THE USE OF BREACHES OF RULES OF
PROFESSIONAL CONDUCT
IN LEGAL MALPRACTICE ACTIONS
PLDF Annual Meeting September 17-19, Washington, D.C.
PRESENTERS:
Andrew W. Countryman
Carlock, Copeland & Stair LLP
40 Calhoun St., Ste. 400
Charleston, SC 29401
843-266-8225 (direct)
843-727-0307
843-727-2995 (fax)
acountryman@carlockcopeland.com
Doug Holthus
Poling Law
300 East Broad Street, Ste. 350
Columbus, OH 43215
(614) 737-2927 (direct)
(614) 737-2900
(614) 737- 2929 (fax)
dholthus@poling-law.com
Violations of ethical rules or rules of professional conduct can certainly taint a lawyer’s image
and serve as motivating factors behind a malpractice claim, but are they evidence of malpractice?
While a lawyer’s breach of an ethical rule may speak to his character, does it necessarily mean the
lawyer breached the standard of care? Is an ethical violation negligent or indicative of negligence in
and of itself? If ethical violations speak to negligence, must a plaintiff use expert testimony to
establish ethical standards and breaches? Can jury charges include instructions regarding rules of
professional conduct and ethical violations? Can material from disciplinary proceedings be evidence
in a malpractice claim?
Generally, most jurisdictions permit discussion of an ethical violation1 as some evidence of a
breach of the duty of care, as opposed to a per se breach. However, some courts hold an ethical
standard conclusively establishes the duty of care, and any violation is basically negligence per se.
Interestingly, others provide a violation of the rules of professional conduct establishes a rebuttable
presumption of legal malpractice. Finally, a few courts completely preclude ethics and violations from
being used as evidence in a legal malpractice action.
I.
BACKGROUND
Ethical rules and standards, as well as codes and regulatory provisions have long governed
professional responsibility of lawyers. The Model Rules of Professional Conduct similarly provide
boundaries of the use of the rules, and many states’ rules of professional conduct follow the Model
Rules. In the Preamble to the Model Rules, the American Bar Association states:
Violation of a Rule should not itself give rise to a cause of action against a lawyer nor
should it create any presumption in such a case that a legal duty has been breached.
In addition, violation of a Rule does not necessarily warrant any other non-disciplinary
remedy, such as disqualification of a lawyer in pending litigation. The Rules are
designed to provide guidance to lawyers and to provide a structure for regulating
conduct through disciplinary agencies. They are not designed to be a basis for civil
liability. Furthermore, the purpose of the Rules can be subverted when they are
invoked by opposing parties as procedural weapons.
1For
purposes of this paper, please consider “ethical rules” and “rules of professional conduct” as
interchangeable.
2
The ABA recognizes a lawyer’s violation of an ethical rule may be evidence of breach of the standard
of care, but a violation does not in and of itself give rise to a cause of action.
Many states copy the ABA’s scope of its Model Rules, including the comment that ethics
rules are not meant to be enforced outside of legal discipline. However, courts have consistently
relied on ethics codes to establish the standard of care, especially with respect to conflicts of interest.
See Harrison v. Fisons Corp., 819 F.Supp. 1039, 1041 (M.D. Fla. 1993). Despite the ABA’s position,
jurisdictions disagree as to whether a violation of an ethics rule may be used as evidence of
malpractice.
II.
MAJORITY VIEW
The majority of states2 take the view that violations of ethical standards do not create a basis
for liability themselves, but may be admitted as evidence relevant to the standard of care applicable
to lawyers. These courts generally hold that pertinent ethical standards contained in the Code of
Professional Responsibility or Rules of Professional Competence, while not themselves a basis for
civil liability, are relevant to establishing the standard of care, and thus can be admissible to proving
negligence in a malpractice case. See Kathleen J. McKee, Admissibility and Effect of Evidence of
Professional Ethics Rules in Legal Malpractice Action, 50 A.L.R. 5th 301 (1997). However, even if a
plaintiff proves an ethical breach occurred, he still must prove the lawyer breached the standard of
care to prevail in a malpractice claim.
In Georgia, ethical rules are relevant and admissible to establishing the standard of care
because it would be “unreasonable” to say the rules play no role in shaping the care and skill
ordinarily exercised by attorneys in the jurisdiction. Allen v. Lefkoff, Duncan, Grimes & Dermer P.C.,
265 Ga. 374, 453 S.E.2d 719 (1995). The Allen Court stated rules of professional conduct shape the
practice of law and therefore help shape the standard of care applicable to lawyers. Accordingly,
ethical violations can be admissible as evidence of breaches in the standard of care. Id. However,
the failure to comply with the ethical rules will not ordinarily constitute negligence per se, but the jury
2
Including AZ, CA, CO, DC, FL, GA, IL, IA, KS, MA, MO, MT, NJ, ND, OH, PA, SC, TN, WI.
3
can consider along with other facts and circumstances to determine whether a lawyer acted with due
care.
The Allen opinion discusses relevance as a key consideration when determining the
admissibility of ethical rules and breaches. All ethical rules (including rules of professional conduct)
are not necessarily relevant to determining the standard of care. In order to be admissible, an ethical
rule must be intended to protect a person in the plaintiff’s position or be relevant to the particular harm
the plaintiff suffered. Id. at 377.
South Carolina treats this issue similarly and specifically adopted the Allen Court’s holding. In
Smith v. Haynsworth, Marion, McKay & Guerard, real estate developers sued their closing lawyers
when a deal fell through. 322 S.C. 433, 472 S.E.2d 612 (1996). The Court referred to the preamble
to the South Carolina Rules of Professional conduct provides the “[v]iolation of a Rule should not give
rise to a cause of action nor should it create any presumption that a legal duty has been breached.”
SCACR 407. However, the South Carolina Rules are silent as to whether the Rules of Professional
Conduct are relevant to assessing the duty of care. The South Carolina Supreme Court determined
in appropriate cases, Rules of Professional Conduct (RPC) may be relevant and admissible in
assessing legal duty of attorney in malpractice action. However, in order to relate to standard of care
in a particular case, the rule must be intended to protect person in plaintiff's position or be addressed
to the particular harm. Id.
The South Carolina Court of Appeals clarified this in McNair v. Rainsford, stating “the failure
of a lawyer to comply with a Rule of Professional Conduct is not evidence of negligence per se, but
rather, is merely a circumstance that, along with other facts and circumstances, may be considered in
determining whether attorney acted with reasonable care in fulfilling his or her legal duties to client.”
330 S.C. 332, 499 S.E.2d 488 (Ct. App. 1998). So, a lawyer defending a malpractice claim in a
jurisdiction with the majority view should be ready to raise relevance as an argument to keep out
evidence of a breach of an ethical rule. Because a breach of an ethical violation is not per se
4
negligence, an ethical breach may have no bearing on whether the lawyer breached the standard of
care, and the introduction of the ethical breach into evidence could be unfairly prejudicial.
III.
MINORITY VIEW: VIOLATION AS A PRESUMPTION OF MALPRACTICE
A minority of courts hold that a violation of an ethical standard establishes a rebuttable
presumption of legal malpractice. In Lipton v. Boesky, a legal malpractice action arose from a
lawyer’s representation of a client in connection with construction of an office building. 110 Mich.
App. 589, 313 N.W.2d 163 (Ct. App. 1981). The Michigan Court of Appeals applied a negligence per
se analysis and held, as with statutes, a violation of an ethical rule creates a rebuttable presumption
of malpractice. According to the opinion, ethical rules create a standard of practice for lawyers and
express the standards of professional conduct expected of lawyers in their relationships with the
public, the legal system, and the legal professions. It would be unfair not to allow a lawyer’s client to
rely on his or her lawyer to abide by those standards. Id.
New Jersey also considers the violation of an ethical standard as an inference of malpractice
shifting the burden of proof from the plaintiff client to the defendant lawyer. Albright v. Burns, 206
N.J. Super 625, 503 A.2d 386 (Ct. App. 1986). While violations of ethical standards do not per se
give rise to tortious claims, standards set a minimum level of competency which all lawyers must
display.
Id.
Where a lawyer fails to meet minimum standard of competence governing the
profession, such failure can be considered evidence of legal malpractice. Id.
IV.
MINORITY VIEW: VIOLATION AS CONCLUSIVE OF MALPRACTICE
Some California courts have held ethical standards conclusively establish the duty of care,
and any violation is negligence per se. Marc R. Greenough, The Inadmissibility of Professional
Standards in Legal Malpractice After Hizey v. Carpenter, 68 Wash.L.Rev. 395 (1993). In California,
the violation of an ethical standard is conclusive evidence a lawyer breached the standard of care.
See Ishmael v. Millington, 241 Cal.App.2d 520, 50 Cal. Rptr. 592 (Ct. App. 1966). The California
Court of Appeals in Day v. Rosenthal, held the state ethical rules conclusively established the
lawyer’s duty of care, and any expert testimony contrary to the rules would be disregarded. 170
5
Cal.App.3d 1125, 217 Cal. Rptr. 89 (Ct. App. 1985) (superseded by statute on a different point of
law).
Courts taking this position rationalize the ethical rules firmly establish the duty of care, and
violation of an ethical duty is negligence in and of itself. In other words, any failure to meet the
standards the ethical rules impose is conclusive evidence of malpractice. This effectively removes
any relevance argument for keeping out evidence of ethical breaches. Besides a few California
courts, no other state has expressly held violation of an ethical rule is conclusive evidence of
negligence. However, some have indicated in dicta they might also choose this route.
V.
MINORITY RULE: COMPLETE INADMISSIBILITY
Appellate courts in two states, Arkansas and Washington, have held the violation of an
ethical rule is completely inadmissible in a legal malpractice action. In Orsini v. Larry Moyer, 310 Ark.
179, 833 S.W.2d 366 (1992), the Supreme Court of Arkansas upheld the trial court’s exclusion of the
ethical rules without much discussion of its rationale. The Court simply stated the rules were
designed for discipline and not civil liability.
The Supreme Court of Washington provided a detailed rationale for its similar conclusion in
Hizey v. Carpenter, 119 Wash. 2d 251, 830 P.2d 646 (1992). In Hizey, plaintiff sued a lawyer for
malpractice arising out of a real estate transaction. Plaintiff claimed the lawyer wrongly represented
both the buyers and sellers, which was a conflict of interest. At trial, the lawyer moved to exclude the
testimony of the plaintiffs’ expert witness on the ground it would be improper to admit evidence
regarding the professional ethical standards governing lawyers. The trial court granted the motion.
The Washington Supreme Court unanimously upheld the trial judge’s decision, holding a plaintiff may
not inform the jury of the existence of the ethical rules in a legal malpractice action, either directly
through jury instructions or by the expert testimony. Id.
The Hizey opinion relied on public policy as rationale and noted plaintiff had other common
law remedies available and could support a malpractice action. The opinion held the use of the
ethical rules as a basis for civil liability would defeat the purpose of the rules, which is to aid the legal
6
system by protecting the public and the integrity of the profession. The opinion also expressed
concern the use of the rules as a basis for civil liability would remove the motivating force behind
them.
The Hizey Court also indicated the ethical rules establish the minimum level of conduct a
lawyer must demonstrate to avoid disciplinary action. However, in a malpractice action, the duty the
lawyer owes to the client is dependent upon the type of representation and particular circumstances.
This duty may vary and may not the same as the duty under the ethical rules.
VI.
JURY INSTRUCTIONS
Courts occasionally allow the quotation of ethics rules in jury instructions in breach of fiduciary
duty and legal malpractice cases. As an Illinois court explained:
Like most statutes and ordinances, attorney disciplinary rules establish minimum
standards of conduct and are intended to protect the general public. For these
reasons . . . jury instructions may quote attorney disciplinary rules in legal malpractice
cases to the same extent as they may quote statutes and ordinances in instructions in
other types of negligence cases. This is a debatable practice, however, and not all
courts endorse it. Mayol v. Summers, Watson & Kimpel, 223 Ill. App. 3d 794, 585
N.E.2d 1176 (App. Ct. 1992).
This practice is debatable because, as discussed above, the violation of an ethical rule
maybe irrelevant to whether the lawyer violated the standard of care. In this situation, quoting an
ethical rule in a jury instruction could lead to a verdict against a lawyer based on something other
than a breach in the standard of care. Massachusetts addressed this issue in Fishman v. Brooks,
396 Mass. 643, 487 N.E.2d 1377 (1986). The Court provided that a violation of an ethics canon or
disciplinary rule is not itself an actionable breach of duty to a client. The Court further reasoned if a
plaintiff can demonstrate a disciplinary rule was intended to protect one in his position, a violation of
that rule may be some evidence of the lawyer’s negligence. Id.
A Michigan court approved a jury instruction referencing the testimony of the expert
witnesses concerning ethics rules, and cautioned, “you must keep in mind that a violation of the
Michigan Rules of Professional Conduct do not create the basis for a claim, nor does it create any
presumption that a legal duty has been breached. The Michigan Rules of Professional Conduct are
7
not designed to be a basis for civil liability.” Alpha Capital Mgmt., Inc. v. Detenback, 287 Mich. App.
589,792 N.W.2d 344 (Ct. App 2000).
There do not appear to be bright line rules governing this issue. Instead, the use of ethical
rules in jury instructions is probably best decided on a case by case basis determined primarily by the
way the court treats admissibility of ethical rules and breaches and whether/how the rules and/or
breach relate(s) to the alleged negligence (relevance). If ethical rules help establish one of the
elements of malpractice (breach, duty, causation, damages), there is probably a decent argument for
including ethical rules in jury instructions. On the other hand, if the breach of an ethical rule is not
relevant to the alleged negligence or plaintiff’s damages, it may be inappropriate to charge the jury
with ethical rules.
VII.
EXPERT TESTIMONY
Plaintiffs normally must establish a lawyer’s standard of care and whether the lawyer
breached it with expert testimony. An expert testifying on those issues may base opinion on the
lawyer’s failure to conform to an ethical rule. In this manner, the ethical rule may play a prominent
role in establishing the lawyer’s departure from the legal standard of care.
The testimony about ethics law is usually admitted, and the American Law Institute’s new
Restatement of the Law Governing Lawyers has endorsed this trend:
“The trier of fact may consider the content and construction of a relevant statute or
rule, for example a statute or rule of professional conduct … designed for the
protection of persons in the position of the claimant….
When the trier of fact may consider … the content and construction of a statute or
rule, a qualified witness may rely on it in forming an expert opinion and may testify as
to its construction and application to the circumstances in question. Such a witness
may rely on the usual aids to construction, such as official comments, judicial and
ethics committee opinions construing the rule or statute, and professional literature.” §
Rest. (3rd) of the Law Governing Lawyers § 74 (1997).
According to Professor Freedman, because careful lawyers “will act in conformity with the
rules of professional ethics,” expert testimony about the rules “is analogous to expert testimony
regarding ‘usage of trade,’ which is familiar in commercial litigation.” Monroe Freedman, Trials of an
Ethics Expert Witness, Legal Times, May 23, 1994, at 12.
8
Some states, including Iowa and Montana, require expert testimony of professional ethical
standards. In Kubik v Burk, the Iowa Court of Appeals stated the allegation the lawyer violated the
Code of Professional Responsibility required expert testimony in order to show a deviation from the
standard of care. 540 N.W.2d 60 (Iowa Ct. App. 1995). Other states3 are less demanding and
simply allow expert testimony of professional ethical standards. The court in Smith v Haynsworth,
ruled an expert could testify concerning the Rules of Professional Conduct, violations of which plaintiff
contended constituted legal malpractice. 322 S.C. 433, 472 S.E.2d 612 (1996).
Similarly, a few states (including Massachusetts and Washington) do not allow experts to
testify on professional ethical standards out of fear of the impact the testimony may have on jurors, or
simply because the testimony is unnecessary. In these situations, the court may allow the expert to
base his opinion, in part, on ethics rules violations, but the expert must address the breach of legal
duty of care and not simply the alleged breach of an ethics rule. See Hizey v. Carpenter, 119 Wash.
2d 251, 830 P.2d 646 (1992).
VIII.
ARE DISCIPLINARY INVESTIGATIONS AND OUTCOMES ADMISSIBLE?
From a big picture perspective, disciplinary proceedings are usually protected unless and
until there is a public finding.
So, if there is no public finding (reprimand, suspension, etc.),
disciplinary records are probably inadmissible. However, while the basic rule is that such records are
“confidential,” some courts have added qualifications to this. See Brotsky v State Bar of California,
57 Cal.2d 287, 368 P.2d 697 (1962). It has been said an accused lawyer is entitled to a bar
association’s records of disciplinary proceedings against other attorneys on similar charges, with an
exception for privileged material contained in it. Id. Further, while confidentiality of disciplinary
records is the general rule, such records are open to the public if: 1) public discipline is imposed, 2)
the lawyer requests they be open, or 3) criminal charges are involved.
See McLaughlin v
Philadelphia Newspapers, Inc., 465, Pa. 104, 348 A.2d 376 (1975).
3
Including CA, CO, GA, SC AND TN.
9
Another view is that part of the record relating to charges sustained against the lawyer is to
be open to the public, but any portion relating to pending charges is to remain confidential. See In Re:
Klein, 3 A.D.2d 1010, 166 N.Y.S.2d 549 (App. Div. 1957). Although constitutional issues involving
restrictions on access to records of disciplinary proceedings against lawyers have not been very fully
developed, a First Amendment challenge to the general rule that such records are to be kept
confidential has been considered and rejected. See McLaughlin, 465, Pa. 104, 348 A.2d 376 (1975).
Of course, there is an argument that public orders of reprimand and the like (distinguishable
from records of disciplinary proceedings) can be admissible as evidence of legal malpractice, subject
to objections of relevance and prejudice. However, unilateral complaints to a state bar or disciplinary
board should perhaps be inadmissible because anyone can submit a complaint, and the filing of a
complaint is much different than a finding of an ethical breach.
As a practical matter, it is not uncommon for a grievance committee to wait to make a
determination until after the disposition of a malpractice suit arising out of the same facts and
circumstances. A lawyer defending a malpractice claim should work with the lawyer defending a
disciplinary action and the grievance committee to prevent the development of a record or any finding
in the disciplinary action until the malpractice action is concluded. This is a good way to prevent the
introduction of disciplinary records or findings from even becoming an issue in a malpractice case.
While not an official policy, the South Carolina Office of Disciplinary Counsel rarely seems to proceed
with a grievance matter until a corresponding malpractice action is concluded, except for issues
involving lawyers’ trust accounts.
IX.
WHEN IS CLIENT CONTRIBUTORY NEGLICENCE A FACTOR IN MALPRACTICE
CLAIMS?
In nearly all tort cases, the issue of contributory (or, in some jurisdiction, comparative)
negligence is one of the most common affirmative defenses that a defendant will raise against a
plaintiff that has brought suit. The defense posits that the alleged negligence that occurred is at
least, in part, attributable to the plaintiff’s own conduct, often barring suit if his conduct reaches
10
3508635v.1
a determinable level of culpability. While the defense may be second-nature to most alleged
tortfeasors, its relevant can find a different light in a professional negligence case, more
specifically a legal malpractice case.
Just like nearly any other type of negligence, the burden of proof in these cases lies
with the plaintiff to prove (1) the existence of a duty owed by the defendant to the plaintiff; (2)
a breach of that duty by the defendant; (3) that breach proximately causing harm to the
plaintiff; and, (4) that the plaintiff suffered cognizable damages. The existence of these
factors must be proven by the practicing standards of the specific community where the
alleged negligence took place, and must be proven by expert testimony, often with the
MPRC or specific ethical rules of each jurisdiction acting as guiding, if not binding, authority.
With this in mind, attempting to insert contributory negligence as an affirmative
defense is troublesome, as many ethical codes are silent on the issue, and precedent
discussing the defense is not wholly prevalent. Some jurisdictions do not view the defense
as applicable in the legal context, arguing that an attorney has an affirmative duty to control
his client’s conduct during his representation, meaning any failure on the client’s part is a
failure on the attorney’s part. Much of this stems from the ABA’s position that even though
the client has the ultimate authority regarding representation, it is the lawyer that has the
authority to make decisions in litigation regarding technical, legal, and tactical matters.4
Thankfully, this is not the dominant position in available jurisprudence on the matter,
with most jurisdictions wholly embracing the defense as a way for an attorney to defend
himself against plaintiffs who fail to follow, or intentionally disregard, what may be their
attorney’s reasonable guidelines. While this defense assumes that the attorney’s advice is
proper to begin with, where the hurdles of client sophistication and communication are
4
See Comments to Model Rules of Professional Conduct 1.2
11
overcome, contributory negligence is a highly effective tool to mitigate, if not eliminate claims
for malpractice against an attorney.5
While not exhaustive of all opinions on the matter, the following jurisdictions all
display a consistent opinion toward the availability of the defense.
A.
Examples of application by jurisdiction.
1. Ohio
Ohio has taken a favorable stance on the availability of contributory negligence as a
defense in legal malpractice claims.6 Beginning in 1987 with the case of Banker v. Wagner,7 the
First Appellate District of Hamilton County ruled in favor of the defendant attorneys on review of
the lower court’s decision that the plaintiff was contributorily negligent as to their harm. While
only one case has, at the most cursory level, questioned the availability of the defense in legal
malpractice action (“Assuming arguendo the doctrine of comparative negligence applies in legal
malpractice actions…”8) Ohio’s embrace of the doctrine is largely settled. This is because Ohio’s
comparative negligence law under RC 2315.32-.36 has been found to broadly apply to all tort
actions, including those sounding in legal malpractice.9 While the issue of comparative
negligence is generally viewed as one that is for the trier-of-fact to resolve, the fact of the matter
is that the defense nonetheless exists in Ohio to support defendants in legal malpractice
claims.10
2. California
“a client to be contributorily negligent, in view of his knowledge and sophistication, when the client is himself a
skilled attorney who is fully advised of the issues involved and himself decides what course of action to take, or
when it is reasonable to expect a non-attorney client to understand the legal obligations or formalities that have
to be fulfilled in connection with a particular transaction notwithstanding his attorney's erroneous advice or failure
to advise.” See, e.g. Cicorelli v. Capobianco, 90 A.D. 2d 524, 525 (NY 1982).
6 See Heller v. Pre-Paid Legal Services, Inc., 2013-Ohio-680 (Ohio 9th Dist. 2013);
7 1987 Ohio App. LEXIS 8535, 1987 WL 16484 (Ohio 1st Dist. 1987)
8 Kalina v. Sagen, 1992 Ohio App. LEXIS 1598, 1992 WL 62180 (Ohio 8th Dist. 1992)
9 Southern Electric Suppl Co., Inc. v. Lienguard, Inc., 2007 WL 4224225.
10 Simmers v. Bentley Constr. Co., 64 Ohio St. 3d 642, 646, 1992 Ohio 42, 597 N.E.2d 504 (1992).
5
12
California has accepted contributory negligence as a viable defense to malpractice
claims ever since the First Appellate District handed down its decision in Theobald v. Byers.11 In
that case, the plaintiffs employed the defendants to prepare a note and chattel mortgage in
connection with a loan. When the debtors to the action declared bankruptcy, the plaintiffs
became unsecured creditors because the chattel mortgage had not been acknowledged and
recorded by the defendants. As part of their defense, the defendants argued that the plaintiffs
were contributorily negligent through their failure to inquire about whether the chattel mortgage
should be acknowledged and recorded, and failed to themselves acknowledge and record the
mortgage.
While the Court eventually ruled that whether the plaintiffs were contributorily negligent
was not as obvious as to preclude any genuine issue of material fact, the Court noted that the
defense was wholly applicable in legal malpractice cases. “The lawyer can thus properly be
classified with members of various other professions who are considered to possess
knowledge, skill or even intelligence superior to that of an ordinary man and are, as a
consequence, held to a higher minimum standard of conduct…hence it would seem clear that
similar rules of law would be applicable to all three professions, [including contributory
negligence].”12
Over fifty years after the decision in Theobald, no California court has questioned the
doctrine’s applicability to legal malpractice cases. Consequently, California has recognized
contributory negligence to apply in legal malpractice cases where a plaintiff may be held
responsible and liable for damages stemming from their own failure to act in a reasonable
manner.13
3.
New York
11
Theobald v. Byers, 193 Cal App 2d 147 [1961].)
Theobald v. Byers, 193 Cal App 2d 147, 150 [1961]
13 Li v. Yellow Cab Co., 13 Cal. 3d 804, (1975)
12
13
Case law specifically on the point of contributory or comparative negligence is somewhat
rare in New York; but, that is not to say it does not exist. Apportionment is largely the applicable
rule of the state - with two or more tort-feasors, in these cases the plaintiff-client and the
defendant-attorney, apportioning their respective damages when the conduct of both is
determined to have caused plaintiff’s harm.14 Ergo, it is the position in New York that a
defendant should be allowed to present evidence of a plaintiff’s contributory negligence to show
the causation of the plaintiff’s damages.15
4.
Pennsylvania
The Pennsylvania Supreme Court has acknowledged that contributory fault may stem
either from a plaintiff’s careless exposure of himself to danger or from his failure to exercise
reasonable diligence for his own protection.16 This is because one is not bound to anticipate the
negligence of another.17 In the specific context of legal malpractice, the Court recently handed
down one of the most significant cases on the topic in Gorski v. Smith.18
There, the clients engaged the principal of a law firm to advise them in the sale of land.
The clients emphasized that they did not want to be liable for any deficiencies in the land, but
the contract that the attorney drafted guaranteed that they obtained various sewer permits that
they did not have, resulting in damages when the clients lost the ensuing lawsuit against the
purchaser of the property. The clients instituted a malpractice action which resulted in a jury
verdict in favor of the defendants. Of importance, the jury found the plaintiffs to be contributorily
negligent in their actions pertaining to the creation of the land sales agreement with the firm.
14
Rosern v. Paley, 65 N.Y.2d 736 (1985); Estate of Nevelson v. Carro, Spanbock, Kaster & Cuiffo, 686 N.Y.2d
404 (1st Dept. 1995).
15 Titsworth v. Mondo, 425 N.Y.S.2d 422 (1980) (An order precluding attorney from using affirmative defense of
client’s contributory negligence due to actions of their former attorney was reversed, as it went too far in
precluding attorney from opportunity to show causation of clients’ damages).
16 Thompson v. Goldman, 382 Pa. 277, 114 A.2d 160 (Pa. 1955)
17 Bortz v. Henne, 415 Pa. 150, 204 A.2d 52 (Pa. 1964)
18 812 A.2d 683, 2002 PA Super 334 (Pa. 2002)
14
The case made its way to the Superior Court which, in a matter of first impression, held
that contributory negligence can be a defense to an action for legal malpractice. While it found
that Pennsylvania’s statutory comparative negligence laws did not apply, 19 it held that
contributory negligence remained a viable option for legal malpractice cases.
In summary, while a client cannot be deemed contributorily negligent for failing to
anticipate or guard against his or her attorney’s negligence in the performance of legal services
within the scope of the attorney’s representation of the client, a court will find damages incurred
by the client that were a result of his own action or inactions are not recoverable from the
attorney.20
5.
Florida
Florida has often recognized the clients own conduct may provide an applicable defense
in legal malpractice claims. This has applied in cases where the client waives their claim by
frustrating their appeal,21 the clients conduct indicates that he has abandoned his claim,22 or
where the attorney successfully asserts that the client’s own guidance caused his damages.23
In the case of Goodwin v. Alexatos,24 reviewed a decision of the lower court granting
judgment in favor of an attorney in a case alleging his malpractice caused, in part, the plaintiff’s
real estate transaction to fail. This was due to the attorney’s alleged failure to clear the title of
the property that plaintiff sought.
Reviewing the decision, the Court of Appeals affirmed the lower court’s denial of relief on
the claims of legal malpractice, stating that “the record indicates that Goodwin's damages were
caused by his own abrupt, unilateral decision to call a halt to Heirs' further efforts to eliminate
19
This was because the only injuries where comparative negligence applied were those resulting in death or
injury to person of property. See 42 Pa. C.S.A. 7102.
20 Columbia Med. Group, Inc. v. Herring & Roll, P.C., 829 A2d 1184, 1192, 2003 PA Super 272, ¶ 21 [2003];
citing to Gorski, 2002 PA Super 334, ¶47; Levin v. Weismann, F. Supp. 322 (ED Pa 1984).
21 Segall v. Segall, 632 So. 2d 76, 1993 Fla. App. LEXIS 10922 (Fl. 3rd Dist. 1993)
22 Lenahan v. Russell L. Forkey, PA, 702 So.2d 610, 1997 Fla. App. LEXIS 14057 (Fla. 4th Dist. 1997)
23 Boyd v. Brett-Major, 449 So.2d 952, 1984 Fla. App. LEXIS 12975 (Fla. 3rd Dist. 1984)
24 584 So. 2d 1007, 1991 Fla. App. LEXIS 862 (Fla. 5th Dist. 1991)
15
the impediments to clear title.”25 Therefore, the plaintiff failed to sustain his burden to show that
the defendant’s failure proximately caused his damages when, in fact, the proximate cause was
his own decision to abandon the property transaction before the attorney was properly able to
clear title.
6.
Minnesota
Minnesota proceeds under the theory of comparative negligence in the context of
negligence actions, including professional negligence.26 In difference to statutes such as those
in Pennsylvania, comparative fault applies to all causes of action that involve death, injury to
person or property, or economic loss. That final element allows comparative fault to apply to
much greater range of cases. Consequently, damages recoverable by a plaintiff in a legal
malpractice action must be diminished by the proportion to which he is comparatively negligent
to the actions of the attorney.
While state courts in Minnesota emphasize that comparative fault in professional
negligence actions must be applied with caution, due to the nature of the fiduciary relationship
between the professional and the client, the defense is wholly applicable.27 For instance, in the
case of Bowen v. Arnold,28 the client brought suit against his attorney, alleging that he failed to
initiate, or even advise her of, the applicable discovery procedures in his marriage dissolution
case, leading to a smaller settlement than what was expected due to the attorney’s failure to
obtain all of the spouse’s financial information. The attorney argued that the client had
emphasized he wanted a quick settlement and rejected many of the procedures that would have
discovered that information. After trial, a jury returned a special verdict finding the attorney was
not negligent.
25
584 So. 2d 1007, 1010.
See Minn. Stat. 604.01
27 Halla Nursery, Inc. v. Baumann-Furrie & Co., 454 N.W.2d 905, 909 (Minn. 1990)
28 380 N.W.2d 531 (Minn. 1986)
26
16
Of note, one of the jury instructions informed the jury members of Minnesota’s
comparative fault statute, stating that “a client must use reasonable care to protect her own
financial interests, given the information and legal alternatives made known to her.”29 On
appeal, the client raised the use of the jury instruction was an abuse of discretion, as the
attorney’s position of power rendered the statute inapplicable. The Minnesota Supreme Court
was not persuaded by this argument, finding no issue regarding the statute’s applicability. 30 The
decision conformed with earlier findings of the Minnesota Supreme Court, which equally found
no issue with the statute’s applicability to legal malpractice cases.31
7.
Texas
Under the Texas Civil Practice and Remedies Code, §33.001, a claimant may not
recover damages if his percentage of responsibility is greater than fifty percent. This section of
the state code is broadly applied, finding relevance in “any cause of action based on tort in
which a defendant, settling person, or responsible third party is found responsible for a
percentage of the harm for which relief is sought.”32 This includes actions for legal malpractice.33
The Texas Court of Appeals for the Fifth District succinctly summarized this position in
the case of In re Smith, stating:
“Chapter 33 applies to ‘any cause of action based on tort in which a defendant, settling person,
or responsible third party is found responsible for a percentage of the harm for which relief is
sought.’ [The client] is suing [his attorney] for legal malpractice, which is a tort.
Willis v.
Maverick, 760 S.W.2d 642, 644 (Tex. 1988) [held] ‘A cause of action for legal malpractice is in
the nature of a tort.’ Thus, Chapter 33 applies.”34
29
380 N.W. 2d 531, 536
Regardless, the issue was rendered moot because the jury found the attorney to have acted reasonably. Id.
31 See, e.g. Togstad v. Vesely, Otto, Miller & Keefe, 291 NW2d 686, 696 (Minn. 1980).
32 See Tex. Civ. Prac & Rem. Code §33.002.
33 See, e.g. Saks v. Sawtelle, Goode, Davidson & Troilo, 880 S.W.2d 466 (Tex. 4th Dist. 1994)
34 366 S.W. 3d 282 (Tex. 5th Dist. 2012)
30
17
Texas’ brevity toward the issue is a welcome reprieve. Consequently, contributory
negligence is accepted as an affirmative defense in the jurisdiction.
8.
Colorado
Contributory negligence is an applicable defense for legal malpractice cases in
Colorado. For instance, in the case of Scognamillo v. Olsen,35 the plaintiffs had previously
been represent by the defendants in an action for fraud, breach of contract, and civil
conspiracy. During litigation, the defendants withdrew from representation following the
plaintiff’s failure to settle their claim. This arguably led to the plaintiffs being found liable for
damages in excess of $1,000,000 when his lack of representation prevented him from timely
filing an appeal.
Following a thirty (30) day trial, a jury found the defendants to have been negligent in
withdrawing; but, this amount was reduced after numerous post-trial motions, one of which
was based on the contributory negligence of the plaintiffs. On appeal of this decision, the
plaintiffs argued that submitting the issue to the jury was in error, arguing that because the
defendants were in a greater position of knowledge and power, they were liable for the
whole amount.
The court was not persuaded, stating that enough evidence was adduced at trial to
show that the defendants had advised the plaintiffs of many of the underlying concepts and
procedures for their trial.36 In conformity with many other jurisdictions, the court ruled that
“an attorney is entitled to have the jury consider a client’s negligence, even when the client is
not an attorney, if it is reasonable to expect the client to understand their legal obligations
and formalities in connection with a case, notwithstanding any other erroneous advice.
35
Scognamillo v. Olsen, 795 P2d 1357 (Col. Ct. App., Div. Two, 1990).
Additionally, the court found that because the plaintiffs had previously been involved in lawsuits, this created
additional knowledge and experience on their part. 795 P.2d 1357, 1363.
36
18
Therefore, the jury in Scognamilo could reasonably deduce that the plaintiffs had enough
knowledge and experience to understand that their failure to accept settlement could lead to
a trial that potentially could increase their financial liability.
While contributory negligence was not able to completely bar the plaintiffs’ claims in
Scognamillo, the defendants were able to successfully utilize the argument to reduce their
liability from over $1,400,000 to $27,000. Because the evidence was shown that the plaintiff
was reasonably knowledgeable to understand the consequence of his failure to settle his
claims, the defendants received a reduction in sentence greater than 99%. Therefore, as
evidenced by Scognamillo, courts in Colorado will allow defendants to utilize the contributory
negligence defense.
9.
New Jersey
New Jersey exists as an outlier to many of the more accepted standards of contributory
and comparative negligence. The duty of care for professionals in New Jersey includes the
prevention of self-damaging acts that can cause a plaintiff’s injuries, where the actions and
capacity of the plaintiff are within the defendant’s scope of duty.37 Because the attorney-client
relationship often involves a plaintiff’s reliance on the advice and judgment of an attorney, to
protect his or her interests, contributory negligence is generally not available as a defense.
The Supreme Court of New Jersey approached this issue in the case of Conklin v.
Hannoch Weisman.38 There, the plaintiffs placed a large parcel of land for sale, and appointed
the defendants to handle the matter. They eventually found a purchaser willing to pay over $12
million for the land, with nine out of the twelve million dollars being paid out over a five year
period via a purchase-money note. The contract of sale described the note as “subordinate” to
one or more institutional construction mortgages. Subsequently, the purchaser filed bankruptcy
37
38
Cowan v. Doering, 545 A.2d 159, 167 (NJ 1988)
145 NJ 395, 678 A.2d 1060 (NJ 1996)
19
several years later, and another mortgage lender that had priority foreclosed on the property,
costing the plaintiffs the $9 million owed to them under the note. The plaintiffs filed a malpractice
action against the attorneys, arguing they had negligently prepared the note. After a jury trial
found for the defendants, the lower court granted a re-trial following several allegedly misleading
jury charges.
The Supreme Court eventually heard the claim in order to determine the scope of the retrial, and ultimately ruled that the jury should not be permitted to consider the plaintiff’s conduct
as contributory negligence on re-trial. The court placed greater emphasis on the attorney’s
fiduciary relationship than on the plaintiff’s conduct while bound to that relationship, stating that
“the duty of the professional encompasses the protection of the client or patient from selfinflicted harm, the infliction of that harm is not to be regarded as contributory negligence on the
part of the client.”39
While the court did recognize that defense may be applicable in situations where the
client deliberately violates the professional’s instructions with respect to self-care, or “heedlessly
enters a transaction regardless of any instructions on the part of the professional,” the court was
otherwise reluctant to provide defendant-attorneys an easy route to pleading comparative or
contributory negligence as an affirmative defense.40
10.
South Carolina.
South Carolina has adopted comparative negligence as an affirmative defense in tort
actions.41 In the specific context of a legal malpractice action, comparative negligence is a
proper affirmative defense where the client (1) fails to follow advice or instructions; (2) fails to
supervise, review, or inquire concerning representation; (3) fails to provide essential information;
39
145 NJ 395, 412, 678 A.2d 1060, 1068 (NJ 1996)
Id.
41 Nelson v. Concrete Supply Co., 303 SC 243, 399 S.E.2d 783 (SC 1991).
40
20
(4) interferes with the attorney’s reasonable conduct; or (5) fails to pursue remedies or to
mitigate damages.42
For example, in the case of Frist v. Leatherwood, Walker, Todd & Mann,43 the plaintiff
sought an appeal from the lower court’s decision to grant a motion for a directed verdict for the
defendants at the close of her presentation of evidence. She argued that the defendants had
failed to perfect her appeal to the Supreme Court of South Carolina following a state order
granting her divorce, but denying her alimony.
On review, the Fourth Circuit agreed with the findings of the lower court, ruled that the
totality of the evidence failed to establish any negligence on the part of the attorneys. “To the
contrary, it appears to establish due diligence on the part of the defendants…during the time
between the state court decision and the expiration of the period within which to appeal, despite
repeated and successively more urgent notifications and requests, plaintiff failed to make such
advancements although her own evidence shows that she had sufficient funds available to her
during this time.”44 Essentially, the Court ruled that even though the defendants failed to timely
file the appeal, it was due to the plaintiff’s failure to follow their instruction, thus interfering with
their ability to file the appeal.
In comparison to states such as New Jersey, South Carolina emphasizes the
numerous ways that a plaintiff can bring about their own damages stemming from an
alleged act of malpractice. While likely not exhaustive of every possible way that a plaintiff
can be comparatively negligent, the aforementioned ways in which a plaintiff can be
contributorily negligent seemingly places a reciprocal burden on the plaintiff to reasonably
conform their conduct to their attorney’s requests throughout the representation. The highly
42
1 South Carolina Jurisprudence, Attorney and Client, §73.
433 F.2d 11 (4th Cir. 1970) (Applying South Carolina law).
44 Frist, 433 F.2d 11, 12.
43
21
organized and elemental approach to comparative negligence in South Carolina presents a
gratifying abatement for attorneys practicing in that jurisdiction.
Conclusion.
The applicability of contributory and comparative negligence in jurisdictions throughout the
United States is largely consistent, with states emphasizing that, although the attorney is in a
position of power within the attorney-client fiduciary relationship, the client bears at least part of
the burden of maintaining reasonable conduct. The defense nonetheless works in a variable
spectrum based on the state the plaintiff files suit in, with South Carolina and Texas definitively
holding the defense as applicable, and New Jersey placing the greater burden on the attorney
to control his or her client’s conduct. Ultimately, attorneys in all jurisdictions should be aware
that, to a greater or lesser degree, contributory negligence is valuable tool to defend a legal
malpractice action.
X.
A.
CAN RETENTION LETTERS REDUCE CLAIM RISK?
The American Bar Association; Model Rules of Professional Conduct
The preface to the Model Rules of Professional Conduct of the American Bar
Association (“ABA”) provides, in material part, that “the American Bar Association continues to
pursue its goal of assuring the highest standards of professional competence and ethical
conduct.”
The ABA Model Roles of Professional Conduct: Preamble & Scope buttress this
philosophy and detail this laudable goal by indicating, in salient part:
1.
A lawyer, as a member of the legal profession, is a representative of clients, an
officer of the legal system and a public citizen having special responsibility for the quality
of justice;
2.
As a representative of clients, a lawyer performs various functions. As advisor, a
lawyer provides a client with an informed understanding of the client’s legal rights and
obligations and explains their practical implications. As advocate, a lawyer zealously
asserts the client’s position under the rules of the adversary system. As negotiator, a
lawyer seeks a result advantageous to the client but
consistent with requirements
22
of honest dealings with others. As an evaluator, a lawyer acts by examining a client’s
legal affairs and reporting about them to the client or to others…
***
4.
In all professional functions, a lawyer should be competent, prompt and diligent.
A lawyer should maintain communication with a client concerning the
representation. A lawyer should keep in confidence information relating to
representation of a client except so far as disclosure is required or permitted by the
Rules of Professional Conduct or other law…
***
19. Failure to comply with an obligation or prohibition imposed by a Rule is a basis
for invoking the disciplinary process.
The Rules presuppose that disciplinary
assessment of a lawyer(s) conduct will be made on the basis of the facts and
circumstances as they existed at the time of the conduct in question and in recognition
of the fact that a lawyer often has to act upon uncertain or incomplete evidence of the
situation. Moreover, the Rules presuppose that whether or not discipline should be
imposed for a violation, and the severity of a sanction,
depend on all the
circumstances, such as he willfulness and seriousness of the violation, extenuating
factors and whether there have been previous violations;
20.
Violation of a Rule should not itself give rise to a cause of action against a
lawyer, nor should it create any presumption in such a case that a legal duty has been
breached. In addition, violation of a Rule does not necessarily warrant any other nondisciplinary remedy, such as disqualification of a lawyer in pending litigation. The Rules
are designed to provide guidance to lawyers and to provide a structure for regulating
conduct through disciplinary agencies. They are not designed to be a basis for civil
liability.
In keeping with these ideals and goals, Rule 1.2 of the ABA Model Rules provides (again in
material part) as follows: (C) a lawyer may limit the scope of the representation if the limitation is
reasonable under the circumstances and the client gives informed consent. (Emphasis added.)
Providing the client the ability to limit the scope of his attorney-client relationship affords respect to
the contractual origin of the pairing. So long as the client is informed of “the facts and
circumstances giving rise to the [representation], any explanation reasonably necessary to inform
the client or other person of the material advantages and disadvantages of the proposed course of
conduct and a discussion of the client's or other person's options and alternatives,” then the client’s
23
consent is proper under the circumstances.45 These elements are laid out broadly, and consider
many factors to determine whether the circumstances show that consent was properly attained.
See, e.g., Galderma Labs., L.P. v. Actavis Mid Atl. LLC, 927 F Supp 2d 390 (N.D. Tex. 2013)
(Corporation provided consent where representatives were deemed sophisticated, and had inhouse counsel to review retention agreement with outside firm); Celgene Corp. v. KV Pharm. Co.,
2008 U.S. Dist. LEXIS 58735, 2008 WL 2937415 (D.N.J. July 28, 2008) (While client was relatively
sophisticated, retention agreement only benefitted law firm and could not have been the product of
informed consent); CenTra, Inc. v. Estrin, 538 F3d 402 (6th Cir. 2008) (Merely informing client of
simultaneous representation of a competitor does not provide consent, the full extent of the
possible conflict must be explained).
Moreover, Rule 1.4: “Communications” of the ABA Model Rules provides as follows:
(A)
A lawyer shall: (1) promptly inform the client of any decision or circumstance
with respect to which the client’s informed consent, as defined in Rule 1.0(e), is required by
these rules; (2) reasonably consult with the client about the means by which the client’s
objectives are to be accomplished; (3) keep the client reasonably informed about the status of
the matter; (4) promptly comply with reasonable requests for information; and (5) consult with
the client about any relevant limitation on the lawyer’s conduct when the lawyer knows that the
client expects assistance not permitted by the Rules of Professional Conduct or other law.
(B)
A lawyer shall explain a matter to the extent reasonably necessary to permit the
client to make informed decisions regarding the representation.
(Emphasis added.)
So; what’s the take away …?
While the ABA Model Rules do not specifically prescribe the use of Retention Letters;
notwithstanding, the use of such correspondence clearly is a best practice.
Indeed, many
jurisdictions have adopted by statute, rule of professional conduct, rule of practice or otherwise, their
own suggested if not prescribed form Retention Letters or some similar, hybrid type of
45
See, MRPC 1.0, comment 6.
24
communication.46 The purpose of these is obviously compliance with letter if not intent of the ABA
Model Rules, either as wholly or partially adopted within the particular jurisdiction.
For example; in Ohio, it is indicated as necessary that a Statement of Insured Client’s Rights
should accompany any initial Retention Letter when a matter has been assigned for defense by an
insurer.47 Moreover and relative to assignments to defense counsel by casualty and liability insurers
and counsel’s obligation to abide by an insurer’s Litigation Management Guidelines, the Ohio Board
of Commissioners on Grievances and Discipline (BCGD Opinion 2000-3; June 1, 2000) has
announced as follows:
“It is improper under (Ohio) DR 5-107(B) for an insurance defense attorney to abide by
an insurance company’s Litigation Management Guidelines in the representation of an
insured when the Guidelines directly interfere with the professional judgment of the
attorney. Attorneys must not yield professional control of their legal work to an insurer.”
This same Opinion of the Ohio Board of Commissioners on Grievances and Discipline
provides:
“Guidelines that restrict or require prior approval before performing computerized
or ther
legal research are an interference with the professional judgment of an attorney. Legal research
improves the competence of an attorney and increases the quality of legal services. Attorneys must
be able to research legal issues when they deem necessary without interference by non-attorneys.
Guidelines that dictate how work is to be allocated amongst defense teams members by designating
what tasks are to be performed by a paralegal, associate or senior attorney are an interference with
an attorney’s professional judgment. Under the facts and circumstances of a particular case, an
attorney may deem it necessary or more expedient to perform a research task or other task, rather
than designate the task to a paralegal. This is not a decision for others to make. The attorney is
professional responsible for the legal services. Attorneys must be able to exercise professional
judgment and discretion.”
(Emphasis added.)
46
Examples of this includes pro forma retention letters from the New York Bar Association (available at
https://www.nysba.org/WorkArea/DownloadAsset.aspx?id=26647), the Pennsylvania Bar Association
(http://www.pabar.org/pdf/samplerepresentationagreement.pdf) and the South Carolina Bar Association
(http://www.scbar.org/MemberResources/PracticeManagementPMAP/LawyersinTransition/SoloLawyerDies/En
gagementLetter.aspx)
47 See Ohio Rule of Professional Conduct 1.8(f)(4).
25
The Opinion48 provides other multiple instances where, in the assessment of the Board,
faithfully following Litigation Management Guidelines may compromise an attorney’s professional
judgment and expose counsel to liability in respect of an insured client’s representation. Thus, the
use of Retention Letters becomes even more significant
Moreover, many policies of professional risk coverage dictate the use of such
correspondence at the initial phase of any legal matter/representation.49
B.
Retention Letters and Contingency Fee Agreements
Clearly in the context of contingency representation, the use of both initial Retention Letters
and written Contingency Fee Agreements is necessary.50
C.
Engagement / Retention Letters; Reduction of Potential Malpractice Claims
While many jurisdictions (including California and New York) provide that in certain instances
- when threshold dollar amounts are at issue - written Fee Agreements are required, the imperative
use of written Fee Agreements is otherwise not uniformly imposed by statute or rule. Regardless, a
best practice obligates counsel to use written Fee Agreements and initial Retention Letters.
Moreover, many state and local Bar Associations provide counsel practicing in the jurisdiction pro
forma and proposed initial Retention Letters and Client Service Agreements.
It is generally recognized that the following nine (9) items constitute the fundamental
elements of any proper and effective initial engagement / Retention Letter:
1.
Identification of Scope of Representation.
Often, particularly in the business client setting, multiple issues might be discussed during
any initial and subsequent client meetings.51 While these possibilities are myriad, by way of example
only:
See Appendix “A”
See, e.g., Chubb Group Malpractice Insurance Overview, 11-15 (available at
http://www.chubb.com/businesses/csi/chubb4628.pdf)
50 See, e.g., Model Rules of Professional Conduct 1.5(c); Texas Disciplinary Rules of Professional Conduct
1.04(d); Ohio Rules of Professional Conduct 1.5(c)(1); Florida Rules of Professional Conduct 4-1.5(f)(1).
51 See Appendix “B”, “C”
48
49
26
a.
How can our business properly divest? What is the proper procedure? How can we
best position the move to avoid risk;
b.
There are particular employment issues creating potential liability concerns;
c.
There is the possibility of against all or a select few of our corporate Officers and
Directors. What should we do; should we report the potential claim to our E&O risk carrier, what is the
potential risk; do we retain or dismiss the individual(s) involved;
d.
We are considering a possible purchase of another business entity’s assets;
e.
We are considering a possible purchase of another business entity’s assets
consideration to a stock purchase.
It is clear that under circumstances such as these, best practice would dictate the use of
separate Retention Letters for each issue being discussed and for which representation is being
solicited. Similar concerns can arise in (without limitation) family law matters, criminal law matters,
during the representation of public entities and political subdivisions and the like.
2.
The Fee to be Charged and the Billing Cycle.
The ideal initial Retention Letter also will indicate not only the hourly professional rates
charged for Partners and Associates, but also any separate rates charged by other professionals
such as Paralegals, Nurse Paralegals and other (if any) professional staff.52
Also, expected costs of outside vendors and expert consultants/witnesses should be noted
and forecasted, at least to the extent reasonably capable of assessment. In the litigation setting,
particularly, the costs associated with court filings, depositions, deposition transcripts, bulk copying
service, trial tech support services, e-discovery vendor assistance and the like should be addressed.
Indeed, many liability carriers are currently and prudently requiring the submission of an initial
projected budget.53 Typically, not only is an initial budget expected but also the submission of
periodic up-dates or revisions as the matter progresses even through trial.
3.
52
53
The Consequences of Non-Payment.
See attached Appendix “D”
See attached Appendix “E”.
27
Any consequences to the client of non-payment of fees and expenses should also be
specifically noted within the retention letter. Not only should the issue of the filing of a Motion to
Withdraw (in the litigation setting) be specifically referenced, but in the business transactional setting,
when a retainer has not been paid, the opportunity, as provided by statute and prevailing state law, of
the attorney to withdraw should the payment of fees become an issue.54
4.
Staffing.
As noted before, the anticipated staffing to be dedicated to any assignment should be
delineated, with as many specifics as can be reasonably anticipated.
Many clients, particularly those not necessarily versed in legal matters, need to be afforded
as much understanding as possible so they recognize they are not only hiring a single attorney but
also are hiring all of the attorney’s professional and licensed staff. As also noted before, reference
should be made to the potential extra expenses associated with the use of outside vendors such as
trial tech support groups, expert witness analysis and testimony, the production and copying of
voluminous records, potential costs related to forensic and e-discovery issues and similar anticipated
expenses.
5.
Communications.
Counsel should offer the client some reasonable explanation of the anticipated regularity of
communication between the attorney and her/his client.
Notwithstanding any anticipated regular communication, some statement should be made
letting the client know they always are invited - and welcomed - to contact the attorney at any time.
Any question is proper; open lines of communication are paramount.
6.
Identity of Client.
This topic is critically important in respect of any initial engagement / Retention Letter.
For example; in the business matter setting, counsel needs to make certain it is clearly
communicated who she/he is
54
-
and is not
-
representing. Consider; in the instance of a
See attached Appendix “F”
28
transactional matter regarding the formation of a multiple Member limited liability corporation, counsel
should make it clear (if/as appropriate) that the lawyer is representing the corporation itself and no
particular individual Member.
Multiple other transactional settings are easily imagined: (a) representing an Officer as
opposed to the entire corporation; (b) representing a Director as opposed to the entire Board; (c)
representing an employee as opposed to the entire corporation; (d) etc. In this same regard, counsel
should be alert to the issue of conflicts, either actual or potential. These must be identified, the client
must be advised and (as/where appropriate) written waivers may be needed.
Similarly in the litigation setting, counsel should make it abundantly clear, (particularly in multiparty cases), who the attorney is and is not representing. For instance; in the medical negligence
arena, it often happens that defense counsel will be asked to defend both the individual treating
physician and the physician’s professional corporation or Hospital (if a member of an integrated
physician staff). Counsel may also be asked to represent the healthcare entity’s nursing staff, as well.
Setting aside any conflict issues, there may be other, strategic reasons unique to the facts,
allegations or law applicable to the claims and causes of action such that the defense may be “split”.
Regardless, specific attention needs to be paid to the identity to all clients for whom the
attorney will be providing professional legal services.
7.
Client’s Duties.
In respect of any professional relationship, there are reciprocal duties and obligations. This
fact bears upon the attorney/client relationship and these reciprocal client duties and expectations
should likewise be outlined within the initial engagement / Retention Letter.
Among such reciprocal expectations and duties: (a) the client’s duty to assist with the
defense; (b) the client’s duty to assist with responses to discovery; (c) the client’s duty to appear for
deposition(s) and provide testimony; (d) the client’s duty to assist with providing testimony at trial (if
indicated); and (e) the client’s duty to maintain the confidence of all attorney/client privileged
communications.
29
8.
Dispute Resolution.
The initial engagement / Retention Letter should advise the client of the possibility of
alternative dispute resolution, whether ordered by the court or voluntary.
Particularly in the litigation setting, the trend in most jurisdictions is to routinely assign matters
to non-binding dispute resolution prior to the calling of any trial. Indeed, some courts will not even
assign a trial date until mediation has occurred. The client should not only be made aware of the fact
that this is a likely occurrence within the handling of any defense assignment, but should also be told
that ADR is a recognized and generally preferable method of resolving disputes.
9.
Signing of the Letter.
This does not go without saying. The initial engagement / Retention Letter must be signed /
acknowledged by the client, dated and returned. Both counsel and client should then maintain a copy
for their own, respective records.55
D.
Third Parties
Absent some clear and expressed indication of those persons or entities who/which the
attorney will be is representing (and sometimes notwithstanding) there is a risk counsel’s conduct and the results of his/her acts or failures to act - may be imputed and create an unintended and
unanticipated attorney/client relationship between the lawyer and a person or entity whom she/he
never intended to represent.
This is also true in respect of identifying the particular legal matter(s) on which the attorney
will be providing counsel. For instance (business transactional setting), counsel should make certain
they are not being engaged to handle an asset purchase and later, sometime along the way and
during the engagement, are also asked to offer advice regarding a current employee’s pending or
potential workplace harassment claim. Should this happen and should the client wish to indeed
engage counsel further with regard to the “other matter”, then a separate, specific engagement letter
should - ideally - be created and sent to the client for signature and return.
55
See attached Appendix “G”
30
Generally, any vagueness regarding the scope of a lawyer’s retention can be construed
against the lawyer. See, ______________.
1.
Examples
a.
Ohio
i) Svaldi v. Holmes, 986 N.E.2d 443, 2012-Ohio-6161 (Ohio App. 10th Dist. 2012).
Holmes, an attorney, was successful in the trial court with respect to his Motion for Summary
Judgment. The appellate court reversed.
The facts established that Holmes had initially received a telephone call from a neighbor of
Plaintiff Svaldi (an elderly widower) who wished to amend his Will and Power of Attorney “POA”).
Holmes scheduled an appointment with Svaldi for later the same day.
When the meeting convened, Svaldi was accompanied by his neighbor who had
the initial call and another woman … Ms. Johnson and Ms. Esquibel. At
ninety-three years old and his Will identified yet another
made
the time, Svaldi was
long-time friend as his Executor. This
same person held POA. Notwithstanding, Svaldi was concerned that this other friend (the appointed
Executor) was planning to force him to move to another state where the Executor lived and
there
enter an assisted living facility. Hearing this, Holmes advised Svaldi that in an effort to prevent the
impending move, a different agent / holder of POA could
agreed and suggested Ms. Johnson and
be designated and appointed. Svaldi
Ms. Esquibel should serve.
Holmes and Svaldi also engaged in a discussion concerning Svaldi’s assets. While
would not disclose these in detail, Holmes made a rough estimate
Svaldi
that Svaldi had nearly one
million dollars in assets.
Holmes agreed to draft a new POA designating Ms. Johnson and Ms. Esquibel
agents. Holmes also agreed to change Svaldi’s Will to name his first Ms.
Johnson
as
and
his
Ms.
Esquibel as Executor and Alternate Executor. There was then a subsequent meeting with Svaldi,
Ms. Johnson and Ms. Esquibel during which the new POA and the revised Will were executed.
Subsequently, and contrary to a specific provision within the POA, Holmes did
not
31
receive an inventory from either Ms. Johnson or Ms. Esquibel within thirty
(30) days as otherwise
required. Consequently, Holmes sent a letter to Ms. Johnson and Ms. Esquibel reminding them of
the obligation to complete the inventory and provide a copy to Holmes.
There still was no response.
Holmes never again sought and inventory from Ms. Johnson or Ms. Esquibel and one was
never provided. Holmes also failed to receive any annual accountings from either Ms. Johnson or
Ms. Esquibel and he never followed-up with Svaldi.
Subsequently, suspiciously large withdrawals from Svaldi’s account prompted his bank to
contact the local police department. Upon investigation, the police agency determined that Ms.
Johnson and Ms. Esquibel had taken nearly $800,000.00 from Svaldi’s account(s). As a
consequence, Svaldi filed a legal malpractice suit against Holmes, alleging he was negligent by: (a)
failing to verify the fitness of Ms. Johnson and Ms. Esquibel to perform under the (power of attorney),
and (b) failing to monitor the performance of the holders of the (power
of
attorney)
through
receipt and review of the inventory and annual accounting of assets and obligations. See Svaldi, ¶11.
After the completion of discovery, Holmes moved for and was granted summary judgment. A
timely appeal filed. In its decision on appeal, the Ohio Tenth District Court of Appeals determined as
follows:
“An attorney’s duty to his or her client exists in relation to the scope of
representation sought by the client and undertaken by the attorney.” (Internal
citations omitted). Thus, an attorney only owes a duty to a client if the alleged
deficiencies in his performance relate to matters within the scope of representation.”
Id. at ¶18.
The Svaldi court continued:
“Here, the complaint identified two alleged negligent acts. First, Svaldi claimed that
Holmes was negligent in not ascertaining whether Johnson and Esquibel had he
qualities necessary to serve as responsible agents. Svaldi, however, does not argue
this theory of liability on appeal. We thus conclude that Svaldi has abandoned this
theory, and we do not address it. Second, Svaldi claimed that Holmes was negligent
in not monitoring Johnson and Esquibel through receipt and review of the inventory
and annual accountings provided for in the power of attorney. On appeal, Svaldi
contends that this duty to monitor arose when Holmes incorporated into the power of
attorney the inventory and annual accounting requirements. In opposition, Holmes
32
argues that no duty exists because the power of attorney did not explicitly impose on
Holmes an obligation to perform any task. Because paragraphs 10 and 11 of the
power of attorney only required action from Johnson and Esquibel, Holmes asserts
that those paragraphs did not compel him to do anything on Svaldi’s behalf.
According to Holmes, his sole duty to Svaldi was to exercise appropriate care in
drafting the power of attorney and revising the will.”
Id. at ¶¶19, 20.
“We conclude that, by incorporating the inventory and accounting scheme into the
power of attorney, Holmes expanded the scope of his representation of Svaldi
beyond he mere drafting of legal documents. By setting up the inventory and
accounting scheme, Holmes assumed a responsibility to attempt to make it
work. Thus, Holmes had a duty to follow with Johnson and Esquibel regarding their
obligation to complete an inventory and the annual accountings and encourage
Johnson and Esquibel to comply with the scheme.”
Id. at ¶23; emphasis added.
ii) Cleveland Construction, Inc. v. Roetzel & Andress, LPA, 2011-Ohio-1237 (Ohio App. 8th
Dist., 2011).
Conversely, in Cleveland Construction, Inc., summary judgment was granted to
defendant/appellee Roetzel & Andress, L.P.A. and on appeal, the trial court’s judgment was affirmed.
The facts (very briefly) are as follows; Cleveland Construction, Inc. (“CCI”) initiated an action
against Roetzel & Andress, L.P.A. (”R&A”) asserting claims of fraud, breach of fiduciary duty,
negligent misrepresentation, civil aiding and
abetting and civil conspiracy.
These claims arose
from a series of actions and transactions in respect of a bridge loan ($2.5 million dollars) to Cleveland
Construction, Inc. for a mixed use development known as The Cornerstone Project.
The
presumptive loan was to be funded through the sale of bonds. Through certain events surrounding
this loan commitment, CCI was ultimately made aware that a potential lender had declined financing
and CCI filed its action against the law firm. After addressing Ohio’s one year statute of limitations
(and the discovery rule) applicable to legal malpractice claims, the appellate court determined as
follows:
“First, CCI argues that R&A breached fiduciary duties owed to CCI as a concurrent
client of R&A. A party asserting a breach of fiduciary duty claim must establish: (1)
the existence of a duty arising from a fiduciary relationship; (2) a failure to observe the
duty; and (3) an injury resulting proximately therefrom (internal citations omitted).
33
The record reflects that R&A represented CCI in small matters unrelated
to Cornerstone. Any duty that arose from that representation was limited
to those undertakings and did not extend to matters regarding
Cornerstone or the bridge loan.
Id., at ¶¶25, 26.
The record reflects that R&A’s representation of CCI was limited to matters unrelated
to Cornerstone. Representatives of CCI
acknowledged Their understanding
that R&A represented Schneider and her companies on cornerstone, and that CCI’s
internal counsel handled legal matters related to Cornerstone for CCI. R& A had not
duty to investigate or to bring to CCI’s attention matters relating to Schneider’s sales
of promissory notes, the ODS investigation ,the status of funding for the Cornerstone
Project, the financial position of Schneider (the broker of the bonds and the lender),
seller, or any other matter for which R&A had not been engaged.
Id. at ¶28.
“We find, as a matter of law, that R&A’s fiduciary duty to CCI extended only to the unrelated
matters for which it was actually engaged. No duties arose outside of the scope of that
representation.”
Id., at paragraph 33; emphasis added.
b.
California
i)
Gatto v. Panitz, B204339 (California Court of Appeals, 2nd Dist., 4th Div., 2009)
In Gatto, a former client brought a legal malpractice action against as law firm alleging the
firm had given the former client negligent advice with respect to the appropriate timing for the filing of
a Chapter 7 Bankruptcy Petition in order to
have the client’s tax debts discharged in bankruptcy.
The law firm successfully moved for summary judgment on the basis the scope of the firm’s
representation was explicitly limited to negotiating an offer in compromise of the tax debts with the
taxing agencies. On appeal, the trial court’s decision was affirmed.
The facts established that the firm had a written Retainer Agreement with Gatto identifying
that it would represent him “in an Internal Revenue Service collection matter. Attorney will provide
those legal services reasonably required to
represent client. *** For the retainer amount, attorney
agrees to negotiate and conclude an installment agreement, lump sum offer in compromise, or a
deferred offer in compromise with the [IRS]. This includes preparation of financial information,
completion of the designated forms, submission to the agency, meetings with government
34
representatives, either in person or on the telephone as necessary, follow-up correspondence,
preparation of substantiation notebooks to support positions taken, follow-up with client to report
progress and results.”
The Retainer Agreement also provided, specifically, it did not include the
following: “After
obtaining either a deferred offer and compromise or lump sum offering compromise, should client
breach the offer in compromise requiring renegotiation with the government agency, this
renegotiation is not included in the retainer amount. *** Likewise, should the client at a later date
determine that a downward modification of the deferred offer in compromise (if applicable) is
necessary due to change in financial condition of the client, such renegotiation is
not covered by
the retainer amount. *** Nor is the filing of a Chapter 7 bankruptcy included in the retainer amount. ***
This agreement does not include any other negotiations with any other taxing agency, such as the
Employment Development Department, Franchise Tax Board or the State Board of Equalization.”
Upon appeal the court found as follows: “The extent of an attorney’s duty to act necessarily
depends on the scope of the attorney-client relationship (internal citations omitted) *** governed by
this standard, Panitz Schaap did everything they were required to do. They advised Gatto of the
potential availability of filing a Chapter 7 bankruptcy petition in order to have his tax debts discharged,
and they advised him to seek bankruptcy counsel, in light of the fact their retention agreement was
limited to representing Gatto in seeking to enter into an offer in compromise with the taxing
authorities. As the trial court found, there was no triable issue of fact as to whether Panitz, Schaap
owed Gatto a legal duty with respect to filing a bankruptcy petition. Gatto was advised by Panitz,
Schaap to seek independent bankruptcy counsel, and thereafter he admittedly retained bankruptcy
counsel of his own choosing.”
c.
Nebraska.
i)
Sickler v. Kirby, 805 N.W.2d 675, 19 Neb. App. 286 (Neb. App. 2011)
35
In Sickler, the court (faced with a relatively complicated and involved pattern of facts),
determined as follows: “In a legal malpractice case, there are three basic
components
that
compose the plaintiff’s burden of proof: (1) the attorney’s employment; (2) the attorney’s neglect of a
reasonable duty, and (3) that such negligence resulted in and was the proximate cause of loss to the
client.
These elements are the same general elements required in any other case based on
negligence, i.e., duty, breach, proximate cause and damages.”
Syllabus, ¶11.
The court also determined “the starting point for analyzing an attorney’s duty to a
third
party is determining whether the third party was a direct and intended beneficiary of the attorney’s
services.
Syllabus, ¶19.
In Sickler, the trial court initially granted summary judgment to the defending law firm and its
individual member, Kirby. The facts revealed that in 2001, a coffee house was opened in Kearny,
Nebraska, which soon enjoyed significant success. The owners thereafter explored franchising
opportunities and contacted counsel in respect of advice on franchising laws. Counsel agreed to do
so, although he had no expertise in nor experience with franchising, which would qualify him to do
this type of work. In any event, an
organization known as B&F was formed to be the franchisors.
Franchisees were designated with certain business names and a separate corporation was formed to
own real
estate and buildings and a separate organization created for the distribution of
the coffee products.
A disciplinary proceeding was later instituted against the corporation’s attorney in which it was
found that he had violated his oath of office with respect to
competent
representation
of
the
franchisor. The Supreme Court of Nebraska had also agreed in respect to the alleged negligent
misrepresentation and imposed a public reprimand as a sanction.
36
Later disputes developed concerning a Colorado franchisee, as well as a
franchisee
in
Iowa. As all of these matters progressed and festered, the franchisor was also notified that it was
under investigation by the Federal Trade Commission and the Department of Justice.
The
Department of Justice ultimately filed suit against the franchisor and the corporation’s owners
individually as corporate officers, seeking civil penalties, permanent injunction,
and
other
equitable relief. The suit alleged that the defendants had sold coffee shop franchises since 2003 in
violation of the Federal Franchise Rule and more
specifically, the sales were made without
disclosures and required proofs of sale to the UFOC (Uniform Franchise Offering Circular). In its
analysis the appellate court determined that summary judgment to the defendants was erroneous.
Specifically, the court found that the defendants conceded that B&F was Kirby’s client in at
least one of the pending litigated matters and that there was conceedingly an employment of the
defendants to defend B&F. In addition, the
appellate court determined that the trial court’s record
contained ample evidence of negligence in the representation of B&F and that such evidence
represented damage to B&F. The issue of proximate cause as also positively determined, ultimately
(p. 298) the appellate court determined as follows: “Although we discussed damages in more detail
later, suffice it to say that at this juncture, there is evidence that Kirby’s negligence was part of the
cascade of events that led to B&F’s ceasing what had started out as a viable franchising business at
substantial personal financial damage to Steve and Cathy. Consequently, we find that there clearly
are genuine issues of material fact regarding damages
caused by the defendants.
Thus,
summary judgment could not be granted against B&F. Id. at pp. 298 and 299).
E. Is Plaintiff a client?
A fundamental question in the context of any legal malpractice case is simply whether Plaintiff
is (was) actually or implicitly a client to whom defending counsel owed any duty of professional care.
Setting aside any considerations of applicable statute(s) of limitation, the discovery rule or
statute of repose, this question is not as easily answered as one might think. As discussed infra, the
scope of representation of other parties may be implied, not only by the subjective beliefs of a
37
particular individual or entity but also as a consequence of the attorney’s failure to specifically identify
who it is he/she may be representing in any particular instance.
With some regularity (unfortunately), third-party malpractice claims arise in the context of will,
estate and probate practice. Oftentimes, Estate beneficiaries seek the imposition of liability against
an Estate’s or Testator’s counsel in respect of the interpretation of wills and the probating of estate
liabilities and assets.
For example, in Simpson v. Calivas, 139 N.H. 1 (1994), negligence and contract claims were
brought by a beneficiary against a lawyer who had drafted a Last Will and Testament for the
beneficiary’s father. Specifically, the beneficiary and his step-mother became embroiled in a dispute
concerning certain language within the decedent’s Last Will & Testament which purported to leave
Simpson all of decedent’s real estate, save for a Life Estate in the family property. The beneficiary
argued that the Life Estate pertained only to the family home and not the surrounding 120+/- acre
tract of real estate.
The Probate Court awarded the Life Estate in all real estate. The beneficiary subsequently
paid nearly $400,000.00 for the Life Estate and then sued Decedent’s counsel to recover. It was clear
that counsel had never represented the beneficiary; ergo, a Motion to Dismiss was presented. The
trial court agreed and dismissed the matter but on appeal, the court reversed, thereby establishing
New Hampshire’s first exception to the privity rule for legal malpractice claims and formatting the
question presented as follows: “The critical issue, for purposes of this appeal, is whether an attorney
who drafts a testator’s will owes a duty of reasonable care to intended beneficiaries. We hold that
there is such a duty.”
The court’s ruling was predicted primarily on the foreseeability of harm”
The expansion of any concept of duty to intended beneficiaries is recognized in many
jurisdictions. As yet another example, California was among the first to do so when it adopted the
following balancing test: consideration of (1) the extent to which the transaction was intended to affect
the plaintiff, (2) the foreseeability of harm to the plaintiff, (3) the degree of certainty that the plaintiff
38
suffered an injury for the closeness of the connection between the attorney’s conduct and the injury,
(4) the policy of preventing future harm, and (5) whether recognition of liability under the
circumstances would impose an undue burden on the legal profession. See, Lucas v. Hamm, 56
Cal.2d 583, 15 Cal. Rptr. 821, 364 P2d 685 (1961).
Intended beneficiary standing is not necessarily limited to wills, trusts and estates. See,
Rushing v. Bose, 652 S.O.2d 869 (Fla. Dist. Ct. App. 1995) (adopted child is intended beneficiary of a
relationship between adoptive parents and their attorney); Prescott v. Koppage, 266 Md. 562, 296
A2d 150 (1972) (corporation’s creditors in receivership found to be intended beneficiaries); Pelham v.
Griesheimer, 92 Ill.2d 13, 440 N.E.2d 96 (1982); Heyer v. Flaig (1969) 70 Cal.2d 223, 74 Cal. Rptr.
225, 449 P2d 161, McAbee v. Edwards (1976) Fla. App. 340 S.O.2d 1167; Stowe v. Smith, (Conn.
1981), 441 A.2d 81; Succession of Kilingsworth (La. 1973) 292 So.2d 536, Brody v. Ruly (Iowa 1978)
267 N.W.2d 902; Martin v. Travino, (Tex. Civ. App. 1978) 578 S.W.2d 763; Haddon View Investment
Co. v. Coopers & Lybrand (1982) 70 Ohio St.2d 154 (holding an accountant may be held liable by a
third party for professional negligence when the third party is a member of a limited class whose
reliance on the accountant’s representation is specifically foreseen); and Simon v. Zipperstein, 86LW-4688 (Ohio 2nd Dist. 1986).
This erosion of the requirement of privity (as existing from English Common Law) is notable
and perhaps the earliest example is found in the court’s decision in McPherson v. Buick Motor Co.,
217 NY 382, 111 N.E. 1050 (1916).
While this developing erosion likely has its origins in the product liability setting, the
progression has infiltrated legal malpractice claims, too. See, Petrillo v. Bachenburg, 139 N.J. 472
(1975) (real estate purchase); Guy v. Liederbach, 501 Pa. 47 (1983) (beneficiary to a will granted
standing); Prudential Ins. Co. v. Dewey, Ballantine-Bdasby, Palmer & Wood, 80 NY2d 377 (1992)
(preparation of an opinion letter enough to create standing) Frisk v. Hogan, 698 N.W.2d 526, 2005
S.D. 70 (S.D. 2005); Franko v. Mitchell, 762 P.2d 1345, 158 Ariz. 391 (Ariz. App. Div. 1, 1988);
39
Paradigm Ins. Co. v. Langerman Law Offices, P.A., 24 P.3d 593, 200 Ariz. 146 (Ariz. 2001); and
Ayyildiz v. Kidd, 266 S.E.2d 108, 220 Va. 1080 (Va. 1980).
The Ayyildiz case may be of particular interest. In Ayyildiz, a licensed physician had been
sued for malpractice by one of his patients. After successfully defending, the physician then filed a
motion for judgment against Plaintiff’s counsel, Mr. Kidd, Jr. In addressing the matter, the court on
appeal determined there were three important questions to be answered, among these: “… 3. Is an
attorney liable, under the circumstances of this case, for negligence to a defendant resulting from a
medical malpractice case in which the attorney served as counsel for the plaintiff.” In analyzing the
question, the court first noted that the attorney/client relationship existed between Grubb and his
counsel, Mr. Kidd, Jr., and not between Kidd and the physician. The court then noted that “an
attorney’s liability for damages generally is only to his client following some dereliction of duty to the
client.” Id. at 1085.
Determining, ultimately, the question presented, the court noted as follows, largely drawing
from the decision of the Iowa Supreme Court in Brody v. Ruby, 267 N.W.2d 902:
‘Absent special circumstances, it generally is held an attorney can be liable for consequences of
professional negligence only to a client. *** The courts reason that if liability would be permitted to a
third party without regard to privity, the parties to the contract would be deprived of control of their
own agreement. Further, the duty to the general public resulting from abandonment of the privity
requirement would place a potentially unlimited burden on lawyers.’
In other states inroads have been made in the privity doctrine as it pertains to legal
malpractice, but where these inroads have occurred, the third party has been a direct and intended
beneficiary of the lawyer’s services. An adverse party does not stand in this position.
Accordingly, we hold that Kidd was under no legal duty to Dr. Ayyildiz and was not liable in
negligence to him. The trial court properly sustained Defendant’s demurer to Count II of Plaintiff’s
Motion for Judgment. Id. at 1086.
F.
Is mandatory arbitration possible for malpractice claims?
40
The US Supreme Court has encouraged the use of arbitration agreements when
dealing with statutory claims, praising their legitimacy and enforceability.56 This is because,
assuming an adequate arbitral forum, a party does not forgo the substantive rights to an
impartial decision maker, it merely submits them to an arbiter rather than a judicial forum,
leaving the latter as a viable route if either party believes the decision to be improper.57
Coinciding with this, the American Bar Association promotes the use of fee arbitration
arrangements between clients and lawyers, emphasizing the benefits of the agreements as
out-of-court tools to resolve common fee disputes in an expeditious, confidential,
inexpensive, and impartial way.58 On the issue of malpractice claims, though, the potential
damages involved requires a more concerted approach, viewing each individual retention
separately. While the ABA, for instance, requires that attorneys advise clients to seek
separate counsel when drafting agreements limiting their liability, the rule is silent on the
matter of arbitration.59 This is because arbitration, in theory, does not limit an attorney’s
liability; rather, it provides the intermediary step limiting litigation that the US judicial system
unanimously supports.
The issue arises where mandatory arbitration of malpractice claims exist as adhesion
contracts. Generally speaking, there are two judicially imposed limitations on the
enforcement of adhesion contracts or provisions thereof. The first is that such a contract or
provision which does not fall within the reasonable expectations of the weaker or “adhering”
party will not be enforced against him. The second--a principle of equity applicable to all
contracts generally--is that a contract or provision, even if consistent with the reasonable
56
Gilmer v. Interstate Johnson/Lane Corp., 500 US 20 (1991)
Mitsubishi Motors v. Soler Chrysel-Plymouth, 473 US 614 (1985)
58 See Comments to Model Fee Arbitration Agreement, available at
http://www.americanbar.org/groups/professional_responsibility/resources/client_protection/farule1.html
59 See Model Rules of Professional Conduct §1.8(h)(1).
57
41
expectations of the parties, will be denied enforcement if, considered in its context, it is
unduly oppressive or “unconscionable.”60 Nonetheless, the ABA’s Model Rules have
seemingly acted as the guiding light mitigating the potential harm caused by arbitration
agreements, with most courts holding them proper, but only if (1) they are adduced to
writing; and (2) the client is advised, if not required, to seek independent counsel to review
the agreement.
60
Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal 4th 82, 113, 6 P.3d 669, 689 (Cal. 2000);
citing to A&M Produce Co. v. FMC Corp., 15 Cal. App. 3d 473, 486-487, 186 Cal. Rptr. 114 (Cal. 4th Dist.
1982).
42
1. Examples of application by jurisdiction
i.
Ohio
Ohio has directly dealt with the issue of mandatory arbitration in the case of Thornton v.
Haggins.61 The Eighth Appellate district was faced with the issue of an attorney
attempting to enforce the arbitration agreement between her and a former client, after
the client filed a legal malpractice action against the attorney. The attorney had
represented the plaintiff in an action against the City of Cleveland Heights; but, when the
attorney failed to timely provide discovery, the court dismissed the case. Shortly after the
initiation of the malpractice suit, the attorney filed a motion to dismiss, arguing that the
matter should be referred to arbitration because Thornton agreed that "any controversy
or claim arising out of or relative to [Plaintiff’s retainer agreement] or breach thereof shall
be settled by arbitration.” She also asserted that the malpractice claim was barred by the
statute of limitations. The court took no action, and the attorney eventually filed a motion
to stay proceedings and compel arbitration, which the trial court denied, leading to the
attorney’s appeal.
Reviewing the arbitration agreement, the court referred to a previous opinion of the Ohio
Supreme Court opinion from its Board of Commissions on Grievances and Discipline. This
opinions stated that “an engagement letter between an attorney and client should not contain
language requiring a client to prospectively agree to arbitrate legal malpractice disputes.”
Interestingly, the Board did not outright conclude that such provisions were an attempt to limit
liability, in violation of applicable ethical rules. Nonetheless, after reviewing precedent from other
jurisdictions, as well as cases parallel to the issue in Ohio, the court ruled that advance
agreements to arbitrate malpractice claims are not enforceable; however, the opinion suggests
61
2003-Ohio-7078 [Ohio 8th Dist. 2003].
43
that the agreement might be enforceable if the client actually sought and received advice from
another lawyer regarding the agreement, as per the suggestion of the model rules.
Ohio courts argue that to hold such mandatory agreements appropriate would
consequently damage the attorney’s ability to represent his or her client zealously. 62 While much
of the argument concerning how this discrepancy would arise is veiled, at best, Ohio courts do
not per se bar these requirements – they merely require independent negotiation between the
client and attorney. This is likely to require an appreciable amount of effort between the potential
clients, arguably starting the attorney-client relationship on a needlessly adversarial base, but in
certain cases where the law or strategy may seem high risk, it is nonetheless worthwhile for
attorneys to bear the early hurdle of negotiating their retainer agreements.
ii.
California
In California, a properly worded provision in a retainer agreement requiring binding
arbitration of legal malpractice claims and other non-fee disputes, including future malpractice
claims, is not ethically improper, and such provisions are enforceable.63 An attorney and client
may agree to binding mandatory arbitration for potential malpractice claims so long as (1) there
is an existing attorney-client relationship; (2) the attorney fully discloses the terms and
consequences; and, (3) obtains the client’s knowing consent.64
One of California’s pre-eminent cases to apply the aforementioned standards is Powers
v. Dickson, Carlson & Campillo.65 In that case, the plaintiff-client signed a retainer agreement
with the defendant-attorneys which included an arbitration provision for all disputes arising out
of their legal services. The subsequent malpractice case between the parties originated from an
allegedly defective purchase agreement the law firm drafted for the plaintiff, and that the law
62
Guay v. Ward, 2014-Ohio-190, ¶ 51 (Ohio 5th Dist. 2014)
See California Formal Ethics Opinion §1989-116.
64 Id.
65 54 Cal App 4th 1102, 63 Cal. Rptr. 2d 261 (Cal 2nd Dist. 1997)
63
44
firm was negligent in prosecuting various construction defects the plaintiff had brought forth to
the firm.
The defendants filed a motion to compel arbitration to the court, which the plaintiff
contested. Strictly scrutinizing the agreement, the trial court found the arbitration agreement was
not drafted in such a way as to fully inform the plaintiff of his rights under the provision.
Therefore, the trial court opined, the plaintiff lacked consent and full knowledge of the terms and
consequences of the contract.
On appeal of the decision, the Second Appellate District reversed, granting the motion to
compel and holding the arbitration provisions were properly drafted and were not ambiguous.
Interestingly, the appellate court likened the attorney’s mandatory arbitration agreement to that
of nearly any other service contract – “When parties agree to submit their disputes to arbitration
they select a forum that is alternative to, and independent of, the judicial--a forum in which, as
they well know, disputes are not resolved by juries. Hence there are literally thousands of
commercial and labor contracts that provide for arbitration but do not contain express waivers of
jury trial. . . . [T]o destroy their viability upon an extreme hypothesis that they fail expressly to
negative jury trials would be to frustrate the parties' interests and destroy the sanctity of their
mutual promises.”66
Therefore, Powers emphasizes that while California courts recognize the heightened
fiduciary duty under the attorney-client relationship, the provision and the powers therein are to
be read like any other contract. In summary, “An attorney may ethically, and without conflict of
interest, include in an initial retainer agreement with a client a provision requiring the arbitration
of both fee disputes and legal malpractice claims.”67
iii.
New York
66
54 Cal App 4th at 1109, 63 Cal Rptr 2d at 265; citing to Madden v. Kaiser Found. Hosps., 17 Cal 3d 699, 713,
131 Cal Rptr 882, 891, 552 P2d 1178, 1187 (Cal. 1976).
67 Powers, 54 Cal App 4th at 1109, 63 Cal Rptr. 2d 264 (Cal 2nd Dist. 1997).
45
New York holds that an attorney may include clause in retainer agreement for binding
arbitration to resolve malpractice and contract disputes, but only if (1) the arbitrator can award
punitive damages; (2) the attorney fully discloses the difference between jury trial and
arbitration; and, (3) the attorney gives the client the opportunity to seek separate counsel.68
Consequently, this highly elemental approach to mandatory arbitration has led to a flurry
of very brief, yet beneficial decisions from the higher courts of New York, including Matter of
Derfner & Mahler (public policy considerations do not require that claims of lawyer malpractice
be adjudicated solely by the courts, where there is no showing that the retainer agreement on its
face violates any rules of ethics)69, Theis v. Bryan Cave LLP (the court properly determined that
the subject arbitration provision was enforceable and granted Bryan Cave's motion to stay the
legal malpractice action against it pending arbitration)70, and Broadcast News Networks Inc. v.
Loeb & Loeb, (the commercially sophisticated plaintiff executed an engagement letter clearly
advising it that any and all disputes between the parties were to be resolved at arbitration. The
arbitration provision was clear and unambiguous, and not violative of public policy).71
iv.
Pennsylvania
The general rule in Pennsylvania is that mandatory binding arbitration clauses in retainer
agreement to resolve malpractice claims is permissible if the attorney complies with the
standard rule on business transactions with clients, including (1) full disclosure that the client is
waiving the right to jury trial, (2) that the client has the opportunity to seek independent counsel;
and, (3) the client consents in writing.72 This rule reflects that of MRPC 1.8(a). Consequently,
68
New York County Ethics Opinion §723.
683 N.Y.S.2d 509 (NY 1999);
70 826 N.Y.S.2d 54, 35 A.D. 3d 252 (NY 2006).
71 Broadcast News Networks, Inc. v. Loeb & Loeb, LLP, 40 A.D. 3d 441 (NY 2007).
72 See, e.g., Philadelphia Ethics Opinion §88-2
69
46
courts applying this law have held that arbitration, whether in the legal malpractice setting or
otherwise, is fundamentally a matter of contract.73
v.
Florida
Analysis of mandatory arbitration in Florida has recognized the potential public policy
issues in allowing the provisions to exist in retainer agreements. The general opinion in the
jurisdiction is that these agreements are valid exercises of the parties contracting rights.
Florida’s Second Appellate District had the opportunity to examine the issue in
Johnson, Pope, Bokor, Ruppel & Burns, LLP v. Forier.74 There, the plaintiff filed a
malpractice suit against his former attorney, alleging that an agreement for the sale of
property the attorney drafted failed to include all of the necessary parcels of land. Prior to the
agreement, the plaintiff signed a retainer agreement with the attorneys that included an
arbitration provision requiring that “any controversy, dispute, or claim between us, whether
based on this agreement, on the timely payment of fees, on a claim of inadequate
representation, or on any other grounds, shall be resolved exclusively through binding
arbitration before a board of arbiters consisting of three attorneys, all of whom shall be
members of the Clearwater Bar Association or Hillsborough Bar Association.”75 The findings
of fact by the trial court ruled that plaintiff was not unsophisticated, that he had read the
agreement, and that the provisions was not unconscionable. Nonetheless, the trial court
refused to enforce a motion to compel arbitration, concluding that such agreements violated
public policy.
73
General Nutrition Corp. v. Gardere Wynne Sewell, LLP, 2008 U.S. Dist. LEXIS 66703, 2008 WL 3540538
(W.D. Pa. 2008)
74 67 So. 3d 315 (Fla. 2nd Dist. 2011).
75 67 So. 3d 315, 317.
47
On appeal, the reviewing court reversed the decision, holding that the trial court failed
to validly justify its concerns regarding public policy. The court summarized its opinion by
stating:
“We are not aware of any Florida cases holding that it is against public policy for an attorney
to include a clause in a legal services contract requiring arbitration of legal malpractice
disputes... [or] of any constitutional or statutory provisions prohibiting these agreements on
public policy grounds. Although [Plaintiff[ argues that we should affirm the trial court's
decision because [Defendant] breached his ethical duties to provide full disclosure, give
candid advice, and avoid conflict when he submitted the arbitration clause…we do not
agree. While there are arguably ethical issues that arise in this type of contract, there is
currently no Florida Bar Rule which prohibits this sort of agreement.
The court could find no current ethical issue with the arbitration provision, it left the
issue open to review for future courts. In summary, the court’s approval of the provision was
grounded largely in the lack of contrary authority rather than outright approval of it. While this
leaves mandatory arbitration provisions valid as a matter of precedent, the opinion suggest,
like many others in the jurisdiction, that the questions is still up for debate in some regards.76
vi.
Minnesota
Minnesota does not apply any heightened ethical standards to mandatory arbitration
provisions in retainer agreements. Generally, arbitration clauses contained in retainer
agreements or engagement letter swill be enforced against legal malpractice claims if (1) the
76
See, e.g., Mintz & Fraade, P.C. v. Beta Drywall, LLC, 2011 Fla. App. LEXIS 3911 (Fla. 3rd Dist. 2011); Brian
Spector, Predispute Agreements to Arbitrate Legal Malpractice Claims: Skating on Thin Ice in Florida's Ethical
Twilight Zone?, 82 Fla. B.J. 50 (2008)
48
claim is within the scope of the terms of the arbitration clause; and, (2) the retainer agreement
covers the disputed claims.77
A recent on-point decisions from the jurisdiction is the case of Revestors Group 1,
LLC v. Severson.78 In that case, the defendant-attorneys appealed an order of the lower
court denying their motion to compel arbitration, pursuant to language contained in the
engagement letter the defendants signed with the plaintiff. The defendants argued that the
basic arbitration terms were contained therein, stating “You and the Law Firm agree that any
disputes arising between you and the Law Firm involving our representation of you which we
are not able to amicably resolve, including, without limitation,, any dispute about the quality
or nature of our services or our billing, will be submitted to binding arbitration.”79
Reviewing the decision, the appellate court ruled that the language of the agreement
was abundantly clear, and provided no policy hurdles to prevent its enforcement. The court
reviewed the provision under standard contract principles, concluding that with legal
malpractice arbitration provisions, the only concern lies with the potential for unequal
bargaining power from unsophisticated or inexperienced clients. The plaintiff was unable to
sustain his burden of proof to show such concerns reasonably existed, leading the court to
require binding arbitration between the parties.
vii.
Texas
The Texas State Bar has ruled that, under the Texas Disciplinary Rules of Professional
Conduct, it is permissible to include in an engagement letter a provision requiring binding
arbitration for malpractice claims, so long as (1) the client is aware of the significant advantages
and disadvantage of arbitration; (2) has sufficient information to permit the client to make an
77
Revestors Group 1, LLC v. Severson, 2009 Minn. App. Unpub. LEXIS 198 (Minn. App. 2009).
Id.
79 Id. at 3.
78
49
informed decision about whether to agree to the provision; and, (3) the provision does not limit
the lawyer’s liability for malpractice.80 In its opinion, “an arbitration clause simply shifts resolution
of a dispute from a court of law to a different forum. A client’s right to have the dispute resolved
by a jury may be eliminated, but a lawyer does not for that reason escape liability for legal
malpractice.”81
A recent case applying these principles is Pham v. Letney.82 There, the defendantlawyer moved the trial court to compel arbitration because there was a provision in the retainer
agreement for binding arbitration under the Federal Arbitration Act. The trial court, believing the
agreement was invalid, denied the motion. In a 2-1 decision, the appellate court reversed the
trial court, compelling arbitration. First, the majority held that the agreement was not under the
Texas statute that invalidated arbitration clauses in personal injury cases. Second, the court
held that the Federal Arbitration Act could be incorporated, notwithstanding arguments that
"interstate commerce" was not implicated. Third, the court held that the agreement was not
unconscionable.
Last, and most importantly, the court held that the agreement did not violate Texas'
version of Model Rule 1.8(h) (limiting lawyer's liability). Agreeing with the opinion of the ethical
committee, the court noted that arbitration agreements do not limit a lawyer’s liability; rather,
they denominate a procedure and venue for litigating liability. All of this was in the face of
Client's contention that Lawyer never explained the arbitration provision and did not recommend
that Client seek the advice of other counsel, factors that drove the dissent (“Whatever public
policy may be served by enforcing arbitration agreements is more than offset by the public
policy of insuring that consumers of legal services have protection from attorneys who might
take advantage of their clients.”).83
80
See Professional Ethics Committee Opinion No. 586 (2008).
Id.
82 2010 Tex. App. LEXIS 1534 (Tex. 14th Dist. 2010).
83 Id. at 22.
81
50
In summation, Texas has shown a preference for mandatory arbitration agreements.84
The most notable difference is that Texas does not have an explicit requirement that clients
receive independent review for the arbitration agreement before agreeing to it – it only requires
sufficient information and a reasonable understanding. Nonetheless, most courts note that it is
good practice to encourage clients to seek a third party attorney to review the agreement.85
viii.
New Jersey
New Jersey derives much of its governing law on the topic from the Restatement of the
Law Governing Lawyers. In sum, there is nothing inherently improper about a lawyer and client
agreeing to arbitrate a fee dispute under general arbitration statutes. The agreement, however,
must meet the standards of fairness, particularly as regards designation of arbitrators. 86 Equally,
New Jersey’s Rules of Professional Conduct (which mirror the Model Rules) utilize the
standards governing business transactions with clients as the main guiding principle for these
agreements, also noting that when drafting such agreements, an attorney should be weary of
whether it is being worded in such a way as to limit his liability.87
The eminent case on this point is Kamaratos v. Palios.88 There, the plaintiffs filed a
malpractice suit against their attorneys, alleging they had improperly retained over $115,000
owed to them following the end of their attorney-client relationship. The issue eventually
reached the New Jersey Superior Court, which utilized the opportunity to address arbitration
agreements between attorneys and clients more broadly. To this, the court surmised:
“The relationship between the attorney and a client is a fiduciary one, calling for the highest trust
and confidence. All fiduciaries are held to a duty of fairness, good faith and fidelity, but an
attorney is held to an even higher degree of responsibility in these matters than is required of all
84
See, e.g., Bates v. Laminack, 2013 U.S. Dist. LEXIS 125198 (S.D. Tex. Sept. 3, 2013); Taylor v. Wilson, 180
S.W.3d 627 (Tex. 14th Dist. 2005); compare to Royston, Rayzor, Vicery & Williams, LLP v. Lopez, 2013 Tex.
App. Lexis 7843 (Tex. 13th Dist. 2013) (finding specific arbitration agreement unconscionable).
85 In re Godt, 28 S.W.3d 732 (Tex. 13th Dist. 2000).
86 See Restatement (Third) of the Law Governing Lawyers, §42, comment (b)(iv) (2000).
87 See New Jersey Rules of Professional Conduct 1.8(a), (h);
88 360 NJ Super 76, 821 A. 2d. 531 (NJ 2003).
51
others. The relationship is governed both by the Rules of Professional Conduct and the
Supreme Court’s exclusive jurisdiction to regulate the conduct of attorneys. However, that a
subject area may be one in which the courts have a "non-delegable, special supervisory
function," does not preclude its arbitrability.”
While acknowledging the heightened duties an attorney has with his clients, the New
Jersey Superior Court was respectful of the role arbitration has in the judicial system, and the
benefits that can be reaped when the two combine. Consequently, courts applying New Jersey
law have conformed to the decision in Kamaratos.89
ix.
South Carolina
Like most jurisdictions, the South Carolina Rules of Professional Responsibility are
modeled after the ABA’s Model Rules. SCRPE 1.8(h) deals with lawyers contracting to limit
their liability to their clients. In a narrative comment to this rule, it is stated that “Although
lawyers may wish to protect their interests by obtaining from clients a waiver or release of
liability, Rule 1.8(h) prohibits any such agreement prospectively limiting malpractice liability
unless permitted by law and the client has independent counsel.”90
The comment goes on to cite to several South Caroline cases highlighting the
applicability of this principle, including In re Hanna, (the court disapproved an agreement by
which the lawyer attempted to have the client "warrant" the propriety of the lawyer's conduct
and agree to hold harmless and indemnify the lawyer).91 See In re Amick (lawyer
suspended when, after misrepresenting status of claim, lawyer improperly sought to avoid
liability by obtaining signed statement from client expressing satisfaction with services
89
Of note, the court in Kamaratos ruled in favor of the client, but on the grounds that the specific arbitration
agreement before it was insufficient. See also Smith v. Lindemann, 2014 U.S. Dist. LEXIS 27065 (D.N.J. March
3, 2014)
90 See South Carolina Rule of Professional Conduct, narrative comment 1.8:910.
91 301 S.C. 310, 391 S.E.2d 728 (1990)
52
received),92 In re Clarke (lawyer reprimanded for demanding that client include statement on
receipt for file releasing lawyer from possible malpractice liability),93 and In re Hanna
(misconduct exacerbated by lawyer's attempt to condition settlement of fee dispute on
withdrawal of grievance by client).94
While South Carolina has yet to definitively rule that these agreements are allowable,
the summation of jurisprudence, as well as the Rules of Professional Ethics, wholly support
that mandatory arbitration agreements in retention agreements and arbitration letters are
valid.
x.
Conclusion
Ultimately, jurisdictions allow the use of mandatory arbitration agreements between
attorneys and clients. The differentiating factor remains the necessary elements to validate
these provisions, with most jurisdictions requiring the use of separate cousin to evaluate the
agreement on behalf of the client, and others merely requiring an “educated and informed”
client. The benefits that arbitration can provide attorneys and clients generally overcome any
fears that they may run afoul of an attorney’s heightened fiduciary duty in the attorney-client
relationship. Many of these concerns fear that these agreements may be used to limit a lawyer’s
potential liability to his or her client; but, as many courts have noted, this is not the case. A client
still retains the right to hold their attorney accountable for his unreasonable behavior, the
difference is merely that arbitration allows for a decision to come about in a private, expeditious,
and, hopefully, more civil manner.
G. Does liability extend beyond the scope of work?
Attorneys, much like doctors, occupy a heightened role in society. Often described as
the foundation of the attorney-client fiduciary relationship, individuals place a high level of trust
92
288 S.C. 486, 343 S.E.2d 623 (1986)
278 S.C. 627, 300 S.E.2d 595 (1983)
94 294 S.C. 56, 362 S.E.2d 632 (1987)
93
53
in their attorneys due to the confidences and vulnerabilities that they share during the
representation.95
This elevated role necessarily carries with it an elevated level of responsibility, and any
break in that responsibility is seen not just as a failure by the attorney to their client’s reasonable
expectations, but also to the profession as a whole. As such, when an attorney’s conduct results
in damages to a client’s interests, any alleged breach is always grounded as an action for
malpractice, rather than breach of contract, tort, etc.96 When a client brings an action against an
attorney for anything other than malpractice, it is best practice to immediately seek dismissal for
those claims because they are consumed by the malpractice claim.
As with nearly any other rule of law, exceptions exist to this common practice. An
attorney may be said to be acting outside of the scope of his practice and be subject to liability,
in a sense, in his personal capacity rather than his professional capacity.97 This determination is
one that is often fact intensive and varies depending on the specific law or theory that the
underlying suit is being brought under.98 The trier-of-fact must examine whether the attorney
was working within the confines of his fiduciary duty, or if he was engaged in conduct that
makes him or her liable under a separate capacity under the prescribed law.
1.
The “Implied duty to advise”
As noted in the preamble to the Model Rules of Professional Conduct, “A lawyer, as a member of the legal
profession, is a representative of clients, an officer of the legal system and a public citizen having special
responsibility for the quality of justice…lawyers play a vital role in the preservation of society. The fulfillment of
this role requires an understanding by lawyers of their relationship to our legal system. See MPRC Preamble,
¶1, 13.
96 “Malpractice by any other name still constitutes malpractice…it consists of the professional misconduct of
members of the medical profession and attorneys. Such professional misconduct may consist either of
negligence or of breach of contract of employment. It makes no difference whether the professional misconduct
is founded in tort or contract, it still constitutes malpractice.” Pierson v. Rion, 2010-Ohio-1793 (Ohio 2nd Dist.
2010); quoting Richardson v. Doe, 176 Ohio St. 370, 199 N.E.2d 878 (Ohio 1964).
97 “We realize that the Consumer Sales Practices Act exempts from liability attorneys engaged in the practice of
law. However, we find that merely holding a license to practice law cannot exculpate an attorney from liability.
Instead, it must be determine whether or not the attorney was actually engaged in the practice of law when the
conduct giving rise to the CSPA claim occurred.” Gugliotta v. Morano, 829 N.E.2d 757, 2005-Ohio-2570, ¶42
(Ohio 9th Dist. 2005).
98 Id. An attorney may be sued in his individual capacity under many specific state statutes, including those
alleging consumer fraud. See also Brennan v. Manning, 2007 Tex. App. LEXIS 2838, 2007 WL 1098476 (Tex.
7th Dist. 2007) (Discussing professional liability exemptions under the Deceptive Trade Practices Act).
95
54
The Model Rules of Professional Conduct, and the many states that mimic its language,
allow for attorneys to limit the scope of their representation so long as the limitation is
reasonable and the client give informed consent.99 Regardless of this contractual limitation, a
lawyer may, in some circumstances, be held to a duty to advise a client regarding matters
outside of that agreed upon scope.
The California Court of Appeals approached this issue in the case of Nichols v. Keller.100
In Nichols, the defendant attorney was retained for the sole purpose of adjudicating the
plaintiff’s worker’s compensation claim after the plaintiff suffered head trauma while working as
a boilermaker. After the initial meeting between them, the defendant filed the application for
adjudication of the plaintiff’s claim and filed is first formal pleadings.
During the course of litigation, the plaintiff traveled to the Boilermaker’s Union Hall in
Pittsburg, California, where he met with several union employees regarding his injury. During
the conversation, these employees informed the plaintiff that he should have filed a third-party
claim in regards to the industrial injury. The plaintiff thereafter filed a malpractice suit against the
attorney, arguing that the defendant’s duty to prosecute his worker’s compensation claim
necessarily included the duty to advise him of different remedies available to him outside of
solely that claim. The defendant filed a motion for summary judgment, arguing that the claim
was barred, as the attorney-client relationship, if any, that existed between the defendant and
the plaintiff was limited solely to the subject matter of the plaintiff’s worker’s compensation
claim. The trial court granted the defendant’s motion, ruling that no triable facts existed
regarding the scope of defendant’s duty.
The appellate court was not swayed by the trial court’s opinion, and reversed the order
of summary judgment. “The duty of a lawyer today is not that of a solver of legal conundrums:
he is indeed a counsellor at law. Knowledge of the law is of course essential to his efficiency,
99
See MRPC 1.2(c).
15 Cal. App. 4th 1672, 19 Cal. Rptr. 2d 601 (Cal 5th Dist. 1993).
100
55
but the law bears to his profession a relation very similar to that which medicine does to that of
the physicians…the great physicians are those who in addition to that knowledge of
therapeutics which is open to all, know not merely the human body but the human mind and
emotions, so as to make themselves the proper diagnosis--to know the truth which their patients
fail to disclose. "101 Put another way, the court ruled that even though the defendant only agreed
to prosecute the plaintiff’s worker’s compensation claim, that the broad nature of the claim
necessarily included a duty of care to advise the client of all available remedies related to the
incident, including third party action. “Worker’s compensation,” the court opined, is such a broad
term that a lawyer is bound to represent to his client all available remedies at law, namely
because a client’s limited understanding of the law may preclude knowledge of all potential
recovery that is due to him.
In summary, in the absence of an explicit written understanding to the contrary, a lawyer
may assume, by operation of law, an implied duty to represent or advise a client regarding
collateral matters, even if they are not within the scope of work originally agreed to.
The
operative word to this duty, though, is “collateral.” While courts have often found this “implied
duty to advise” to exist for potential claims related to the original representation,102 in cases
where the client claims that they were owed a duty to be advise of claims arguable unrelated to
the original representation, courts have been less willing to expand the scope of a lawyer’s duty
to advise.103
Avoiding issues with the duty to advice starts and ends with the initial engagement letter
or retention agreement.104 A lawyer may insulate himself from inadvertently assuming implied
101
Id. at 15 Cal App 4th 1672, 1686, 19 Cal. Rptr. 2d 601, 610.
See also Daugherty v. Runner, 581 S.W.2d 12 (Ky. App. 1978).
103 Dunn v. Westbrook, 334 Ark. 83, 86, 971 S.W.2d 252, 254 (1998) (lawyer hired to revise a partnership
agreement for tax purposes did not have a duty to insert or recommend a buy-out provision to ensure resolution
of a dispute in the event a partner was removed); Landis v. Hunt, 80 Ohio App.3d 662, 673, 610 N.E.2d 554,
561 (1992) (attorney consulted concerning estate planning issues did not have a duty to investigate a medical
malpractice claim).
104 See, e.g. Jones v. Bresset, 47 Pa D & C 4th 60 (CCP Lackawanna Cnty, PA 2000)
102
56
duties by providing a non-engagement letter that should refer in general to statutes of limitations
and which encourages the client to consult another attorney.105
2. “Aiding and abetting” a breach of fiduciary duty.
A legal grey area in the context of scope of work liability is when a lawyer may become
liable to a non-client for “aiding and abetting” its client’s breach of fiduciary duty.106 Issues are
arguably created where the attorney’s work for a client creates a form of vicarious liability
relating to the client’s dealings with another party in a non-legal setting.
For instance, in the case of Thornwood, Inc. v. Jenner & Block,107 the plaintiff, a golf
course developer, brought suit against the defendant-law firm alleging that the buy-out
agreement it had drafted for its client, a former business partner of the plaintiff, failed to disclose
a plan by the PGA to become involved in the golf course’s development. Of note, during the
negotiation of the buy-out, the plaintiff executed a release (drafted by the defendant-law firm) to
release them from liability for any and all claims that could have arisen from the buy-out.
Reviewing the claim, the court stated that the plaintiff had made a valid claim against
the defendant-law firm for aiding and abetting its client’s breach of fiduciary duty to a former
partner. Analyzing applicable precedent, it ruled that although courts had never found an
attorney liable for his client’s commission of a tort, no courts had prohibited such actions,
either. “Accordingly, we see no reason to impose a per se bar that prevents imposing liability
upon attorneys who knowingly and substantially assist their clients in causing another
party’s injury…one may not use his license to practice law as a shield to protect himself from
the consequences of his participation in an unlawful or illegal conspiracy.”108 The court ruled
105
Mallen, R.E., Smith, J.M., Legal Malpractice, § 2.11 , p. 135 (4th ed. West Publishing 1996)
See, e.g. Abrams v. McGuireWoods, LLP, 2014 U.S. Dist. LEXIS 101634, 2014 WL 3721950 (N.D. Ind.
2014) (After legal malpractice claim dismissal, court allowed a fiduciary breach claim against law firm due to
multiple representation in hospital failure.)
107 344 Ill. App. 3d 15, 799 N.E.2d 756 (Ill. 1st Dist. 2003).
108 344 Ill App 3d 15, 28, 799 NE2d 756, 768.
106
57
that a claim for aiding and abetting can be successfully pled if it can be shown (10 that the
party whom the defendant aids must perform a wrongful act which causes an injury; (2) the
defendant must be regularly aware of his role as a part of the overall or tortious activity at the
time that he provides the assistance; and, (3) the defendant must knowingly and
substantially assist the principal violation.109
Later decisions have clarified the position in Thornwood, and limited the potential
scope of aiding and abetting breaches of fiduciary duty by preventing liability expanding to
“parties who were simply doing their jobs and performing tasks that they typically performed
in the course of business.”110 Nonetheless, these claims can significantly expanded the
scope of an attorney’s liability exposure, both to non-clients and clients alike. While an
attorney may be directly liable to the non-client for damages, there is also the risk that the
claim can lead to the discovery of confidential attorney-client communications, because the
heart of the claim goes to the mental state of the offending parties. Because the plaintiff will
seek evidence proving knowledge of the tortious activity, attorney-client communications will
remain the plaintiff’s primary target throughout litigation.111 Arguably, an attorney could claim
that the release of such information is reasonably necessary to establish any necessary
defenses in a civil claim based upon conduct the client was involved in, but this will not
doubt raise questions and cost additional time and resources to litigate.112
The potential for vicarious liability stemming from the client’s conduct requires, by
law, the compliance of the attorney in that conduct. It goes without saying that such
malicious behavior should be avoided; but, the risk still may exist for many transactional
109
See also Wolf v. Liberis, 153 Ill.App. 3d 488, 505 N.E.2d 1202 (Ill 1st Dist. 1987)
Premier Capital Management, LLC v. Cohen, 2008 US Dist. LEXIS 23368, 2008 WL 4378313 (N.D. Ill.
2008)
111 See Restatement (Second) of Torts, §876 (1979).
112 See MRPC 1.6(b)(5).
110
58
attorneys who believe themselves to merely be acting strategically, rather than with a willful
intent to harm a third party. Consequently, cases such as Thornwood illustrate the need for
attorneys to remain vigilant in how their clients use the attorney’s work-product for their
dealings.
59
APPENDICES
60
APPENDIX A
61
Ohio Ethics Opinion
2000.
BCGD 2000-03.
THE SUPREME COURT OF OHIO
Board of Commissioners on Grievances and Discipline
OPINION 2000-3
IssuedJune 1, 2000
SYLLABUS: It is improper under DR 5-107(B) for an insurance defense attorney to abide by an insurance company's litigation
management guidelines in the representation of an insured when the guidelines directly interfere with the professional judgment of the
attorney. Attorneys must not yield professional control of their legal work to an insurer.
Guidelines that restrict or require prior approval before performing computerized or other legal research are an interference with the
professional judgment of an attorney. Legal research improves the competence of an attorney and increases the quality of legal services.
Attorneys must be able to research legal issues when they deem necessary without interference by non-attorneys.
Guidelines that dictate how work is to be allocated among defense team members by designating what tasks are to be performed by a
paralegal, associate, or senior attorney are an interference with an attorney's professional judgment. Under the facts and circumstances of a
particular case, an attorney may deem it necessary or more expedient to perform a research task or other task, rather than designate the task
to a paralegal. This is not a decision for others to make. The attorney is professionally responsible for the legal services. Attorneys must be
able to exercise professional judgment and discretion.
Guidelines that require approval before conducting discovery, taking a deposition, or consulting with an expert witness are an interference
with an attorney's professional judgment. These are professional decisions that competent attorneys make on a daily basis.
Guidelines that require an insurer's approval before filing a motion or other pleading are an interference with an attorney's professional
judgment. Motion by motion evaluation by an insurer of an attorney's legal work is an inappropriate interference with professional
judgment and is demeaning to the legal profession. If an insurer is unsatisfied with the overall legal services performed, the insurer has the
opportunity in the future to retain different counsel.
Other guidelines may or may not interfere with an attorney's professional judgment. Insurance defense attorneys must exercise discretion in
making such determinations.
Attorneys must provide reasonable and necessary services at reasonable fees. Attorneys should communicate with the insurer regarding the
status of the representation. The Board encourages attorneys to cooperate with insurers, but attorneys must not abdicate control of their
professional judgment to non-attorneys.
OPINION: This opinion addresses a question regarding insurance defense attorneys abiding by an insurance company's litigation
management guidelines.
Is it proper for an insurance defense attorney to abide by an insurance company's litigation management guidelines in the representation of
an insured?
The use of litigation management guidelines by insurance companies is raising ethical concerns among members of the bar. See e.g.,
Connie B. Saylor, Restrictive Billing Guidelines: The Ethical Problems, For the Defense, Jan. 1998, at 32-35. The primary ethical concern
is whether compliance with the guidelines interferes with the independent professional judgment of insurance defense counsel and
consequently with the quality of legal services provided.
The use of litigation management guidelines is a cost control measure for insurers. The guidelines are intended to improve cost efficiency.
The guidelines direct defense counsel on how the defense is to be conducted. "[G]uidelines typically mandate the form and timing of
reports to responsible claims personnel; condition, limit or restrict certain types of discovery; require prior approval for travel; condition or
restrict the time spent on legal research or proscribe electronic or computerized research; and impose budgeting requirements." Douglas R.
Richmond, Lost in the Eternal Triangle of Insurance Defense Ethics, 9 Geo. J. Legal Ethics 475, 531 (1996).
Some examples of litigation management guidelines are as follows. Guidelines may require that the insurer's consent be obtained before
filing a motion or taking a deposition; that discovery be postponed until the end of discovery periods; that the insurance company makes
the judgment on whether discovery is necessary to the defense or whether an expert witness is necessary; that certain tasks must be
performed by paralegals not attorneys; and that if the attorney takes discovery or files a motion without the insurer's consent, the attorney
receives no compensation for the work performed.
It is a fact that the insurer enjoys some control over the insured's defense through the liability policy. A standard liability policy gives a
company the right and duty to defend a suit and the right to investigate and settle claims. See e.g., Insurance Services Office, Inc., Sample
Commercial General Liability Policy (1982, 1984), Sample Personal Automobile Insurance Policy (1985), reprinted in Kenneth S.
Abraham, Insurance Law and Regulation: Cases and Materials, 439-48, 602-12 (1990).
Yet, it is axiomatic that no matter what the policy states, the insurance defense counsel may not yield professional control of the legal work
to an insurer. Under DR 3-101(A) "[a] lawyer shall not aid a non-lawyer in the unauthorized practice of law." Under DR 5-107 (B) "[a]
lawyer shall not permit a person who recommends, employs, or pays him to render legal services for another to direct or regulate his
professional judgment in rendering such legal services."
The tension between insurer control of defense and settlement of claims and the exercise of an attorney's independent judgment on behalf
of an insured exists in part because of the unsettled nature of the insured, insurer, defense counsel relationship. The insured purchases
62
insurance from an insurance company. The insurance company promises to defend claims against the insured and to indemnify the insured
for judgments and settlements. The insurance company hires an attorney to defend claims against insureds. The insured agrees to
cooperate.
The relationship has been described as a "tripartite relationship." See e,g., Douglas R. Richmond, Lost in the Eternal Triangle of Insurance
Defense Ethics, 9 Geo. J. Legal Ethics 475, 476-83 (1996), Ronald E. Mallen, Looking to the Millenium: Will the Tripartite Relationship
Survive? 66 Def. Counsel. J. 481 (1999). The precise nature of the relationship among an insured, an insurer, and defense counsel is
enigmatic.
There are different views as to whether the insured and insurer are both clients, or whether the insured is a single client and the insurer is a
third party payer, or whether the relationship is characterized otherwise. See e.g., Atlanta International Insurance Co. v. Bell, 475 N.W. 2d
294, 295 (Mich. 1991) (stating that "something less than a plenary attorney-client relationship exists between a defense counsel and an
insurer"); Charles Silver, Does Insurance Defense Counsel Represent the Company or the Insured? 72 Tex. L. Rev. 1583, 1590-1628
(1994) (supporting the view that the insurance company can be defense counsel's client jointly with the insured or even be the only client
defense counsel represents); (Charles Silver, Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J.
255, 275 (1995) (endorsing the view that the retainer agreement determines the number of clients defense counsel represents); Joanne
Pitullo, Three-Way Street: Discord Between Insurers and Insureds Puts Defense Lawyers on Perilous Path, 81 A.B.A. J. 102 (1995)
(purporting that the majority view is that the insured is the sole client); Cincinnati Bar Ass'n, Op. 98-99-02 (undated) and Vermont Bar
Ass'n, Op. 98-7 (undated) (advising that the defense lawyer's client is the insured, not the insurance company); and ABA, Formal Op.96403 (1996) (advising that "[a] lawyer hired by an insurer to represent an insured may represent the insured alone or, with appropriate
disclosure and consultation, he may represent both the insurer and the insured with respect to all or some aspects of the matter." The Board
found no reported Ohio case law directly on point.
Within this patchwork of views regarding the nature of the relationship among the insured, insurer and defense counsel, questions emerge
regarding what is ethical conduct for insurance defense attorneys. The unsettled nature of the relationship stimulates the search for ethical
guidance.
Whether an insurance defense attorney may abide by an insurer's "litigation management guidelines" without violating ethical duties of the
legal profession has been the subject of advisory opinions in this state and other states. The majority view is that certain carrier imposed
limitations give rise to ethical problems. See. e.g., Kentucky Bar Ass'n, Op. E-331 (1988); Cincinnati Bar Ass'n, Op. 98-99-02 (undated);
Indiana State Bar Ass'n, Opinion 3 of 1998; Rhode Island Sup Ct, Ethics Advisory Panel, Op. 99-18 (1999); Vermont Bar Ass'n, Op. 98-7
(undated); Sup Ct Tennessee, Bd of Professional Responsibility, Ops. 88-F-113 (1988), 99-F-143 (1999), 99-F-143(a)(1999). Several of
these opinions are reviewed herein to illustrate the scope of insurer imposed litigation management guidelines on the practice of law and
the responses thereto.
The Indiana State Bar Association in Opinion 3 of 1998 advised that "[t]he attorney may enter into a contract to provide legal services that
gives to the carrier the right to control the defense of the insured, provided that such contract does not permit the carrier to direct or regulate
the lawyer's professional judgment in rendering such legal services and does not provide or encourage financial disincentives that likely
would cause an erosion of the quality of legal services provided." The bar association pointed out that the professional and independent
judgment of defense counsel and the quality of legal services is impinged by specific terms of some guidelines.
Especially troublesome are those provisions of the subject agreement which tend to curtail reasonable discussion between members of the
defense team on a day-to-day basis, and which seek to dictate the use of personnel within the lawyer's own office. Another example of a
provision resulting in a material disincentive provides that if the senior litigator performs a particular service, e.g., argument of motions and
other court appearances, conduct of depositions, or review of medical records or legal research, which could have been performed
"suitably" (in the carrier's view) by an associate or paralegal, the service may be billed only at the hourly rate for the associate or paralegal.
Similarly, the contract provides that once an associate attorney is assigned to a given matter, another associate may not be substituted
without prior approval of the carrier. Such impairments of the responsible attorney's exercise of professional judgment as to the assignment
of the most effective member of the litigation team to a given task is ethically impermissible. Lastly, to require, or even to permit, counsel
to rely upon legal research by an unsupervised paralegal invites legal malpractice
Indiana State Bar Ass'n, Opinion 3 of 1998.
The Rhode Island Supreme Court, Ethics Advisory Panel in Op. 99-18 (1999) advised that there were not ethical concerns with provisions
that merely define the financial relationship between the insurer and defense counsel or with provisions that coordinate the roles of defense
counsel and employees of the insurer assigned to the claim.
However, certain other provisions, specifically those that require the insurer's pre-approval for specified legal services, extend beyond the
financial and working relationship between the insurer and defense counsel, and infringe upon the attorney-client relationship between the
insured and the inquiring attorney. For example, the insurer's prior approval is required before defense counsel engages in the following;
conducting legal research in excess of three hours; filing counterclaims, cross-claims or third-party actions; visiting the accident scene;
preparing substantive dispositive motions or briefs; customizing interrogatories or document requests; and scheduling depositions. The
insurer's prior approval is also required before counsel incurs expenses related to any of the following: retaining expert witnesses;
scheduling independent medical examinations or peer reviews; instituting surveillance; and conducting additional investigations. To the
extent that the insurer reserves unto itself the right to withhold approval for reasonable and necessary legal services to be provided to an
insured, these provisions of the guidelines impermissibly interfere with the independent professional judgment of the inquiring attorney.
Rhode Island Sup Ct, Ethics Advisory Panel, Op. 99-18 (1999).
63
The Cincinnati Bar Association in Opinion 98-99-02 considered litigation management guidelines that require prior approval of "necessary
legal research" subject to an agreed budget; prior approval in the selection and retention of expert witnesses; and prior approval for making
any motion before the court.
The bar association advised that "[t]he law firm may not ethically submit for prior approval legal research, selection and retention of
experts, or motions. The auditors or insurance company employees reviewing the prior approval items are non-lawyers. Submission for
prior approval violates DR 3-101(A)
Cincinnati Bar Ass'n, Op. 98-99-02 (undated).
The disciplinary rules within the Ohio Code of Professional Responsibility do not specifically address the tripartite relationship that exists
between an insurer, an insured, and defense counsel. Ethical Consideration 5-17 mentions insureds and insurers as an example of situations
in which a lawyer may be asked to represent individuals with potentially different interests.
EC 5-17 TYPICAL POTENTIALLY DIFFERING INTERESTS
Typically recurring situations involving potentially differing interests are those in which a lawyer is asked to represent co-defendants in a
criminal case, co-plaintiffs in a personal injury case, an insured and his insurer, and beneficiaries of the estate of a decedent. Whether a
lawyer can fairly and adequately protect the interests of multiple clients in these and similar situations depends upon an analysis of each
case. In certain circumstances, there may exist little chance of the judgment of the lawyer being adversely affected by the slight possibility
that the interests will become actually differing; in other circumstances, the chance of adverse effect upon his judgment is not unlikely.
This ethical consideration does not dictate a conclusion that an insured and insurer are to be assumed to be dual clients. Asking a lawyer to
represent two clients in a particular case is not equated with a per se rule or assumption that a lawyer automatically in all cases represents
an insurer as well as an insured. This Board supports the view expressed by the Cincinnati Bar Association that "[t]he insured, not the
insurance company, is the client" of defense counsel.
The disciplinary rules are unequivocal that it is the lawyer who directs and regulates his or her own professional judgment, not the persons
or entities paying for the rendering of legal services to another. This is true regardless of whether an attorney represents one client or dual
clients. One client cannot direct an attorney's professional judgment with regard to another client. An attorney has a duty of loyalty to the
insured and regardless of whether the insurer is considered a dual client or a third party payer, the attorney cannot allow the insurer to direct
or regulate his or her professional judgment in legal services to the insured.
DR 5-107 AVOIDING INFLUENCE BY OTHERS THAN THE CLIENT
(B) A lawyer shall not permit a person who recommends, employs, or pays him to render legal services for another to direct or regulate his
professional judgment in rendering such legal service.
This rule is reinforced by ethical considerations within the Ohio Code of Professional Responsibility that emphasize the attorney's duty of
loyalty and duty of exercising professional judgment solely for the benefit of the client.
EC 5-1 LOYALTY TO CLIENT
The professional judgment of a lawyer should be exercised, within the bounds of the law, solely for the benefit of his client and free of
compromising influences and loyalties. Neither his personal interests, the interests of other clients, nor the desire s of third persons should
be permitted to dilute his loyalty to his client.
EC 5-21 INFLUENCE OF THIRD PARTIES ON ATTORNEYS
The obligation of a lawyer to exercise professional judgment solely on behalf of his client requires that he disregard the desires of others
that might impair his free judgment. The desires of a third person will seldom adversely affect a lawyer unless that person is in a position to
exert strong economic, political, or social pressures upon the lawyer. These influences are often subtle, and a lawyer must be alert to their
existence. A lawyer subjected to outside pressures should make full disclosure of them to his client; and if he or his client believes that the
effectiveness of his representation has been or will be impaired thereby, the lawyer should take proper steps to withdraw from
representation of his client.
EC 5-22 COMPENSATION FROM OTHER THAN CLIENT
Economic, political, or social pressures by third persons are less likely to impinge upon the independent judgment of a lawyer in a matter in
which he is compensated directly by his client and his professional work is exclusively with his client. On the other hand, if a lawyer is
compensated from a source other than his client, he may feel a sense of responsibility to someone other than his client.
In conclusion, it is this Board's view that it is improper under DR 5-107(B) for an insurance defense attorney to abide by an insurance
company's litigation management guidelines in the representation of an insured when the guidelines interfere with the professional
judgment of the attorney. Attorneys must not yield professional control of their legal work to an insurer.
Guidelines that restrict or require prior approval before performing computerized or other legal research are an interference with the
professional judgment of an attorney. Legal research improves the competence of an attorney and increases the quality of legal services.
Attorneys must be able to research legal issues when they deem necessary without interference by non-attorneys.
Guidelines that dictate how work is to be allocated among defense team members by designating what tasks are to be performed by a
paralegal, associate, or senior attorney are an interference with an attorney's professional judgment. Under the facts and circumstances of a
particular case, an attorney may deem it necessary or more expedient to perform a research task or other task, rather than designate the task
to a paralegal. This is not a decision for others to make. The attorney is professionally responsible for the legal services. Attorneys must be
able to exercise professional judgment and discretion.
Guidelines that require approval before conducting discovery, taking a deposition, or consulting with an expert witness are an interference
with an attorney's professional judgment. These are professional decisions that competent attorneys make on a daily basis.
64
Guidelines that require an insurer's approval before filing a motion or other pleading are an interference with an attorney's professional
judgment. Motion by motion evaluation by an insurer of an attorney's legal work is an inappropriate interference with professional
judgment and is demeaning to the legal profession. If an insurer is unsatisfied with the overall legal services performed, the insurer has the
opportunity in the future to retain different counsel.
Other guidelines may or may not interfere with an attorney's professional judgment. Insurance defense attorneys must exercise discretion in
making such determinations.
Attorneys must provide reasonable and necessary services at reasonable fees. Attorneys should communicate with the insurer regarding the
status of the representation. The Board encourages attorneys to cooperate with insurers, but attorneys must not abdicate control of their
professional judgment to non-attorneys.
Advisory Opinions of the Board of Commissioners on Grievances and Discipline are informal, nonbinding opinions in response to
prospective or hypothetical questions regarding the application of the Supreme Court Rules for the Government of the Bar of
Ohio, the Supreme Court Rules for the Government of the Judiciary, the Code of Professional Responsibility, the Code of Judicial
Conduct, and the Attorney's Oath of Office.
Board of Commissioners on Grievances and Discipline
41 South High Street, Suite 3370
Columbus, Ohio 43215-6104
(614) 644-5800
65
APPENDIX B
66
[Date]
ENGAGEMENT LETTER CLOSELY HELD CORPORATION
[Name]
[Attention line if needed]
[Address]
[City, State Zip]
Re: [Case Name] [Our File Number]
Dear [Salutation]:
This will confirm our recent discussion in which I agreed, at your request, to represent
____________________in the organization of your new business venture. I have set forth
below a general outline of the steps and considerations which may be involved in the
formation of this new corporation. I have explained to you that, because of the possibility of
unpredictable and unforeseen circumstances, I cannot be absolutely specific about my fees
for professional services. A formation of a simple, closely held corporation, with all of its
shareholders in the State of Ohio normally involves the following:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Preparation and filing of the Articles of Incorporation with the Secretary of State;
The appointment of a Statutory Agent for service of process for the corporation;
The preparation of the subscription agreement;
Preparation of minutes for the initial meeting of the incorporators, shareholders and
directors;
Preparation of the share ledger and share journal and the issuance of stock certificates;
The exemption or registration of the shares with the Ohio Division of Securities;
Preparation of the Regulations;
Preparation of a Plan to comply with Section 1244 of the Internal Revenue Code for small
business stock; and
A review of the basic Federal Income Tax considerations.
Assuming there are no major disagreements among the shareholders or
complications with state or federal agencies with which we must deal, I am prepared to
perform the services outlined above on an hourly basis, with time being charged in tenths of
an hour, (i.e., in six minute blocks). My rate for this matter will be $ ________ per hour.
Paralegals' time is billed at $ _____ per hour. We will use our discretion in staffing, to
provide services in the most proper, professional, efficient and economical manner to you.
Our rates are reviewed annually, at least, and you will be notified in writing in advance of any
changes in the rate schedule. In addition to our fees, we will be entitled to payment or
reimbursement for all costs and expenses incurred in performing services for you in this
matter such as photocopying, messenger and delivery service, computerized research,
travel (including mileage, parking, air fare, lodging, meals and ground transportation), long
distance telephone, telecopying, word processing, court costs and filing fees.
67
Unless special arrangements are made at the outset, fees and expenses of others,
(i.e., third party vendors) will not be paid by us and will be the responsibility of, and billed
directly to you. All filing fees charged by the Secretary of State and the Ohio Division of
Securities are your responsibility. Therefore, a retainer of $ _____ is requested prior to any
services being performed by us on your behalf. Our statements for services rendered and
costs advanced or incurred are issued monthly and payable upon receipt. Statements which
remain unpaid sixty (60) days or more will be charged compound interest at the rate of ten
percent (10%) per year. We reserve the option to terminate our representation if full
payment is not received within sixty (60) days of the date of any statement. We reserve the
right to withdraw from our representation if, among other things, you fail to honor the terms
of this Engagement Letter including nonpayment of any fee statements, you fail to cooperate
or follow our advice on a material matter, or if any fact or circumstance arises or is
discovered that would, in our view, render our continuing representation unlawful or
unethical. You should be aware of an ethical requirement imposed upon all Ohio lawyers. If
a client, in the course of representation by a lawyer, perpetrates a fraud upon any person or
tribunal, the lawyer is obligated to call upon the client to rectify the same. If the client refuses
or is unable to do so, the attorney is required to reveal the fraud to the affected person or
tribunal.
If you are in agreement with the terms of this letter, please sign on the signature line
below and return it to me in the enclosed envelope. We look forward to working with you on
this matter. Thank you for your retention of our firm.
Very truly yours,
POLING LAW
/s/ Doug Holthus
Doug Holthus
DPH:pz
cc:
___________________________________________________
AGREEMENT
I and/or we agree to engage you and the POLING LAW pursuant to the terms set
forth in this letter.
______________________________/________________________/_______________
Signature
Print
Date
______________________________/________________________/_______________
Signature
Print
Date
68
APPENDIX C
69
[Date]___________
ENGAGEMENT LETTER FOR GENERAL CORPORATE REPRESENTATION
Ms. ____________________
_______________________
_______________________
Re: [Matter]____________
Dear Ms. _______________:
This will confirm your retention of our firm for general corporate matters.
As we discussed, our services will be billed on an hourly basis, with time being
charged in tenths of an hour, (i.e., in six minute blocks). My hourly rate for this matter is
$_________per hour. Paralegals' time is billed at $_________ per hour. We will use our
discretion in staffing, to provide services in the most proper, productive, efficient and
economical manner to you. Our rates are reviewed annually, at least, and you will be notified
in writing in advance of any changes in the rate schedules.
In addition to our fees, we will be entitled to payment or reimbursement for all costs
and expenses incurred in performing services for you in respect of this matter such as
photocopying, messenger and delivery service, computerized research, travel (including
mileage, parking, air fare, lodging, meals and ground transportation), long distance
telephone, telecopying, word processing, court costs and filing fees. Unless special
arrangements are made at the outset, fees and expenses of others (i.e. third party vendors)
will not be paid by us and will be the responsibility of, and billed directly to you. Statements
which remain unpaid for sixty (60) days or more will be charged compound interest at the
rate of ten percent (10%) per year.
We reserve the option to terminate our representation if full payment of any
statement is not received within sixty (60) days of the date of the statement. We also reserve
the right to withdraw from our representation if, among other things, you fail to honor the
terms of this Engagement Letter including nonpayment of our fee statements, your failure to
cooperate or follow our advice on a material matter, or in the event any fact or circumstance
arises or is discovered that would, in our view, render our continuing representation in this
matter unlawful or unethical.
You should be aware of an ethical requirement imposed upon all Ohio lawyers. If a
client, in the course of representation by an attorney, perpetuates a fraud upon any person
or tribunal, the attorney is obligated to call onto the client to rectify the same. If the client
70
refuses or is unable to do so, the attorney is required to reveal the fraud to the effected
person or tribunal.
If you are in agreement with the terms of this Easement Letter, please sign on the
signature line below and return it to me in the enclosed envelope. We look forward to
working with you on this matter. Thank you for your retention of our firm.
Very truly yours,
POLING LAW
/s/ Doug Holthus
Doug Holthus
DPH:pz
cc:
___________________________________________________
AGREEMENT
I and/or we agree to engage you and the POLING LAW pursuant to the
terms set forth in this letter.
______________________________/________________________/_______________
Signature
Print
Date
______________________________/________________________/______________
Signature
Print
Date
71
APPENDIX D
72
[Date]____________________________
ENGAGEMENT LETTER HOURLY RATE-LITIGATION/GENERAL
[Name]________________________________________________
[Attention line if needed]
[Address]_____________________________________________
[City, State Zip]_____________________________________
Re: ____________________________________
Dear [Salutation]:
Thank you for your retention of our firm in the above matter.
I
contemplate
my
________________________________________.
services
to
include
As we discussed, our services are billed on an hourly basis, with time being charged
in tenths of an hour, i.e., in six minute blocks). My rate for this matter will be $______per
hour. Paralegals' time is billed at $______ per hour. We will use our discretion in staffing, to
provide services in the most proper, productive, efficient and economical manner to you. Our
rates are reviewed annually, at least, and you will be notified in advance in writing of any
changes in the rate schedules.
In addition to our fees, we will be entitled to payment or reimbursement for all costs
and expenses incurred in performing services such as photocopying, messenger and
delivery service, computerized research, travel (including mileage, parking, air fare, lodging,
meals and ground transportation), long distance telephone, telecopying, word processing,
court costs and filing fees. Unless special arrangements are made at the outset, fees and
expenses of others will not be paid by us and will be the responsibility of, and billed directly
to the client.
Our statements for services rendered and costs advanced or incurred are issued
monthly and payable upon receipt. Statements which remain unpaid sixty (60) days or more
will be charged compound interest at the rate of ten percent (10%) per year. We reserve the
option to terminate our representation if payment is not received within sixty (60) days of the
date of the statement. We reserve the right to withdraw from our representation if, among
other things, you fail to honor the terms of this Engagement Letter including nonpayment of
any fee statement, you fail to cooperate or follow our advice on a material matter, or if any
fact or circumstance arises or is discovered that would, in our view, render our continuing
representation unlawful or unethical.
73
You should be aware of an ethical requirement imposed upon all Ohio lawyers. If a
client, in the course of representation by a lawyer, perpetrates a fraud upon any person or
tribunal, the lawyer is obligated to call upon the client to rectify the same. If the client refuses
or is unable to do so, the attorney is required to reveal the fraud to the affected person or
tribunal.
Since the outcome of negotiations and litigation is subject to factors which cannot
always be foreseen, it is understood that we have made no promises or guarantees to you
concerning the outcome and cannot do so. Nothing in this letter shall be construed as such
a promise or guarantee. If you are in agreement with the terms of this letter, please sign on
the signature line below and return it to me in the enclosed envelope. We look forward to
working with you on this matter.
Very truly yours,
POLING LAW
/s/ Doug Holthus
Doug Holthus
DPH:pz
cc:
___________________________________________________
AGREEMENT
I and/or we agree to engage you and POLING LAW pursuant to the terms set
forth in this letter.
______________________________/________________________/_______________
Signature
Print
Date
______________________________/________________________/_______________
Signature
Print
Date
74
APPENDIX E
75
LITIGATION BUDGET
INSURED:
CLAIM NO:
DATE OF LOS:
CASE STYLE:
VENUE:
TASK
INITITAL MEETING WITH INSURED
AND PARTIES; INITIAL SUIT
EVALUATION AND LITIGATION
STRATEGY; SUIT REPORTING TO
CLIENT; COMMUNICATIONS WITH
OPPOSING COUNSEL
PREPARATION OF ALL
RESPONSIVE
PLEADINGS/MOTIONS/DISPOSITIVE
MOTIONS
DISCOVERY; WRITTEN DISCOVERY
ISSUED TO OPPOSING PARTIES;
RESPONSES TO OPPOSING
PARTIES’ DISCOVERY;
PREPARATION AND ATTENDNACE
AT DISCOVERY DEPOSITIONS;
REPORTING TO CLIENT AND
MEMBER ON ALL DISCOVERY
COURT APPEARANCES/STATUS
AND SETTLEMENT CONFERNECES
TRIAL PREPARATION(S)
TRIAL
EXPERT FEES
TRAVEL EXPENSES (MILEAGE,
ETC.)
COURT REPORTER
(APPEARANCES AND
TRANSCRIPTS)
TRIAL EXHIBITS
TOTAL
HOURS
ATTORNEY
FEE
TOTAL
*All times above include travel*
76
APPENDIX F
77
SUPPLEMENT TO HOURLY RATE/LITIAGION ENGAGEMENT LETTER
AND CONTINGENT FEE AGREEMENT
____________________________________________________
CLIENT:____________________________________________
Matter: ____________________________________________
Date:______________________________________________
YOUR RIGHT OF TERMINATION
You have the right at any time to terminate our services and representation upon
written notice to our firm. Such termination shall not, however, relieve you of the obligation
to pay the full amount billed to you for all services rendered and for the costs or expenses
paid or incurred by us on your behalf prior to the date of such termination.
OUR RIGHT TO WITHDRAW
We reserve the right to withdraw from your representation if, among other things, you
fail to honor the terms of the Engagement Letter or Contingent Fee Agreement, you fail to
cooperate or follow our advice on a material matter, or if any fact or circumstance that would,
in our view, render our continuing representation unlawful or unethical. If we elect to
withdraw, you will agree to and will take all necessary steps to free us of any obligation to
perform further, including the execution of any documents necessary to complete our
withdrawal, and we will be entitled to be paid the full amount for all services rendered and
costs and expenses paid or incurred by us on your behalf to the date of withdrawal.
CLIENT’S OBLIGATIONS
As a client, it is your obligation to disclose all relevant factual information concerning
the events that led to this matter. If you testify either in court or by deposition, you must
testify faithfully & truthfully regarding the facts. Otherwise, we will be forced to notify the
court of the discrepancy. In order to enable us effectively to render the services set forth in
our agreement, you have agreed to and will disclose fully and accurately all facts and keep
us appraised of all developments relating to the matter. You have agreed to and will
cooperate fully with us and be available to attend all meetings, discovery proceedings and
conferences, hearing and other proceedings. You should be aware of the ethical
requirement imposed upon all Ohio lawyers. If a client, in the course of representation by a
lawyer, perpetrates a fraud upon any person or tribunal, the lawyer is obligated to call upon
the client to rectify the same. If the client refuses or is unable to do so, the attorney is
required to reveal the fraud to the affected person or tribunal.
NO PROMISES AND/OR GUARANTEES
Since the outcome of litigation is subject to the vagaries and risks inherent in the
litigation process, it is understood that we have made no promises or guarantees to you
concerning the outcome and cannot do so. Nothing in this letter shall be construed as a
promise or guarantee.
CONFLICT OF INTEREST
We have inquired through appropriate channels in order to determine whether our
representation in this matter will create a conflict of interest within our firm. No information
has been disclosed to us which indicates that any conflict of interest exists. If at any time
during the course of representation of you we learn of a conflict of interest, we will take
78
immediate steps to inform you of this conflict and to meet with you in order to discuss and
resolve it.
FEE’S AND BILLING
Our hourly billing rates for attorneys and legal assistants are competitive with major
firms.
The primary point of contact within the firm for this matter will be
_________________whose hourly rate is $__________per hour. If at any time you wish to
discuss any aspect of this engagement, please contact the undersigned. Our hourly rates
are subject to change from time to time and we will provide you with advance written notice
of same should a change in rate occur.
STAFFING
Staffing for this engagement will vary based upon the complexity of issues
encountered and urgency. We will utilize to the maximum extent possible, with partner
supervision, the services of associates, staff attorneys and legal assistants. This will
produce lower blended hourly rates.
EXPERTS
In the event that we encounter issues that require special attention, we will not
hesitate to call upon individuals with experience and expertise that equips them to address
the specific issue in question. I will obtain approval from you in advance of relying on this
level of support. We will always endeavor to provide cost-effective service.
_____________________________/___________________________/__________
___
Attorney Signature
Print
Date
______________________________/________________________/____________
___
Client Signature
Print
Date
79
APPENDIX G
80
CONTINGENT FEE AGREEMENT FOR LEGAL SERVICES
THIS AGREEMENT is entered in this________ DAY OF _________, 20__ , by and
between POLING LAW, 300 East Broad Street, Suite 350 Columbus, Ohio 43215
(hereinafter referred to as "ATTORNEYS") and ___________________________
(hereinafter referred to as "CLIENT").
1. ATTORNEYS shall represent CLIENT to assert a claim for damages against
___________________________________________ arising out of an occurrence on or
about _________________ in which CLIENT was injured or claims to have sustained injury
and damage.
2. ATTORNEYS shall perform all reasonable, necessary and usual services in
matters of this kind including investigation of facts, gathering of evidence, and preparation of
exhibits, interviewing witnesses, compiling records of expenses, and negotiations with the
adverse party, the adversary's insurance carrier or other representatives.
3. If a settlement is not effected which is satisfactory to CLIENT, ATTORNEYS agree
to either initiate alternative dispute resolution proceedings, arbitration or bring an action
against the proper party or parties to attain the benefits provided by judicial oversight of the
claim. In this connection, ATTORNEYS will file all necessary court papers, attend pretrial
conferences and status conferences, prepare appropriate interrogatories, requests for
admissions, and requests for documents, attend and take appropriate depositions, and
continue the settlement negotiations. If a settlement satisfactory to CLIENT cannot be
attained, ATTORNEYS agree to try the case in the trial court unless permitted to withdraw
pursuant to DR 2-110(C) of the Code of Professional Responsibility.
4. If a judgment in favor of CLIENT is obtained in the trial court and the adversary
appeals, ATTORNEYS shall provide all appropriate services in resistance to the appeal,
including review of the trial court's record, preparation of appropriate briefs, and oral
argument in the reviewing courts.
5. If trial of the case should result in a judgment which is adverse to CLIENT,
ATTORNEYS shall not be obligated to appeal. They shall advise CLIENT of the opinion
concerning the advisability of appeal and may undertake to provide services as appellate
counsel under a new, separate and distinct contract for services.
6. The fee of ATTORNEYS shall be contingent upon the result which they obtain.
There shall be no obligation by CLIENT to pay ATTORNEYS any fee if nothing is recovered
from the adversary. However, in such an event the CLIENT is and shall remain responsible
for the full amount of all expenses incurred in the prosecution of the claim. Although
ATTORNEYS may advance the payment of such expenses, CLIENT must fully reimburse
ATTORNEYS therefore, and if payment therefore occurs upon settlement, such expenses
shall be paid out of CLIENT's portion of the settlement proceeds.
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7. The fee of ATTORNEYS shall be _________% percent of the gross amount
recovered, if settlement is achieved without the necessity of filing suit; _______% percent of
the gross settlement or judgment if it is necessary to file suit; and _______% percent of the
ultimate gross settlement or judgment following trial and any appeal undertaken by the
adversary.
8. In the event of discharge by CLIENT, and in the event CLIENT subsequently
recovers money or other property as a result of this action, CLIENT shall be indebted to
Attorney for ATTORNEY fees based upon value in the Columbus, Ohio market, as well as
expenses advanced by ATTORNEY per paragraph 6.
It is the intent of this agreement that it comply with the Code of Professional
Responsibility as interpreted by the Courts of the State of Ohio.
IN WITNESS WHEREOF, the parties have hereunto set their hands at Columbus,
Ohio on the day and year first above written.
BY:
POLING LAW
I and/or we agree to engage you and the POLING LAW pursuant to the terms
set forth in this letter.
_____________________________/___________________________/__________
Attorney Signature
Print
Date
______________________________/________________________/_______________
Client Signature
Print
Date
82