Wednesday, February 25, 2015
The Wisconsin Supreme Court has held that an insurance company is not obligated to defend a legal malpractice suit where the attorney fails to (as required by the insurance contract) to notify the carrier during the coverage period.
The basic facts
Melissa and Kenneth Anderson sued their former attorney, Thomas Aul, for legal malpractice. Wisconsin Lawyers Mutual Insurance Company (WILMIC), Attorney Aul's professional liability insurer, intervened in the lawsuit. WILMIC sought summary judgment declaring that the insurance policy it issued to Attorney Aul did not cover the Andersons' claim.
The WILMIC insurance policy provides coverage for those "claims that are first made against the insured and reported to the [insurance company] during the policy period" (emphasis added). This type of policy is commonly known as a claims-made-and-reported policy.
Wisconsin's notice-prejudice statutes, Wis. Stat. §§ 631.81(1) and 632.26(2) (2011-12), provide that an insured's failure to furnish timely notice of a claim as required by the terms of a liability policy will not bar coverage unless timely notice was "reasonably possible" and the insurance company was "prejudiced" by the delay...
The parties agree that the Andersons' claim against Attorney Aul was first made during the policy period, that Attorney Aul did not report the claim during the policy period, and that reporting the claim during the policy period was reasonably possible. They dispute whether the WILMIC policy's requirement that claims be reported during the policy period is governed by the notice-prejudice statutes and also whether WILMIC was prejudiced by Attorney Aul's failure to report the claim during the policy period.
Chief Justice Abrahamson held
the benefits to insurance companies and insureds of claims-made-and-reported policies, the statutory history underlying Wisconsin's notice-prejudice statutes, the persuasive authority of other courts that have decided the question presented by this case, and the unreasonable results a contrary holding would produce persuade us that Wisconsin's notice-prejudice statutes permit an insurance company to deny coverage without a showing of prejudice when an insured fails to report a claim within a claims-made-and-reported policy period.
The clients who sued lose out
from the Andersons' vantage point, they have been victimized twice: first by Attorney Aul's malpractice and now by his failure to comply with his malpractice insurance policy's reporting requirement. We reach a harsh result, but one we have determined the law requires. We conclude that the legislature did not intend to rewrite the fundamental terms of the WILMIC insurance policy or to make the strict reporting requirement underlying claims-made-and-reported policies unenforceable in this state.
Justice Ziegler, joined by three colleagues, concurred
Although I reject the lead opinion's consideration of "consequences of alternative interpretations," I agree with the lead opinion's conclusion that the notice-prejudice statutes, by their plain meaning, do not apply to the reporting requirement at issue. I also agree with the lead opinion's conclusion, consistent with that plain meaning, that applying these statutes to the reporting requirement at issue would produce unreasonable results. I join that conclusion only to the extent that it can be construed as engaging in a plain-meaning analysis of these unambiguous statutes. This writing is intended make clear the majority opinion of the court.
For the foregoing reasons, I respectfully concur.
Tuesday, February 24, 2015
A recent decision of the Connecticut Supreme Court deals with charging liens in domestic relations matters
The plaintiff, Ralph Olszewski, challenges the Appellate Court’s conclusion that equitable charging liens are permissible in marital dissolution actions in Connecticut. He claims that they are barred by the Rules of Professional Conduct, they are not supported by Connecticut precedent, and the public policy considerations that justify equitable charging liens in other contexts do not apply in marital dissolution actions. The defendants Carlo Forzani and Carlo Forzani, LLC. respond that equitable charging liens against marital assets are permissible in Connecticut because the Rules of Professional Conduct specifically provide for charging liens, the rules do not preclude the use of charging liens in marital dissolution actions, and public policy considerations support their use in domestic relations matters. We agree with the plaintiff and reverse the judgment of the Appellate Court.
in the eight jurisdictions in which the court explicitly held or determined that an attorney’s charging lien could be enforced against an award of alimony and/or child support, the courts in five jurisdictions based their holdings on statutory authority rather than the common law. Id., §§ 4a and 4b, pp. 613–17. We therefore conclude that attorneys are not entitled by operation of law to equitable charging liens on marital assets for fees and expenses incurred in obtaining judgments for their clients in marital dissolution proceedings in Connecticut.
Friday, February 6, 2015
When you are representing a plaintiff suing former counsel for legal malpractice, you need to be careful to keep the case alive whenever possible.
The New York Appellate Division for the Second Judicial Department affirmed an order reinstating a legal malpractice case in which the claims were struck for discovery violations
A party seeking to vacate an order entered upon his or her failure to oppose a motion is required to demonstrate both a reasonable excuse for the default and the existence of a potentially meritorious opposition to the motion (see Bhuiyan v New York City Health & Hosps. Corp., 120 AD3d 1284; Garcia v Shaw, 118 AD3d 943; Oller v Liberty Lines Tr., Inc., 111 AD3d 903). The determination of what constitutes a reasonable excuse lies within the Supreme Court's discretion, and will not be disturbed if the record supports such determination (see White v Incorporated Vil. of Hempstead, 41 AD3d 709, 710). In making that discretionary determination, the court should consider relevant factors, such as the extent of the delay, prejudice or lack of prejudice to the opposing party, whether there has been willfulness, and the strong public policy in favor of resolving cases on the merits (see Oller v Liberty Lines Tr., Inc., 111 AD3d at 904; Fried v Jacob Holding, Inc., 110 AD3d 56, 60; Moore v Day, 55 AD3d 803, 804; Harcztark v Drive Variety, Inc., 21 AD3d 876, 876-877).
Here, the Supreme Court providently exercised its discretion in excusing the plaintiff's default based upon his counsel's excuse of law office failure (see CPLR 2004), given the minimal delay in moving to vacate the default, the lack of prejudice to the defendants, and the lack of any intent to abandon the action (see Moore v Day, 55 AD3d at 804) motion on the ground that the defendants failed to make a clear showing that the plaintiff's failure to comply with the defendants' discovery demands was willful and contumacious.
Thursday, February 5, 2015
The Nevada Supreme Court has held that a Nevada client of a Texas-based law firm cannot assert specific jurisdiction over the firm on claims arising out of investments in a San Antonio real estate venture.
Based on the evidence presented to the district court, we conclude that [client] Verano failed to make a prima facie showing that petitioners are subject to general or specific personal jurisdiction. In particular, we conclude that an out-of-state law firm that is solicited by a Nevada client to represent the client on an out-of-state matter does not subject itself to personal jurisdiction in Nevada simply by virtue of agreeing to represent the client. Moreover, because Verano's additional evidence of petitioners' Nevada contacts have no clear connection to Verano's causes of action against petitioners, we conclude that Verano failed to make a prima facie showing of personal jurisdiction.
The case is Fulbright & Jaworski v. Eighth Judicial District Court. (Mike Frisch)
Wednesday, February 4, 2015
The dismissal of a count alleging that a law firm was liable for engaging in a conflict of interest was ordered by the Delaware Superior Court for Sussex County.
According to the plaintiff, on May 28, 2013, Defendants represented Plaintiff in a transaction effectuating a mortgage in order to provide a third-party the funds to purchase a property. Defendants prepared a note to enable Plaintiff to mortgage her property for the benefit of Matthew Chasanov, Plaintiff’s grandson, and his wife, Lindsay Chasanov (collectively the “Chasanovs”).
The note, drafted by Defendants, did not include many of the standard provisions typical of a mortgage transaction. For example, the note lacked clauses for acceleration, amortization, attorney’s fees in the event of default, interest, and the signatures of the Chasanovs. The note was signed only by Plaintiff and her husband, Mathew Dickerson, resulting in their personal liability in the event of default.
Plaintiff agreed to complete the mortgage transaction with the understanding that the Chasanovs would make her mortgage payments. Upon completion of the transaction, the Chasanovs purchased a home together as husband and wife. Shortly thereafter, the Chasanovs defaulted after making only one payment on the note resulting in damages of approximately $148,000. Plaintiff subsequently filed the present suit against the Defendants.
The court held that the alleged ethical violation did not amount to a free-standing cause of action.
Even if an attorney failed to adequately represent clients with concurrent conflicting interest in accordance with the Rules, it is well-settled and “generally recognized that the intent of professional ethical codes is to establish a disciplinary remedy rather than to create civil liability."
The count alleging negligence was not dismissed. (Mike Frisch)
Saturday, January 31, 2015
The United States Court of Appeals for the District of Columbia Circuit affirmed the dismissal of a law firm's suit for fees.
In August 2010, Stephen R. Berry of Berry Law advised Kraft that it might have an antitrust claim worth tens of millions of dollars against News Corporation, News America Marketing FSI LLC, and News America Marketing In-Store LLC (collectively “News Corp.” or “News”). (All referenced facts come from the complaint.) The claim related to possible monopolization and tying in the “sale of in-store promotion services and free-standing-insert coupons placed in newspapers.” Kraft’s chief litigation counsel, Douglas Cherry, asked Berry for further legal analysis of the possible claim.
Berry Law then prepared a 42-page evaluation memorandum for Kraft’s top management analyzing liability and damages issues. Berry alleges that he completed that memo by November 10, 2010. At about the same time, Cherry noted that the matter was “moving pretty fast” and that he wished to brief Kraft’s general counsel about the matter. The complaint says that “upon information and belief, [the evaluation memorandum] was forwarded at the very least to Kraft’s General Counsel in early 2011.” It was presumably Cherry who did the forwarding.
In response to an email from the law firm seeking a fee agreement, Kraft's counsel stated in part
we have never paid for that work as far as I know for any outside counsel.
The firm later claimed fees due in an amount over $191,000 on a theory of implied-in-fact contract,
To state a claim for breach of an implied-in-fact contract, Berry Law must plausibly allege that it rendered Kraft valuable services; that Kraft accepted, used, and enjoyed those services; and that the circumstances “reasonably notified” Kraft that Berry “expected to be paid” by Kraft...
Kraft told Berry that it would not compensate him for work completed prior to management approval. No compensation is due where the “plaintiff did not contemplate a personal fee, or the defendant could not reasonably have supposed that he did.” Bloomgarden, 479 F.2d at 212. Rather, in view of Kraft’s unequivocally expressed position on preliminary work, Berry cannot reasonably have contemplated a fee for work completed before Kraft moved forward, nor could Kraft reasonably have known Berry contemplated any such payment. Instead, Berry completed the memorandum and other legal work in the hope that Kraft would retain him as counsel in the event that Kraft “moved forward.” Because Berry Law’s “services were rendered simply in order to gain a business advantage,” its quasicontract claim fails. Id. at 211.
Tuesday, January 27, 2015
The North Carolina Court of Appeals held that an attorney improperly withdrew from representation of a client in a termination of parental rights case
In the present case, the record is devoid of any evidence whatsoever that Respondent received any notice from her trial counsel that counsel would seek to withdraw from her representation at the start of the TPR hearing. When the court inquired whether she had any contact with Respondent, [counsel] Ms. Burke replied that she did not know why Respondent was absent, that she had a history of difficulty communicating with Respondent and did not have her telephone number, and that she believed Respondent might have been confused about her court dates. Ms. Burke did state that Respondent had shown up late to court earlier in the week for another matter in which Ms. Burke was representing Respondent, but she offered no elaboration as to what discussion, if any, they had about Respondent’s TPR hearing and the potential consequences that might follow if she failed to appear. The trial court then allowed Ms. Burke to withdraw without any further inquiry.
The court vacated the judgment and remanded for further proceedings. (Mike Frisch)
Thursday, January 15, 2015
The word "award" is not ambiguous, according to a recent opinion of the New York Appellate Division for the Second Judicial Department in affirming a decision not to award a portion of settlement proceeds to a law firm.
The respondents, previously represented by the plaintiff, had commenced a lawsuit against the Town of Riverhead and Suffolk County, and thereafter settled the action. The plaintiff commenced this action to enforce the contingency provision of the parties' retainer agreement. The retainer agreement provided for a contingency fee to be paid to the plaintiff "not to exceed twenty percent . . . of any award . . . granted." The respondents contended that the contingency fee provision was not applicable because no award had been granted; rather, the action had been discontinued pursuant to the terms of the settlement.
The Supreme Court correctly found that, pursuant to the plain language of the parties' retainer agreement, no contingency fee was owed to the plaintiff, as no "award" had been given to the respondents (citation omitted) The term "award" is clear and unambiguous and, in common parlance, does not include proceeds paid to purchase real property, whether to settle a lawsuit or otherwise (see Black's Law Dictionary 164 [10th ed 2014]). Moreover, the plain meaning of "award" is consistent with another provision of the parties' retainer agreement which provided that, upon any settlement of the matter, the plaintiff was to be compensated on an hourly basis.
The attorneys may still prove up entitlement to fees on a hourly basis. (Mike Frisch)
Monday, January 12, 2015
An order of a Superior Court judge that compelled a law firm to produce a cellular telephone has been reversed by the Massachusetts Supreme Judiial Court.
The Commonwealth had contended that the cell phone was given to the firm by a client for the purpose of seeking legal advice and that it contained text messages that were evidence of the crime that was under investigation by the grand jury.
The full court disagreed with the trial court that the privilege of self-incrimination could be overcome by a showing of probable cause. (Mike Frisch)
Wednesday, November 19, 2014
The Montana Supreme Court affirmed the grant of summary judgment to the defendant in a legal maplractice case.
The pro se plaintiff sought a modest $12 million in damages but failed to identify an expert and gave insufficient responses to discovery requests.
Wylie’s complaint against Balaz was over forty pages long and asked for millions of dollars in damages. The District Court found, however, that the complaint “contains no discernable facts in support of her allegations of legal malpractice” and that Balaz’s discovery requests were “appropriate questions” in a legal malpractice case. Any party to civil litigation has an obligation to provide required responses to discovery requests, and yet after almost a year and an order from the District Court, Wylie did not answer “the most basic discovery requests to show that she had any evidence in support of her claim.” Wylie simply re-served her first incomplete and inadequate discovery responses, but included additional material that the District Court described as a “hodgepodge of sheets of paper that are not identified in any way, not specifically referenced to any discovery answers, and all of which are totally incomprehensible.”
Monday, November 10, 2014
The South Carolina Court of Appeals has found ineffective assistance of counsel in a case where the defendant was not advised of a ten-year plea offer before going to trial and getting twenty.
In this case, trial counsel testified the plea offer was for ten years imprisonment. Bell was sentenced to twenty years' imprisonment. The difference is evidence of his prejudice. See id. (concluding the difference in the sentence received and the plea offer was proof of prejudice). Furthermore, Bell testified he would have taken the State's plea offer had trial counsel told him about it, and the PCR court found Bell's testimony credible. Although self-serving, the statement is also evidence supporting the PCR court's finding of prejudice. See id. at 613, 675 S.E.2d at 422 ("[D]epending on the facts of the case, a defendant's self-serving statement may be sufficient to establish actual prejudice."). Deferring credibility matters to the PCR court, we find evidence to support the finding. See Simuel, 390 S.C. at 270, 701 S.E.2d at 739 ("This [c]ourt gives great deference to a PCR judge's findings where matters of credibility are involved.").
The offense was armed robbery. (Mike Frisch)
Friday, October 31, 2014
The South Dakota Supreme Court affirmed and reversed in part and remanded a trial court grant of summary judgment to the defendants in a legal malpractice case.
The case involved a conflict of interest claim against a law firm that had represented three defendants in litigation over bee sites. The plaintiff here was a beekeeper.
The representation had broken down when the other clients wished to settle. The opposing party insisted that all of the clients settle or none could but the plaintiff here balked.
The trial court erred in excluding the plaintiff's expert witness, then a partner of a Minneapolis law firm and now a justice of the Minnesota Supreme Court.
Analyzing the facts in this case, in regard to the conflicted representation claim, we note that [expert winess] Lillehaug wrote in his expert report that "the applicable standard of care is consistent with, and well stated by, Rule 1.7." He noted how South Dakota’s Rules of Professional Conduct Rule 1.7 is identical to the American Bar Association’s Model Rules of Professional Conduct Rule 1.7. Then, during his deposition, Lillehaug testified that a national standard of care applied to legal ethics...
The Court noted that "in many cases locality is not relevant to the application of the standard of care." Thus, the expert testimony should have been allowed.
Further, the court found that the trial court improperly weighed the evidence in granting summary judgment to the defendants.
Chief Justice Gilbertson dissented and would retain the locality rule as a consideration in qualifying a legal malpractice expert witness:
The Court’s decision today to remove the consideration of locality from the expert witness qualification process is unnecessary and limits a circuit court’s ability to ensure that expert witnesses do, in fact, possess heightened expertise on whatever issue they are called upon to explain. Simply declaring that we apply a state or national standard does not actually remove the local legal peculiarities that attorneys in this state must handle on a daily basis. For the above reasons I would retain the locality rule.
A thought: perhaps the law of representing multiple clients in bee site matters is a localized issue.
Then again, perhaps not.
In any event, law professors would have to give the attorneys here a bee grade. (Mike Frisch)
Wednesday, October 29, 2014
South Carolina now recognizes that a beneficiary of a will or trust may sue the attorney for drafting errors:
Erika Fabian (Appellant) brought this action for legal malpractice and breach of contract by a third-party beneficiary, alleging attorney Ross M. Lindsay, III and his law firm Lindsay & Lindsay (collectively, Respondents) made a drafting error in preparing a trust instrument for her late uncle and, as a result, she was effectively disinherited. Appellant appeals from a circuit court order dismissing her action under Rule 12(b)(6), SCRCP for failure to state a claim and contends South Carolina should recognize a cause of action, in tort and in contract, by a third-party beneficiary of a will or estate planning document against a lawyer whose drafting error defeats or diminishes the client's intent. We agree, and we reverse and remand for further proceedings.
The court's reasoning
Recognizing a cause of action is not a radical departure from the existing law of legal malpractice that requires a lawyer-client relationship, which is equated with privity and standing. Where a client hires an attorney to carry out his intent for estate planning and to provide for his beneficiaries, there is an attorney-client relationship that forms the basis for the attorney's duty to carry out the client's intent. This intent in estate planning is directly and inescapably for the benefit of the third-party beneficiaries. Thus, imposing an avenue for recourse in the beneficiary, where the client is deceased, is effectively enforcing the client's intent, and the third party is in privity with the attorney. It is the breach of the attorney's duty to the client that is the actionable conduct in these cases.
In these circumstances, retaining strict privity in a legal malpractice action for negligence committed in preparing will or estate documents would serve to improperly immunize this particular subset of attorneys from liability for their professional negligence. Joining the majority of states that have recognized causes of action is the just result. This does not impose an undue burden on estate planning attorneys as it merely puts them in the same position as most other legal professionals by making them responsible for their professional negligence to the same extent as attorneys practicing in other areas.
We recognize a cause of action, in both tort and contract, by a third-party beneficiary of an existing will or estate planning document against a lawyer whose drafting error defeats or diminishes the client's intent. Recovery under either cause of action is limited to persons who are named in the estate planning document or otherwise identified in the instrument by their status. Where the claim sounds in both tort and contract, the plaintiff may elect a recovery. We apply this holding in the instant appeal and to cases pending on appeal as of the date of this opinion. As a result, we reverse the order dismissing Appellant's complaint and remand the matter to the circuit court for further proceedings consistent with this opinion.
There are concurring and concurring/dissenting opinions. (Mike Frisch)
Friday, October 24, 2014
A law firm was entitled to its legal fees, notwithstanding errors made by its original counsel, according to a decision of the New York Appellate Division for the First Judicial Department:
The motion court properly concluded that the varying figures given by R & M during this litigation, as to the total outstanding fees due, did not undermine R & M's prima facie case for an account stated, inasmuch as the discrepancies were plainly attributable to the incompetence of its original attorney in drafting the motion papers on its previous motions for summary judgment, which, inter alia, did not include R & M's complete billing invoices from the past, and records of off-sets that the parties had agreed to. The monthly invoices and records - the timely receipt of which Sakow never disputed - were never challenged by Sakow as to accuracy or reasonableness until the instant litigation was commenced years later. Such circumstances, including that Sakow continued to make payments towards the total fees accrued and billed, without reservation, belie the belated challenges to the reasonableness of the invoiced fees...
The record reflects that R & M represented Sakow on many legal matters since 1989, and that R & M would send regular, detailed monthly invoices to account for the fees claimed. The record also demonstrates that Sakow never denied receipt of invoices supporting the "balance forward" figure referenced in the March 7, 2002 invoice, that no objection was raised as to such invoices, and that Sakow continued to make regular payments towards the invoices.
Tuesday, October 21, 2014
The New Mexico Court of Appeals has reversed a favorable ruling to the defendant in a legal malpractice case
Roland Lucero and his company, R & L Straightline Tile, (collectively, Plaintiff) appeal from a judgment entered in favor of Defendant Richard Sutten following a bench trial on the issue of legal malpractice. The district court found that Defendant negligently failed to apprise Plaintiff of the dangers of providing an unsecured $300,000 loan to a Las Vegas development company. However, the district court applied the doctrine of independent intervening cause, a defense that had not been previously raised in Defendant’s proposed findings prior to trial, and concluded that the real estate market collapse of the mid-to-late 2000s severed the connection between Defendant’s professional negligence and Plaintiff’s damages claimed therefrom. On appeal, Plaintiff argues that the district court erred in applying the doctrine of independent intervening cause to these facts. We agree. We reverse and remand for consideration of damages in light of this Opinion.
The district court should not have dismissed this case but, instead, it should have determined whether Defendant’s negligence was the proximate cause of Plaintiff’s loss and, if applicable, employed a standard comparative fault analysis.
Monday, October 13, 2014
The Delaware Supreme Court affirmed the grant of summary judgment to the defendants in a legal malpractice case.
As often occurs, the malpractice was alleged in response to a claim of unpaid legal fees.
Notably, the court dealt with the problem of the out-of-state expert witness.
The plaintiff had used a New Jersey attorney as its expert.
The court held that use of such an expert is not a deal breaker. However, it must be established that the proferred expert is "well acquainted and conversant" in the local standard of care for attorneys.
A "bridging expert" (not an expert on bridges) can provide the necessary link, but was not provided by the plaintiffs here. (Mike Frisch)
Thursday, October 9, 2014
The Washington State Supreme Court has addressed two questions of first impression in the jurisdiction in legal malpractice cases.
First, the court held that the uncollectibility of the judgment in the underlying action is an affirmative defense that the defendant attorney must plead and prove. The court rejected the view that collectibility was an element of the tort for which the former client has the burden of proof.
Second, the court found that emotional distress damages were not available under the facts of the case.
The underlyng case was a slip-and-fall. The attorney had filed suit shortly before the statute of limitations ran but named the wrong defendant.
Subsequent efforts to revive the case failed. (Mke Frisch)
Wednesday, October 1, 2014
When lawyers sue their former clients for unpaid fees, the result often is a return volley alleging legal malpractice.
The New York Appellate Division for the First Judicial Department dealt with such a situation in a decision issued yesterday.
The former client
The Dille Family Trust (the Trust), of which defendant is trustee, owned trademarks and copyrights for "Buck Rogers." Two of the Dille family members are beneficiaries of the trust; their grandfather's syndicate had obtained the Buck Rogers trademark and copyrights. The syndicate had hired Philip Nowlan to create comic strips based on the character, and his heirs started cancellation proceedings to terminate the syndicate's trademark rights and obtain the rights for themselves. The beneficiaries of the Trust retained plaintiff law firm to handle intellectual property matters, including the cancellation action.
The trial court erred in part
Contrary to the motion court's conclusion, there was a valid fee agreement between plaintiff and the Trust. The better practice would have been to send the engagement letter to the trustee, rather than only to the beneficiaries. However, the record, including email exchanges between the trustee and plaintiff, shows that the trustee was well aware of and approved of the beneficiaries' authority to act on the Trust's behalf with regard to plaintiff's retainer and representation (see Granato v Granato, 75 AD3d 434 [1st Dept 2010]). It is irrelevant that the original engagement letter was not signed by the client (see 22 NYCRR 1215.1[a]).
While the court found a triable dispute over the bill, the legal malpractice counterclaim failed
Regarding the legal malpractice counterclaim, assuming that plaintiff's conduct, in failing to complete a chain-of-title report or failing to resolve the underlying intellectual property disputes before withdrawing, amounts to negligence, the Trust failed to demonstrate causation. The Trust failed to show how it would have successfully opposed the underlying trademark cancellation proceeding, or would otherwise have protected its intellectual property rights, but for plaintiff's omissions.
In addition, the resulting inability to efficiently market the trademarks is too speculative to constitute the "actual ascertainable damages" required to support the malpractice counterclaim.
Beneficiary Flint Dille's bare allegation that he and plaintiff had agreed to a $25,000 fee cap is unsupported in the engagement letter sent to Dille listing an hourly rate or by anything else in the record, and therefore cannot establish a legal malpractice counterclaim. (citations omitted)
Monday, September 22, 2014
The dismissal of a legal malpractice claim was affirmed by the New York Appellate Division for the First Judicial Department
Plaintiff David Lichtenstein owns and manages real estate through his entities, plaintiffs The Lightstone Group, LLC and Lightstone Holdings, LLC. In 2007, Lichtenstein and a consortium of investors purchased Extended Stay, Inc. (ESI), which owns and manages hotels. Most of the purchase price was financed through a combination of $4.1 billion in mortgage loans to ESI and $3.3 billion in 10 mezzanine loan tranches to its subsidiaries. As part of the loan transaction, Lichtenstein and Lightstone Holdings executed 11 guarantees that subjected them to $100 million in personal liability in the event of particular "bad boy" acts which included the voluntary filing of a bankruptcy petition by ESI. Lichtenstein managed ESI and became its president, CEO and chairperson. The majority of ESI's board of directors was comprised of Lichtenstein and representatives of entities he controlled.
The following year, ESI was faced with a liquidity crisis as its financial situation declined. ESI retained nonparty Weil, Gotshal & Manges as its restructuring counsel. As stated in the complaint, Weil Gotshal could not represent both ESI and Lichtenstein. As further alleged in the complaint, Lichtenstein retained Wilkie Farr in December 2008, "to advise and represent [him] in his role as an officer and director of ESI, particularly as to the liability of him and his entities in any restructuring, as well as to advise and represent affiliates of the Lightstone Group regarding their interests in ESI." Acting as ESI's counsel, Weil Gotshal recommended that ESI file for bankruptcy and advised that its board members, including Lichtenstein, were obligated as fiduciaries to achieve that result. Plaintiffs allege that their counsel, Willkie Farr, embraced Weil Gotshal's position although it was allegedly erroneous and would have exposed plaintiffs to $100 million in liability on the guarantees.
According to the complaint, ESI's financial condition continued to deteriorate, leaving Lichtenstein with a choice to either a) have the company file for bankruptcy, exposing Lichtenstein to liability on the guarantees or, "b) seek an alternative, including to refuse, or at least delay, and force the Lenders' hand to file a petition for involuntary bankruptcy or foreclose on the collateral (in which case Lichtenstein would risk a lawsuit under a breach of fiduciary claim [sic])." The complaint further alleges that Willkie Farr insisted that Lichtenstein had a fiduciary obligation to put ESI into bankruptcy for the benefit of the lenders. Willkie Farr warned that Lichtenstein otherwise faced the prospect of unequivocal and uncapped personal liability in any subsequent action by the lenders absent a bankruptcy filing by ESI. Before having ESI file for bankruptcy, Lichtenstein offered to surrender the collateral to the lenders as a group. Some of the lenders, however, balked and went to court to block any such surrender in what plaintiffs describe as a likely effort to force ESI into voluntary bankruptcy and trigger the "bad boy" guarantee. On Willkie Farr's advice, Lichtenstein caused ESI to file its bankruptcy petition on June 15, 2009. The lenders brought actions on the guarantees and a judgment was subsequently entered against Lichtenstein and Lightstone Holdings in the sum of $100 million.
This action was filed in June 2012. In making the instant motion to dismiss, Willkie Farr argued that its advice was reasonable and consistent with controlling Delaware law which imposed upon Lichtenstein, a director of an insolvent corporation, a fiduciary duty to maximize the company's long-term value for the benefit of its creditors and other constituencies such as equity holders and employees. Willkie Farr further asserted that the complaint is deficient because it does not allege that absent ESI's bankruptcy filing, Lichtenstein's liability would not have been triggered. The motion court granted Willkie Farr's motion, finding that the complaint contains no allegation of a failure "to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession which results in actual damages to plaintiff" (see Ambase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 434 ). We affirm.
There is no merit to plaintiffs' argument that Willkie Farr overlooked the availability of an equitable defense under the doctrine of in pari delicto. By operation of the doctrine, the position of a party defending against a claim is better than that of the party asserting the claim in a case of equal or mutual fault (see In re Oakwood Homes Corp., 389 BR 357, 365 [D Del 2008], affd 356 F Appx 622 [3rd Cir 2009]). Here, plaintiffs argue that the lenders could have been faulted for structuring the loan transactions in a way that prevented ESI from declaring bankruptcy. Plaintiffs' argument is flawed because they allege no wrongdoing that the lenders...
Monday, September 15, 2014
The Massachusetts Supreme Judicial Court affirmed the grant of summary judgment to the defendants in a legal malpractice claim.
The client was a medical doctor who had an employment issue. The basis of the malpractice was the allegation that the defendants had mishandled the opposition to a motion to compel arbitration.
We conclude that it is not malpractice to fail to advocate for or anticipate a substantial change in law requiring the overruling of a controlling precedent...Neither a reasonably competent lawyer nor a reasonably competent employment law specialist commits malpractice by failing to anticipate or advocate for the overruling of an established employment law precedent.
The court also rejected the breach of fiduciary duty claim with respect to the withdrawal from the representation
As demonstrated by the e-mail [client] Minkina sent to the partners of RPS, the attorney-client relationship had broken down here. She had accused her primary counsel at the small firm handling her case of gross negligence that had cost her thousands of dollars. She accused this same lawyer of being more concerned with defense counsel interests than Minkina's own interests. She complained about the performance, or lack thereof, of other counsel in the firm as well. She undisputedly did not trust or have confidence in her principal lawyer or the other lawyers who had assisted her in the litigation. As the OBC found, this breakdown in the relationship justified the withdrawal of the representation. We agree.
As noted above, the client filed a bar complaint that did not lead to findings of misconduct. (Mike Frisch)