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Archive for the ‘Professional Liability and MPL’ Category

Are Verbal Fee Splits Among California Law Firms Okay?

Posted on: July 18th, 2019

By: Greg Fayard

The answer to this question is now “no.” When different law firms split a legal fee–say a contingency fee–verbal “gentlemen’s agreements” are not permitted under California’s new ethics rules. The old ethics rules allowed different law offices to verbally agree to a referral fee wherein the referring lawyer would get, say, 5% of any total recovery by another, unaffiliated lawyer. New Rule 1.5.1, now requires that the unaffiliated lawyers splitting or dividing such a fee have their own agreement in writing. Further, the client has to consent in writing to that fee split. The written disclosure to the client must disclose the terms of the fee split and the identity of the lawyers who are splitting the fee. As long as the total fee charged by all lawyers is not increased due to the agreed split, fee sharing among different law offices is permissible under California’s ethical rules.

The agreement among unaffiliated law offices need not be signed, however. An informal e-mail setting forth the terms of the fee split could suffice.

The lesson here is casual, oral arrangements among California law firms to split legal fees are no longer permitted under the ethical rules.

If you have any questions or would like more information, please contact Greg Fayard at [email protected], or any other member of our Lawyers Professional Liability Practice Group, a list of which can be found at www.fmglaw.com.

In Attorney Malpractice Suit Alleging “Negligent Settlement,” Massachusetts Appeals Court Holds No Expert Testimony Is Needed to Show “Fair Settlement Value” of the Underlying Claim

Posted on: July 10th, 2019

By: Ben Dunlap

The Massachusetts Appeals Court recently addressed the requirements for expert testimony in an attorney malpractice suit, concluding lack of an expert opinion on “fair settlement value” was not fatal to the plaintiff’s case.

Marston v. Orlando, 95 Mass. App. Ct. 526 (2019) arose from injuries sustained by a worker on an offshore light tower. The injured worker retained counsel to pursue a workers’ compensation claim and also federal law claims against his employer and other parties. His attorneys negotiated a $7,500 lump-sum workers’ compensation settlement and a $200,000 settlement of the federal claims.

Following the settlement, the injured worker’s conservator brought an attorney malpractice action against the attorneys, alleging the settlement was inadequate in light of the severe injuries sustained, and that the attorneys “pressured” their client to accept an inadequate settlement to “disguise” their negligent handling of the case. Among other issues, the plaintiff contended the attorneys took certain positions in the workers’ compensation case that may have precluded recovery in the federal claims.  The plaintiff proffered expert testimony regarding the requisite standard of care applicable to an attorney practicing in Massachusetts but no expert testimony on the issue of what a “fair settlement value” would have been in the underlying case.  The trial court dismissed the case on the eve of trial, ruling the plaintiff was required to show the settlement was “unreasonable” and failed to do so because he lacked expert testimony regarding the “fair settlement value” of the claim.

On appeal, the plaintiff argued, among other things, that the trial judge misapplied the law as to the requirement for expert testimony.  The Appeals Court, revisiting the standards set forth in Fishman v. Brooks, 396 Mass. 643 (1986), agreed with the plaintiff and vacated the trial court’s dismissal, concluding that “[t]he absence of an expert opinion on fair settlement value was not fatal to the conservator’s legal malpractice case.”

The Appeals Court explained there are two ways to establish attorney malpractice based on a “negligent settlement.” One method rests on proving the “case within the case.”  Using this method, the plaintiff must show first that the attorneys breached the standard of care in their settlement of the underlying claims, and second, that if the claims had not been settled, the client would have recovered more than he received in the negligently-obtained settlement.  As in most jurisdictions, Massachusetts law requires expert testimony to prove the attorneys breached the standard of care (except where a breach is “obvious”), but using the “case within the case” method, an expert is not needed to prove what a fair settlement would have been. Instead, a jury could determine what the plaintiff would have recovered in the absence of a settlement – with or without expert testimony.

The second method of proving attorney malpractice relies on the “fair settlement value” of the underlying case. To prevail using this method, a plaintiff shows that absent the attorney’s negligence, he would have obtained a more favorable settlement. The damages are the difference between the settlement obtained and what the fair settlement value would have been in the absence of any malpractice.  This method requires an expert to show what the fair settlement value would have been.

Because the plaintiff in Marston sought to prove malpractice using the first method – the “case within the case,” he was not required to present expert testimony to show the “fair settlement value.”

The Appeals Court’s decision brings into focus two distinct methods for proving an attorney malpractice case under Massachusetts law and clarifies the differing requirements for expert testimony with each method. It also highlights an issue that in many other jurisdictions is unsettled. Although most jurisdictions recognize some form of the “case within the case” method for proving an attorney malpractice claim, the treatment of the “fair settlement value” method varies widely. Some, like California, New Jersey, and New York, permit the use of the “fair settlement value” method but caution against damages that are too “speculative,” suggesting expert testimony may be needed establish the claim. Others, like Pennsylvania and Georgia, generally disfavor claims for “negligent settlement,” regardless of the theory pursued. Florida law permits recovery for “negligent settlement” but appears to favor the “case within the case” method of proof. The Marston case is a significant addition to this developing area of the law.

If you have questions or would like more information, please contact Ben Dunlap at [email protected].

About Accounting Malpractice

Posted on: July 9th, 2019

By: Eric Martignetti

Today, Massachusetts’ highest court did away with an important defense for an accountant who faces a claim of accounting malpractice brought by a client who has committed fraud. In Chelsea Housing Authority v. Michael E. McLaughlin et al., the Supreme Judicial Court held that Mass. Gen. Laws c. 112, § 87A ¾ pre-empts the common law doctrine of in pari delcito. Accordingly, as the SJC held, “where a plaintiff sues an accountant for negligently failing to detect the fraudulent conduct of the plaintiff, the plaintiff may recover damages from the accountant, but only for the percentage of fault attributed to the accountant (as compared to the fault of all others whose fraudulent conduct contributed to causing the plaintiff’s damages).”

After a lengthy examination of the legislative history of § 87A ¾, the SJC concluded that “the Legislature sought to remedy… not only the potential unfairness to accountants of joint and several liability, but also the need to hold accountants accountable for negligently failing to detect and reveal financial fraud committed by their client and its officers.”

Before today’s decision, in pari delicto was a powerful defense because it generally prevented an accountant from being held liable for accounting malpractice where a client committed fraud and was at least “in equal fault” with the accountant. After today’s decision, however, the in pari delicto defense is no longer available to an accountant where a client has committed fraud.

Importantly, because § 87A ¾ applies to all individuals or firms licensed to practice pubic accountancy in Massachusetts, accountants performing any level of services—whether compilation, review, or audit—face potential liability where a client has committed fraud. Although an accountant’s liability is limited to “the percentage of [its] fault in contributing to the plaintiff’s damages,” its liability cannot be eliminated altogether by in pari delicto.

If you have questions or would like more information, please contact Eric Martignetti at [email protected].

Can a California Supervising Lawyer Be Disciplined for an Associate’s Misconduct?

Posted on: June 28th, 2019

By: Greg Fayard

The answer to this question is yes, in certain circumstances. This is a change under the current rules of professional conduct for lawyers compared to the prior rules, which expired last October 31, 2018.

Rule 5.1 says supervising lawyers must make reasonable efforts to ensure the firm has measures to ensure all lawyers comply with the ethical rules. Such measures include policies and procedures on conflicts of interest, a calendaring system, guidelines on workloads and proper supervision of inexperienced lawyers. However, a supervising lawyer can be responsible for a subordinate lawyer’s violation of an ethical rule if the supervising lawyer ordered the violation, or knew the relevant facts and conduct and ratified it, or knew of the violative conduct at a time when its consequences could have been avoided but failed to mitigate it or take remedial action. A “supervising” lawyer is a case-by-case question of fact.

Where the potential ethical violation, however, was a reasonable resolution to a problem, or an arguable question of professional responsibility, then the supervising lawyer would not be subject to discipline for the subordinate’s ethical lapse.

The point is: supervising lawyers now have some responsibility for the ethical breaches of junior lawyers, or those they supervise. An experienced lawyer for example, who is supervising another experienced lawyer but who is practicing in a new area, could be disciplined for that equally seasoned lawyer’s ethical lapse. Rule 5.1 does not only apply to the experienced lawyer supervising a less experienced lawyer.

If you have any questions or would like more information, please contact Greg Fayard at [email protected], or any other member of our Lawyers Professional Liability Practice Group, a list of which can be found at www.fmglaw.com.

Fourth Circuit Affirms $61 Million TCPA Judgment

Posted on: June 18th, 2019

By: Matt Foree

The United States Court of Appeals for the Fourth Circuit recently affirmed a judgment based on a jury verdict of over $61 million for illegal telemarketing calls made under the Telephone Consumer Protection Act (“TCPA”). As a matter of background, plaintiff Thomas Krakauer brought the TCPA lawsuit against Dish Network, L.L.C. (“Dish”) after he received telemarketing calls from Dish’s third-party contractor, Satellite Systems Network (“SSN”), which made calls on its behalf, despite the fact that Krakauer had listed his telephone number on the national Do Not Call registry. The TCPA provides for a private right of action to those who have received more than one telephone solicitation within any 12-month period to a number listed on the Do Not Call registry without consent or an established business relationship. The TCPA provides for statutory damages of $500 per violation, which can be trebled to $1500 per violation for willful or knowing violations.

In 2015, Krakauer filed a class action lawsuit in the District Court for the Middle District of North Carolina. The District Court certified the class and the case went to a jury trial. The jury awarded $400 per call as damages and found that the calls were willful, thereby trebling the damages, which resulted in an over $61 million jury verdict.

Dish appealed the judgment on several bases. When it challenged the standing of some of the class members, the Fourth Circuit made quick work of that argument, relying on the U.S. Supreme Court’s recent Spokeo, Inc. v. Robins decision to find that standing existed. In so holding, the court underscored the legal traditions recognizing intrusions upon personal privacy. Dish also challenged class certification. Noting that Dish’s core argument seemed to be that the class included a large number of uninjured persons, the Fourth Circuit upheld class certification, finding that the class certified by the District Court easily met the demands of Rule 23.

Finally, Dish argued that it was not liable for SSN’s conduct and that the violations were not knowing or willful to permit treble damages. The court found that considerable evidence supported an agency relationship between Dish and SSN. Among other things, the court referred to the provisions of the parties’ contract giving Dish broad authority over SSN’s business and the fact that Dish authorized SSN to use its name and logo during its operations. Finally, the court found that the willful or knowing standard was met, thereby upholding the judgment.

Throughout the Fourth Circuit’s opinion, the court made several charitable statements about the TCPA, suggesting that the statute is straightforward and easy to apply. It also described the appropriateness of TCPA claims for class certification. In sum, this case provides a case study of many of the landmines confronted by TCPA defendants, including potentially devastating statutory damages, class certification, and vicarious liability issues. This case is just the latest reminder that those operating in this space would do well to ensure strict compliance with the TCPA to avoid a similar fate.

If you have questions or would like more information, please contact Matt Foree at [email protected].