Transitioning from Offense to Defense: Challenging the Viability of Underlying Claims is a Strong Defense in Legal Malpractice Lawsuits

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.

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Waiving the Unwaivable: Non-Waivable Conflicts and Statutes of Repose Can’t Be Waived, Right?

October 2017 has been an interesting month for cases involving waiver in the courts of Georgia. These cases are important reminders that legal rights may matter, but a party’s conduct matters more. They underscore the fact that almost anything is waivable in the right circumstance. Waiver is a fancy word for giving parties what they said (or acted like) they wanted or at least accepted, despite changing their minds at some later point.

In Department of Labor v. Preston, No. 17–10833 (11th Cir. Oct. 12, 2017), new Circuit Judge Kevin Newsom writes an interesting opinion on ERISA’s statute of repose (That’s not a thought you would expect to have about an ERISA case, but Judge Newsom is already making a name for himself rendering interesting usually mundane statutory issues.) In concluding that ERISA’s statute of repose is subject to waiver, the Court collected a list of many waivable “rights,” including the Fourth Amendment right to be free from unreasonable searches, the Fifth Amendment right against self-incrimination, and the Sixth Amendment right to assistance of counsel. The opinion concludes: “It would be passing strange—bizarre, in fact—to conclude that while a litigant can renounce his most basic freedoms under the United States Constitution, he is powerless to waive the protection of . . . ERISA’s statute of repose. No way.” No way, indeed.

This Eleventh Circuit case pairs well with an opinion out of the Georgia Court of Appeals to underscore the concept of waiver, even of the unwaivable. In Zelda Enters., LLLP v. Guarino, 2017 Ga. App. LEXIS 447 (Oct. 4, 2017), the Georgia Court of Appeals reminded us that even non-waivable conflicts of interest are waivable in the course of litigation. The Court noted that the Rules of Professional Conduct—which prohibit waiver of certain conflicts of interest among lawyers and their clients—does not control the decision of whether a client subsequently waives the ability to have a lawyer disqualified in a legal proceeding by delaying in seeking disqualification. In sum, the Court seems to have caught on to the fact that litigants are trying to use tenuous connections with counsel to achieve litigation advantage by seeking disqualification of a party’s lawyer of choice, often after months or years of litigating without raising the issue.

To conclude, legal rights are great. But almost all of them can be waived either expressly in writing or by virtue of a party’s conduct in litigation, and courts are increasingly attuned to hyper-technical lawyering seeking to avoid the consequences of a party’s earlier actions. For the moment, substance prevails over form.

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Takeaways from Ascent 2017 Conference – Atlanta

I had the pleasure of attending the Ascent 2017 Conference in Atlanta, on invitation from Sloane Perras, Chief Legal Officer for The Krystal Co. & On The Border Mexican Grill & Cantina and one of the conference organizers.  The conference was a great success and brought together more women in-house and outside counsel at one time than any other event I’ve attended.  A few points I took away:

  1. Pay equity, diversity, and social awareness are all being embraced by many large companies, with the view that those policies raise all boats.  These companies are using their leverage to encourage adoption of these initiatives by their vendors and outside counsel.
  2. To be a successful partner as outside counsel, we must understand the client’s business above all else: the financials, the product lines, the risk factors, and the business objectives.  Both inside and outside counsel must find and capture the tone that will speak to the decision-makers while uncovering any blind spots or potential liabilities not considered.
  3. Data breaches remain front of mind for many.  The alphabet soup of regulations, laws, and governing watch-bodies that might be implicated in any given industry continues to grow.  Class action lawyers stand at the ready to push the bounds of what constitutes damages.
  4. Leaders must create a culture of compliance.  The risks of not doing so far outweigh the costs.
  5. Finally, when pushing for change, leaders must be unafraid and confident in their decisions.  Innovation must be balanced with risk management; if you understand the core of the problem and have a vision for moving forward, you can convince stakeholders change is necessary.
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Takeaways from State of the LPL Market Panel Presentation at ABA National Legal Malpractice Conference 2017

Takeaways from State of the LPL Market Panel Presentation at ABA National Legal Malpractice Conference –  Boston 2017

  1. Big Data is changing Underwriting, Broking and Claims Handling and helps to keep the LPL and APL markets highly competitive and insurance reasonably priced.
  2. P & C events, such as Hurricanes in the Caribbean, no longer  drive rates up for Lawyers and Accountants because carriers now distinguish between Casualty and Professional Liability risks.
  3. The Great Recession, the largest economic crisis in 70 years, created a hard market that only lasted about six weeks.
  4. Capital to insure professionals keeps pouring into the market, despite an increase in huge claims individually exceeding hundreds of millions of dollars.
  5. Despite all the positive developments, premiums have increased between 2 and 4% on average for Lawyers E and O insurance in 2017.  While 20 years ago this would have been classified as an annual inflation adjustment, now  it may be the closest thing we will see to a hard market for some time.
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South Carolina Supreme Court holds Association Management Company Engaged in the Unauthorized Practice of Law

In its recent Opinion No. 27707, Rogers Townsend & Thomas, P.C. v. Peck, et al., Appellate Case No.: 2011-199626, the South Carolina Supreme Court found that Community Management Group (“CMG”), a management company for homeowners associations and condominium associations, engaged in the unauthorized practice of law when it (1) represented its association clients in Magistrate’s Court; (2) filed judgments in Circuit Court; (3) prepared and recorded liens to recover unpaid assessments and other charges; and (4) advertised that it could perform the services the Supreme Court now deems the practice of law.

CMG argued that the administrative order In re Unauthorized Practice of Law Rules Proposed by South Carolina Bar, 309 S.C. 304, 422 S.E.2nd 123 (1992), allowed a non-lawyer officer, agent, or employee to represent a business, and that it, as an agent of its association clients, could therefore represent them.  The Supreme Court disagreed and clarified In re Unauthorized Practice, finding that non-lawyer third-party entities or individuals, such as CMG, are not “agents” because they have no nexus or connection to the business arising out of its corporate structure.

CMG further argued that suing in Magistrate’s Court on behalf of associations to collect unpaid assessments was not the unauthorized practice of law because it did not require specialized legal skill or knowledge.  The Court disagreed.  Likewise, the Court found that filing judgments from Magistrate’s Court in Circuit Court constituted the unauthorized practice of law, as did preparing and recording liens and other legal instruments.  The Court chose not to rule on whether (1) interpreting covenants for homeowners; (2) addressing disputes between homeowners and associations; and (3) advising the associations on remedies to collect unpaid assessments constituted the unauthorized practice of law because petitioner did not include specific facts or details about CMG performing those services.

This Opinion offers some clarity on what can be a blurred line between performing legal and non-legal services on behalf of community associations.  As management companies continually offer and perform expanded services to community associations, they must remain diligent in considering the implications of their conduct.  Similarly, community associations and their lawyers must ensure legal tasks are appropriately assigned to, and performed by, lawyers.  The convenience or financial benefit of allowing a non-lawyer to address these tasks is outweighed by the risks it may be completed improperly, the Court could deem it the unauthorized practice of law, and it could lead to a criminal charge . The unauthorized practice of law in South Carolina is a felony requiring a fine of up to $5,000 or imprisonment for up to 5 years, or both, once the Supreme Court has deemed the charged activity is the practice of law.

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Takeaways from Professional Liability Underwriting Society (PLUS) International Conference 2016

Takeaways from Professional Liability Underwriting Society (PLUS) International Conference 2016:

1.   Law firms fail because of: too much debt, rapid expansion, guaranteed salaries, and/or cultural divides.

2.  We are all expecting a U.S. law or accounting firm to get hit with a Panama Papers style data breach which brings down the firm and probably yields management liability claims as well.

3.   The IRS will continue its attack on captive insurance companies utilized to avoid tax with no real risk transfer.

4.   Mary Jo White will be missed and you might expect the SEC to focus less on Wall Street and more on Main Street in the next four years.

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5 Takeaways from the Newly Released 2015 Profile of Legal Malpractice Claims

Just last week the ABA’s Standing Committee on Lawyers’ Professional Liability (LPL) released its Survey of Legal Malpractice Claims 2012-2015.  Items of note include:

1.  Total legal malpractice claims increased by 20% from the 2012 survey.  This might appear to be a big increase but it looks small when you read on.

2.  There was a huge increase in the number of claims in which claimants received over $1 million.  There were only 52 such claims reported in the 2011 study but there were 440 such claims reported in the 2015 study for more than a 700% increase.  Perhaps you should check my math, as a lawyer with a calculator is a scary thing; nonetheless, we should all check our limits and make sure we have enough coverage in a world of big dollar claims.

3.  Total real estate claims dropped 21% when 2015 is compared to 2012.  This is true despite the fact that commercial real estate transactions have increased during that time and many commercial real estate lawyers are experiencing the best of times.  Not many real estate deals are failing and that helps keep the pressure off the lawyers who do the deals.

4.  46% of the claims arose from administrative errors, client relations or intentional wrongs.  While this is a slight reduction from prior surveys, it still emphasizes the importance of basic blocking and tackling.

  • Keep your administrative machine running smoothly, return client calls, be nice, don’t intentionally hurt your client, and your E & O risk is cut in half.
  • The seamless web of the law is vast and can’t be perfectly understood by any of us.  Let’s all do the easy stuff and reduce our risk dramatically.

5.  Claims against bankruptcy and collection lawyers have only dropped off about 4% from the 2011 study to the 2015 study.  Despite the precipitous decline in consumer bankruptcy filings, commercial bankruptcy filings are said to be on the rise and so are claims against the lawyers involved.

The Standing Committee puts out the Profile on Claims every third year and also sponsors two great conferences annually.  If you are interested in getting involved in our work feel free to reach out to Joe Kingma or just say hello at our spring meeting in Boston.

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Fighting For Your Professional Life: Accounting and Attorney Malpractice

Defamation claims against lawyers and accountants are on the rise, as noted in the recent Carlock, Copeland & Stair Accounting Risk Management program in Atlanta. That point was highlighted recently when a forensic accountant was sued in Fulton County, Georgia. The facts are complex, but the plaintiff was involved in a failed bank and sued over an allegedly negative reference in a national publication. Accountants and all professionals need to be careful what they say, especially in the press.

Five Takeaways from the Carlock Copeland & Stair Accounting Risk Management Program Presented on May 19, 2016

 1. The Panama Papers, and Big Data in general, demonstrate the risk posed for accountants when clients hide or launder money offshore. An international consortium of major news sources is actively soliciting more leaks and tax officials from 28 countries met in April to plan a joint strategy to mine the Panama Papers for gold. The database lists many U.S. CPA firms and diagrams their relation to various suspect transactions. Governments from Russia to Britain to Argentina have been rocked by the disclosures. Don’t get your firm’s name added to the list and avoid overly aggressive strategies. Protect your own files from those who might like to steal your clients’ confidential information.

2. Professional judgment is what you get paid for, but can also be what you get sued for. Audit engagements in particular require lots of judgment calls. Make sure your firm’s work reflects good judgment and that those who make the judgment calls are properly trained and professionally skeptical. If you have young auditors in the field without onsite partner supervision, talk through the tough issues with them in advance.

3. Read your insurance policies. Policy provisions may be negotiable and you may gain value in ways beyond premium reductions. Be very accurate when filling out your application and compare it to your website. Submitting a neat and accurate application can save you real money. Price should not be your only consideration and you should check to see which carriers treat their clients well.

4. Jurors hold outside accountants to high standards when a client suffers from internal fraud. Take another look at your engagement letters to make sure you have included all the damage limitations and disclaimers the laws allows and avoid engagements where the client’s lack of internal controls creates too much risk.

5. Accountants are getting sued for defamation even when they make statements in good faith and in the course of their clients’ engagements.

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