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Archive for the ‘Professional Liability and MPL’ Category

Revisiting the Applicability of the Entire Controversy Doctrine to Legal Malpractice Claims

Posted on: April 2nd, 2019

By: Nicole Graham

The New Jersey Supreme Court recently revisited the applicability of the entire controversy doctrine as it relates to legal malpractice claims. In Dimitrakopoulos v. Borrus, Goldin, Foley, Vignuolo, Hyman and Stahl, P.C., 2019 N.J. LEXIS 272, 219 WL 1065049 (N.J. 2019), the client asserted a claim for legal malpractice against the law firm three years after a default judgment was entered against the client in a collection action the law firm had previously filed. The law firm moved to dismiss based on the entire controversy doctrine because the legal malpractice claim was not raised as a counterclaim in the collection action. The clients claimed they were not obligated to assert a malpractice claim in the collection action because (1) the statute of limitations on the malpractice claim had not run and (2) they did not know during the pendency of the collection action that the law firm had committed malpractice. The clients argued they were representing themselves in the collection and as pro se litigants could not identify a malpractice claim. They further claimed that requiring a pro se litigant to identify malpractice claim is contrary to public policy.  The law firm argued the client did know about their claim as evidenced by their answer to the collection action complaint in which they alleged there were billed for legal work that was unnecessary and contrary to their direction.

The trial court dismissed the legal malpractice claim finding it was precluded by the entire controversy doctrine. The appellate court affirmed. The New Jersey State Bar Association filed an amicus brief and argued that unless the entire controversy applied, no attorney’s collection judgment would be considered final because the client would be permitted to bring a malpractice claim at a later stage.

The New Jersey Supreme Court reiterated its holding in Olds v. Donnelly, 150 N.J. 424, 443, 696 A.2d 633 (1997), that the entire controversy doctrine does not compel a client to assert a legal malpractice claim against an attorney in the underlying litigation in which the attorney represents the client. The Court noted, however, a collection action brought by a law firm against its client for unpaid legal fees does not constitute “underlying litigation” because the lawyer and client are already adverse and, therefore, such litigation does not raise the privilege and loyalty concerns that warrant the exception to the entire controversy doctrine recognized in Olds. Therefore, a court may apply the entire controversy doctrine to preclude a later filed legal malpractice claim the client declined to assert in the attorney’s action to collect unpaid legal fees.

Such preclusion is not absolute. The entire controversy doctrine is an equitable doctrine whose application is left to judicial discretion based on the factual circumstances of individual cases. The client can avoid preclusion by demonstrating the prior forum did not afford a fair and reasonable opportunity to have fully litigated the malpractice claim. The court may consider such issues as the steps required to investigate, file and prosecute the malpractice claim in that forum, the status of the collection action when the malpractice claim accrued, the time constraints imposed by the rules of court, and the prospect of obtaining extensions of time to litigate the malpractice claim. A client may also avoid preclusion if he or she did not know, and should not have reasonably known, of the existence of the malpractice claim during the pendency of the collection action.

The New Jersey Supreme Court remanded the case to the trial court to determine when the legal malpractice claim accrued and whether the malpractice claimants would have had a fair and reasonable opportunity to have fully litigated their claim in the collection action.

When defending a legal malpractice claim where the defendant law firm previously litigated a collection action for unpaid fees, it is not enough to argue the entire controversy doctrine bars the claim. The defendant law firm must also prove the client knew or should have reasonably known of the existence of the claim during the pendency of the collection action, and that the forum in which the collection action was pending would have provided the client a fair and reasonable opportunity to fully litigate the malpractice claim.

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

Can a California Lawyer be Disciplined for a Paralegal’s Misconduct?

Posted on: March 27th, 2019

By: Greg Fayard

In some circumstances, a California lawyer can be disciplined by the State Bar for a paralegal’s misconduct. This type of discipline was not possible under the State’s old lawyer-ethics rules. Rule 5.3 of the new rules requires attorney-managers to make sure nonlawyers—such as law students, investigators, legal assistants or paralegals—are not violating any ethical rules. A supervising lawyer, which could be an associate (so long as he or she has direct supervisory authority over the nonlawyer), can be responsible for the ethical breach of a paralegal if the lawyer is aware of an ethical violation, had a chance to avoid or mitigate the ethical lapse, but did nothing.

For example, if a paralegal is disclosing confidential client information without the client’s consent (a clear ethical breach, see Rule 1.6) and the paralegal’s supervisor knew about it, but did nothing, the supervising lawyer can be disciplined for the paralegal’s misconduct.

California lawyers, therefore, are obligated to make reasonable efforts to ensure that their law office has measures which assure that nonlawyer conduct is compatible with the professional obligations of lawyers. This directive applies to both nonlawyer employees and independent contractors. Further, under Rule 5.3, any measures ensuring nonlawyer ethics compliance should consider whether the nonlawyers have legal training.

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

Watch for the Sucker Punch… Joint and Several Liability for Professional Negligence?

Posted on: March 20th, 2019

By: Jon Tisdale

Litigants are forever looking for new ways to blame their lawyers when their mediocre case goes south. (As an aside, pay close attention to your intake protocol and “just say no” to those mediocre cases, because when they go bad, so will your relationship with your former client.) So, why is this a special problem for lawyers?

Like most states, California draws a bright line between economic and non-economic damages. In an effort to keep underinsured deadbeats from stiffing tort victims, California has enacted a statute with the stated economic impact being to hold “deep pocket” defendants (yes, the statute actually employs that disgraceful terminology) responsible jointly and severally for economic damages so as to not deprive an innocent victim of recovery of their medical bills, without regard to apportionment of fault. Non-economic damages (for “pain and suffering,” the so-called pot o’ gold at the end of the rainbow) remain collectible only to the extent of an actual apportionment of negligence by the trier of fact. This legislative enactment was, at least in California, aimed at the damages recoverable as a result of countless personal injury actions arising from car accidents. But wait… the statute applies to TORT actions… which means that it also applies, apparently unwittingly, to Professional Negligence actions.

California Jury Instructions (CACI) attempt to clearly define economic versus non-economic damages. Economic damages are verifiable, out-of-pocket monetary losses. Non-economic damages are the pie-in-the-sky general damages for physical pain, mental suffering and emotional distress that lead to the “Stella Award” type of verdicts. But that’s typically not the danger of professional negligence actions. CACI clearly instructs jurors that: “you will be asked on the Verdict Form to state the two categories of damages separately” (which is a legislative proclamation that if a trial judge permits a verdict form that does not require segregation of economic and non-economic damages, it will in fact be reversible error).

Why is this dangerous in professional negligence cases? Because, generally speaking, in cases involving the tort of professional negligence virtually all of the damages are economic! Professional negligence cases have a nominal “emotional distress” element to them, but the meat and potatoes of the tort is WHAT DID YOUR NEGLIGENCE COST ME OUT OF POCKET? It is not so much about how did it make the litigant feel, but how much did it cost them.

Increasingly we see cases in which litigants with less than clearly meritorious cases change lawyers mid-case, sometimes more than once. If it goes south, they are going to sue everyone. This is the danger that you need to be alerted to and cognizant of. You could be defending a lawyer who was just one of several lawyers in the chain of representation and who did seemingly nothing wrong.  But if the economic damages are millions of dollars and your client is found 1% at fault… he/she has joint and several liability for the full amount of the economic damages! More than a little scary…

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

Trends in Real Estate Claims

Posted on: March 5th, 2019

By: Peter Catalanotti

In representing real estate brokers through their Errors & Omissions insurance for over a decade, I often get asked what types of claims are trending. What follows is my experience regarding real estate broker claim trends.

Real estate broker claims tend to track the economy.

In increasing and level markets, the claims against real estate brokers often include equitable relief such as specific performance. Often times the plaintiff/buyer will be a plaintiff/attempted buyer. With increasing or level markets, sellers may receive multiple offers. The decision of which offer a seller should take is sometimes a close call. When something goes wrong during the transaction or delays the close of escrow, the seller often prefers to get out of the purchase contract and sell to a backup buyer. Sellers may think that the backup buyer will be less trouble. Occasionally, the seller will offer to repurchase the property.

In decreasing markets and recessions, we see more claims for misrepresentation, failure to disclose, and fraud cases. Sometimes, these cases often involve buyer’s remorse. Plaintiff/buyer then sues for damages. The property they purchased is worth less than they paid for it, so the buyer has an interest in recouping this loss. At least in California, there is almost always a defect in a transaction that an expert can exploit. A buyer who was marginally able to afford a property may be looking for a way out. Buyers behind on mortgage payments may sue the lender, mortgage broker, and real estate broker in an attempt to renegotiate the terms of their mortgage.

One of the reasons that real estate broker claims are hard to track is that the cases that make it to an appellate court or state supreme court were most likely filed years earlier. Therefore, when analyzing a real estate broker claim, it is important to take note of the economy at the time of purchase and the motivations of the plaintiff. Understanding the plaintiff’s motivation can at times help bring the case close to an early resolution.

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

Can California Associate Attorneys Be Disciplined For Their Boss’s Misconduct?

Posted on: February 27th, 2019

By: Gregory Fayard

The answer to this question is yes, in certain circumstances. In November 2018, after 29 years, California enacted new rules of professional conduct for lawyers. The new rules have some major changes from the old rules. One of the biggest changes applies to associate attorneys who are just doing what their boss-lawyer tells them. But what if the associate’s boss is instructing the associate to do something obviously unethical? In that case, the associate can be disciplined by the State Bar. The new rule on this point is 5.2. For example, if the associate’s boss advises the associate to lie to a client, or forge a signature, or divulge client secrets, then those breaches are so obvious the associate could be disciplined. All California lawyers must comply with ethics rules, even if acting at the direction of another. The Nuremberg defense does not fly.

What about a close call? What if the associate’s boss tells the associate to do the bare minimum on a case? That order arguably violates a lawyer’s duty of diligence (Rule 1.3). Or, what if the associate’s boss orders an associate to do everything and anything on a file? That order might violate Rule 3.2 which says lawyers shall not do tasks whose substantial purpose is to prolong or cause needless expense. In these two situations, the ethical breach is an arguable question—a “close call” if you will. In these situations the California associate would have a good argument for not being disciplined.

The new California rules of professional conduct, however, have created a potentially awkward employment situation for associates: if the subordinate lawyer believes his or her supervisor’s solution to an ethics issue would violate an ethical rule, “the subordinate is obligated to communicate his or her professional judgment regarding the matter to the supervisory lawyer.”  (See Comment to Rule 5.2.)

What should California lawyers keep in mind, then?

  1. Don’t blindly follow directions from your supervisor without thinking of the ethical implications;
  2. Doing something obviously unethical can get you in trouble with the State Bar even if the direction came from your boss;
  3. You probably will not be disciplined if an ethical question can be answered more than one way;
  4. You may have to have a talk with your boss if he or she is doing something obviously unethical.

My next blog will discuss whether a supervising lawyer in California can be disciplined for an associate’s unethical lapse.

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