Legal Malpractice Law Review

Malpractice Trap: First Mortgage Liens

Claudia A. Costa — Tue, 09 Mar 2010 06:45:03 -0500

Commonwealth Land Title. & Citicorp Mortgage. v. Kurnos 340 N.J.Super. 25 (App. Div. 2001)

NJ Underlying mortgage refinance

Student Contributor: Maninder (Meena) Saini

Facts: New Jersey property owners (the borrowers) wanted to refinance their home mortgage and retained attorney/defendant (Kurnos). The plaintiffs to this action are Citicorp Mortgage (the bank) and Title Insurance Company (the title company). The defendant was to refinance the property by discharging the existing liens on the property. The title company was to provide title insurance certifying that the bank’s mortgage was the first lien on the property. One of the existing liens on the home was held by Midlantic National Bank (Midlantic). Midlantic issued a letter to the defendant indicating that a written statement instructing Midlantic to close the account was required. However, no letter was sent and Midlantic’s mortgage became the first lien on the property. So, the bank’s mortgage was actually the second lien instead of the first. In June 1991, within nine months of the error, the title company knew of the defendant’s error. The borrowers then withdrew money on their available line of credit from Midlantic. In 1996, the borrowers defaulted on the loan, forcing a foreclosure. The bank paid Midlantic the outstanding balance in order to protect their interest and then filed a malpractice lawsuit against the defendant in 1998, alleging that he failed to secure the bank’s first lien position.

Issue: When did the six-year statute of limitation for the attorney’s malpractice start to run?

Ruling: The six-year statute of limitation commenced at the time the negligent conduct was discovered by plaintiffs even though monetary damages were not readily ascertainable at the moment of discovery. The appellate court held that the statute began running in June 1991 when the title company first became aware of the attorney’s error.

The cause of action accrues when the mortgagee knows or has reason to know that its lien has been impaired or endangered by the defendant’s negligence. At that time of negligent discovery, the mortgagee has suffered a legal injury.

Lesson: The lawyer committed malpractice by failing to secure the plaintiff’s first lien on the property. At the moment an individual discovers an error, a legal injury had occurred even though monetary damages are not present. According to N.J.S.A. 2A:14-1, after six years of discovery, the client is barred from collecting damages.

Mr. Nice Guy Wins in the End.

Claudia A. Costa — Mon, 08 Mar 2010 17:00:51 -0500

Schenck v. K.E David, Ltd. 446 Pa.Super. 94, 666 A.2d 327 (1995)

PA Underlying Settlement paid by lawyer on behalf of client

Student Contributor: Maninder (Meena) Saini

Facts: Plaintiff/attorney, Schenk claimed that defendant/client, K.E. David, Ltd. was unjustly enriched when he refused to reimburse the plaintiff with $32,000 that the defendant owed to satisfy a settlement agreement between the defendant and the Commonwealth. Plaintiff represented defendant and negotiated a settlement amounting to $82,000. In the agreement, the Commonwealth was to collect $32,000 from another settling defendant, who owed the defendant that amount. Unfortunately, the settling defendant died before paying the debt. So, the law firm advanced the outstanding amount to the Commonwealth on behalf of the client. The client/defendant then refused to reimburse the law firm. So, the law firm sued for reimbursement. The defendant counterclaimed for legal malpractice because the plaintiff failed to explain that the defendant would have to pay the $32,000 if the other defendant was unable to pay. The jury found that plaintiff did not commit malpractice and held the client/defendant had been unjustly enriched. The defendant then appealed.

Issue: Was the lawyer entitled to get back what he paid on behalf of the client in view of the clients not understanding the ramifications of the settlement agreement?

Ruling: The appellate court found that it was unjust for the defendant to retain the benefits of the law firm’s payment to the Commonwealth, especially after the plaintiff/lawyer obtained successful results for the defendant.

The law will find that a quasi-contract exists when unjust enrichment is found. The beneficiary will be required to pay the plaintiff the value of the benefit conferred.
The elements of unjust enrichment are:
• Benefits conferred on defendant;
• Appreciation of such benefits by defendant; and
• Acceptance and retention of such benefits under circumstances that make it inequitable for defendant to retain the benefit without payment of value.

Lesson: The lawyer’s work was successful for the client. What if the underlying matters were not successful because the lawyer was negligent? Would the lawyer be entitled to reimbursement of the monies he advanced? In applying the “unjust enrichment” doctrine, one must focus on whether the enrichment of the defendant is unjust and not on the intention of the parties. Accordingly, an attorney should consider using the theory of “unjust enrichments” to seek full compensation for work performed.

Legal Malpractice Law Review: Progress Report March, 2010

Ben Wasserman — Sat, 06 Mar 2010 00:24:58 -0500

The Legal Malpractice Law Review is pleased to announce that:

1. Professor Susan Saab Fortney of Texas Tech University School of Law has joined our Editorial Board. Professor Fortney is co-author of LEGAL MALPRACTICE LAW: Problems and Prevention (Thomson/West, 2008), the first law school level casebook in its field.

2. Law Students in Texas Tech Law School’s legal malpractice course have joined with Hofstra Law School students to help build our archive of case summaries so as to provide an ongoing supply of content for readers of the Legal Malpractice Law Review.

3. Our list of outside content Contributors continues to grow, with more and more lawyer professional liability practitioners from across the country wanting to contribute.

4. The Legal Malpractice Law Review went live less than 6 month ago. We are approaching 25,000 visits ("hits") from new and repeat readers.

5. Legal Malpractice Law Review appears to have become the premier one-stop site for anything and everything pertaining to the law governing lawyers.

Please let us know if there is any way we can make the Legal Malpractice Law Review better and more useful to you. Just go to the "Contact Us" box to the left.

Emotional Distress Damages: Tied to the Interest Protected by the Attorney-Client Relationship

Krishna Shah — Fri, 05 Mar 2010 00:00:01 -0500

Kohn v. Schiappa, 281 N.J. Super. 235 (1995)

NJ Underlying Adoption Action

Student Contributor: Daniel Schick

Facts: Plaintiffs retained counsel to assist them in adopting a child. Defendant's alleged malpractice arose from serving the adoption complaint on the birth parents, thereby erroneously disclosing to them privileged information, including the name and address of the adoptive parents and the adoptee. This breach of confidentiality allegedly caused the plaintiffs to suffer severe emotional distress.

The defendant attorney moved for summary judgment urging that under New Jersey law, recovery for emotional distress is precluded in actions for legal malpractice. Plaintiffs, however, argued that they were entitled to damages for emotional distress, since the attorney-client relationship was never predicated upon the protection of any economic interest.

Issue: Are damages for emotional distress recoverable where an attorney is retained to pursue non-economic claims?

Ruling: Yes. Plaintiffs retained the defendant attorney to handle an adoption, not to seek recovery for an economic loss. If plaintiffs are precluded from asserting and proving the mental anguish and distress purportedly caused by counsel's wrongful disclosure of confidential information, then they are, for all intents and purposes, left without any remedy for counsel’s negligence. Accordingly, affording virtual immunity to negligent attorneys who are retained for non-economic purposes is contrary to the public interest.

Lesson: Damages for emotional distress will be allowed in an action for legal malpractice where the foundation of the attorney-client relationship is something other than the protection of the client’s economic interests.

Establishing Damages with Reasonable Certainty: An Element of Proximate Cause

Krishna Shah — Thu, 04 Mar 2010 00:00:01 -0500

Boyer v. Walker, 714 A.2d 458 (Pa. Super. Ct. 1998)

PA Underlying Commercial Action

Student Contributor: John Anzalone

Facts: Plaintiffs became junior lien holders when they issued a mortgage to property owners who had outstanding prior mortgages, including two held by a bank. Upon default by the property owners, the bank foreclosed on its mortgages. Plaintiffs were aware of the foreclosure. Notice of judgment for the bank, and of the attendant sheriff's sale of the property, was sent to the defendant attorney who represented the plaintiffs when they issued the mortgage. Plaintiffs discovered this after the sale occurred, and subsequently sued the attorney for professional negligence as a result of his failure to forward the notice of the sheriff's sale. More specifically, plaintiffs alleged that had they received notice of the foreclosure sale, they would have appeared at the sale and would have attempted to purchase the property, inasmuch as they believed that the property was worth far in excess of the bank’s liens.

Issue: Was the attorney liable for plaintiffs’ damages as a result of his failure to forward the notice of the sheriff's sale?

Ruling: The Court ruled that the attorney was not liable based on the following considerations:
1) Attorneys can only be held liable for professional malpractice where (1) an attorney-client relationship is established between the plaintiffs and the defendant attorney; (2) the attorney failed to exercise ordinary knowledge and skill; and (3) that failure proximately caused the plaintiffs’ damages.
2) As junior lien holders, plaintiffs lost all interest in the property when it was sold at the sheriff's sale, but plaintiffs failed to show that this harm would have been prevented if the attorney had forwarded them notice of the sale, since they failed to present evidence concerning the purchase price at the sheriff's sale, the bids made at the sheriff's sale, the amount of money they were prepared to bid at the sheriff's sale, and whether other bidders were ready and able to bid.
3) Thus, plaintiffs failed to establish that they suffered damages proximately caused by the attorney’s alleged negligence.

Lesson: Proximate cause requires establishing the identity of the damages suffered with reasonable certainty.

NJ: Limitations on Duties to Third-Parties

Krishna Shah — Wed, 03 Mar 2010 00:00:01 -0500

Estate of Albanese v. Lolio, 393 N.J. Super. 355 (App. Div. 2007).

NJ Underlying Probate Matter

Student Contributor: Natalie Resto

Facts: The decedent was survived by three daughters, all beneficiaries under the decedent’s will. One of the beneficiaries, the executrix, retained the defendant attorney for the probate of the decedent’s estate. The executrix, allegedly upon the advice of the attorney and a financial planner, withdrew funds from the IRA and made equal distributions to the beneficiaries, resulting in a personal income tax burden on the beneficiaries of approximately $298,000 each. All the beneficiaries, including the testatrix, sued the attorney for malpractice claiming that the attorney never outlined options by which the testatrix could pay the estate taxes. The attorney, however, claimed that he advised the testatrix of other options for paying the taxes aside from using funds from the IRA. These conversation, however, were never documented in writing.

Issue: Does an attorney owe a duty to the individual beneficiaries to inform them of the personal tax implications of his advice?

Ruling: The court held that under the retainer agreement, the attorney represented the estate and its executrix, and was obligated to advise her with regard to post-mortem planning, including calculating tax needs. This requirement, however, did not apply to the remainder of the beneficiaries who likely had different, and possibly adverse, interests. As a result, the Court declined to extend the duty an attorney owes to third parties who are beneficiaries of an estate the lawyer represents, or to hold that the attorney has an obligation to consider and advise third-party beneficiaries of the tax consequences of a bequest or legacy.

Lesson: Attorneys have an obligation to define the scope of their representation clearly and unambiguously. Restatement of the Law Governing Lawyers §14 comment f states that “[i]n trusts and estates practice a lawyer may have to clarify with those involved whether a trust, a trustee, its beneficiaries or groupings of some or all of them are clients and similarly whether the client is an executor, an estate, or its beneficiaries.” The attorney will bear liability for the beneficiaries that fall under the scope of his representation as it is set forth in his retainer agreement.

Choice of Law in Underlying Action Governs Malpractice Action

Krishna Shah — Tue, 02 Mar 2010 00:00:01 -0500

Boyson v. Archer & Greiner, P.C., 308 N.J. Super. 287 (App. Div. 1998)

NJ Underlying Products Liability Action

Student Contributor: Natalie Resto

Facts: The Defendant law firm was hired by the client to represent it as a defendant in a products liability action. The case was ultimately settled, and the client subsequently brought a malpractice action against the law firm to recover damages and defense costs. The client alleged that the law firm had negligently failed to provide notice to the client’s liability carrier which would have paid for the defense and provided indemnity for damages.
The law firm moved for summary judgment claiming that there was no coverage under the client’s comprehensive general liability policy under New Jersey law, and therefore, they were not negligent in failing to notify the carrier of the claim against the client. The client, however, alleged that Pennsylvania law governed the dispute, and that under Pennsylvania law, the insurance policy would have provided coverage to them in the underlying action despite a products hazard exclusion.

Issue: Did the law firm commit malpractice by failing to pursue a defense from the client’s liability carrier?

Ruling: The Appellate Division held that since the underlying action involved an injury that took place in Pennsylvania to a resident of Pennsylvania, New Jersey choice-of-law principles would require application of Pennsylvania law in deciding whether the law firm proceeded competently in defending the action.

Lesson: In a legal malpractice case, the choice of law to be applied is the law that would have governed in the underlying action.

Duration of the Representation: An Element of the Substantial Factor Test

Krishna Shah — Mon, 01 Mar 2010 00:00:01 -0500

Johnson v. Schragger, Lavine, Nagy & Krasny, 340 N.J. Super. 84 (App. Div. 2001)

NJ Underlying Commercial Action

Student Contributor: Natalie Resto

Facts: Johnson hired the Defendant law firm to represent him in a dispute concerning the sale of a horse. The matter was settled, but the buyer refused to comply with the settlement. Shortly thereafter, the attorney handling the case left the Defendant law firm, but continued to represent the client in a motion to enforce the settlement. His motion was granted and an “Order Enforcing Terms of Settlement” was signed entering judgment in favor of the client against the buyer. Months later, the buyer sold a condominium and the judgment was deducted from the gross amount of the sale. One year later, the buyer filed for bankruptcy and the client’s judgment against him was discharged and the judgment was never actually satisfied from the proceeds of the sale.

The client sued the Defendant law firm and the attorney who was handling the case for malpractice, alleging that they were negligent in the conduct of the litigation between him and the buyer. More specifically, the client alleged that the attorney and the firm had failed to properly and promptly obtain and docket the judgment against the buyer. The client’s claim against the law firm was dismissed on summary judgment, and the client subsequently appealed on the grounds that the firm’s conduct was the proximate cause of his loss.

Issue: Was the law firm’s negligence the proximate cause of the damages sustained by the client?

Ruling: The Appellate Division affirmed the summary judgment and held that the law firm’s failure in obtaining the judgment earlier was not a substantial factor in the discharge of the judgment against the buyer, and therefore, was not the proximate cause of the client’s damages. The Court found that, because the law firm had only represented the client for 83 days before the attorney left the firm and continued to represent the client long after he left, nothing the firm did was a substantial factor in bringing about the loss to the client, and therefore, the firm was not a proximate cause of any damages sustained by the client.

Lesson: The Court held that the traditional jury charge on proximate cause as a continuous sequence is not appropriate for legal malpractice cases in which there are concurrent independent causes of action. In such cases, a jury must be instructed to determine whether the negligence was a substantial factor in bringing about the ultimate harm. In making that determination, the duration of the representation is a valid consideration.

Settle and Sue: Where it all Began in New Jersey

Ben Wasserman — Fri, 26 Feb 2010 00:23:26 -0500

Ziegelheim v. Apollo, 607 A.2d 1298, 128 N.J. 250 (N.J. 1992)

NJ Underlying Divorce Action Settlement

Student Contributor: John Anzalone

Facts: Plaintiff discussed her concern with Defendant Attorney that her husband was concealing substantial assets and asked Attorney to make a thorough inquiry into her husband's assets that attorney failed to undertake before negotiating the property settlement agreement. This resulted in the marital estate being undervalued. Plaintiff received 14 percent of the estate's value in the settlement. Plaintiff signed the agreement after Attorney advised that she would receive no more than 10-20 percent of the estate's value at trial. Plaintiff later filed a malpractice suit against Attorney and a suit to get the settlement set-aside that was rejected.

Issue: Did the lower court err in holding that there was only one factual dispute that Attorney had committed malpractice and that Plaintiff's claims were estopped because the settlement was deemed fair?

Ruling: In partially reversing the lower court, the New Jersey Supreme Court held Plaintiff's malpractice case could go forward, based on the following considerations:

1) A dissatisfied litigant does not have to prove that their attorney committed fraud in the settlement before they can sue the attorney for malpractice in settlement negotiations.

2) Litigants rely on attorney's advice on whether to accept settlements and the law insists that their recommendation be made with the skill, diligence, and knowledge of a reasonably competent attorney. Attorneys are expected to know the reasonable probability of their case's success and the range of potential outcomes. A lawyer must exercise reasonable care in negotiating a settlement for a client, just as he must exercise such care in all other aspects of the representation.

3) The doctrine of estoppel should not be applied here because the fact the court hearing on setting aside the settlement called the award "fair and equitable" does not mean that Plaintiff could not have secured a better award had Attorney not been negligent.

4) The prior ruling also did not touch on whether or not Plaintiff's husband hid assets. Consequently, the ruling does not bar a claim that Attorney negligently failed to discover hidden marital assets.

5) Given the evidence, Plaintiff's further claims that Attorney negligently failed to put agreed upon terms into writing and delayed in making the final settlement resulting in financial losses, should not have been disposed of with summary judgment.

Lesson: Rulings regarding the fairness of a settlement do not preclude suits against attorneys for malpractice in reaching that settlement. To avoid malpractice claims in settlement situations attorneys should explain the settlements as written to the consenting parties and their legitimate basis for believing that the client should accept the proposed agreement.

Editor's Note: This case highlights the "settle and sue" syndrome in legal malpractice actions. At this posting, the NJ Supreme Court has heard oral argument in Guido v. Duane Morris, LLP and is taking a fresh look at the issue. Stand by for a decision in the near future.

Intended Beneficiaries as Exceptions to the Rule of Privity

Ben Wasserman — Thu, 25 Feb 2010 00:02:27 -0500

Guy v. Liederbach, 501 Pa. 47 (Pa. 1983)

PA. Underlying Will Action

Student Contributor: Melissa Goldberg

Facts: Kent, then a resident of Pennsylvania, retained Defendant to draft a one-page "Last Will and Testament," which Defendant did on the same day. The will provided that Plaintiff was to be the beneficiary of the residuary estate. Guy was also named executrix of the estate. The will was signed by Kent and, allegedly at Defendant's direction, was witnessed by Plaintiff and Defendant. Kent died. After offering the will for probate, the court invalidated the gift to Plaintiff because Plaintiff was a subscribing witness to will. Plaintiff argued Defendant was negligent in advising the Plaintiff to become an attesting witness to the will. Also, Plaintiff argued the action and conduct of the Defendant in directing and advising the Plaintiff to become an attesting witness to the will amounted to a breach of the contract between Kent and Defendant to which contract the Plaintiff was a third party beneficiary.

Issue: Does a named beneficiary of a will who is also named executrix have a cause of action against the attorney who drafted the will and directed her to witness it where the fact that she witnessed the will voided her entire legacy and her appointment as executrix?

Result: In a wills action, a properly restricted cause of action for third party beneficiaries in accord with the principles of Restatement (Second) of Contracts § 302 is available to named legatees, who would otherwise have no recourse for failed legacies, which result from attorney malpractice.

1) The will, providing for one or more named beneficiaries, clearly manifests the intent of the testator to benefit the legatee
2) The grant of standing to a narrow class of third party beneficiaries is "appropriate" under Restatement (Second) of Contracts § 302 where the intent to benefit is clear and the promisee (testator) is unable to enforce the contract.

Lesson: Important policy concerns require privity to maintain an action in negligence for professional malpractice. However, a named legatee of a will may sue as an intended third party beneficiary of the contract between the attorney and the testator for the drafting of a will which specifically names the legatee as a recipient of all or part of the estate because named beneficiary has no other discourse.

Legal Malpractice in Underlying Criminal Defense Cases

Ben Wasserman — Wed, 24 Feb 2010 00:03:19 -0500

Bailey v. Tucker, 533 Pa. 237 (1993)

PA Underlying Action-Criminal Defense

Student Contributor: Candice L. Deaner

Facts: Plaintiff was convicted of first degree murder and sentenced to life imprisonment. He was represented at trial by defendant attorney. Subsequent to the guilty verdict, plaintiff alleged that his criminal defense lawyer had been ineffective in failing to investigate and adequately pursue an intoxication defense on his behalf. Finding some merit to this claim, the court revisited his case and ultimately found him guilty of a much lesser offense. Having already served 9 years on the previous conviction, plaintiff was released. His subsequent suit against defendant attorney alleged both negligence and breach of contract.

Issue: What are the elements of a legal malpractice case arising from an allegedly botched defense in an underlying criminal prosecution?

Ruling: The court decided to recognize criminal malpractice actions subject to the following :1) The employment of the attorney; 2) Reckless or wanton disregard of the defendant’s interest by the attorney; 3) The plaintiff’s innocence in the underlying case if not for the attorney’s malpractice; 4) Damages suffered by the criminal defendant/plaintiff; and, 5) Plaintiff’s full pursuit of available post-trial remedies. The standard was set because criminal defendants are afforded several opportunities to insure that injustice has not been committed during their prosecution. The Court noted:
1) Defense counsel should not use a criminal defendant’s access to the appellate courts as a shield to liability. Even though criminal defendants may appeal a conviction in the ordinary course of a prosecution, such a remedy does not address the “time and suffering spent under the burden of an unwarranted conviction.” Therefore some cases may award damages.
2) Imposing the same burden of proof on criminal plaintiffs as that required of civil plaintiffs may have a chilling effect on defendant representation. The court worried that availability of actions by defendants against their former attorneys would provide a powerful disincentive among practitioners to take on such cases.

Lesson: Criminal defendants face greater burdens in proving malpractice because courts have identified concerns regarding the extension of this cause of action to convicted criminals. The court felt that too broad an application would effectively chill the criminal defense bar and award money to wrongdoers. Rather than eliminate the right to sue one's allegedly negligent criminal defense lawyer altogether, Pennsylvania courts will instead impose greater burdens on criminal plaintiffs to protect the interests of both attorneys and potential clients.

Workers Comp Liens on Legal Mal Actions: The Way it Used to Be

Ben Wasserman — Tue, 23 Feb 2010 00:22:54 -0500

Wausau Ins. Companies v. Fuentes, 215 N.J. Super. 476, 522 A.2d 440 (1986).

NJ Underyling Worker’s Compensation Lien on legal mal cause of action .

Student Contributor: Anthony J. Forzano

Facts: Worker, who suffered job-related accidental injury and received workers' compensation benefits, brought a legal malpractice action against attorney that had failed to file products liability action within limitations period against manufacturer of machine upon which worker was working at time of injury. Worker obtained a compensation settlement of $115,000 and $670 a month for the rest of defendant's life. Workers' compensation carrier then asserted lien. The Superior Court recognized compensation carrier's lien, and appeal was taken. The Appellate Division held that worker's compensation lien stops at the payments actually made by a third person whose tortious conduct contributed to happening of industrial accident; therefore, worker's compensation carrier had no lien upon settlement fund recovered in legal malpractice action brought against attorney. The insurance company appealed.

Issue: Does a lawyer who committed malpractice take on the legal status of a “Third Person” as it pertains to the ability for an Insurance company to assert a lien for workers compensation benefits paid?

Ruling: No.

“We hold that plaintiff's right of recovery goes no further than to payments actually made by the “third person” whose tortuous conduct contributed to the happening of the industrial accident. The lawyer whose delinquency deprived the employee of a possible recovery from the machine manufacturer does not take on the identity of the statutory “third person.”

The court in part based their opinion on the that fact that it would not have been known whether the compensation payments covered by the carrier's compensation lien would even have been recoverable in the malpractice action. The court held

“Since only the carrier was entitled to those monies, and it was able to sue for them in its own right, N.J.S.A. 34:15-40(f), they could hardly be claimed as an element of damage suffered by defendant as a result of her former attorney's malpractice or contemplated as such by the malpractice settlement.”

Lesson: If a third party with a pecuniary interest in a case wishes to bring an action for malpractice against an attorney on the grounds that his malpractice damaged them, then they must follow the statutory guidelines and bring the action themselves. One cannot rely on the result of a malpractice case, then attempt to recover money on a lien claiming that the attorney was a statutory “third person” who contributed to the original negligence.

Editor's Note: Make sure to see Frazier v. NJ Manufacturers' Ins. Co., 142 NJ 590 (1995), a more recent statement of the law in NJ on the workers compensation lien and whether it attaches to the legal malpractice cause of action.

Breach of Fiduciary Duty and a Lighter Burden of Proof: The Prophylactic Rule

Ben Wasserman — Mon, 22 Feb 2010 00:33:28 -0500

Milbank, Tweed, Hadley & McCloy v. Boon, 13 F.3d 537 (2nd Cir. 1994)

NY Underlying Representation: Prospective Purchase of Bankrupt Company's Assets

Student Contributor: John Anzalone

Facts: Defendant Law firm represented Plaintiff through an agent in her attempt to purchase the assets of a bankrupt company. Problems occurred with the deal and the Agent was dismissed by the Plaintiff. Agent then told Firm that he wanted to buy the assets of the bankrupt company. Despite knowing that Plaintiff still sought to purchase the assets, Firm told Plaintiff that it would represent Agent in his attempt to purchase the assets. Plaintiff objected to this subsequent representation of Agent. Agent outbid Plaintiff with Firm's assistance. The jury found that Firm's representation of Plaintiff's Agent breached its fiduciary duties to her and was a "substantial factor in preventing her from obtaining assets she sought in the transaction."

Issue: Was the determination that Firm breached its duty to its former client by representing Plaintiff's agent in the same transaction incorrect?

Ruling: In affirming the lower court, the Second Circuit held that the Firm breached its fiduciary duty to Plaintiff, based on the following considerations:
1) Firm committed a serious breach of its fiduciary duties to Plaintiff as a former client by representing a party with interests adverse to the Plaintiff in the same transaction.
2) The nature of this breach triggers the prophylactic rule so plaintiff has to prove that Firms' actions were a substantial factor in its damages instead of the normal requirement of proximate cause.
3) The jury could have found that Firm's action were a substantial factor in Agent purchasing the assets rather than Plaintiff because their presence could have given Agent more credibility. The jury could have found that the deal moved forward because Agent and Firm agreed to use Plaintiff's money in an escrow account for Agent's purchase too. This potential usage also could have been held as interfering with Plaintiff's negotiations because she had to take action to protect her funds from usage by her former agent.
4) There was factual evidence supporting that Firm used confidential information gained from Plaintiff in its representation of Agent because it knew that Plaintiff was not willing to bid higher than she had previously stated to them.

Lesson: If an attorney or a law firm is alleged to have breached their fiduciary duty to the client they are subject to the prophylactic rule that will make it easier for a plaintiff to prove the proximate cause element of the legal malpractice cause of action. The burden will be reduced from “but for” to “substantial factor”.

Defenses: Collateral Estoppel on Ineffective Assistance of Counsel

Claudia A. Costa — Fri, 19 Feb 2010 00:00:37 -0500

Alevras v. Tacopina, 399 F.Supp.2d 567, (N.J. 2005);

NJ Underlying criminal action.

Student Contributor: Colleen Gaedcke

Facts: The plaintiff was prosecuted and indicted on various counts of criminal violations in federal criminal court. He was appointed counsel but later retained the defendants to represent him. With the advice of his attorneys the plaintiff accepted an unfavorable plea agreement and began serving his sentence. After the plaintiff entered his guilty plea, he brought a 20 U.S.C. β 2255 motion, pro se, alleging ineffective assistance of counsel. His motion was denied by the District Court and the plaintiff appealed to the Third Circuit. The District Court held four evidentiary hearings on remand regarding the plaintiff’s motion, but the plaintiff’s petition was denied for a second time and affirmed by the Third Circuit. Then the plaintiff filed a seven count civil complaint against the defendant alleging legal malpractice. The defendant moved to dismiss the complaint and made a motion for summary judgment.

Issue: Whether the doctrine of collateral estoppel bars a criminal defendant from making civil legal malpractice claims for criminal malpractice where claims for ineffective assistance of counsel have been adjudicated, decided and rejected in a 20 U.S.C. β 2255 criminal proceeding?

Ruling: Yes. In granting the defendants’ motion for summary judgment and dismissing the plaintiff’s complaint with prejudice, the District Court held that the doctrine of collateral estoppel bars a legal malpractice claim against a criminal defense attorney based on the following reasoning:
1) The doctrine of collateral estoppel prevents a party from re-litigating issues that have previously been adjudicated and decided previously by another court of competent jurisdiction. Thus, where the issue of ineffective assistance of counsel has been fully litigated in the post-conviction proceeding, it may not be considered again in a civil proceeding.
2) As a matter of public policy, we cannot allow criminal defendants to re-litigate issues in civil court where the same issue was litigated by a court of competent jurisdiction. To allow otherwise would undermine the effective administration of the judicial system.

Lesson: A criminal defendant cannot bring a legal malpractice case concerning the quality of his criminal defense counsel when he raised or had a full and fair opportunity to raise the issue of ineffective assistance of counsel and he knew the facts regarding the attorneys alleged malpractice during the criminal proceedings.

Damages for Loss of Liberty for Legal Malpractice

Claudia A. Costa — Thu, 18 Feb 2010 00:56:17 -0500

Lawson v. Nugent, 702 F. Supp. 91, (N.J. 1988); 1988 U.S. Dist. LEXIS 14576

NJ Underlying criminal action.

Student Contributor: Coleen Gaedcke

Facts: The plaintiff retained the defendant as defense counsel after being indicted for robbery of a post office. Upon the advice of the defendant, the plaintiff pleaded guilty and was sentenced to 25 years in prison. While in prison the plaintiff retained new counsel and obtained a reduction in his sentence and was released after serving 5 years. The plaintiff then brought a legal malpractice case against the defendant where he alleged that but for the defendant’s negligent legal representation he would have served a maximum of 40 months in prison. The plaintiff sought damages for emotional distress as a result of the anguish he suffered for the extra 20 months he spent in prison as a result of the defendant’s representation.

Issue: Whether a criminal defendant can recover damages for emotional distress from his attorney in a legal malpractice action based on the attorney’s representation in a criminal proceeding?

Ruling: Yes. The District Court held that the plaintiff may present evidence of emotional distress damages in a legal malpractice action.
1) Generally, damages in a legal malpractice claim are limited to economic loss and damages for emotional distress are not recoverable in a legal malpractice action absent some egregious or extraordinary circumstances.
2) In New Jersey, the courts have increasingly allowed for emotional damages in an increasing number of cases and a plaintiff may prove such damages attributable to an extra 20 months of confinement in prison.

“an attorney who commits malpractice is liable to his client for any reasonably foreseeable loss caused by his negligence including emotional distress resulting from the loss of liberty.”

Lesson: When representing a client in a civil case, the court is unlikely to award damages for emotional distress absent extraordinary circumstances because the nature of the attorney client relationship is primarily based on economic interest. However, the attorney client relationship in a criminal proceeding is predicated upon a defendant’s liberty interest.

NY: Lawyer Liability Beyond the Scope of the Engagement

Claudia A. Costa — Wed, 17 Feb 2010 00:00:28 -0500

Thompson v. Seligman 53 A.D.3d 1019, 863 N.Y.S.2d 285 (N.Y.A.D. 3 Dept., 2008)

NY: Underlying personal injury; workers compensation

Student Contributor: Ryan M. O'Donnell

Facts: Plaintiff was employed by AMFAC Recreational Services, Inc. AMFAC regularly provided cleaning services to the Gideon Putnam Hotel. While performing her duties cleaning at the Gideon, plaintiff suffered injuries and retained defendant attorney to represent her in a workman’s compensation claim. When plaintiff inquired about a possible claim for pain and suffering against the Gideon, defendant advised her that she could not pursue a claim, based on his mistaken belief that plaintiff was employed by the hotel. Plaintiff then consulted with a different attorney who advised her that she did have a claim against the Gideon, except for that the statute of limitations had expired.

Issue: Can a mistaken assumption by an attorney give rise to a legal malpractice claim?

Ruling: Yes.

“An attorney has the responsibility to investigate and prepare every phase of his or her client’s case.”

There was sufficient documentation that stated plaintiff’s employer was AMFAC, not the Gideon. Had defendant made the appropriate inquiry he would have known that plaintiff was not employed by the Gideon, and that plaintiff could have a third party claim against the Gideon for pain and suffering. The defendant’s failure to investigate the availability of a third party claim by plaintiff raises a question of fact whether the defendant exercised an appropriate duty of care to the client.

Lesson: As an attorney, you have the responsibility to investigate and prepare every phase of your client’s case. If there is information that will further the interests of your client that is easily ascertainable, and you fail to use such information, you have breached your duty of care to your client. Unless the client actively misrepresents information to you, you can be liable for malpractice if your mistaken assumption would have been corrected by further inquiry.

NY: Holding Client Money with or without Interest?

Claudia A. Costa — Tue, 16 Feb 2010 00:03:06 -0500

Lafasciano v. Lorber, 823 N.Y.S.2d 427, (2006)

NY Underlying matrimonial action; holding marital assets in trust

Student Contributor: Jason Zemsky

Facts: During a matrimonial action between the Lafascianos, the Supreme Court determined that the proceeds of the sale of certain real property owned by a closely held family corporation, was marital property. Lorber, the attorney who represented the sale placed the proceeds in a non-interest bearing escrow account. The court then ruled that the money Lorber placed in the trust account should be divided equally among the Lafascianos. The wife, Carla M. Lafasciano, sued Lorber for legal malpractice claiming that he had failed to put that money in an interest bearing account. Lorber moved for Summary Judgment which the trial court granted.

Issue: Does a lawyer commit legal malpractice by not placing sale proceeds in an interest bearing account?

Ruling: Affirmed. The plaintiff failed to prove that the court directed Lorber to place the sale proceeds in an interest bearing account and Judiciary Law § 497(4) allowed Lorber to place the proceeds in a non-interest bearing escrow account.

Lesson: It might have been prudent for the lawyer to deposit the proceeds into an interest bearing escrow account pending resolution of any dispute. But would that have avoided the legal malpractice action? Maybe yes. Maybe no. RPC 1.15 "Safekeeping of Property" provides guidance. Otherwise, Court Rules generally do not require Attorney Trust Accounts to be interest bearing.

NY: But For my Lawyer's Negligence at Trial, I Would Have Settled...

Claudia A. Costa — Mon, 15 Feb 2010 00:10:07 -0500

Leder v. Spiegel 9 N.Y.3d 836, 872 N.E.2d 1194 (2007)

NY: Underlying Will Contest

Student Contributor: Ryan O'Donnell

Facts: Defendant represented plaintiff in an underlying probate matter. Rather than accept a settlement offer, plaintiff decided to continue to trial, where they were unsuccessful in challenging the will. The plaintiff bases his malpractice claim on defendant’s advice on the prospect of success in the underlying case, and that he would have accepted the settlement were it not for his attorney’s advice. There was no documentary evidence showing that plaintiff refused to settle strictly based on defendant’s advice.

Issue: Is an attorney liable for legal malpractice if he was not the proximate cause of the client’s damages, even if he negligently represented his client?

Ruling: No.

"In order to sustain a claim for legal malpractice, a plaintiff must establish both that the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession which results in actual damages to a plaintiff, and that the plaintiff would have succeeded on the merits of the underlying action 'but for' the attorney's negligence"

The failure to demonstrate proximate cause mandates the dismissal of a legal malpractice action regardless of whether the attorney was negligent. Since there was no evidence that the defendant’s advice was the sole basis for refusing the settlement, the defendant was not the proximate cause of the plaintiff’s loss, the defendant attorney was not liable for malpractice.

Lesson: Even an attorney who negligently represents his client will not be liable for malpractice if he is not the “but for” cause of the client’s damages. To establish liability based on the loss of a settlement opportunity, the plaintiff must prove that but for the attorney’s negligence he would have accepted the settlement offer. A court will not rely on bare allegations of fact by a plaintiff without documentary evidence to prove proximate cause.

Fiduciary Duties to Third-Parties: No Affirmative Misrepresentations

Krishna Shah — Fri, 12 Feb 2010 00:00:01 -0500

Petrillo v. Bachenberg, 139 N.J. 472 (1995)

Student Contributor: Evan Kusnitz

NJ Underlying Real Estate Transaction

Facts: A purchaser of real estate sued the seller and the seller’s attorney. The seller’s attorney had forwarded to the seller an incomplete copy of the results of percolation tests conducted by a previous owner to determine the subject property’s ability to hold a septic tank. During negotiations, the seller gave the incomplete copy of the test results to the purchaser. When the purchaser performed her own tests after the contract had been signed, she became aware of the actual quality of the land and told the seller that the contract was null and void. The seller refused to return the purchaser’s deposit. The purchaser subsequently brought suit against the seller’s attorney for, among other claims, breach of fiduciary duty.

Issue: Does an attorney who represents a seller in a real estate transaction owe any duty to the purchaser of the subject property?

Ruling: The court applied a “relaxed” privity rule, holding that an attorney for a real estate seller who makes affirmative misrepresentations by providing misleading information concerning the subject of the transaction, violates a fiduciary duty to a purchaser who will rely on the material misrepresentations to his detriment.

Lesson: A seller’s attorney has a fiduciary duty of care to the buyer and this duty exists when the attorney knows, or should know, that non-client will rely on the attorney’s affirmative misrepresentations.

Ineffective Assistance of Counsel: Bar to Civil Action for Legal Malpractice

Krishna Shah — Thu, 11 Feb 2010 00:00:01 -0500

Alevras v. Tacopina, 399 F.Supp.2d 567 (D.N.J. 2005)

NJ Underlying criminal action

Student Contributor: Colleen Gaedcke

Facts: The plaintiff was indicted and prosecuted on various counts of criminal violations in federal court. He was appointed counsel, but later retained the defendants to represent him. Upon advice of the defendant attorneys, plaintiff accepted an unfavorable plea agreement and began serving his sentence. At some point thereafter, the plaintiff brought a 20 U.S.C. 2255 motion, pro se, alleging ineffective assistance of counsel. His motion was denied by the United States District Court, District of New Jersey, and the plaintiff appealed to the Third Circuit. The Court held four evidentiary hearings regarding the plaintiff’s motion, but the plaintiff’s petition was denied. The Court of Appeals, Third Circuit, affirmed the denial. Plaintiff subsequently filed a civil complaint against the defendants alleging legal malpractice. The defendants argued that the legal malpractice claim was barred by the doctrine of collateral estoppel, given the adjudication of plaintiff’s claim for ineffective assistance of counsel.

Issue: Whether the doctrine of collateral estoppel bars a criminal defendant from bringing a civil legal malpractice claim after the adjudication of a claim for ineffective assistance of counsel?

Ruling: Yes. The doctrine of collateral estoppel prevents a party from re-litigating issues that have previously been decided by another court of competent jurisdiction. Thus, where the issue of ineffective assistance of counsel has been fully litigated in the underlying criminal proceeding, it may not be considered again in a civil proceeding under the cloak of a professional negligence claim.

Lesson: New Jersey courts will not allow criminal defendants a second bite at the apple with a civil malpractice complaint after an adjudication on the very same issues in an ineffective assistance of counsel proceeding in the underlying criminal action.