Archive for April, 2011

More lawyers doing bad things

Thursday, April 28th, 2011

Interesting article in the Philadelphia Inquirer today about the problem of attorneys stealing money from elderly clients.  The professional liability and attorney ethics implications of the alleged conduct are obvious.   Under Rule of Professional Conduct 1.15 a lawyer cannot co-mingle a client’s funds with his own.  Rule of Professional Conduct 1.14 gives specific guidance on representing clients with diminished capacity.  Any such behavior is likely grounds for a breach of fiduciary duty claim as well as a professional liability claim.  In terms of legal malpractice avoidance, it is never a good idea to steal from little old ladies.  That is conduct frowned upon by judges and juries alike. 

The Inquirer article can be found at: http://www.philly.com/philly/business/20110428_Law_Review__Why_so_many_financial_crimes_against_elderly_go_unpunished.html

-Josh J.T. Byrne, Esquire

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It’s cold in here!

Tuesday, April 26th, 2011

The United States Court of Appeals for the District of Columbia Circuit recently upheld an injunction freezing most of an attorney’s assets in order to protect the plaintiff in a legal malpractice action against the attorney.  

This is a highly unusual move, but a closer reading of the allegations makes it clear why this happened.  According to the court’s memorandum opinion, the attorney entered into a business relationship with a client.  The client funded the business with approximately $3.5 million dollars.  The attorney then transferred $3.405 million into his personal accounts through interest free loans, not due until 2030 and 2040.  When the court finally ordered an accounting, only $522,000 was left.  The claims against the attorney included legal malpractice, breach of fiduciary duty and fraud. 

Obviously, if the claims against the attorney are true, then there was good reason for the court to believe the injunction was necessary to avoid further harm to the attorney’s client.   From a professional liability avoidance perspective, any attorney entering into a business relationship with a client should be very circumspect. 

(HT to the National Law Journal at law.com)  The court’s memorandum can be found at legaltimes.typepad.com/files/circuit_judgment.pdf

-Josh J.T. Byrne, Esquire

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Play Ball!

Tuesday, April 26th, 2011

Professional liability defense is not limited to the legal “arena” or the “courts” of law.  With the NBA and NHL playoffs in full swing, there is one team who is out of the NHL playoffs and into a court of law.  The ownership of Atlanta Thrashers, Atlanta Spirit LLC, has filed a legal malpractice action against its former attorneys, King & Spalding LLP, alleging $200 million in damages.

Plaintiffs, who also own the Atlanta Hawks basketball team, contend defendant, King & Spalding LLP, negotiated a “fatally flawed” contract which was subsequently declared unenforceable.  Defendant allegedly negotiated a contract on behalf of plaintiffs which prevented eight of the owners from buying out another co-owner’s interest in the basketball and hockey franchises.  As a result, plaintiffs were unable to sell the hockey franchise.

Plaintiffs also allege defendant also breached their fiduciary duties by representing plaintiffs in the buyout litigation, which arose out of the flawed contract.  Plaintiffs contend defendant failed to advise them of the potential malpractice claim that arose out of the contract and continued to represent plaintiffs after realizing the potential conflict.  The action is pending in the Fulton County Superior Court in Georgia.

With a looming court battle, both sides would probably welcome an NBA championship.  Let’s hope the Atlanta Hawks can help with that!�

The complete complaint can be found at:  http://www.bizjournals.com/atlanta/pdf/thrashers%20sue%20King%20Spalding.pdf

Danielle Graham, Esquire

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Preliminary Objections Granted on The Basis of Underlying Settlement

Wednesday, April 20th, 2011

Jeff McCarron and Danielle Graham of the Professional Liability group recently obtained a favorable result for a client in a legal malpractice action the Court of Common Pleas of Philadelphia.  The Court sustained preliminary objections in a matter arising out of a settlement agreement in a medical malpractice action and dismissed the matter with prejudice.  The Court ruled that an attorney could not be held liable for legal malpractice and breach of contract where a former client ratified a settlement agreement by signing the release and accepting the monetary benefits that flowed from the settlement agreement.  The Court further ruled that even if the former client could prove that she did not initially give authority to settle the action, her acceptance of the benefit precluded her from bringing an action against her attorney.

Danielle Graham, Esquire

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Tolling in Legal Malpractice Cases

Wednesday, April 20th, 2011

A panel of the Third Circuit has recently issued an opinion in which they found that whether or not the statute of limitations is tolled in a legal malpractice action is a question for the jury where an attorney told his client there was “nothing to worry about” and that a hearing “went well.”  Knopick v. Connelly is a legal malpractice action, arising out of an underlying legal malpractice action, arising out of a divorce. 

During the divorce proceedings, there was a hearing regarding Mr. Knopick’s wife’s knowledge of some of Mr. Knopick’s assets.  Mr. Knopick instructed his attorney, John Connelly, Jr., that there were four witnesses who could corroborate his claim that his wife knew about the assets.  The witnesses were never called, but in the ensuing months Mr. Connelly repeatedly told Mr. Knopick the hearing went well.  Thirteen months after the hearing, the court ruled against Mr. Knopick.

After the ruling against him, Mr. Knopick hired Philip A. Downey, who allegedly agreed to represent him in an action against Mr. Connelly.  Mr. Downey subsequently sent Mr. Knopick a letter terminating his representation, and stating that there was no case against Mr. Connelly because the statute of limiations had run before Mr. Knopick hired Mr. Downey.  Mr. Knopick then brought a malpractice action against Mr. Downey. 

Judge Rambo of the Middle District of Pennsylvania  ruled in Mr. Downey’s favor, stating that. based on the occurrence rule, the statute of limitations against Mr. Connelly began to run at the time of the hearing.  The Third Circuit, in an opinion authored by Judge Greenway, Jr., disagreed finding there was “a genuine issue of fact as to when Knopick should have known of his injury and its cause under the discovery rule.”  The action has been remanded for further proceedings.

What can be learned in terms of legal malpractice avoidance from this case?  The most obvious lesson is to document your efforts to locate and speak to, if not produce, witnesses your client has identified (or your reasons not to).  Secondly, honest communication with your client is always important, both for professional liability avoidance and under the Pennsylvania Rules of Professional Conduct (Rule 1.4 “Communication”).  Third, remember that the statute of limitations is important in legal malpractice defense, but frequently there are grey areas with respect to its application.

The Third Circuit’s opinion can be found at: http://scholar.google.com/scholar_case?case=1966705122462794473&hl=en&as_sdt=2&as_vis=1&oi=scholarr

-Josh J.T. Byrne, Esquire

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One step ahead of the Ambulance Chaser

Tuesday, April 19th, 2011

Michael Wolf, a Montgomery County attorney, has been charged as part of a large insurance fraud scheme, in which a police officer would refer automobile accident victims to a particular collision repair company in exchange for a kickback.  The Philadelphia Inquirer reports that the lawyer advised the collision repair company on the fraud, and filed “several” phony personal injury claims related to the overall fraud. 

There are some malpractice avoidance/attorney ethics basics that can be learned from this.  First of all, it is not wise to counsel your clients on how to perpetrate a fraud.  Pursuant to Pennsylvania Rule of Professional Conduct 1.16, a lawyer “shall not represent a client” or shall withdraw from representation if “the representation will result in a violation of the Rules of Professional Conduct or other law.”   Secondly, it is not wise to file “phony” lawsuits.  Aside from the legal ramifications, Rule of Professional Conduct 3.1 allows lawyers to bring an action only if there “is a basis in law and fact for doing so. . .”  As well, Rule 3.3 requires that a lawyer shall not knowingly “make a false statement of material fact” to a tribunal.  Suffice it to say that if the allegations against Mr. Wolf are true, he will be answering to the Disciplinary Board for a number of reasons!  The Inquirer’s article can be found at: http://www.philly.com/philly/news/breaking/20110419_Cop__lawyer__charged_in_car_insurance_fraud_scheme.html

The Pennsylvania Rules of Professional Conduct can be found at:  http://www.padisciplinaryboard.org/rules/index.php

-Josh J.T. Byrne, Esquire

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Who can sue a defense lawyer?

Monday, April 18th, 2011

In these tight financial times, insurance companies continue to look for ways to recoup their losses.  Legal malpractice claims based upon equitable subrogation or assignments of rights are becoming more frequent.  The Mississippi Court of Appeals, ruling in a very unsettled area of the law, recently found that an excess insurer could sue its insured’s lawyers for malpractice via equitable subrogation.  The Mississippi Court includes a nice discussion of the various approaches taken by states, including those that have allowed such actions (Missouri, Illanois, Texas, and New York), and those which have disallowed such claims (Arkansas, Connecticut, Colorado, Indiana, Michigan, and Kentucky).  This is an expanding area for the professional liability defense practitioner with no consensus as to approach.  The Mississippi Court’s decision can be found at: http://scholar.google.com/scholar_case?case=11060583457752172546&hl=en&as_sdt=2&as_vis=1&oi=scholarr

-Josh J.T. Byrne, Esquire

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Requiring Impropriety

Monday, April 11th, 2011

There has been a longstanding debate over an ambiguity in Pennsylvania’s Wrongful Use of Civil Proceedings Statute, 42 Pa.C.S.A. § 8351.  Section 8351 provides:

(a)       A person who takes part in the procurement, initiation or continuation of civil proceedings against another is subject to liability to the other for wrongful use of civil proceedings:

(1)       He acts in a grossly negligent manner or without probable cause and primarily for a purpose other than that of securing the proper discovery, joinder of parties or adjudication of the claim in which the proceedings are based; and 

(2)       the proceedings have terminated in favor of the person against whom they are brought.

The ambiguity is found in section (a)(1) which lacks any comma to tell us what the clause regarding bringing an action “primarily” for an improper purpose modifies.  Does the statute require a showing of improper purpose only if the action is based upon a lack of probable cause, or do you also have to show improper purpose if you are alleging gross negligence?  A number of commentators have suggested that unless you only have to show improper purpose for a lack of probable cause case, there is no functional difference between “lack of probable cause” and “gross negligence.”  I have previously argued that it is a more natural reading of statute to require improper purpose in all wrongful use of civil proceedings cases.  Although a number of cases have touched upon this issue, there has been no clear statement by the Superior or Supreme Courts in Pennsylvania.

Judge Bernstein, of the Philadelphia Court of Common Pleas, has now weighed in.  In a wrongful use of civil proceedings matter Winner Logistics, Inc v. Labor & Logistics, Inc et al), the jury indicated it had found: 1) The attorney defendants did not initiate, or continue the underlying lawsuit for a purpose other than that of securing the proper discovery, joinder of parties or adjudication of the claims on which the proceedings were based; and 2) The defendant attorneys did not reasonably believe in the existence of the facts upon which the claim was based.  The jury indicated that it could not reach a consensus on whether the attorneys were grossly negligent.  Over plaintiff’s protestations that gross negligence without improper purpose could support a finding of wrongful use of civil proceedings, Judge Bernstein entered recorded the verdict as a defense verdict, and dismissed the jury. 

Judge Bernstein’s opinion states, “Neither the text, structure, legislative intent nor legislative history supports the theory that a lawyer who loses a case may be sued by the winning party for any ‘gross negligence’ in the conduct of the litigation.”  Judge Bernstein continues, “This interpretation transmogrifies the Dragonetti Act into a civil post conviction relief act with potentially dire financial consequences for any attorney who unfortunately loses a case.”  Summing up, Judge Bernstein states:

 

Giving effect to all the words in the statute, the only reasonable reading of § 8351 is to interpret the “improper purpose” clause as modifying both “in a grossly negligent manner” and the “probable cause” clause. The word “and” which appears in the statute after the clause “without probable cause” is a conjunction connecting each element of the former clause “in a grossly negligent manner or without probable cause” clause to the latter “improper purpose” clause.

 

This clear statement sets up an appeal which may decide this ambiguity once and for all.  The opinion can be found on the Philadelphia Court’s Facebook page (who knew?) at: https://www.facebook.com/pages/The-Philadelphia-Courts/131531140252657?sk=wall

-Josh J.T. Byrne, Esquire

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It Does Not Pay to Disobey the Judge, But You May Have to

Thursday, April 7th, 2011

The misconduct of plaintiffs’ counsel took center stage at a February 2010 jury trial in a wrongful death and survivorship action in the United States District Court Eastern District of Pennsylvania.  On the second day of trial, plaintiffs’ counsel gave his opening statement and questioned two witnesses, throughout which plaintiffs’ counsel violated several of the court’s evidentiary rulings, incurred over 30 sustained objections, violated the court’s rulings and instructions at trial, and exposed the jury to a number of excluded evidentiary issues, improper questions and inflammatory statements.  Defense counsel moved for a mistrial following the opening statements.  The court admonished plaintiffs’ counsel.  Plaintiffs’ counsel assured the court that his conduct would not be repeated.  The motion was withdrawn.  Despite his assurances, and after numerous sustained objections and sidebar conferences, plaintiffs’ counsel continued to violate the court’s evidentiary orders, ask improper questions, and disregard the court’s prior instructions.  

On the third day of trial, the court granted defendants’ unopposed request for a mistrial based upon plaintiffs’ counsel’s violation of several of the court’s prior orders and rulings, resulting in prejudice to defendants. 

Defendants then filed a motion for sanctions against plaintiffs’ counsel and plaintiffs’ counsel’s law firm pursuant to 28 U.S.C. § 1927 and the court’s inherent power to discipline attorneys who appear before it.  To violate § 1927, an attorney must be found have: multiplied proceedings; in an unreasonable and vexatious manner; thereby increasing the cost of the proceedings; and doing so in bad faith or by intentional misconduct.  Defendants requested that (1) plaintiffs’ counsel and his firm pay defendants’ attorneys’ fees, expenses and costs; (2) plaintiffs’ counsel and his firm pay the court’s costs for two days of trial; and (3) plaintiffs’ counsel be disqualified from representing plaintiffs.

The court found that plaintiffs’ counsel’s conduct violated § 1927.  The court noted that a trial has very specific rules, and it is fundamentally unfair for one party’s lawyer to disobey the rules to the detriment of the other party.

The court granted defendants’ request for attorneys’ fees, costs and expenses associated with the trial and the motion for sanctions.  The court denied defendants’ request for the court’s costs and expenses.  The court also denied as moot defendants’ request for disqualification of plaintiffs’ counsel because plaintiffs represented that he will not take part in the upcoming trial.  The court ordered defendants to submit a petition, setting forth an itemization of their claim for attorneys’ fees, costs and expenses. 

On March 28, 2011, the court entered an order which required plaintiffs’ counsel and his firm, jointly and severally, to reimburse defense counsel in the amount of $100,436.25 within 30 days of the date of the order, by check made payable to defendants.  On April 1, 2011, plaintiffs filed a motion to stay the court’s March 28, 2011 order in order to pursue an appeal.  In any event, plaintiffs’ counsel and his law firm have learned a costly lesson. 

A copy of the court’s opinion can be found at: http://scholar.google.com/scholar_case?case=12579655880554284361&q=kenneth+l.+ferguson+v.+valero+energy+corp.,+civil+action+no.+06-540&hl=en&as_sdt=2,39

Nicole L. Graham

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Q: Is it a good idea to use client information to make yourself rich? A: No.

Thursday, April 7th, 2011

Lawyers receive lots of information from their clients.  Some lawyers receive more valuable information in client communications than others.  A simple rule of malpractice avoidance is to not use this information for personal profit (although, as always, there are many gray areas).  Lawyer Matthew Kluger, formerly of Wilson Sonsini Goodrich & Rosati has been indicted as part of a scheme which allegedly brought in $32 million in profits by trading on confidential mergers and acquisitions information received from his clients.  Not only is this a clear ethical violation of R.P.C. 1.6, but it is highly illegal.  Mr. Kluger’s use of pre-paid cell phones bought with cash for communicating with his co-conspirators suggested to the FBI that he understood the activity was illegal.  The entertaining FBI press release can be found at: http://newark.fbi.gov/dojpressrel/pressrel11/nk040611.htm

-Josh J.T. Byrne, Esquire

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