Anecdotally, we see major economic changes in the US.  It changed the course of the Presidential elections, and it has changed the climate in legal malpractice.  Viewed through the lens of daily layoffs of attorneys, daily firing of staff, and realignments of law firms, this story from the American Bar Association underlines the trend.

"Attorney malpractice claims are escalating in numbers and intensity, making us wonder if clients, anxiously looking to recoup the hefty sums of money lost because of the struggling economy, are recalling the literal interpretation of Shakespeare’s well-known verse.

“Over the past several months, we have seen a dramatic increase in legal malpractice filings, a trend that would never been seen in a better economic environment,” Fisher, Rushmer, Werrenrath, Dickson, Talley & Dunlap shareholder John E. Fisher told the ABA Journal. “Now, more than ever, attorneys need to be mindful of their actions when dealing with clients."

In Florida, the depressed real estate market is driving many distressed buyers to look for any way out of housing contracts, including blaming their lawyers for their financial issues, said Mike Downey, a partner at Hinshaw & Culbertson.

“People are feeling a bit more desperate,” Downey said. Lawyers are delving into unfamiliar practice areas, and some clients are being less honest, putting attorneys at risk for professional liability issues, he added.

It’s not only clients who are spiteful. Downey said his phone is ringing with phone calls from lawyers complaining about malicious conduct from opposing counsel.

Chicago-based lawyer George B. Collins of Collins, Bargione & Vuckovich, agrees there is a meaner spirit to the recent spate of malpractice suits—and it’s aimed at unexpected targets. “The nastiness is hitting lawyers in substantial law firms, not the type of people you would expect to be in a malpractice suit,” Collins said. “It’s savage the way big firms are attacking each other.”

This intriguing story from New Jersey has several unique aspects to it.  The first is an idea alien to New York litigation and legal malpractice. This attorney was still in practice, and still representing buyers and sellers of the same residential property in the same neighborhood twenty years after the first transaction.  More unique is that he represented buyer in the first transaction and the next door seller in the second transaction, and was adverse to his own early client in the next door house. 

From Law.Com: "Tuckerton, N.J., solo Howard Butensky represented Stanley Shu in the purchase of a parcel at 113 West Main St. in Tuckerton from Earl and Maria Peterson. The Nov. 10, 1986, contract gave Shu a 30-day right of first refusal on the adjoining lot, also owned by the Petersons, and stated "[t]hese terms shall survive the passage of time."

Earl Peterson died, and Maria Peterson transferred the adjoining lot to her children, Lawrence Peterson and Donna Marie Jones.

When Peterson and Jones went to sell the lot in 2005 to Robert Gaudiosi, they hired Butensky to represent them.

Gaudiosi’s lawyer, Alphonse DeSimone, learned that a structure on Shu’s West Main Street property encroached on the lot and told Butensky that Gaudiosi would go ahead only if $10,000 of the purchase price was held in escrow to reimburse him for any legal fees he might incur in getting the encroachment removed.

Butensky wrote to Shu and told him of the impending sale and the encroachment problem on May 20, 2005.

A second letter from Butensky to Shu on May 27, 2005, warned of possible legal action if Shu did not remove the encroachment. Taking note of his past representation of Shu, Butensky said if a lawsuit was needed, some other lawyer would handle it.

Shu refused to remove the encroachment. Gaudiosi went ahead and bought the parcel.

In March 2006, Gaudiosi sued Shu in Camden County’s Chancery Division. Shu counterclaimed for trespass. In his pleading he made no mention of the right of first refusal or Butensky, but in a letter dated June 16, 2006, Shu’s lawyer, David Anderson, told Butensky that Shu intended to enforce that right.

Butensky responded on June 20 that when the Peterson children sold the property to Gaudiosi, neither side was aware of Shu’s right of first refusal and he had not recalled it and thus did not intend to interfere with Shu’s exercise of his rights. Shu, however, was aware of it and should have addressed it when the encroachment issue arose, he said.

Shu settled the encroachment case for an undisclosed amount in July 2006 and on May 4, 2007, sued Butensky for malpractice. He claimed Butensky was negligent in failing to record the right of first refusal provision and had a conflict of interest when he represented the Petersons in selling the adjoining lot. He also alleged that when Butensky informed him about the sale of the neighboring lot in May 2005, he told Butensky at that time that he intended to enforce his right of first refusal.

The National Law Journal reports that an Appellate Court has reversed and remanded a $30 million legal malpractice case against the law firm Seyfarth Shaw based upon issues of jury instructions. "Blanks  filed a legal malpractice lawsuit against Seyfarth Shaw and Lancaster, alleging that the attorney’s failure to file the action on time before the labor commissioner caused Blanks to lose millions. In addition, Blanks asserted that [his accountant] Lancaster purposely delayed filing in order to generate fees. "

"Seyfarth Shaw will get a new trial in a legal malpractice case brought by the creator of a popular exercise program, who won a $30 million verdict against the law firm in 2005.

A California state appeals court has thrown out a jury verdict, which found that the Chicago-based law firm committed malpractice when one of its lawyers representing Tae Bo creator Billy Blanks failed to file court papers on time in the right venue.

The Feb. 20 decision from the California Court of Appeal Second District remands the case back to the lower court. It calls for the lower court to change the instructions it gave the jury related to how much Blanks could recover for the firm’s alleged wrongdoing.

Seyfarth Shaw Chairman Stephen Poor said in a written statement that the firm "look[ed] forward to being fully vindicated in this matter."

Blanks’ attorney, James R. Rosen, called the decision "a major disappointment," but he said that the overriding conclusion regarding the law firm’s malpractice remained intact. "
 

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.