC (Preamble-Scope) 2008 Kan. Ct. R. Annot. at 395.

Likewise, this court has opined:

"An attorney's violation of the ethics rules cannot create a cause of action to adverse litigants or even to clients. This is because the ethics rules do not impose a legal duty on the attorney owing to either a client or a third party. Occasionally, attorney conduct which violates an ethics rule may also violate an independent legal duty and a cause of action may ensue. It is the violation of the independent legal duty, not the ethics rule, that gives rise to a cause of action." OMI Holdings, Inc. v. Howell, 260 Kan. 305, Syl. ΒΆ 1, 918 P.2d 1274 (1996).

Thus, even in the Kansas malpractice action, a finding that Davis violated Rule 4-1.8(g) is unnecessary. Obviously, the Missouri action was not an attorney disciplinary proceeding, and an interpretation of the applicability of the ethical rules was not required. Accordingly, the Kansas district court erred in applying the doctrine of collateral estoppel.

Finally, the court found that an order sealing the settlement terms was proper:

The overarching theme of Tilzers' impassioned argument on this issue appears to be that the public has a right to know that the pharmaceutical companies orchestrated an illegal settlement of a highly publicized and emotional case. Tilzers are in the wrong venue to make that argument. This is a legal malpractice action, where the most that will be established is that Tilzers' own former attorneys breached a legal duty by laboring under a conflict of interest among several clients involved in a single settlement agreement. The legality of the pharmaceutical companies' actions in proposing the settlement will not be implicated in any manner. Judge Wells' ruling that the settlement agreement was legal and valid will not be overturned. In short, Tilzers should have attempted to shine the light of public scrutiny upon the Missouri proceedings, rather than attempt to circumvent the Missouri court's protective orders in this Kansas proceeding.

(Mike Frisch)

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