Tuesday, May 26, 2009
Posted by Alan Childress
Thanks are owed again to the generosity of the AALS Section on Professional Responsibility, both for the time and effort it took to write such a truly newsy newsletter (its helpful features extolled in our previous posts here and here) and for allowing us to link to it. You can find it in pdf here: Download AALSSPRING2009. Thanks especially to Randy Lee at Widener, its general editor, and Laurel Terry at Penn State, the section chair this year (who writes about the members' new website), as well as all the scholarly contributors from various schools.
The New York Appellate Division for the First Judicial Department affirmed the denial of a motion by a law firm defendant in a legal malpractice case for access to materials protected by the plaintiff's attorney-client privilege:
This legal malpractice action arises from defendant's allegedly negligent advice in regard to [plaintiff] Nomura's formation of the so-called D5 Trust, a securitized pool of 156 mortgage loans totaling $1.8 billion which closed in October 1997. The transaction was to be compliant with the Internal Revenue Code's Real Estate Mortgage Investment Conduit (REMIC) regulations. In November 2000, after several of the loans experienced difficulty, the trustee of the D5 Trust sued Nomura in federal court (the Doctor's Hospital Action), alleging that, contrary to defendant's advice and opinion rendered to Nomura, one of the mortgage loans to Doctor's Hospital of Hyde Park, Illinois did not comply with the REMIC regulations. Specifically, the trustee alleged breach of Nomura's warranties that such mortgage loan was REMIC qualified and that the borrower's real property had a fair market value of at least 80% of the principal amount of the mortgage loan.
Defending the position that the Doctor's Hospital loan was a qualified mortgage for REMIC purposes, Nomura successfully moved for summary judgment (LaSalle Bank N.A. v Nomura Asset Capital Corp., 2004 US Dist LEXIS 18599 [SDNY 2004]). However, on appeal, the Second Circuit reversed in part and remanded the matter to determine whether the loan was, in fact, 80% secured (424 F3d 195 ). As a result, Nomura alleges that, because of defendant's erroneous advice that such mortgage loan was REMIC qualified, it was "left with no viable alternative but to settle the Doctor's Hospital Action for approximately $67.5 million prior to trial" and seeks to recover the amount of the settlement.
We find no merit to defendant's argument that privileged materials relating to and created after commencement of the Doctor's Hospital Action have been put "in issue" by this litigation and are therefore discoverable. Such argument fails to recognize that nothing that plaintiff's attorneys could have said or done in the prior lawsuit could have possibly affected plaintiff's reliance on defendant's allegedly erroneous advice given years earlier in connection with the formation of the D5 Trust. " At issue' waiver of [the attorney-client] privilege occurs where a party affirmatively places the subject matter of its own privileged communication at issue in litigation, so that invasion of the privilege is required to determine the validity of a claim or defense of the party asserting the privilege, and application of the privilege would deprive the adversary of vital information" (Deutsche Bank Trust Co. of Ams. v Tri-Links Inv. Trust, 43 AD3d 56, 63 ). While any communications between plaintiff and its attorneys in the Doctor's Hospital Action that evaluated defendant's prior advice in the allegedly bungled D5 Trust transaction are certainly relevant to the issue of defendant's alleged malpractice, plaintiff disavows any intention to use such communications and defendant fails to show that any such communications are necessary to either plaintiff's claim or its defense (see id. at 64 [relevance alone insufficient to put privileged materials "at issue"; "if that were the case, a privilege would have little effect"]; see also Veras Inv. Partners, LLC v Akin Gump Strauss Hauer & Feld LLP, 52 AD3d 370, 374 ). Nor does the question of the reasonableness of the settlement amount that plaintiff seeks to recover, without more, put plaintiff's privileged communications with its attorneys concerning the settlement "in issue" (Deutsche Bank, 43 AD3d at 57). No reason appears why the reasonableness of the settlement cannot be determined with the copious materials that defendant has already received, including otherwise privileged communications, dating from before the commencement of the Doctor's Hospital Action. We have considered defendant's other arguments and find them unpersuasive.
A decision today from the New York Appellate Division for the First Judicial Department:
Plaintiff, a member of Alliance Network LLC (a limited liability company), had standing to bring this derivative action alleging that the law firm and one of its partners representing the LLC and its managers in other litigation had a conflict of interest as a result of the managers' involvement and the partner's hidden financial interest in a competing project. The motion court correctly discerned the plain meaning of the company's operating agreement and the unambiguous governing Nevada statute (Nev. Rev Stat Ann § 86.483), in finding that plaintiff was not prohibited from bringing derivative claims and that resort to legislative history was unnecessary.
Plaintiff NAMA may also assert an individual claim against defendants as the attorneys for the LLC, because plaintiff has alleged, inter alia, that these defendants colluded with the managers of the LLC to drive NAMA from the underlying project.
The arbitration ruling denying disqualification of the attorneys at a preliminary stage of that proceeding does not preclude the disqualification claim. The doctrine of res judicata does not apply, absent a final adjudication on the merits. Nor does the doctrine of collateral estoppel conclusively bar plaintiff's claim, because the scope of the arbitral ruling is not entirely clear. Moreover, the issue in this action is particularly fact-laden and its resolution should await further factual development. We note, however, that the burden is on plaintiff, as the opponent of collateral estoppel, to demonstrate the absence of a full and fair opportunity to be heard in the arbitration (id.), and plaintiff failed to carry this burden. The allegations regarding defendants' obstruction of discovery also are not precluded because the claim in this action is not to obtain discovery, but to show how the attorneys allegedly committed misconduct in obstructing it.
However, the court should have granted a stay pursuant to CPLR 2201 in the interest of judicial economy. There are overlapping issues and common questions of fact, and the hearings in the arbitration, that began a year before the commencement of this action, are nearly complete. (citations omitted).
One of the difficult problems in applying disciplinary rules to professional lapses is determining whether litigations errors amount to ethical violations. In other words, is every act of potential legal malpractice an ethical violation?
In a recent report, an Arizona hearing officer recognized that there may be trial mistakes that do not amount to sanctionable behavior and recommended that most charges against the lawyer (other than failure to return the client file) be dismissed.
The accused lawyer had graduated from law school in 1988 after nearly twenty years as a paralegal. She then worked for various firms before going solo. She is highly respected, has never been the subject of a serious bar complaint and is 68 years old.
The lawyer represented a client whose survivors, after her death, had a claim against a "bed and board" healthcare facility and other defendants. The lawyer brought a wrongful death lawsuit on behalf of the surviving children. The case was assigned to a judge who kept to a strict schedule. There were problems in the case with uninsured defendants and with the health of the attorney's clients. The lawyer had attempted to respond orally to three motions in limine. The judge did not permit an oral response and treated the motions as conceded.
The judge (who seems like the kind of judge that makes me glad to be a law professor) would permit 12 trial days and kept "specific track of each party's allotted time." Time ran out on the lawyer and, as a result, she was not permitted to present a closing argument. As the judge said: "You [the lawyer] no longer have a voice in this trial." The judge's decisions were affirmed on appeal as not an abuse of discretion.
A settlement offer of $450,000 from the insured defendants was not accepted. Later, the same defendants and the plaintiffs settled for $350,000. The bar charged the attorney with failing to communicate the higher offer but those charges were rejected as unproven.
As to the charges of incompetence:
These disciplinary proceedings are not a substitute for a malpractice case...A lawyer's strategic decisions made in good faith are not necessarily malpractice. In the context of [this] case, the strategic decision made by [the attorney] in light of the trial judge's discretion are not necessarily ethical violations. Respondent's decisions may be considered by some as errors of judgement or negligent, but in these proceedings the proof required is clear and convincing. This Hearing Officer finds ethical violations have not been established.
The hearing officer recommends a censure and probation for two years for failing to timely provide the clients with the complete file. Her own testimony was that it was "shocking" that the file return took so lopng. (Mike Frisch)
Monday, May 25, 2009
A Louisiana attorney who had acted as counsel in a child custody matter while on inactive status failed to participate in the ensuing bar investigation and prosecution. The Disciplinary Board recommended disbarment for the violations. While noting that the harm of the unauthorized practice was aggravated by the importance of custody matters, the Louisiana Supreme Court characterized disbarment as "unduly harsh" and suspended the lawyer for a year and one day. (Mike Frisch)