Posts Tagged ‘legal malpractice’

$23.7 Million Settlement in Pennsylvania Legal Malpractice Lawsuit

Tuesday, February 11th, 2014

K&L_Gates_Center_PittsburghK & L Gates and attorney Sanford Ferguson entered into a $23.7 million settlement with bankruptcy trustee Mark Kirschner late last month.  The legal malpractice action arose out of representation by K & L Gates to investigate the possibility of financial mismanagement of a company known as Le-Nature’s Beverages, Inc.  The bankruptcy trustee contended Ferguson ignored evidence of the illegal activities of Le-Nature’s  CEO Gregory Podlucky before the company was forced into bankruptcy.  Podlucky and six of his family members and business associates are currently serving a federal prison time for a fraud estimated to be between $600 and $900 million.

In 2012, the Superior Court reversed an order sustaining preliminary objections in favor of K & L Gates.  In sustaining the preliminary objections, the trial court found K & L Gates was retained by the investors in Le-Nature’s Beverages, Inc., and the bankruptcy trustee did not bring the legal malpractice action on behalf of the investors.  The Superior Court disagreed finding:

K & L Gates was retained to investigate the exact type of injury being inflicted upon Le-Nature’s.  By negligently conducting its investigation, K & L Gates affirmatively caused harm to Le-Nature’s, by concealing the looting of the Company and wrongdoing by Podlucky, and affirmatively representing that no evidence of fraud or misconduct existed.

Kirschner v. K & L Gates LLP, 46 A.3d 737 (Pa. Super. 2012).   The Superior Court opinion permitted the lawsuit to proceed against K & L Gates on both direct liability and vicarious liability claims, including a claim that K & L Gates was vicariously liable for the work of accounting and financial experts it retained as part of the investigation.  Ferguson was criticized for not giving appropriate scrutiny to Podlucky’s statements, and for sharing information with Podlucky who was suspected by his business partners who hired K & L Gates of fraud.

Among the potential lessons to be learned from this action is the danger of uncritically accepting statements from clients (or in this case the CEO of the firm you were retained to investigate).  It is an old, and not entirely true, adage that an attorney’s client is the attorneys worst enemy.  However, in terms of legal malpractice avoidance it is often in the best interest of the practitioner to examine a client’s claims with a critical eye.

-Josh J.T. Byrne, Esquire

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Alfred Hitchcock Presents, Legal Malpractice

Thursday, January 9th, 2014
Tippi Hedren

Tippi Hedren

Tippi Hedren, the actress best known for her part in Alfred Hitchcock’s The Birds, recently had a nearly $1.5 legal malpractice verdict affirmed on appeal.  Ms. Hedren was injured on set in June 2006, when a tarp holding a gallon of water gave way and dropped on her head.  In a Hitchcock like twist, the accumulation of water was blamed on a bird’s nest blocking a condensation tube in an air conditioning system.  Ms. Hedren alleged the water caused a return of recurring headaches (Ms. Hedren had spinal fusion prior to 2006 to treat her chronic headaches).

In October 2006, Ms. Hedren retained Joseph D. Allen, Esquire to represent her in a personal injury action against the owner and lessee of the sound stage where the injury occurred.  A timely complaint was filed in March of 2007.  Thereafter, Mr. Allen entered into an agreement to dismiss the lawsuit without prejudice, but did not obtain an agreement tolling the statute of limitations.  It is not clear from the court opinion why Mr. Allen agreed to dismiss.  When Mr. Allen refiled the lawsuit, a demurrer was sustained on the basis of the statute of limitations.

In the legal malpractice action, Mr. Allen conceded negligence, and the trial “essentially involved trying the underlying case to determine what Hedren reasonably could have expected to recover but for Allen’s negligence.”  The jury awarded Ms. Hedren $1,483,708, which included $213,400 for past lost earnings; $170,000 for future medical expenses; $440,308 for future lost earnings and lost earning capacity; $300,000 for past noneconomic loss, including physical pain and mental suffering; and $360,000 for future noneconomic loss, including physical pain and mental suffering.

On appeal, Mr. Allen argued the court erred in refusing to instruct on superseding causation and comparative fault.  Mr. Allen also argued Ms. Hedren’s medical expert’s opinion on causation had no basis.  Finally, Mr. Allen argued the court erred in allowing speculative expert testimony regarding economic loss, and that the jury’s award was excessive as a matter of law.  The California Court of appeals rejected all of Mr. Allen’s arguments and affirmed the award.

Failure to calendar, know deadlines, and/or timely file consistently account for nearly a third of all legal malpractice actions.  Malpractice avoidance requires counsel be aware of the applicable statute of limitations.

-Josh J.T. Byrne, Esquire

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Assignment of Legal Malpractice Claims

Monday, December 16th, 2013

We previously noted the limited case law in Pennsylvania regarding the assignment of legal malpractice actions runs contrary to the national consensus on this subject.  Common law is well established that assignment of legal malpractice claims is disfavored.  A recent California case discusses the narrow exception that may have started Pennsylvania down a path separate from most other states.  The Court of Appeal of California, recently issued an opinion in White Mountains Reinsurance Company of America v. Borton Petrini, LLP, which recognized a “narrow exception” to the general rule banning the assignment of legal malpractice cases.  The court permitted the assignment of a legal malpractice case where:

(1) the assignment of the legal malpractice claim is only a small, incidental part of a larger commercial transfer between insurance companies; (2) the larger transfer is of assets, rights, obligations, and liabilities and does not treat the legal malpractice claim as a distinct commodity; (3) the transfer is not to a former adversary; (4) the legal malpractice claim arose under circumstances where the original client insurance company retained the attorney to represent and defend an insured; and (5) the communications between the attorney and the original client insurance company were conducted via a third party claims administrator.

Although not on point with the entire test set forth by the White Mountains court, the claim in Hedlund Mfg. v. Weiser, Stapler & Spivak, 517 Pa. 522, 539 A.2d 357 (1988), which is the seminal case in Pennsylvania allowing assignment of a legal malpractice claim, involved a commercial transaction in which the legal malpractice claim was just one small part of a larger transaction.  In Hedlund, an inventor sold his invention and the rights that went with it, including the legal malpractice claim, to another business.  In discussing Hedlund, the Supreme Judicial Court of Massachusetts noted: “The courts permitting assignment have typically been presented with legal malpractice claims voluntarily assigned by a corporation to a successor corporation, and have declined to make a blanket rule, choosing to approve assignments on a case-by-case basis.”  New Hampshire Insurance Company, Inc. v. McCann, 429 Mass. 202 (1999).

The Court in Ammon v. McCloskey, 440 Pa.Super. 251, 655 A.2d 549 (1995) followed Hedlund and allowed an assignment by the lawyer’s former client to the client’s adversary following a default judgment allegedly due to attorney error.  However, since Ammon, a district court, deciding Pennsylvania law, held the Supreme Court of Pennsylvania would restrict permissible assignments to the circumstances presented in Hedlund, and would not allow assignments between adversaries as was the situation in AmmonAlcman Services Corp. v. Samuel H. Bullock, P.C.,  925 F.Supp. 252, 260 (D.N.J. 1996) (applying Pennsylvania law).  The court in Alcman noted Hedlund involved assignment of a claim to a successor in interest, where the assignee had bought the assignor’s business.  Ammon involved an assignment by a defendant driver to a plaintiff passenger.  The Ammon court accepted the assignment based upon Hedlund without any in-depth analysis.  The court in Alcman specifically rejected the extension of the Hedlund case to the facts in AmmonAlcman, 925 F. Supp. at 260.  At some point, the courts in Pennsylvania have to reconcile the well established common law and their decisions, despite the Ammon decision, there is still an argument to be made that legal malpractice claims in Pennsylvania are only assignable as part of a larger commercial transaction between the owner of the rights and the assignee.

-Josh J.T. Byrne, Esquire

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Attorney Wins $5.75 Million Award In Legal Malpractice Claim, Based on Legal Malpractice Claim

Thursday, December 5th, 2013

In November of 1998, Virginia based contracts attorney Bruce McLaughlin, was convicted of on eight counts of sexual abuse.  The claims of sexual abuse were raised by Mr. McLaughlin’s ex-wife while they were involved in divorce proceedings and a custody battle over their four children.  Mr. McLaughlin was sentenced to 13 years in prison.  In November 2000, the Virginia Department of Social Services reopened its investigation and determined Mr. McLaughlin’s ex-wife appeared to have fabricated the allegations, and the interviews with the children were flawed.

Mr. McLaughlin hired new counsel, who compared the transcripts of the interviews with the children with the videotapes, something his previous counsel did not do, and discovered the transcripts were incorrect.  The transcripts reflected the children gave positive answers to questions of whether they were molested when the interviews showed they did not answer at all.  Based upon this, a writ of habeas corpus seeking a new trial was granted.  In December 2001, a judge ruled Mr. McLaughlin’s first attorney provided constitutionally inadequate legal assistance.

Mr. McLaughlin was retried in December 2002, and acquitted (Mr. McLaughlin was reinstated to the bar in 2005).  Mr. McLaughlin then sued his original law firm, Volzer and Schewe, utilizing the services of the Shevlin Smith law firm.  Mr. McLaughlin asserted negligence by Volzer and Schewe caused his conviction.  In September 2005, Shevlin Smith advised Mr. McLaughlin to settle with Schewe individually for $50,000, and prepared a release which purported to do that.  However, under Virginia law at the time, joint-tortfeasor releases were only applicable to to tort cases, not contract cases, and Volzer was also released as a matter of law.  Mr. McLaughlin then sued Shevlin Smith for legal malpractice, and after a trial which lasted nearly a month, was awarded a verdict of $5.75 million dollars in economic damages earlier this year.

As we have noted before, attorneys pursuing legal malpractice cases must be careful not to commit malpractice themselves.

-Josh J.T. Byrne, Esquire

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Denial of Professional Liability Coverage for Dishonesty

Thursday, August 29th, 2013

A recent case out of the United States District Court for the District of Colorado found, pursuant to the policy’s dishonesty exception, a law firm’s professional liability insurance company properly denied coverage for legal malpractice and aiding and abetting a breach of fiduciary duty because the claims arose out of acts that require proof of an unlawful purpose or intent.  The case, Hackstaff Law Group, LLC v. Hartford Cas. Ins. Co., 2013 WL 2557394 (D. Colo. June 11, 2013), involved a claim that a law firm assisted a construction company in executing a deed to convey a direct ownership in a property to a third-party when the construction company and the law firm both knew the construction company did not have an ownership interest in the property.  Similarly, in Cont’l Cas. Co. v. Kriz, No. 3:09-cv-00835 (PCD) (D. Conn. Mar. 30, 2011).  the United States District Court for the District of Connecticut held the dishonesty exception in a lawyer’s professional liability policy barred coverage for lawsuit arising out of the law firm’s participation in a mortgage fraud scheme.  The insurance company originally agreed to provide a defense to attorney Joseph Kriz, but after he was convicted of using false information to obtain more than $4 million in mortgage loans, and sentenced to 30 months imprisonment, the company filed a declaratory judgment action and was granted summary judgment finding there was no duty to provide coverage.

Attorneys who engage in willful misconduct not only face the possibility of legal action and/or disciplinary action, but also the very real possibility that there will be no insurance coverage for their actions.

-Josh J.T. Byrne, Esquire

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Recession Leads to Rise in Legal Malpractice Claims

Monday, June 24th, 2013

Legal malpractice insurance broker, Ames & Gough, reports an increase in legal malpractice claims, including an increase in claims of more than $50 million.  The study blames the recession and related mergers and acquisitions for the increase in claims.  The study also found a significant number of claims related to lateral hires and conflicts of interest.  For the third consecutive year, claims arising out of real estate transactions generated the largest number of legal malpractice claims.

-Josh J.T. Byrne, Esquire

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Legal Malpractice Claim Against Blank Rome

Thursday, May 30th, 2013

Kristina Armstrong, the ex-wife of Morgan Stanley executive Michael Armstrong, has sued Blank Rome, and two of its attorneys.  Ms. Armstrong claims the Blank Rome attorneys, Norman Heller, Esquire and Dylan Mitchell, Esquire, had a conflict of interest and did not represent her best interests because Morgan Stanley was also a client of Blank Rome.  The lawsuit alleges the attorneys, without Ms. Armstrong’s consent, agreed not to seek possession of Mr. Armstrong’s securities licenses.  The complaint also alleges the attorneys advised Ms. Armstrong not call the police after Mr. Armstrong became verbally abusive in March of 2010, and allegedly threatened to kill Ms. Armstrong.  The lawsuit seeks $8.3 million in compensatory damages, $25 million in punitive damages, and $240,000 in legal fees paid.

Although a spokesman for Blank Rome has asserted the claim is meritless, the mere fact of the claim reinforces the necessity of thorough conflict checks before accepting any case.

-Josh J.T. Byrne, Esquire

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Some General Materials on Legal Malpractice

Friday, April 19th, 2013

We have previously shared a number of web resources on legal malpractice avoidance.  The following are some readily available web resources on legal malpractice in general:

These materials, apparently course material from the New York County Lawyers’ Association, include a very general treaties on legal malpractice, as well as specific information for investment and accounting professionals.  While the materials are focused on New York law, they do provide a very good overview of legal malpractice in general.

The website Justia.com provides a short overview of legal malpractice without any citations for case references.  Of considerably more usefulness is American Bar Association’s 50 state survey legal malpractice law.  These materials, however, are available only to ABA members.

-Josh J.T. Byrne, Esquire

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Appeal Seeks to Broaden Scope of Who Can Sue Attorneys

Thursday, March 14th, 2013

The Blog of LegalTimes reports on oral arguments in a legal malpractice action by Boston-Maine Airways Corp. against Sheppard, Mullin, Richter & Hampton.  Summary judgment was granted to Sheppard Mullin, and Boston-Maine appealed arguing that  although it was not formally a Sheppard Mullin client, the representation of its sibling companies and a shared owner gave it standing to sue.

-Josh J.T. Byrne, Esquire

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The Superior Court’s Most Recent Legal Malpractice Ruling

Thursday, March 7th, 2013

On February 19, 2013, the Superior Court issued an opinion in O’Kelly v. Dawson, 421 WDA 2012.  Superior Court’s opinion by Judge Wecht upheld a legal malpractice verdict in favor of plaintiff, James O’Kelly who was represented by defendant/appellant, Michele S. Dawson, Esquire, in an underlying divorce.  The primary allegation was the attorney had not finalized an alimony agreement between the spouses, and as a result, a less favorable alimony award was entered by the master in the divorce action.  The appeal argued the spouses never agreed on all of the essential terms of the alimony agreement, and the statute of limitations barred legal malpractice action.

The Superior Court determined that the jury was presented with conflicting evidence with respect to whether the essential terms of alimony had been agreed upon, and found their decision that an agreement had been reached did not “shock the conscience.”  The Superior Court noted it could not put itself “into the jury’s place.”

The statute of limitations argument was not before the jury, but argued in a motion for summary judgment, as well as a post-trial motion.  The appellant had requested the issue of statute of limitations not be sent to the jury, but be decided by the judge.  The trial court found the statute of limitations was tolled by the equitable discovery doctrine until the date of the trial court order adopting the master’s recommendation.  On appeal, it was argued that no two reasonable minds could disagree the statue limitations barred the claim, and in the alternative, that the trial judge erred in not sending the issue to the jury with respect to the exercise of reasonable diligence by the husband in discovering the alleged error.  The court noted appellant argued before the trial court that no two reasonable minds could differ in finding that the plaintiff knew, or should have known, of the potential malpractice as of the date of the master’s recommendation, and therefore the issue should not go before the jury.  The appellant succeeded as to process, “but failed as to substance.”  While recognizing this would usually be an issue for the jury, the Superior Court found appellant could not “now be heard to assert that the trial court erred in granting Appellant’s request that the limitations issue be reserved for the court.”  The Superior Court found the argument that the issue should have been sent to the jury had been waived.  The Superior Court found the trial court “necessarily made a factual finding as to Husband’s reasonable diligence.”  The Superior Court noted that following the master’s recommendation, appellant had advised the husband the trial court would reject the master’s recommendation and order alimony to reflect the parties’ proposed alimony agreement.

Judge Colville filed a dissenting opinion.  The dissenting opinion was not published with the majority opinion.

Professional liability avoidance requires attorneys to be aware of the possibility of equitable tolling of the statute limitations.  While Pennsylvania operates under a strict “occurrence rule” with respect to the statute of limitations, the statute may be tolled if an attorney offers reassurances of a positive result after an alleged act of negligence.

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