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Archive for the ‘Professional Liability and MPL’ Category

Pa. Supreme Court To Reconsider If Settlement Can Trigger Malpractice Suit

Posted on: November 9th, 2017

By: Barry S. Brownstein

The Pennsylvania Supreme Court has agreed to reexamine the extent to which a settlement agreement can serve as the basis for a legal malpractice case. The case stems from Eileen McGuire’s efforts to sue a hospital after she was fired in July 2011 in what she claims was retaliation for her refusal to engage in multiple illegal or unethical acts. McGuire also claimed she was illegally targeted for termination on the basis of her age. The case concluded with a $7,000 settlement.

McGuire then proceeded to file a malpractice suit accusing her former attorneys for failing to include a claim for age discrimination and for failing to exhaust administrative remedies before the EEOC, claiming that such failures left her in a weakened position that forced her to accept a deficient settlement.

The case was dismissed on preliminary objections based on the Supreme Court’s 1991 decision in Muhammad v. Strassburger, McKenna, Messer, Shilobod & Gutnick, in which the justices declared they would “not permit a suit to be filed by a dissatisfied plaintiff against his attorney following a settlement to which that plaintiff agreed.” The decision, however, did leave open the door for claims in which a plaintiff can prove that he or she was fraudulently induced to settle.

The Superior Court upheld the dismissal of McGuire’s case, rejecting arguments from McGuire that the negligence of her former attorneys had not been in negotiating the settlement but, rather, in failing to properly pursue her case against the hospital.

The continued viability of the Muhammad case that bars legal malpractice suits following the settlement of a lawsuit absent a showing of fraud on the part of the attorney will be analyzed by the Pennsylvania Supreme Court.

If you have any questions or would like more information, please contact Barry S. Brownstein at [email protected].

Wire Fraud. Who Bears the Risk?

Posted on: November 2nd, 2017

By: Allison S. Hyatt

Wire fraud is on the rise in recent years. Finding out that escrow funds were mistakenly wired into the wrong hands is every broker, banker, consumer or escrow agent’s worst nightmare. Article 4A of the Uniform Commercial Code governs wire transfers and the unique issues raised by this method of payment commonly used in commercial transactions. The purpose of Article 4A was to define precise and detailed rules to assign responsibility, allocate risks, and establish limits on liability with respect to the complex claims that may result when a wire transfer goes awry. Critical consideration was given with respect to each party’s need to predict risk with certainty, insure that risk, adjust operational and security procedures, and to price wire transfer services appropriately, especially given the substantial amounts of money commonly involved in these transactions.

One of the liabilities balanced by Article 4A is the risk that a third party will steal a customer’s identity and issue a fraudulent payment order to the bank. Usually the bank bears the risk for unauthorized wire transfers. However, in a real estate transaction, whether the bank, broker, or escrow agent employed commercially reasonable security procedures in the transaction may shift this liability. For instance, as the Eighth Circuit found in Choice Escrow & Land Title, LLC v. BancorpSouth Bank, if a bank’s security procedures are commercially reasonable and it complies with those procedures along with its customer’s wiring instructions, the loss of funds resulting from an unauthorized wire transfer will fall on the customer if the bank is found to have accepted the fraudulent payment order in good faith. 754 F.3d 611, 625 (8th Cir. 2014).

In Choice Escrow, an employee of the escrow company fell prey to a phishing scam causing the company to contract a computer virus that led to a series of fraudulent transactions. 754 F.3d at 615. Choice Escrow maintained a trust account with BankcorpSouth. The bank received a request for a wire transfer of $440,000.00 from Choice Escrow’s trust account via the bank’s internet wire transfer system. Because the request was made using Choice’s User ID and Password, the bank approved the fraudulent transfer request even though the account lacked sufficient funds to cover the transfer. Id. at 616.

In its analysis, the Eighth Circuit evaluated BankcorpSouth’s security procedures, which provided its customers with four different security measures. Choice Escrow had declined two of these measures. 754 F.3d at 617-622. Looking to a recommendation report published by the Federal Financial Institutions Examination Council (FFIEC), the court found that BankcorpSouth’s security procedures complied with the FFIEC’s guidance. In addition, the bank had also expanded its security procedures to address security threats that arose after the report was issued. Taking these factors into consideration, the court found that BankcorpSouth’s security procedures were commercially reasonable. Id.

Next, the court analyzed whether BankcorpSouth acted in good faith, finding that “[w]here, as here, a bank’s security procedures do not depend on the judgment or discretion of its employees, the scope of the good-faith inquiry under Article 4A is correspondingly narrow.” 754 F.3d at 623. The court reasoned that because the bank had promptly executed a payment order that had cleared the bank’s commercially reasonable security procedures and the bank had no independent reason to suspect the order was fraudulent, the bank met its burden of establishing it had acted in good faith. Id. at 624. Thus, Choice Escrow was left liable for its customer’s loss. The fact that the escrow company had declined two of the security procedures offered by the bank appears to have been a significant factor in the court’s reasoning.

The lesson to glean from the Choice Escrow opinion is that to protect against liability, escrow companies, brokers, and other parties involved in commercial transactions, should all continually assess the commercial reasonableness of their security measures, which may include: 1) the use of email accounts that require additional forms of authentication; 2) the use of digital signatures for messages; 3) the use of encryption to communicate with clients; and 4) the frequency of password changes, among others. In addition, if a breach occurs resulting in an unauthorized wire transfer, courts will likely evaluate the reasonableness of the company’s wiring procedures, including steps taken to review wiring instructions to verify their authenticity. Strict adherence to commercially reasonable security measures is key.

If you have any questions or would like additional information, please contact Allison S. Hyatt at [email protected] or (916) 472-3302.

Does Being Behind Bars Bar a Criminal Malpractice Claim?

Posted on: October 25th, 2017

By: Sara E. Brochstein

It is well established that in a legal malpractice action, a plaintiff has the burden of proving three elements: (1) an attorney-client relationship with the defendant attorney; (2) failure of the attorney to exercise ordinary care, skill, and diligence; and (3) that the attorney’s negligence was the proximate cause of the plaintiff’s damages.

Earlier this year, the Georgia Court of Appeals had the opportunity to address the first prong in relation to whether parents who had paid attorney fees to and communicated with the attorney who represented their son in a criminal matter had standing to bring a legal malpractice claim against the attorney on behalf of their son who died before the resolution of his criminal trial. Estate of Nixon v. Barber, 340 Ga. App. 103 (2017). The court concluded that no attorney-client relationship existed between the parents and the attorney. Thus, the claim was properly dismissed.

The estate did not preserve the next issue on appeal, and so the court did not have the chance to address what would have been an issue of first impression in Georgia. The issue (which has resulted in a split across the country) is what would the decedent’s estate have been required to prove in the malpractice action to recover damages from his former attorney? The majority of jurisdictions require that criminal malpractice plaintiffs prove exoneration or attainment of post-conviction relief, actual innocence, or both in order to successfully bring a criminal malpractice lawsuit. Nixon, 340 Ga. App. at 110, n.24. These jurisdictions include California, Florida, and Pennsylvania. A minority of jurisdictions choose not to enforce an innocent requirement for a malpractice plaintiff to bring a claim. Id. This remains an open question in Georgia.

If Georgia follows the majority trend, an estate representing someone who died after being convicted would likely be required to prove the decedent’s innocence in order to successfully bring a malpractice claim. This obviously gives rise to certain challenges for the estate. Even more complex is how the estate would pursue a malpractice claim where, as in Nixon, the decedent died before resolution of the criminal case. This scenario raises various questions, including whether the innocence element would be required of estates and what type of damages would be recoverable given the decedent had not yet been convicted. Could such an action even exist? It will certainly be interesting to see how the Georgia courts land on these issues in the future and we will continue to follow up with any developments.

If you have any questions or would like more information, please contact Sara Brochstein at [email protected].

Eleventh Circuit Holds That Voicemail Message Is “Communication” Under FDCPA, But Does Not Need To Include Name Of Individual Leaving Message

Posted on: September 29th, 2017

By: William H. Buechner, Jr.

The Eleventh Circuit has ruled that a voicemail message left by a debt collector constitutes a “communication” under the Fair Debt Collection Practices Act.  However, the Eleventh Circuit also ruled that a debt collector is not required to disclose the identity of the individual leaving the voicemail message.

In Hart v. Credit Control, LLC, 2017 U.S. App. LEXIS 18375 (11th Cir. 9/22/17), the debt collector left the following voicemail message:

This is Credit Control calling with a message.  This call is from a debt collector.  Please call us at 866-784-1160.  Thank you.

The Eleventh Circuit held, as an issue of first impression, that this voicemail message constituted a “communication” under the FDCPA because the FDCPA broadly defines a “communication” as “the conveying of information regarding a debt directly or indirectly to any person through any medium.” 15 U.S.C. § 1692a(2).   The Court explained that the voicemail, although short, satisfied this broad definition because it was regarding the plaintiff’s debt.  The Court then held that, because the voicemail message was the debt collector’s initial communication with the plaintiff, the debt collector was required to provide what is known as the “mini Miranda” warning — that the debt collector is “attempting to collect a debt and that any information obtained will be used for that purpose.” 15 U.S.C. § 1692e(11).

However, the Eleventh Circuit held (also as an issue of first impression) that the debt collector did not violate the FDCPA by failing to disclose the name of the individual leaving the voicemail message.  Although the FDCPA prohibits “the placement of telephone calls without meaningful disclosure of the caller’s identity,” 15 U.S.C. § 1692d(6), the Eleventh Circuit held that the debt collector did not violate this provision because the voicemail message disclosed the name of the debt collection company and the nature of its business.  The Court concluded that identifying the individual leaving the message was unimportant because identifying the name of the debt collection company and the nature of its business is sufficient to enable the consumer to vindicate his or her rights under the FDCPA.

In light of the Eleventh Circuit’s ruling in Hart, debt collectors should be mindful that voicemail messages left with debtors likely will be considered a “communication” and thus subject to the disclosure requirements set forth in the FDCPA.   Also, debt collectors should identify the name of their company and the nature of their business when leaving a voicemail message with a debtor.

If you have any questions or would like more information, please contact William H. Buechner at [email protected].

 

Bilt-Rite but Otherwise Wrong? – How Far does Design Liability Extend in Pennsylvania?

Posted on: August 4th, 2017

By: Scott C. Hofer

blog

It has long been held that construction design professionals and others who engage in the business of supplying information to others for pecuniary gain may be held liable if incorrect information is provided. See Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.23d 270, 285 (Pa. 2005). Since that time it has been argued by some, including some design professionals, that Bilt-Rite applies to anyone that supplies information regarding what goes into a construction project. The case Elliott-Lewis Corp. v Skanska Building, Inc., 2015 WL 4545362 (EDPA July 28, 2015) is an example of this phenomenon.

In the Elliott-Lewis case the mechanical contractor (“Elliott-Lewis”) sued the general contractor (“Skanska”) for its failure to pay in full for the labor and materials, including change order work, Elliott-Lewis provided. Skanska thereafter made third-party claims against the design team (hereinafter referred to as “Designers”), who then filed fourth-party claims against several other parties, including the pump manufacturer (“Patterson”) and its manufacturer’s representative (“Clapp”).

Thereafter Clapp[1] and Patterson filed motions to dismiss the action, pointing out that Designers’ tort claims were barred by the economic loss doctrine. Clapp and Patterson explained to the Court that while Clapp and Patterson provided some information about Patterson’s product to Elliott-Lewis they were in the business of providing a product, not providing information to be used by others. The designers responded by claiming that because Clapp and Patterson provided information about Patterson’s pumps they were suppliers of information for pecuniary gain under Bilt-Rite.

The Court soundly rejected the Designers’ argument. The Court found that Patterson manufactured and was in the business of providing a product and that Clapp was in the business of facilitating the sale of that product. It noted that manufacturing and selling a product is very different from the services provided by accountants, lawyers and architects that were noted in Bilt-Rite. The Court noted that any other outcome would effectively eviscerate the economic loss doctrine, as almost all sales involve at least some conveyance of information from the seller to the purchaser.

The Elliott-Lewis case does an excellent job of illustrating how narrow the Bilt-Rite exception to the economic loss rule is. This is incredibly valuable for construction professionals that help develop construction projects but do not engage in what is traditionally considered “design” work.

For additional information related to Pennsylvania law on issues related to design and construction liability in the Commonwealths of Pennsylvania and Virginia, the States of New Jersey and Maryland and the District of Columbia you can contact Scott C. Hofer of the law firm of Freeman, Mathis & Gary, LLP at (267) 758-6023 or [email protected].

[1] Via this writer.