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Archive for the ‘Professional Liability and MPL’ Category

Puff, Puff, Veto!

Posted on: January 10th, 2018

By: Jason C. Dineros

This past Thursday, Attorney General Jeff Sessions rescinded the Obama-era’s relaxations for federal prosecutors of marijuana enforcement. This comes only four days into California’s open recreational use market, and potentially halts what has grown into a niche legal practice as well as a concerted training effort among hospitality operators over the almost five years the federal enforcement relaxations have been in place.

The Obama Administration’s federal enforcement relaxations for marijuana use in 2013, brought with it the development of a viable market industry from what was previously looked upon as taboo—akin to “that stoner stage you went through in high school, but grew out of.” As start-ups were popping up wanting to be frontrunners in an industry that had as much anticipation as whiskey distilleries in the years that followed prohibition, so did the need for legal consultation and representation.  No longer was the idea of marijuana dispensaries becoming as common as corner liquor stores still a far too laughable dream (or overly paranoid nightmare, depending on your take); and concepts such as edible bakeries, “weed lounges,” and cannabis-friendly restaurants were likewise materializing into reality.

But how does an attorney provide advice regarding the sale and distribution of a product that is illegal under federal law, but for all intents and purposes, permitted in 29 different states? Well the fallback rule that developed under the Obama Administration’s relaxations, at least from an ethical perspective, was that providing legal services to the cannabis industry was permissible so long as it did not violate state law.  And with this came an influx in the practice of cannabis law in 29 of the 50 states.

Further expanding to the social aspect of recreational marijuana, while any experienced bartender has likely taught or learned how and when to cut off an overly-imbibed guest, what protocols are in place for training “budtenders”? And even more importantly, for hospitality operators engaged in operations across different states, how can there be any uniform standard operating procedures when what is a legally viable source of potential revenue in one state, can expose the business to significant fines and potential closure in another?  Simply put, until the states begin to react one way or another to Attorney General Sessions’ heightened federal enforcement regulations, the cannabis industry remains one of the most potentially lucrative, risky, and unnavigated industries still in its infancy among the entrepreneurs, attorneys, and hospitality operators involved.

For further information or for further inquiries involving professional liability, commercial liability, or hospitality law, you may contact Jason C. Dineros, the Chair of the Hospitality Law Practice Team of Freeman Mathis & Gary, LLP, at [email protected].

Is an Unethical Fee-Splitting Agreement Per Se Unenforceable? Perhaps Not

Posted on: January 4th, 2018

By: Mark C. Stephenson

Rule of Professional Conduct 5.4 limits the circumstances in which an attorney may share legal fees with a non-lawyer. A recent Pennsylvania Supreme Court decision considered what impact Rule 5.4 has on the claim that was made by a non-lawyer acting as a consultant to a law firm, who sought to enforce an alleged right to recover a five-percent share of the firm’s annual profit.  Rule 5.4 allows a lawyer or law firm to include nonlawyer employees in a firm compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement. In SCF Consulting v. Barrack, Rodos & Bacine, the non-lawyer/consultant was independent and not a firm employee, such that the fee-splitting arrangement at issue violated the rule. But did that violation bar his breach of contract claim?

SCF Consulting entered into a written agreement with the Barrack firm to work exclusively to develop the firm’s securities class action business in exchange for a fixed annual consulting fee plus a five-percent share of profit. The Barrack firm allegedly later refused to pay SCF Consulting the agreed upon bonus and SCF sued. The trial court granted summary judgment to the firm, finding that Rule 5.4 prohibited the arrangement and rendered the contract unenforceable. On appeal, the Pennsylvania Superior Court affirmed summary judgment, noting that there was no dispute that the non-lawyer consultant was not an employee of the firm which made Rule 5.4’s exception for employee profit-sharing plans inapplicable.

The Pennsylvania Supreme Court granted allocator on the question of whether public policy required the agreement be enforced as to the non-lawyer because an attorney must not be shielded from liability nor financially rewarded for violating the Rules of Professional Conduct. On December 19, 2017, Chief Justice Saylor wrote for a fractured majority to reverse summary judgment and remand for further proceedings, holding that an unethical fee-splitting agreement is not per se unenforceable as to the non-lawyer but may become so if the court determines that the non-lawyer bore some responsibility for the ethical violation. Justice Baer (joined by Justice Todd), concurring and dissenting, would have held that, “because a non-lawyer is not bound by the Rules of Professional Conduct, the non-lawyer committed no unethical or illegal act by entering into the agreement and, thus, can bear no measure of responsibility relative to the law firm’s material violations of the rules governing the profession.” Justice Wecht (joined by Justice Donahue) dissented, arguing that a such arrangements must be per se unenforceable and leaving the non-lawyer to seek relief in equity by showing, among other things, that they entered the agreement with clean hands.

As legal fee arrangements become increasingly creative, there is clear indication that the courts will not allow lawyers and law firms to use Rule 5.4 as a shield to avoid liability for otherwise required payments to non-lawyers. Practitioners should also take note that nothing in SCF Consulting relieves the law firm from its violation of Rule 5.4 and potential penalties that may apply. Arguably, a law firm’s attempts to manipulate Rule 5.4’s prohibition of legal fee sharing with non-lawyers only serves to underscore the severity of the firm’s original ethical violation by entering into the prohibited relationship in the first place.

If you have any questions or would like some more information, please contact Mark Stephenson at [email protected]

In Defending Legal Malpractice Suits in Georgia, When Subsequent Legal Counsel Was Retained Could Be Crucial

Posted on: November 30th, 2017

By: Jessica C. Samford

When dealing with a lawsuit alleging legal malpractice, one of the first lines of defense in Georgia is O.C.G.A. § 9-11-9.1, which requires that an expert affidavit be filed at the same time as the complaint. Not only does this statute require the affidavit to set forth specifically “at least one negligent act or omission claimed to exist and the factual basis for such claim” by a “competent” expert; it also comes with teeth, mandating dismissal for failure to state a claim under certain circumstances.  While much attention is given toward subsection (e) of the statute, which addresses attacking defects in the expert affidavit, this statute contains additional provisions that provide strong consequences if the situation calls for the application of subsections (b) and (f) as explained below.

First, subsection (b) allows a complaint to be filed without the expert affidavit but only if (i) the complaint alleges that the required affidavit could not be prepared “because of time constraints,” (ii) the complaint is instead accompanied by the filing of an affidavit by the filing attorney, attesting that they were hired less than 90 days before the expiration of the limitation period, and (iii) an expert affidavit is filed within 45 days. The statute then provides that the court is forbidden from extending the 45-day deadline for any reason without consent of all parties and that “the complaint shall be dismissed for failure to state a claim” for failure to timely file either affidavit.

Importantly, dismissal is also mandated under this subsection if it turns out the law firm of the attorney who filed the affidavit “or any attorney who appears on the pleadings” was actually retained more than 90 days before the end of the limitation period. Therefore, in addition to the typical statute of limitation defense considerations as to when the applicable limitation period (2, 4, or 6 years depending on the particular allegations) was triggered and would run out for each claim asserted in the complaint, a key consideration should also be when subsequent counsel was retained in order to evaluate the possibility of a mandatory dismissal under subsection (b).

Next, subsection (f) provides that as long as a motion to dismiss raising the failure to file any affidavit required by the statute is filed with the answer, the complaint cannot be refiled after the limitation period’s expiry, even if voluntarily dismissed as is often done in an attempt to cure a prior failure to timely file any of the above affidavits.  (It should be noted there is a narrow exception if the requisite affidavit actually existed at the time it was required to be filed but was not filed by mistake.)  So if the circumstances fall within the realm of subsection (b), moving to dismiss at the same time as the answer could add finality to this statutory defense.  For example, subsequent counsel may try to fall back on a voluntary dismissal to circumvent a defense meriting mandatory dismissal, perhaps because there is evidence they were hired before the 90-day period.  By operation of subsection (f), the action would be dismissed as time-barred even if refiled with the requisite affidavit(s) after the applicable statute of limitation period passed.

While this statute is not limited to legal malpractice and applies to other enumerated professions, the affirmative defenses provided therein could be critical to obtaining an early dismissal with prejudice of a legal malpractice suit filed in Georgia.

If you have any questions or would like more information, please contact Jessica C. Samford at [email protected].

Recent Affirmance of the Going and Coming Rule

Posted on: November 21st, 2017

By: Owen Rooney

In Morales-Simental v. Genentech, California’s First District Court of Appeal affirmed summary judgment for the employer, thus rejecting plaintiff’s attempts to expand on the special errand exception to going and coming rule. (No. A145865). The employee was involved in a fatal auto accident at 3:30 a.m. while driving his personal auto. The employee told the investigating officer he was going to work on his night off to pick up resumes for upcoming job interviews. The employee testified he was going to work to pick up some resumes and personal belongings on his way to visit his grandmother. He also testified that he was going to pick up the resume of his unemployed friend who had allegedly asked for a job recommendation. However, the friend denied this.

One exception to the going and coming rule is if the employee is on a “special errand” at the employer’s behest. Plaintiff argued that because the employee involved in this accident was “a supervisorial employee tasked with hiring” who “had authority to act on [the employer’s] behalf,” he could “request himself to complete a special errand connected” to his task. The court rejected this theory, holding that “such reasoning would expand the special errand rule to allow employees at various levels to request special errands of themselves on behalf of their employers, thereby stripping the employer of the ability to control when it will be liable for an employee’s off-shift activities.”

Plaintiff also argued that the “special errand” exception applied because the employee was sent work emails before the accident, and so may have been coming into work to respond. The court rejected this argument as well because the emails “did not require [the employee] to come in at a specific day or time” – much less 3:55 a.m. when the accident occurred.

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

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].