From the National Law Journal:

Legal Malpractice Cases May Surge as Economy Tanks

New York Lawyer
February 23, 2009
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By Karen Sloan
The National Law Journal

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With the economy tanking, experts say the stage is set for a surge in legal malpractice lawsuits, as clients look to recoup their losses from third parties.

Insurance carriers and attorneys haven’t seen a tidal wave of legal malpractice suits yet, but they anticipate a spike later in the year and into 2010.

National insurance provider CNA Financial Corp. predicts that legal malpractice claims will be up by 5% in 2009, said Vice President Shauna Reeder, who oversees the large law firm professional liability group. CNA has already seen an increase in claims related to fee disputes, wherein a firm steps up its collection efforts only to see its client turn around and sue for legal malpractice.

"Legal malpractice is a money-driven area of the law — more so than other areas," said Andrew Lavoott Bluestone, an attorney who represents plaintiffs in legal malpractice cases and the author of the New York Attorney Malpractice Blog. "It has a very strong connection to the economic situation. In a downturn, you will see more people suing their attorneys over things like estates and divorces. Now, $200,000 is life or death."

Bluestone and others also expect legal malpractice lawsuits to crop up in connection with failed financial deals; foreclosures; fraud, such as the Madoff scandal; and bankruptcy cases.

Legal malpractice claims were on the rise even before the economy hit the skids in 2008.

A 36% hike

A recent American Bar Association (ABA) study that looked at legal malpractice claims filed between 2004 and 2007 found that the total number of claims increased by more than 36% compared to the previous three-year period. Those numbers don’t reflect the current recession, however.

"Markets go down, deals fall apart and some people look to place blame," said Stephen Novack, a partner and co-founder of Chicago-based Novack and Macey, which defends attorneys in legal malpractice cases. "Scapegoating heightens in bad economic times, and I think there will be a spike as dissatisfied investors and dealmakers look for deep pockets to try to recoup losses."

In a downturn, legal malpractice lawsuits aren’t typically filed immediately, said Brad Dantic, vice president and general counsel of ALPS Corp. in Missoula, Mont., which provides legal malpractice coverage to attorneys in 24 states. Instead, historical data suggests that increases in legal malpractice lawsuits occur in the year or two after the economy hits bottom.

"When you look at the downturn we had in 1990 and 1991, the spike in claims started in 1992 and went into 1993," he said.

For one thing, it takes time for a potential attorney error to be discovered and analyzed in advance of filing a claim, Dantic said. Additionally, plaintiffs often choose to wait until the economy has bottomed out and their losses have peaked before they attempt to recover anything through a malpractice lawsuit, he said.

"The client’s assets are going down as the economy worsens, so the extent of their damages increases during a recession," Dantic said.

Robert J. Muldoon Jr., a partner at Boston-based Sherin and Lodgen, represents attorneys in malpractices suits. Muldoon said there are two general categories of legal malpractice lawsuits generated in a down economy. One category covers claims that attorneys provided negligent legal advice in financial matters, and clients lost money or assets as a result. For example, an attorney who advised a client to invest with Bernard Madoff could potentially be sued for malpractice, Muldoon said.

The second category includes "groundless claims" filed by clients who would not sue their attorney under better economic circumstances.

"That’s kind of a dark scenario, but people might be so pressed for money that they sue," Muldoon said.

Bluestone predicts an increase in legal malpractice suits initiated by bankruptcy trustees that target attorneys who worked for the bankrupt entity. Bankruptcy trustees have a fiduciary responsibility to collect as many assets as possible to distribute to creditors, and that includes funds from a potential legal malpractice suit, Bluestone said.

CNA also is concerned about an increase in bankruptcy-related malpractice claims. "As corporate institutions begin to fail, we expect to see scrutiny from bankruptcy trustees and state-appointed receivers," Reeder said. "They will be investigating the professionals with regard to the advice they provided to their bankrupt client."

In Barber v. Siller Wilk we seen an interesting anomaly of legal malpractice, which is the recurring lawsuit against the target attorney, which is lost, and then against the attorney who sued the target attorney, then…. reminiscent of the reducio ad adsurdum metaphysical argument one learns in philosophy.  In this case, plaintiff successfully sued for a PhenFen injury, in New York, through a New York class action firm, and was unhappy with the result.  Winning $200,000 as a class action member, plaintiff believed that he was due more, as an individual. 

California has a one year statute of limitations, and when plaintiff sued defendant, was shut out on a borrowing statute issue.  The argument was over when the statute of limitations started to run, and whether continuous representation kicked in.  Plaintiff lost, and then sued the legal malpractice attorneys, only to lose on collateral estoppel.  Judge James found that defendants proved all that needed to be proved:  identity of issue and a full and fair opportunity to be heard.

Result: plaintiff loses.

The Labor Law and its connection with union contracts, employment at will and whistle blower statutes is complicated.  Clients are well advised to go to an attorney who concentrates in this area.  Here is a case in which plaintiff’s case went awry, and ended in legal malpractice.

Hayes v Bello   2009 NY Slip Op 29065   Decided on February 11, 2009  Supreme Court, Richmond County illustrates the complicated nature of these interacting statutes, and what happens when a claim in one cancels out the other claims.
 

"By way of background, plaintiff’s employment at SIUH began in April 1996 and ran through April 1997 pursuant to a one-year employment contract. Her contract was subsequently renewed in December 1997 for a three-year term, and was thereafter renewed twice more for a period of three years each. Her employment was terminated in July 2003. Each of plaintiff’s contract renewals was retroactive to the expiration date of the previous contract. According to plaintiff, prior to her termination, she had notified her superiors of the illegal activities of another employee in conjunction with the clinical trial of a drug named "Tysabri". Plaintiff contends that her employment was terminated as of July 31, 2003 as a result of her having reported this information to her superiors."

"In September 2003, plaintiff retained the legal services of defendant THOMAS F. BELLO, Esq. (hereinafter BELLO) to represent her in a wrongful termination action against SIUH. An action was subsequently commenced by BELLO on her behalf in July 2005. The complaint alleges five causes of action, one each for breach of contract, promissory estoppel, breach of implied contract, specific performance and violation of Labor Law §740, also known as New York’s "Whistleblowers Act". In September 2005, SIUH moved to dismiss the first four causes of action on the ground that an action under Labor Law §740 constitutes an exclusive remedy such that the assertion of a cause of action thereunder precludes plaintiff from pursuing any other causes of action related to the alleged wrongful termination of his or her employment. In addition, dismissal of plaintiff’s Labor Law cause of action was sought on the basis that the one-year statute of limitations applicable thereto had expired in or about July 2004, one year from the date of plaintiff’s termination. In response, BELLO served an amended complaint withdrawing the cause of action under Labor Law §740. "

"On appeal, however, the Appellate Division, Second Department dismissed the complaint in its entirety on the ground that (1) the assertion of a claim under Labor Law §740 operated as a waiver of all rights and remedies available to plaintiff under any contract, collective bargaining agreement, law, rule or regulation or under the common law, and (2) BELLO’s attempt to amend the complaint to exclude the time-barred Labor Law §740 cause of action was insufficient to nullify the waiver (see Hayes v. Staten Island University Hospital, 39 AD3d 593). "
 

An attorney is free to utilize a reasonable trial strategy for its client without a risk of legal malpractice.  So goes the "judgment" principal in legal malpractice.  What constitutes a reasonable trial strategy?

As an example, Noone v Stieglitz ;2009 NY Slip Op 01093 ;Decided on February 10, 2009 ; Appellate Division, Second Department  is instructive.  Attorneys win in this case, having demonstrated a "reasonable" trial strategy:
 

"The defendants Michael Steiglitz and Sobel, Ross, Fleigel & Suss, LLP (hereinafter the respondents), represented the plaintiff in an underlying personal injury action to recover damages she sustained in an automobile accident, which occurred when the defendant in the underlying action drove his truck into her lane. The defendant in the underlying action testified that he was forced into the plaintiff’s lane by a yellow car which drove into his lane from the side of the road. The plaintiff relied upon the testimony of a nonparty eyewitness, who stated there was no yellow car.

During jury deliberations at the trial on the issue of liability in the underlying action, the plaintiff accepted a "high-low" settlement offer whereby she would receive $1,000,000 if the jury found in her favor on the issue of liability and $500,000 if the jury found in favor of the defendant. The jury returned a verdict for the defendant.

The plaintiff then commenced the instant action to recover damages for legal malpractice against the respondents alleging, inter alia, that they committed legal malpractice by failing to present at the trial a map of the area of the road where the accident occurred and related records of [*2]recent highway construction demonstrating that there was no shoulder or entrance on the side of the road from which the yellow car could have come. The plaintiff further alleged that the respondents failed to advise her of the consequences of the high-low settlement.

The respondents moved for summary judgment on the grounds, inter alia, that the plaintiff was advised of the consequences of the high-low settlement on the record in the underlying action, their strategy was to rely upon the favorable testimony of a nonparty eyewitness, and submitting a map of the road would not have helped the plaintiff’s case. The respondents noted that at the trial in the underlying action, the plaintiff’s position was that if there was no shoulder, there was no place for the yellow car to come from, but if there was some sort of shoulder, the defendant in the underlying action should have used the shoulder rather than the plaintiff’s lane to avoid the yellow car. "

"

We predict a change in the focus of legal malpractice cases reflecting the economic changes going on today.  Here is a case more indicative of the former red-hot real estate market in Manhattan.  Plaintiffs buy two apartments, plan to combine them, are told that some outside space on a setback will be theirs, and then it all goes sour.  Plaintiffs sue the brokers and their attorneys.  They hit .500 with the brokers out and the attorneys in.  In Pappas v. New 14 West LLC we see how the court treated the broker defendants differently from the attorney defendants, essentially saying that plaintiffs could not show writings which would support a fraud claim against the brokers, not withstanding any sales pitches which did not pan out, and that it was the attorney’s responsibility to make sure the clients got what they expected.  In addition, the attorneys seem to have provided the title insurance company as well as the mortgage lending.

The decision is not reproducible here, but we do love the huge number of Mattone names in the defendant law firm’s name: Mattone, Mattone, Mattone, Mattone, Mattone, Magna & Todd.

It’s not the 10 Commandments, and it’s not the Magna Carta, but as this Court of Appeals case demonstrates, it’s not far off.  Amalfitano v. Rosenberg is a new Court of Appeals decision which traces Judiciary Law section 487 all the way back to 1275. 

Deceit, or a chronic pattern of extreme deceptive practice is the touchstone of this almost 750 year old law.  The Court of Appeals found "remarkable" how consistent it has remained in the incarnations between the First Statue of Westminster (1275) to the deceit statute of 1787, to the 1836 Revision, through the 1881 Penal Code to Section 79 of the Code of Civil Procedure, to the Penal Code of 1909 to the Penal Code of 1965 to today’s Judiciary Law.

Running as a thread through the entire history of this law is the concept that attorneys have a higher duty to truth and honest dealings, and in their absence, pay not only a criminal but an enhanced financial penalty.  There is little to scare an attorney more than jail and a treble fine.

We’ve written about Judiciary Law section 487 before, and have an article in the New York Law Journal awaiting publication.  Like an appellate litigant who reads a new and important case the morning of oral argument, we came across the Amalfitano v. Rosenberg case from the Court of Appeals today.  It is an opinion that traces the statute back to 1275 and the time of the Magna Carta (1215)  Remembering that our law derives from the Norman conquest (1066);  that’s really a long time ago.

In Amalfitano v. Rosenberg the court first re-itereated the ancient origins of this statute, which they determined was "the modern day counterpart of a statute dating from the first decades after Magna Carta, its language virtually (and remarkably) unchanged from that of a law adopted by New York’s Legislature two years before the United States Constitution was ratified."

They traced the law from the First Statute of Westminster, adopted by the "Parliament summoned by King Edward of England in 1275."  500 years later, the NY Legislature adopted a law almost identical in 1787.  (L 1787, ch 36, section 5)

The statute followed, and continued through a series of statutory revisions to today’s Judiciary Law section 487.

Tomorrow:  the history through the 1800’s to today and application in state and federal courts.

Rounding out the week in legal malpractice, this article caught our eye.  Law firm represents company seeking to go national in the cable market.  Advises in a transaction so large it gets its own nickname.  In one of probably hundreds of document drafts two paragraphs go missing, and everything falls apart. 

What secondarily caught the eye was a month long mediation.  That’s longer than many trials.  Here is the story from the National Law Journal:

"LOS ANGELES – Irell & Manella has settled a $150 million legal malpractice lawsuit with one of its largest clients, Charter Communications Inc., according to a Feb. 10 filing in the case.

The settlement was reached following two months of mediation, according to court documents. Charter Communications Inc. v. Irell & Manella LLP, No. 07-cv-00402 (C.D. Calif.). No details of the settlement, including the dollar amount, were provided.

Irell, based in Los Angeles, had represented Charter and its chairman, Paul Allen, while both were looking to acquire cable systems to build a nationwide cable television company. In 2000, while working on an acquisition dubbed "the Bresnan Transaction," an unnamed Irell associate deleted two important paragraphs of the contract, giving Allen an unintended type of stock. No one noticed the mistake until 2002, after which Charter was forced to negotiate with Allen over millions of dollars to rectify the deal.

Charter then sued Irell for legal malpractice, breach of fiduciary duty, breach of contract and other claims. "