Posts Tagged ‘bankruptcy’

Limitations of the Litigation Privilege Defense

Tuesday, October 16th, 2012

The New Jersey Superior Court, Appellate Division, has recently decided the case of Buchanan v.  Leonard.  The Appellate Division reversed in part the decision of the Law Division, which had granted summary judgment in this legal malpractice case on the basis of the litigation privilege defense.  The legal malpractice action arose out of the underlying legal malpractice action, which in turn arose out of a bankruptcy filing.

Mr. Buchanan had represented Earl and Sherri Kerr in the filing of a Chapter 13 bankruptcy petition, despite his advice to them that they would be better served by a Chapter 11 petition.  The bankruptcy was not successful, and the Kerrs lost their residence and a commercial property.

After the Kerrs lost the residence, they filed a legal malpractice action against Mr. Buchanan.  Mr. Buchanan was represented by Mr. Leonard, of the firm Morgan Melhuish, in the defense of legal malpractice action.  Mr. Leonard was retained by Mr. Buchanan’s insurance company Legion Insurance Company for the defense.   However in July 2003, Legion was declared insolvent, and the New Jersey Property Liability Insurance Guarantee Association ( NJPLIGA) assumed the defense obligations.   In April 2005, Mr. Leonard submitted to NJPLIGA a form seeking authorization to settle the litigation.  In his request Mr. Leonard referred to an August 21, 1993 letter Mr. Buchanan had written to the Kerrs stating that Mr. Buchanan agreed to inflate the value of a garage on the bankruptcy petition, as long as the Kerrs agreed they would indemnify him for any sanctions imposed for utilizing misleading figures.  Mr. Leonard wrote that this letter was “an admission of bankruptcy fraud.”  On May 16, 2005, a week before trial, NJPLIGA advised Mr. Buchanan that it was withdrawing coverage as a result of the August 21, 1993 letter.   There followed a declaratory judgment action, and in February, 2007, after a bench trial the law division held that Mr. Buchanan was entitled to coverage.

Mr. Buchanan then sued Mr. Leonard based upon the report to NJPLIGA stating that Mr. Buchanan’s conduct amounted to fraud, alleging that Mr. Leonard had been negligent in his representation of him by failing to protect his interest, and deliberately expressing an opinion contrary to his best interest.  In November 2011, Mr. McKinnon filed a motion for partial summary judgment.  Defendants opposed the motion and filed the cross-motion for summary judgment.  Defendants argued the claims were barred by the litigation privilege.  The Law Division granted summary judgment on all claims, stating that because they were based on Mr. Leonard statements in the settlement memorandum, they were covered by the litigation privilege.

In its decision reversing the Law Division, the Appellate Division noted the litigation privilege had been held not to protect attorneys from discipline for violating the Rules of Professional Conduct.  The Appellate Division held that by analogy the litigation privilege would not protect an attorney from a claim by his clients.  The Appellate Division relied on several California cases with similar holdings.

The takeaways from this litigation are to be aware of the likely limits of the litigation privilege, and for defense counsel to always keep in mind who their actual client is.

-Josh J.T. Byrne, Esquire


It just goes on and on. . .

Monday, February 27th, 2012

Two recent cases illustrate one of the central problems with legal malpractice cases, they frequently just will not end.  In the case of In re: CANOE MANUFACTURING CO., INC., Chapter 7, Debtor, one of the owners of Canoe attempted to reopen a closed Chapter 7 bankruptcy in order to bring an action against the lawyer who had represented the corporation in the bankruptcy.  The Bankruptcy Court for the Eastern District of Pennsylvania noted the owner did not have the ability to bring this action, as a corporation in bankruptcy can only act through counsel.  However, the court also noted the original bankruptcy petition was filed in 1987.  The court noted the owner had information regarding the claim against the attorney, and was making arguments about his attorney’s alleged failures as early as 1990.  The opinion exhaustively lists the various claims made by the owner since that point, a number of which were appealed to the highest levels.  Although the court refused to reopen the bankruptcy proceedings, given the twenty-five year litigation history, it seems unlikely that this matter will end soon.

Last week, in In re Fagel, the court of appeals for the Ninth Circuit issued an opinion with respect to arguments over the proper amount of damages from a legal malpractice action which involved an underlying litigation from 1993.  Another case with a nearly twenty year litigation history.

These cases emphasize the importance of legal malpractice avoidance.  Avoiding professional liability litigation can prevent litigation that will often run on for years.

-Josh J.T. Byrne, Esquire