Ch. 9 Important Malpractice Traps A. Client Relations Errors (14% 2000-03) “Top Ten Traps” See, fn. 3, p. 290, Lawyer’s Desk Guide 54 (2d ed. 1999), available at http://www.abanet.org/legalservices/lpl/do wnloads/ten.pdf A. Client Relations Errors 1. Ineffective Screening: Avoid “difficult clients” (trust gut instinct backed up w/ standardized office-wide screening procedures). U.S.: lawyers are not public utility; no “cab rank rule.” Corollary: discretionary right to w/d, but must comply w/ standards (e.g., advance notice to cl.; leave of ct req’d if in litigation) See generally RPC 1.16. A. Client Relations Errors 2. Client Communication & Failure to Keep Clients Reasonably Informed (& Duty to Follow Lawful Instructions w/in Scope of Authority) N.B. Both fiduciary and ethical duty. See Rstmt LGL §§20-23, RPC 1.2, 1.4 Breakdown in communications/respect often basis for C bringing LM claim (accord, med mal), file grievance B. Conflicts of Interest (COI) Failure to recognize, analyze and deal properly with a conflict is high risk malpractice trap. ABA Standing Committee on Prof’l Liability: 6.28 % (2000-2003); 66.6% increase since 1985 Texas Lawyers’ Insurance Exchange (TLIE), Jett Hanna: 16.4% all claims filed; 22.5% all losses (1996-2007) Harris Poll: most significant error or omission in largest claims v. firms w/ ≥35 Lawyers (1996) COI give disgruntled C’s/former C’s “wild card” Played to: Avoid paying outstanding bill; seek fee forfeiture; Move for disqualification; Bring legal malpractice claim Potential consequences: m/b basis for excluding coverage; if carrier if pays for loss > premium surcharges; discipline; ct-imposed sanctions; loss of clients; firm splits; bad reputation among L’s & C base LM for COI Evans v. Baker & McKenzie, Joel Held (Dallas Sr. Counsel)(10/2010, Miss.)($103 Million verdict) P claimed firm concurrently represented him & partner in oil-rig drilling business; P unaware that partner insolvent & used P’s assets to get millions in loans. Further alleged firm secretly drafted docs creating subsidiaries in P’s name, but controlled by partner. When accounting showed partner’s insolvency, P tried to dissolve busn., firm represented partner, devising “a litigation strategy to bring [P] to his knees.” 2. Analyzing COI, where “consentable” how to obtain “informed consent” (IC) • Rstmt §§ 121-135 similar to RPC 1.7-1.13 • §121 a COI is present if “…a substantial risk that L’s representation of the C would be materially & adversely affected by the L’s own interests or by the L’s duties to another current C, a former C, or a third person” 2. Analyzing COI, evaluating whether “consentable” conflict Suni: “The key is whether the L’s exercise of independent prof’l judgment is likely to be unduly influenced by other interests….[A]sk yourself…[b/c of that] interest, am I likely to do or be tempted to do something different from what a truly independent L [w/o such interest] …would do in the same circumstances? (text at 297-98) See also, RPC 1.7 Cmts 8, 14-15, 18; RPC 1.0(e) defines informed consent. 3. Practical Issues Re Written Disclosure & Informed Consent RPC 1.7 COI: Current Clients (a) concurrent COI if (1) representation of 2 C’s “directly adverse” or (2) signif risk that repre’n of 1 or more Cs will be “mat’ly ltd by L’s responsibilities to another C, a former C” or T/P or a psnl int. of L. (b) If COI per (a), L/firm may represent if L rsnbly believes it is consentable per (1-3) and (4) each affected C gives informed consent, confirmed in wrtg. See text p. 303, Hazard & Hodes on disclosure Who is the Client? (for purpose of COI analysis) Suni, text p. 298 Who is it I am representing? Have I actually undertaken representation, or am I dealing with a prospective C? Is the C an individual, or the entity for which that individual works? Is it the insured or ins. co. paying the bill? Am I representing one party to the transaction, both parties, or the entity they are forming? Prob. 9-1 Know Your Conflicts & Clients C retained you to evaluate LM claim 1. Who was M&M’s Client (Chassen or Tyson)? 2. What possible LM claims? 3. Relevant questions to ask in evaluating possible LM? 4. Relevant information to evaluate possible LM claims? 5. Risk prevention steps firm might have taken? COI: Estate Planning Problem H&W marry in 1980s; 2d marriage for both; H has 3 children & substantial busn. assets. W has 2 children & minimal assests. 0 children born of this marriage. 1999-2005: H executed various estate planning devices, including trust & will. General theme: Homestead to W (joint tenancy by entireties, right of survivorship); $25K specific devise to ea. Of H’s 6 grandchildren; trust income to W for life, R to H’s 3 children per stirpes. COI: Estate Planning Problem 2006: H&W go to L, estate planner, who created docs fulfilling their agreement (mere scrivener?) Simplified: 1. LLP: proceeds from sale of H’s busn., homestead. L as manager; each of 5 children get 20% interest. W has LE in homestead, R to LLP. 2. Trust (H Settlor & T’ee): all other H assets, on H’s death distribution to H’s 3 children COI: 2008 H dies, estate administration 1. Distribution of trust corpus to H’s children (0 income for W) 2. Homestead: W only has life estate, not fee simple interest. Q: what’s wrong with this picture? Does W have c/a for LM v. L? (go back, see slides 7-9) RPC 1.7(a)(2) current COI, significant risk L’s representation of W mat’ly ltd by L’s responsibilities to H. Is this a consentable conflict? (slide 8, RPC 1.7(b)(1) & Cmt. 15: only if L RSNBLY believes that L will be able to provide competent & diligent repre’n to each client) Analysis? 1.7(b)(4) Did L obtain informed consent from H & W, confirmed in writing? COI: Estate Planning Problem Rstmt Analysis §§121-22 accord: §121 “substantial risk” L’s repre’n of W “would be materially & adversely affected by L’s … duties to another current C (H) Cmts. c. (adverse effect on quality of repre’n; likelihood of subst’l risk; evaluate using objective std, on facts & circumstances L knew/shd have known when undertook repre’n) COI: Estate Planning Problem Rstmt §122(2) N/w/stdg IC of ea. affected C, L m/n represent if [i.e., its nonconsentable], (c) in the circumstances, it is not reasonably likely that the L will be able to provide adequate representation to one or more of the clients. (similar to 1.7(b)(1)) Rstmt §130 (current COI, nonlitigated matter; substantively similar to 122) cmt. c. illus. 2? Bottom line, under both Rstmt & RPC L didn’t see obvious conflict, didn’t attempt to obtain H&W informed consent. Even if L had done so, any consent would be ineffective because it was nonconsentable. Reason: no reasonably competent L could believe it possible to represent both H & W in this estate planning b/c their interests were so diverse. W clueless that the estate plan deprived her of all rights of survivorship to homestead & no life estate in trust income, limited right to corpus. (as is common). W v. L Breaches of fiduciary duty: impermissible COI between W, H & L, adversely affected repre’n of W, deprived of relevant info needed to protect her interests. Harm: left w/ almost nothing after 20+ marriage. Proximate cause + but for Damages: what would her rights have been if H died intestate? Probable rights if she had been competently represented by independent counsel? 4. Advance Waivers RPC 1.7 Cmt 22 might allow, under limited circumstances. Anthony Davis, on ABA F. Op. 05-436: General, open-ended advance waiver usually ineffective. But advance waiver w/o fresh IC, m/b effective if: 1) rsnbly informed about potential risks if future conflict arises; 2) C is sophisticated consumer of legal services; 3) C actually consulted independent counsel about advisability of signing future waiver. C. Litigation Errors ABA 2003 Study: 44% all claims (most in π p.i.; tho Δ p.i. close behind) Reason: so many judgment calls, strategic & tactical decisions, often made with little time to deliberate, research, confer w/ C. (Hence, Rstmt §§20(3),(4), 23; contrasted with 22.) LM claims akin to “Monday morning quarterbacking”; C dissatisfied w/ outcome says L “shoulda, coulda” done differently 1. Missed Litigation Deadlines # 1 of Top 10 Malpractice Traps (1999) 2003 ABA Study: now 16% of claims arise from untimely commencement of action (prima facia evidence of negligence) Many other litigation deadlines w/ major impact on outcome Malpractice Carriers: annual application requires description of calendar/docketing system, including cross-check or dual control, ultimate responsibility of L handling matter. 1. Missed Deadlines 3 types of errors: Failure to calendar Ignorance or misinterpretation of correct deadline Failure to file in accordance w/ correctly calendared deadline 1. Missed Deadlines Thar, “Ways not to Blow S. of L” -Calculate immediately, while considering whether to undertake matter -THINK & CONFIRM you correctly determined applicable s. of l. (foreign jurisdiction – confirm w/ local counsel); RESEARCH -VERIFY date of incident, PLAN AHEAD -Multiple calendaring system w/ >1 person tracking 1. Missed Deadlines Thar, “Ways not to Blow S. of L” -Avoid 11th hour clients (e.g., Geary; 10/25 cert. w/drawn, improvidently granted; 11/4 mandate issued) -Calendar matters where you receive referral fee (remember, joint responsibility) -Periodic tickler dates to remind well in advance -Don’t procrastinate!!! Plan ahead & do what’s necessary before filing, including pro hac vice application. “Virtual nullity doctrine” -Law practice management includes routine letters of nonengagement & withdrawal notices 2. Appellate Malpractice • Evaluate scope of retainer. • If retained for whole case, tend to details preserving appeal: in trial, make record objections, take exception; preserve record for appeal; evaluate & discuss w/ C whether viable appealable issues; file timely notice of appeal/perfection; timely file record for appeal; post supercedeas bond; timely file all briefs 2. Appellate Malpractice • Rstmt §§ 21-23 Authority Reserved to C (both civil & criminal): whether to settle or appeal; • Authority Reserved to L: refuse unlawful assistance; compliance with applicable law, orders of tribunal • Joint decisions, after consultation: selecting which non-frivolous issues to raise on appeal Questions, p. 313 1. S/ retained only for trial. What should you do after unsuccessful outcome to avoid risk of appellate malpractice? a. Confirm that written retainer states such limited scope representation b. Written confirmation again at end of trial; need new L; remind of upcoming deadlines, possible grounds for appeal. Questions, p. 313 2. s/ trial L refers C to appellate L; risk management steps? Avoid negligent referral risks (3 names, current objective information about each, stress that C choice) Questions, p. 313 3. S/ Retained for appeal; discover LM by trial L. Legal & ethical duties to C? - carefully evaluate - disclose to C? - refer to LM L? Questions, p. 313 • 4. Normative question: should proximate cause in appellate LM be Q of law for court, or Q of fact that can be decided by jury? 3. The Exercise of Judgment in Litigation “judgmental immunity” (long history now eroding; thought to protect v. L’s errors on strategic & tactical decisions). Some juris. treat as affirmative defense. Fla. “predicate” for LM defense: L 1) exercised informed judgment; 2) d/n ignore applicable statutes, court procedures or established legal principles; 3) must inform C of KNOWN PENDING resolution of unsettled legal propositions. Prob. 9-2, p. 314: Which of listed “failures” may be protected by judgmental immunity? 4. Settlement Errors: Many possible types (pp. 315-16) • Not consider settling case then lost at trial • Recommend C accept inadequate settlement • Draft or approve release of rights that should have been reserved • Force C to settle (often cheap) to cover up L’s serious litigation errors • Falsely claim matter settled to hide L’s errors; L pretends payment from D • Not communicate settlement offer • C fires L for cause, successor L recommends bad settlement b/c of 1st L’s errors. 4. Settlement Errors Muhammad v. Strassburger, 587 A.2d 1346 (Pa. 1991)(former C m/n bring LM v. former L where underlying matter settled, unless L knowingly committed LM and then fraudulently induced C to settle) N.B. Ziegelheim v. Apollo (N.J. 1992)(text at p. 322) began change of tide (despite pro-settlement policy, C entitled to competent legal advice about whether to accept or reject settlement offer) 4. Settlement Errors Thomas v. Bethea (Md. Ct. App. 1998) pp. 316-25 Facts: L sued 3 slum landlords for lead poisoning of Minor (M); recommended C settle v. 2 for $2500. Never served 3d landlord. Broad form release executed by Mom relinquished claims v. all 3, tho $0 from 3d landlord. M (now adult) sued L for LM (negligently persuaded Mom to accept grossly inadequate settlement) Tr. Ct: special verdict, $125K; tr. ct. JNOV for D L. Contrast Thomas (Md. ‘98) and Muhammad (Pa. ‘91) Policy considerations for & against allowing LM where C settled underlying claim? -encourage settlements; efficiency; finality (Q: does non-mutual collateral estoppel bar?) -fairness to C, right to competent representation -incentives & disincentives for Lawyers Q: on balance, as matter of policy, prefer minority view (Muhammad) or new majority view (Thomas)? Measure of Damages for “Wrongful Settlement”? Difficulties in proving “case w/in case” for such claims. Possibilities: 1. Difference between actual settlement and what a reasonable settlement would have been? Too speculative? How prove? (Thomas jury found settlement value v. unserved D was $25K, but fixed dmges @ $125K) 2. Difference between actual settlement and probable recovery at trial of underlying matter. Problem 9-3 Inadequate Settlements Wrongful death action filed against Upton County w/in 2 year general statute of limitations, but after expiration of shorter limitations period for actions against governmental entities. County moved for summary judgment on limitations grounds. Estate administrator settled for $10K (probable cost to county of litigating summary judgment). Should C/administrator have LM c/a vs. L? D. Business Transactions with Clients • Fraught with danger; if does not work well, to client’s satisfaction, C often looks to L as guarantor. • Jurors see & condemn L’s who engage in selfdealing, prefer own interests over that of C. • That said, why do so many lawyers engage in business transactions with clients? Rstmt §126 C/L Business Transactions Generally prohibits business or financial transactions w/ C, NOT involving delivery of legal services UNLESS (1) C has adequate info. about the terms of transaction & risks presented by L’s involvement in it; (2) Terms & circumstances of transaction are fair & reasonable TO THE C; (3) C gives informed consents to consentable conflict involving L’s role in transaction after encouraged to seek & given rsnble opportunity to seek independent legal advice about transaction. (incorporates §122) 2. Fee arrangements • When agreed at outset, before C/L relationship begins, generally treated as arms-length transaction. Scrutinize only under RPC 1.5(a) (prohibiting unreasonable fees or expenses; open-ended list of factors bearing on reasonableness). • If fee dispute between L & C, cts may use K principles to construe ambiguous language v. L, as drafter (contra proferentem); or shift BOP to L that fee fair & reasonable to C. 2. Fee Arrangements • Non-traditional fee arrangements, e.g. in which L takes ownership or security interest in C property, or stock: closely scrutinized as L/C business transaction. E.g., L helped C obtain financing for holographic baseball card, took % interest in venture as “finder’s fee.” Ct set aside. 2. Fee Arrangements • Reminder: RPC 1.5 (c) Requires that contingent fee agreements be in signed writing, state method by which fee is determined including % accruing if resolved by settlement, at trial or appeal, and whether expenses for which C is responsible are calculated before (fairer to C) or after determining % fee. On conclusion, L must provide written disbursal statement. ABC Exam Question, ¶2 Does ABC’s fee agreement with Victim violate RPC 1.5? Does ABC’s fee agreement with Norman Bank violate RPC 1.5? Violate any fiduciary duty to Bank? 2. b. Modifying Fee Agreements Rstmt LGL §18 (a) any K or modification “made beyond a reasonable time after the L has begun to represent the C in matter, the C may avoid it unless the L shows that the K and the circumstances of its formation were fair and reasonable to the C; and (b) if K after Ls services complete, C may avoid if not informed of facts needed to evaluate appropriateness of L’s compensation or other benefits that K confers on the L. 2. b. Modifying Fee Agreements, Richmond Excerpt S/1: Complex tax matter, seeking large refund from state. Firm regularly billed & was paid > $120K using standard hourly rate & customary expenses. Superb outcome: $7 M refund. Q: may firm retroactively charge 10% premium where fee agreement contained language “to render a fair and reasonable bill”? S/1 Beatty v. NP Corp., 581 N.E. 2d 1311 (Mass. App. Ct. 1991) H: ambiguous language construed against drafter (contra proferentem); firm’s “subjective & unexpressed expectations” could not refute objective agreement to charge by hour. Q: To avoid this outcome, how should engagement letter read? (see pp. 336-37) 2. b. Modifying Fee Agreements, Richmond Excerpt S/2 Undertake defense of civil case for $50K flat fee based on predictions of likely amount of work, fee profitable. Ably-represented P conducts extensive discovery which precludes successful defense summary judgment motion, joins additional defendants. Can firm escape flat fee, charge for actual time & expenses? S/2 Heller, Horowitz & Feit, P.C. v. Stage II Apparel Corp., 704 N.Y. App. Div. 2000) H: denied rescission; fact that litigation required more work than expected at time of K does not constitute relievable mutual mistake. Repeated invoices and payments based on flat fee ratified original agreement. Q: To avoid this outcome, how should firm have drafted the engagement letter? (p. 337) 2. b. Modifying Fee Agreements, Richmond Excerpt S/3 Firm undertakes defense in large, complex litigation, billing standard hourly rate & customary expenses. 0 advance retainer. Initially C pays in full monthly bills, later payments slow & low or not at all. When L discusses arrearages, C apologizes & promises to bring current when cash flow improves. C claims firm’s threat to w/draw will cause irreparable harm; L doubts judge would allow. Resolved by taking security interest in C’s property. Q: What should firm have done 1) when retained? 2) as arrearages mount? 3) when idea of security interest arose? 2. b. Modifying Fee Agreements, S/3 Q: What should firm have done 1) when retained? Engagement letter: require substantial fee advance (put in trust account, apply last bill to advance, refund excess); monthly statements pd promptly; if unpaid, L has right to suspend work and terminate engagement. See RPC 1.5(b), 1.15(b)(5)(may w/d if C “fails substantially to fulfill oblig’n to L re L’s services” & “given rsnble warning that L will w/d unless” fulfilled. 2) as arrearages mount? 3) when idea of security interest arose? RPC 1.8(a), (i)(1) S/3Welsh v. Case, 43 P.3d 445 (Or. Ct. App. 2002)(unique OR. Rules & facts) H: Firm allowed to foreclose mtge given as security interest for unpd fees; was not “busn. transaction” w/ C subject to applicable state rule (predecessor to RPC 1.8(a)); C very sophisticated, experienced in mtge transactions, & m/b “Wiley Coyote” Takeaway lessons: caution urged throughout all C/L relationship; study local variant of RPC 1.8(a) & 1.16(b)(3) & interpretations 2. b. Modifying Fee Agreements, Richmond Excerpt Other “takeaway” points (pp. 339-41): Remember: courts & Rstmt generally treat L as more sophisticated party, must satisfy informational burden in all dealings w/ C. Engagement ltr should specify conditions that would permit fee modification (exceptional result, basis for calculating bonus; across board increase in hourly rates; unexpected work volume in representation) p. 339, last ¶: P abuse of flat fee, scorched earth defense *avoid any implication of duress *firm infrastructure: committee approval of fee modifications *1.8(a), get everything in writing, C’s signed & informed consent Rstmt §126 Business Transaction Between L & C Generally prohibits business or financial transactions w/ C, NOT involving delivery of legal services UNLESS (1) C has adequate info. about the terms of transaction & risks presented by L’s involvement in it; (2) Terms & circumstances of transaction are fair & reasonable TO THE C; (3) C gives informed consents to consentable conflict involving L’s role in transaction after encouraged to seek & given rsnble opportunity to seek independent legal advice about transaction. (incorporates §122) “How to” safely enter business transaction w/ C??? Dzienkowski & Peroni: pp. 328-332 many risks in taking equity investment in C entity Liability to C w/ business interest: ct may grant rescission, impose constructive trust (shift BOP, constructive fraud), despite no proof of L’s fraudulent intent or harm to C. Claims: negligence, breach of fiduciary duty Firms who take equity interest risk loss of limited liability shield from LLP or LLC. Potential liability to OTHER C’s (preferential treatment to C w/whom L doing business) Hodges, et al.: Bleed’em & Plead’em Permissible equity interest in Client? Text pp. 352, et seq. Without consulting Clients (Chris or Callie), Bob decides to give Callie 60% interest in the entity, 20% to Chris and the remaining 20% to partnership. This decision was based in part by his own love of all you can eat pizza as well as desire to protect Callie in case the marriage failed. In addition, the only payment C.C.’s has been able to make was a $10,000 retainer, and so Bob figures that the corporate share can be a future legal services payment. ANALYSIS? See 1.8(a) & related comments, Hubert 3. Entrepreneurial Activities With Clients pp. 341-46 L’s involvement in a busn. venture w/ C morphes traditional role of L (as advocate, advisor or confidant) to POTENTIAL D, CO-CONSPIRATOR, AIDER, ABETTOR & TORTFEASOR. Lawsuit more likely, difficult to defend b/c COI “may be unethical, are generally illadvised, and are always risky. Text at 341. 3. Entrepreneurial Activities With Clients pp. 341-46 Hence, legal malpractice policies typically contain broad coverage exclusions any time L has business interest w/ C, even if d/n involve rendering of legal services. 3. Entrepreneurial Activities With Clients OMAIC EXCLUSIONS g) To any claim arising out of the insured’s acts or omissions as an officer, director, partner, trustee or employee of a business enterprise or charitable organization or of a pension, welfare, profit sharing, mutual or investment fund or trust. 3. Entrepreneurial Activities With Clients OAMIC EXCLUSIONS i) To any claim arising out of legal services or advice rendered by any insured in connection w/ any busn. Enterprise owned in whole or in part, controlled directly or indirectly, or managed by any Insured, which service or advice is either claimed or is, in fact, in conflict w/ the interest of a C or former C . . . or in conflict w/ the interest of any person claiming an interest in the same or a related business enterprise. Risky Business Transactions w/ C’s, Hubert pp. 342-46 S/1 good long-term C homebuilder needs loan to buy land for development. No commercial lender willing to take risk. If L has $250K available, willing to loan, what must L do to minimize risk of adverse consequences? RPC 1.8 (a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless: Risky Business Transactions w/ C’s RPC 1.8(a) UNLESS: (1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client; WHAT MUST BE DISCLOSED? (2) the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction; and WHAT IF C REFUSES TO CONSULT W/ INDEPENDENT COUNSEL? (3) the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer's role in the transaction, including whether the lawyer is representing the client in the transaction. WHAT EFFECT IF ANY DEFECTS IN COMPLIANCE? Hypo variations s/1 0% interest loan, repayment through 20% of resulting profits? s/2 Low interest loan, does not start to accrue until closings begin, and also 10% of resulting profit? s/3 C declines to seek independent legal advice. Then what? s/4 Just settled high $ case, C has proceeds to invest, L needs to borrow $. ANALYSIS, HOW TO PROCEED? E. Breach of Confidentiality RPC 1.6(a) and Rstmt LGL §§59-60 compared, text pp. 346-48. RPC ethical duty safeguards all information relating to the representation of a C (may not reveal unless falls w/in exception) Rstmt: (fiduciary) duty to protect information relating to the representation of a C where use or disclosure will adversely affect a material interest of C or if C instructed L not to use or disclose. Exception: where info. is generally known, or otherwise allowed by §§61-67 Problem 9-4, pp. 348-49 You are judge presiding over C’s LM v. Firm. Pending D motions for summary judgment. Evaluate and rule, as to liability of Firm and its partners. Is C’s consent binding? Risk Management Lessons re Confidentiality pp. 347-48 ***New technologies present special problems Linked databases, shared computer systems, “cloud computing” Internet, websites, blogs, listservs i-phones? Hackers, industrial espionage E-discovery F. Representing Entities 1. Although relative number of claims is small (6.37%), many of those claims result in very large payouts. - Between 1996-2003, Claims exceeding $2M in losses increased by 60% -Vinson & Elkins settled Enron-related claims for $30M (critics: this was sweetheart deal) -Jenkens & Gilchrist (‘07): settled for $75 M to investors of bad tax shelter; firm dissolved. F. Representing Entities Formation: WHO IS THE CLIENT? (individuals? The future entity?) WHO IS THE CLIENT after formation of entity? (lessons, better safe than sorry) Risky business: advising constituent whose conduct might be attributed to the entity. ***Read RPC 1.13 & Cmts.