Here is a rather sour entry from Forbes. I’ve reprinted a portion of this subscription required article.
Daniel Fisher, 05.22.06
It couldn’t happen to a nicer bunch: Nowadays law firms are the targets of tort suits.
Bill Lerach is sorry, genuinely sorry. The securities lawyer, best known for bedeviling corporate executives with shareholder suits, felt compelled to go after some of his own in the Enron scandal. On behalf of shareholders he sued Vinson & Elkins, Enron’s law firm, on the theory that it participated in the fraud that led to Enron’s collapse.
“It broke our hearts to go after them,” Lerach says of the 700-lawyer Houston firm. He must have been sobbing all the way to the court clerk’s office, transporting a suit with a $40 billion damage claim. V&E says it shouldn’t be sued for merely providing legal advice to somebody else.
For decades most courts dismissed such cases, decreeing that lawyers are accountable only to their clients, not to people their clients may have injured. No longer. In the relentless search for new targets to sue and new ways to find legal liability, plaintiff lawyers have come upon the deliciously ironic idea of going after other lawyers.
“We’ve seen mistakes that wouldn’t necessarily result in a lawsuit five years ago becoming a lawsuit now, even out in the boonies,” says Ariel Hessing of Walnut Advisory Corp., a legal malpractice underwriter in Warren, N.J. “It’s become routine for lawyers to sue lawyers.”
Suits against lawyers by nonclients, once practically unknown, now account for 10% to 15% of new claims against big law firms, said Lawrence Zabinski of Attorneys’ Liability Assurance Society, at an American Bar Association meeting on legal malpractice in April. The claims “are the product of ever-increasing plaintiff lawyer creativity,” Zabinski said.
Imagine, lawyers hoist with their own petard. “I hate to say it, but lawsuits are in the air, and people and corporations are finding it easy to blame somebody else for their problems,” says Benjamin Hill, a corporate defense lawyer in Tampa and head of the Lawyers’ Professional Liability Committee of the ABA.
While the number of standard legal malpractice claims have remained steady, awards are getting bigger. From 1985 to 2003 payments over $100,000 rose sixfold to 482, and payments over $2 million (a category that wasn’t even tracked in 1985) jumped to 19 in 2003 from 10 in 1999.
Malpractice insurance is almost unaffordable for some high-risk specialties such as securities and patent law, where damage claims can run into hundreds of millions of dollars. Premiums have jumped about 20% for other business lawyers, to around $15,000 per year, says Hessing.
One by-product of all this litigation: defensive lawyering, as attorneys write elaborate memos to justify their behavior in case they get sued. In New Jersey, ever a trendsetter in finding new tort liabilities, lawyers now videotape will signings to head off lawsuits by disgruntled heirs. A session at the ABA malpractice meeting called “Death by Laptop” reminded lawyers that they can be held liable for failing to back up important documents or even for having obsolete technology below the current “standard of care.” Doctors, who face this kind of judicial second-guessing every day, can only smile.
Corporate scandals have been especially ripe for suits against lawyers. Outside attorneys have been dragged into cases against Adelphia Communications (the self-dealing cable outfit), Refco (the commodities trader) and Parmalat (the Italian food packager). This year the prominent New York City law firm Paul, Weiss, Rifkind, Wharton & Garrison contributed an undisclosed amount to a $180 million settlement over the collapse of the Boston Chicken restaurant chain. In a statement to the New York Law Journal in February it denied wrongdoing and said it settled to avoid the “risk of litigating.”
But it’s not just blockbuster securities cases that are giving lawyers fits. Partners are filing age-discrimination suits against their own law firms for demoting them to make room for younger attorneys. The Colorado Supreme Court recently held that car-wreck victims could use the state’s liberal consumer-protection law to sue a lawyer who recruited clients with flashy television ads (“In a wreck? Get a check!”). Even routine practices, such as the assembly-line production of documents in real estate closings, have become a minefield as banks sue their own lawyers over soured loans. “The lender goes through the closing documents with a fine-tooth comb and says, ‘You should have noticed this,'” says Brian Baney, director of professional liability program claims at Zurich Insurance.
“Lawyers were among the last to really feel the impact of malpractice litigation, because we were the gatekeepers to the courts,” says Ronald Mallen, an attorney with Hinshaw & Culbertson in San Francisco and coauthor of the five-volume textbook Legal Malpractice. Now, he says, “the gatekeepers have opened the gates.”
The gates started to swing open in the 1960s, when courts in California allowed disgruntled beneficiaries to sue lawyers for making mistakes in a will, overriding the longstanding rule against suits by nonclients (perhaps because in this case the client was underground). Then, in the 1970s, courts developed the theory of “negligent misrepresentation.” Originally applied against accountants who supplied faulty audits, it eventually morphed into a way for nonclients to sue lawyers over errors in commercial transactions.
Many suits–and some of the biggest verdicts–stem from conflicts of interest, which are becoming more difficult to avoid as law firms combine into international behemoths. Kathleen C. Cailloux, the widow of Texas oilfield equipment maker Floyd A. Cailloux, sued Baker Botts after the Houston firm advised her to transfer the bulk of her husband’s $65 million estate into a charitable foundation to save on inheritance taxes. Baker Botts was “trying to represent all three sides of a three-corner triangle,” says attorney Rick W. Harrison; it represented the foundation as well as Wells Fargo (nyse: WFC – news – people ) Bank, the employer of the foundation’s president, William Goertz.
A Texas jury last year ruled that Baker Botts hadn’t adequately explained the risks of such multiple representations and ordered the firm to replace the $65 million that Cailloux gave away to the foundation. Baker Botts has appealed, saying it saved Floyd Cailloux’s descendants $40 million in taxes, and the jury ignored a signed waiver from Cailloux spelling out the potential conflicts. Look for more such cases as baby boomers find flaws in the elaborate tax-avoidance structures their parents set up before they died.