Matt Gass and Joe Kingma won a motion to dismiss against a seller after a deal fell through. The seller alleged malpractice, misrepresentation and intentional interference; essentially that the purchaser wanted to get out of their agreement and used the accountant to achieve that result. Joe and Matt filed an early motion to dismiss and prevailed on all the claims.
Claims arising from the accountant’s role in mergers and acquisitions are definitely on the rise, and we are handling several more of those now, so check back for updates.
Causation continues to be one of the toughest hurdles for clients suing their former lawyers. In legal malpractice cases arising from litigation, one element of a plaintiff’s case will be the merits of that underlying litigation. If the underlying case was unwinnable, then losing is not malpractice. Relying on this rationale, Georgia courts have been frequently dismissing malpractice cases. Sometimes an attorney’s best defense is to attack the merits of the underlying claims he or she had previously argued in favor of.
In Benson et al. v. Ward, the Georgia Court of Appeals held that a defendant attorney was entitled to summary judgment in a legal malpractice lawsuit because his former client could not show that the trial court abused its discretion dividing marital property. The plaintiff’s lawyer failed to timely file an appeal of the divorce decree. Because the trial court has broad discretion in how it divides marital property, the plaintiff couldn’t meet the high burden of showing that the division would have been reversed if the appeal had been properly filed.
In McDonough v. Taylor English Duma, LLP, the Georgia Supreme Court affirmed the dismissal of a legal malpractice lawsuit based on Georgia’s non-assignment statute (O.C.G.A. § 44-12-24). The plaintiff was a successor in interest to a bank on a note and guaranties that sued the guarantor for fraudulently transferring property to his wife. The plaintiff’s attorney did not add the wife to the lawsuit before she transferred the property to a bona fide purchaser. As a result, the plaintiff couldn’t execute the judgment against the transferred property. The Court held that the plaintiff could not have prevailed on the fraudulent transfer claim because a right of action for fraud is not assignable. Because the fraudulent transfer claim was not viable, the legal malpractice claim also failed.
It is important, however, to note that the Georgia legislature has passed the Uniform Voidable Transfer Act, which expressly allows assignees to pursue fraudulent transfer claims. Even so, the McDonough decision is a good reminder that a valid defense to the underlying claims can sever proximate cause in the legal malpractice lawsuit.
These cases emphasize that the viability of underlying claims are often the lynchpin in legal malpractice lawsuits. Once a legal malpractice lawsuit is filed, however, an attorney needs to be comfortable switching from offense to defense. This can put attorneys in the awkward spot of challenging their own positions they had taken representing their former client. As the Georgia courts continue to show us, attacking proximate cause due to failures of the claims underlying the legal malpractice lawsuit can often be the best defense.
On May 31, 2017, Former SEC Chair, Mary Jo White and former SEC Director of Enforcement, Andrew Ceresney presented a retrospective on recent enforcement trends and their insights on where the SEC might be heading. Here are a few takeaways:
1. SEC enforcement actions are on the rise. From 2013 through 2016, 2,850 enforcement actions were filed. Judgments and orders over this period totaled more than $13.8 Billion. The use of big data contributed to the enforcement division’s increase in activity.
2. The number of enforcement actions involving accounting firms and auditors is also seeing an upward trend. From 2013 through 2014, the SEC brought 37 Rule 102(e) proceedings against accountants for improper professional conduct. That number rose to 76 proceedings from 2015 to 2016. The alleged improper conduct in these proceedings arose from claims of audit failure or independence violations. The SEC sees auditors as gatekeepers and partners in protecting investors and the integrity of the markets.
3. The SEC’s numbers show a steady increase in financial reporting cases since 2013. From 2013-2014, 53 financial reporting cases were filed and 128 parties were charged. From 2015-2016, those numbers increased to 114 financial reporting cases and 191 parties charged. Despite the increase in cases, the SEC hasn’t uncovered any massive fraud cases on the level of Enron and WorldCom. Ms. White and Mr. Ceresney attribute this to improved financial reporting and internal controls promoted by Sarbanes Oxley. The SEC would likely reconcile the touted effectiveness of Sarbanes Oxley with the increase in enforcement actions by arguing that regulations have deterred major crimes, allowing the Commission to focus on enforcing other violations.
4. We can expect to see some changes with the new leadership. The new chair, Jay Clayton, appears focused on capital formation. Consistent with the overall focus on reducing regulation, Chair Clayton has expressed a desire to reduce barriers to going public. This may lead to an increase in enforcement activity around initial public offerings.