CLOSE X
RSS Feed LinkedIn Instagram Twitter Facebook
Search:
FMG Law Blog Line

Posts Tagged ‘malpractice’

Consent-to-Settle Clauses Under Review in Massachusetts

Posted on: September 30th, 2019

By: David Slocum

Earlier this month, the Massachusetts Supreme Judicial Court (the SJC), the state’s highest court, heard oral argument in a case which presents the question whether consent-to-settle clauses typical to most professional malpractice insurance policies should be deemed unenforceable as against public policy.

The case, Rawan v. Continental Casualty Co., places before the SJC an important issue of first impression in Massachusetts, the outcome of which will have significant implications for professional liability insurers and their insureds throughout the state.

The case arises out of an underlying engineering malpractice lawsuit in which plaintiff homeowners alleged the defendant professional engineer negligently designed their home.  The engineer was insured by Continental Casualty Co. (CNA) under a professional liability policy, which contained a standard consent-to-settle clause providing: “We [CNA] will not settle any claim without the informed consent of the first Named Insured.”

Consistent with its insured’s wishes, CNA made no settlement offer during the underlying engineering malpractice litigation.  At trial, the jury found the engineer was negligent and awarded $400,000 in damages.

Thereafter, in a separate follow-on lawsuit against CNA, the plaintiff homeowners alleged CNA had violated Massachusetts’ unfair settlement practices statute, Chapter 176D §3(9)(f), which requires insurers to effectuate a prompt, fair and equitable settlement when an insured’s liability has become reasonably clear.  Plaintiffs alleged CNA had failed to properly investigate and settle the plaintiffs’ claims against the engineer during the underlying litigation.

CNA moved for, and was granted, summary judgment in its favor on the grounds that its insured had not consented to settlement of the claims.  Thus, CNA argues, it was contractually bound under the consent-to-settle clause of the policy not to effectuate a settlement of the plaintiffs’ claims against the insured, irrespective of whether the insured’s liability had become reasonably clear.

In asking the SJC to overturn the trial court’s grant of summary judgment in CNA’s favor, the plaintiffs argue that such consent-to-settle clauses undermine the purpose of Chapter 176D by ceding settlement authority to insureds who potentially may unreasonably refuse to settle valid claims against them.  Plaintiffs contend that such clauses therefore should be deemed unenforceable as against public policy in Massachusetts.

CNA and a number of bar and professional associations, which have filed amicus briefs in its support, argue the grant of summary judgment in CNA’s favor should be affirmed because consent-to-settle clauses in noncompulsory professional liability insurance policies are compatible with insurers’ obligations under Chapter 176D.  They contend Chapter 176D’s purpose of preventing insurance company overreach is not implicated in such situations, and a professional insured’s important reputational interest also supports the enforceability of consent-to-settle clauses.

The SJC is expected to issue its decision in this important and closely-watched case later this term.

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

15977633v1

NJ Appellate Division Finds Trial Court Had No Jurisdiction in Fee Dispute Between Firm and Client In Successful Legal Malpractice Action Against Client’s Previous Attorney

Posted on: September 11th, 2019

By: Erin Lamb

A three-judge panel of the New Jersey appellate division has ruled that a trial judge, having presided over a successful legal malpractice trial, had no jurisdiction to award fees in a dispute between a law firm and its client that was unrelated to the shifting of Plaintiff’s fees from her to the negligent counsel, as required under the Saffer decision.

Plaintiff hired a firm to represent her in a malpractice suit against an attorney who had advised her on the purchase of a home in Mantoloking, Ocean County, New Jersey. She claimed the attorney failed to inform her that the property contained a storm water easement. She also brought suit against the New Jersey Department of Transportation for negligence over its installation of a storm water pipe under the foundation of her home. The suit named other Defendants who were not involved in the trial.

In 2016, a jury found her previous attorney liable and ordered her previous attorney to pay $980,000 in compensatory damages.  The jury also found the NJDOT, the only other remaining defendant, was not liable.

In New Jersey, negligent attorneys are responsible for the reasonable legal expenses and attorney fees incurred by a former client in prosecuting the legal malpractice action. Saffer v. Willoughby, 143 N.J. 256, 272 (1996). The Saffer court determined such costs were “consequential damages that are proximately related to the malpractice.”  Plaintiff was therefore eligible for an award of counsel fees and costs. The trial judge held a bench trial and awarded Plaintiff $99,506.10 in consequential damages.

There were, however, two outstanding issues pertaining to the costs and fees – 1) her previous attorney likely was not liable for all of Plaintiff’s consequential damages, because the Action had included other parties and causes of action, and 2) the firm representing her in the malpractice action had remaining, unpaid, legal bills, which exceeded the awards of the compensatory and consequential damages. The trial court ordered limited discovery into these issues of apportionment, focusing on the apportionment of the costs and fees to be paid by the negligent previous counsel.

Plaintiff reached a settlement with her previous counsel on the costs and fees claim and informed the court of that development. The only remaining issue was the unpaid bills of the firm that represented her in the malpractice action. Plaintiff had already paid the firm $400,000.  The firm claimed $1.7 million remained unpaid.

The trial judge informed both parties that he would issue a resolution if they could not resolve the dispute. Both the firm and Plaintiff objected to the trial court’s desire to determine the reasonableness of the costs and fees. The firm asserted the retainer agreement listed Cook County, Illinois, as the forum for any disputes arising from the attorney-client relationship. The firm duly informed the trial court that they objected to any further determinations from the judge as New Jersey had no jurisdiction to determine the reasonableness of the costs and fees. Plaintiff informed the court she intended to dispute the reasonableness of Freeborn’s fees separately. However, she never pursued any action.

Despite the objections, the trial judge proceeded with a plenary hearing on the reasonableness of the firm’s fees.  It entered an order reducing the $1.7 million bill to $359,000. The trial court claimed jurisdiction was proper under a 2005 Appellate Division case, Levine v. Levine, 381 N.J. Super. 1 (App. Div. 2005).

The appellate division disagreed with the trial court’s reasoning and found it should not have relied on Levine, which involved the right of an attorney in a matrimonial action to petition for a lien on a client’s assts, and protecting substantive and procedural due process rights regarding attorney-client fee disputes under the New Jersey Attorney’s Lien Act.

The appellate court noted that the firm had not taken any steps to involve the trial court in their fee dispute with their client; no petition had been filed seeking a lien and determination under the Attorney’s Lien Act; and the court proceeded under the objection of the firm. Plaintiff also had not taken any steps to involve the trial court. There was no subject matter jurisdiction. The firm was never named as a party in any action related to the claim.

The trial court had no legal authority to assert jurisdiction, rendering any relief granted a legal nullity. The Appellate Division ruled that the firm must file a separate cause of action to adjudicate its claim for fees against its client and expressly rendered no opinion as to the enforceability of the forum selection clause in the retainer agreement.

The case is Lucas v. 1 on 1 Title Agency, et al. No. A-2217-16T2 (App. Div. 2019).

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

 

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].

Engagement Letters Can Reduce The Risk of a Legal Malpractice Claim

Posted on: April 26th, 2019

By: Greg Fayard

Lawyers often ask: what can I do to reduce the risk of a legal malpractice lawsuit? They can do several things, but a clear, narrowly-tailored engagement letter can certainly help decrease the risk of a claim. Here are some tips on effective lawyer-client engagement letters.

• Treat the letter more as an opportunity to build rapport with the client, and less as a formal, intimidating contract. How the relationship begins often determines how it will end, thereby mitigating the risk of a dispute down the road.

• Specifically, identify who the client is to avoid confusion. For example, an engagement letter can state the client is a corporation while excluding officers, directors and shareholders. Stating who is not the client can be as important as stating who is the client.

• State clearly how long the representation will last. Will it end upon settlement, a plea, a conviction, judgment enforcement, but not an appeal? For transactional matters, will the representation end when funds have been transferred and received or after any monitoring provisions lapse? A well-defined length-of -representation clause can also aid the lawyer in a statute of limitations defense. Statutes of limitation begin to toll on termination of the lawyer-client relationship.

• A good engagement letter should also specify precisely the fees in a matter, how fees are calculated, how fees are different than costs, and who is responsible for costs. Contingency matters should also be precise in terms of the percentage going to the attorney, and if different percentages apply, when those percentages apply. Whether a personal injury attorney is entitled to additional funds upon successfully negotiating a medical lien should be succinctly laid out as well. However, the client should be given the opportunity to consult independent counsel with regard to extra attorney compensation for negotiating a medical lien.

• Most importantly, an engagement letter that specifies the scope of representation can help address any misunderstandings over whether the lawyer was to advise a client on all legal issues faced by the client, or only a specific matter. A general scope of representation clause in an engagement letter can lead to a client believing the lawyer represents the client on all of its legal issues, indefinitely, causing some clients to believe the lawyer has an ongoing duty of representation.

For any questions, please contact Greg Fayard at [email protected].