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By: Catherine Bednar
When negotiating on behalf of a client, an attorney focuses on obtaining the best possible deal, balancing the client’s needs and objectives against the other side’s demands as well as the limitations of the law. An attorney must also be mindful, however, of the possibility the client might someday bring a malpractice claim in if the deal goes sour later.
In Jenkins v. Bakst, 95 Mass. App. Ct. 654 (July 23, 2019), the Massachusetts Court of Appeals recently affirmed an award of summary judgment in favor of an attorney, Bakst, who had negotiated an employment contract on behalf of the Plaintiff, Jenkins. In 2003, Jenkins entered into negotiations with a security services company, Apollo, to join the company as its president and chief operating officer. Ten years later, when Jenkins left Apollo he was disappointed by the valuation of his stock buyout under the employment agreement. After challenging the stock valuation, Jenkins settled his claims with Apollo. He then pursued a malpractice claim against his attorney, who had proposed the methodology used in the contract.
Before Bakst entered into any negotiations with Apollo, Jenkins informed Bakst of his wishes regarding the stock buy-back clause. The draft employment agreement prepared by Apollo’s counsel provided for buy-back of Jenkins’s stock at book value. Jenkins told Bakst he wished to receive fair market value for his shares, which he believed should be measured at between twenty-five to thirty-five percent of annual revenue, equivalent to 3 to 4 months of the company’s average revenue. Notably, an existing agreement between Apollo and two other shareholders provided for buy-back of two months of the average annual revenues. Bakst told Apollo’s counsel that Jenkins would not accept book value and believed Apollo’s fair market value should be equal to four months of revenues, not two months. Bakst also suggested an alternative method for establishing Apollo’s fair market value, which Bakst had used in agreements for other clients. Apollo’s counsel accepted Bakst’s proposed alternative methodology.
Jenkins argued Bakst was negligent by failing to follow his instructions for a buy-back provision based on three or four months of revenues. The superior court ruled a fact finder could not find either that Bakst had breached the standard of care or caused Jenkins any injury.
In reaching its decision, the court noted Bakst’s testimony that he had described the alternative valuation method to Jenkins before proposing it to Apollo’s counsel. Jenkins, on the other hand, testified he could not remember his conversations with Bakst prior to signing the employment agreement. The court found there was no evidence Apollo would have accepted Jenkins’ formula based on three to four months of revenues. The court further noted Jenkins was an
experienced businessperson. It was undisputed he read the employment agreement, initialed the relevant pages, and then signed it. Because Jenkins could not contradict Bakst’s testimony that he had explained the valuation before Jenkins signed, there was no material fact dispute to survive summary judgment.
The Jenkins case highlights potential pitfalls for attorneys when negotiating contracts. While an attorney may not be able to entirely avoid a lawsuit by an unhappy former client, there are some measures one can take to minimize the risk.
If you have any questions or would like more information, please contact Catherine Bednar at [email protected].