It’s all over the law news today, and here is NY Lawyer’s report on the Kirkland Ellis patent legal malpractice case in Illinois:

"In an Illinois state court filing last week, Kirkland & Ellis is being sued for legal malpractice by a former client that blames the law firm for the loss of a patent case that cost the company $18.75 million.

Magnetek Inc., a Menomonee Falls, Wis.-based maker of digital power and motion-control systems, filed the lawsuit against Kirkland on Aug. 14 in the Circuit Court of Cook County. Magnetek v. Kirkland, No. 2008L008970. The company alleges that the law firm failed to investigate and discover prior art and misconduct related to the patent that was the focus of a lawsuit brought by Ole K. Nilssen in the U.S. District Court for the Northern District of Illinois against Magnetek in 1998. Nilssen v. Magnetek, No. 98-C2229.

Kirkland spokeswoman Kate Kortenkamp declined to comment on the case or to say which law firm her firm will hire to handle the case. Magnetek has hired Mitchell Katten of Chicago-based Katten & Temple, a three-attorney firm that was formed in April, and Martin Washton, a former Gibson, Dunn & Crutcher attorney who is now at Los Angeles-based Towle, Denison, Smith & Tavera. "

 

The outcome in this case is not unique; many legal malpractice cases are dismissed prior to trial, often on the basis that there is no "proximate cause" or "there is documentary evidence that plaintiff cannot prove the underlying case."  Terrance Wray, appellant, v Mallilo & Grossman, etc., respondent.SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT2008 NY Slip Op 6557; 2008 N.Y. App. Div. LEXIS 6403 is another example.  What the decision does not address is whether the attorney’s underlying representation led to the conclusion that there was no 240 or 241 case.

"Here, the defendant met its prima facie burden of establishing entitlement to judgment as a matter of law by demonstrating that the plaintiff would be unable to prove that, but for any negligence on its part, he would have prevailed in the underlying action to recover damages against [*2] the premises owner under the Labor Law §§ 240(1) and 241(6) causes of action. In opposition, the plaintiff failed to raise a triable issue of fact. In the underlying action, the Supreme Court determined that the facts and circumstances giving rise to the plaintiff’s accident were insufficient as a matter of law to sustain a claim under the Labor Law §§ 240(1) or 241(6). Accordingly, the plaintiff is collaterally estopped from relitigating those claims in the context of this legal malpractice [**3] action (see Sutton v Ezra, 224 AD2d 517, 638 N.Y.S.2d 148; Geraci v Bauman, Greene & Kunkis, 171 AD2d 454, 455, 567 N.Y.S.2d 36)."
 

 

One of the more fascinating aspects of legal malpractice is the large catchment area. That jargon, from psychology simply means that almost everyone uses attorneys, whether the largest CEO, or a hip hop magi zine employee who alleges sexual harassment.

Here, two employees of The Source were fired, and they sued.  Their attorneys Thompson Wigdor & Gilly started an action for them, and for one successful client, they also started a libel action.  She succeeded with a large verdict.

The second client was accused of faking breast cancer in order to avoid being terminated.  The attorneys did not start a libel action for her.  Now they are defendants, and a SDNY decision keeps them in the case.

"A Manhattan federal magistrate judge has ruled that a legal malpractice claim may proceed against a law firm for failing to bring defamation claims on behalf of a client in a high-profile sexual harassment and discrimination case.

Kenneth P. Thompson of New York-based Thompson Wigdor & Gilly represented Michelle Joyce and Kimberly Osorio in a 2005 suit filed against hip-hop magazine The Source. Osorio, the magazine’s former editor-in-chief, and Joyce, a former marketing executive, alleged pervasive sexual harassment and a hostile work environment.

The suit claimed discrimination, retaliation and wrongful discharge on behalf of both women but defamation only on behalf of Osorio, based on an interview in which The Source co-owner Raymond Scott said she had tried to extort the magazine.

Joyce’s claims were dismissed by Southern District of New York Judge Jed S. Rakoff in August 2006. That October, a jury awarded Osorio $8 million, of which $3.5 million was for the defamation claim.

In the suit Joyce filed against Thompson Wigdor in December 2006, she claims the firm should have brought defamation claims on her behalf as well, based on statements made by The Source defendants in April 2005.

At that time, the defendants said in a news release that they "suspect Ms. Joyce falsified health claims in an effort to attack The Source when she learned that she was going to be terminated." Scott said in a subsequent interview that Joyce "didn’t even do nothing around here" and "faked that she was having breast cancer so that we wouldn’t fire her."

In moving to dismiss Joyce’s claims, Thompson Wigdor argued that the statements she cited constituted non actionable opinion. But while Southern District Magistrate Judge Gabriel W. Gorenstein agreed that the statement that Joyce did "nothing" at The Source was an opinion, he said statements that she faked a medical condition were libelous per se.

"[T]he faking of a serious illness to avoid being fired has a precise and definite meaning and it is readily capable of being proven to be true or false," the magistrate judge wrote in Joyce v. Thompson Wigdor & Gilly, 06 civ. 15315. "

 

New York Lawyer reports that a legal malpractice case in Philadelphia may continue as is a case in New Jersey.

"Just a few weeks after a malpractice claim against Nixon Peabody was allowed to go forward in New Jersey, a Philadelphia judge has allowed to continue a separate, but similar, malpractice action against the firm in Pennsylvania, denying its motion for judgment on the pleadings.

In Jan Rubin Associates Inc. v. Nixon Peabody LLP, Nixon Peabody said the former client waived its right to file a malpractice claim under Pennsylvania law because they entered a settlement agreement in the underlying action.

Philadelphia Common Pleas Court Senior Judge Albert W. Sheppard Jr. disagreed, ruling in a July 31 opinion the state’s law allows exceptions to that rule if the settlement was legally deficient or if the ramifications of the settlement were not fully explained by the attorney.

Nixon Peabody was relying on a 1991 Pennsylvania Supreme Court decision, Muhammad v. Strassburger, in which the plaintiffs decided after settling a case that the amount wasn’t enough and sued their lawyer for malpractice. The court held that simple dissatisfaction with the terms of the settlement was not enough for a malpractice claim, according to Sheppard’s five-page opinion. "

 

In Legal Malpractice cases, the subtext is consistently one of betrayal, or at best a shortcoming.  Potential clients report that their attorney misled them, or abandoned them, or simply did not do the work.  These claims are often true, to a shocking and heartrending degree.

Here, in this story, not only is there the typical legal malpractice milieu, there is also the unrelated sad back story.

"Thomas Prousalis Jr. and Gayle Prousalis sued Cohen Milstein, along with partners Herbert Milstein and Lisa Mezzetti, in 2003, alleging the defendants had botched the Prousalises’ underlying case against their stockbroker. According to the complaint, Cohen Milstein failed to file witness or exhibit lists in that case, and withdrew as counsel on the morning of an arbitration hearing. As a consequence, the complaint says the Prousalises were forced to abandon their case.

The Prousalises were seeking $25 million in compensatory damages, and $100 million in punitive damages against Cohen Milstein. On Thursday, the jury awarded $500,000 to Gayle Prousalis, but did not find in favor of Thomas Prousalis. Thomas Prousalis, a former Washington lawyer, found himself in trouble with the law shortly after filing the complaint against Cohen Milstein. He pleaded guilty to mail, wire and securities fraud in 2004, and was disbarred in the District of Columbia the same year.

 

As an added reason why one should never, never, never dip toes in another state’s legal proceedings, see this story on the difference between statute of limitations in an oral versus written contract in legal malpractice.

"A legal malpractice claim was time-barred because it was subject to a shorter statute of limitations for actions based on oral contracts, a U.S. District Court in Virginia has ruled in granting a dismissal. Under Virginia law, a claim for legal malpractice is subject to the statutes of limitations for breaches of contracts. A claim based on a written agreement is subject to a five-year limitations period, whereas a claim based on an oral agreement is subject to a three-year statute of limitations.

In this case, an out-of-state attorney referred the plaintiff to the lawyer for the purpose litigating an action to recover the proceeds of a loan. The plaintiff later sued for malpractice after he lost the action on the loan because the lawyer allegedly missed a deadline.

The defendant argued that the malpractice suit was time-barred because the parties had not executed a written fee agreement and the plaintiff had not filed his malpractice claim within the state’s three-year statute of limitations for oral contracts.

The plaintiff contended that the longer limitations period for written agreements applied because the defendant had sent the referring attorney a letter memorializing the parties’ understanding as to the scope of the lawyer’s representation and his fees.

But the court said that the letter could not "be considered a written contract because … the parties here did not clearly establish an intent to replace the oral agreement with a written agreement since [the plaintiff and the defendant] never signed any written fee agreement."

"[T]he letter sent from [the defendant to the referring attorney] did not bear [the defendant’s] signature. … [T]his court finds that the typewritten name [of the defendant on the letter] is not the equivalent of [the defendant’s] signature. Thus, the letter was not signed by the party to be charged. Also, … [the defendant] did not send the letter to [the plaintiff], instead, he sent the letter to a third party. … [T]he letter did not merge the oral contract into a written contract."

Who may sue the lawyer?  Is it the corporation / LLC / etc. or the individual?  Here, in this Schulte Roth case  [McCagg v. Schulte Roth] from Supreme Court, New York County, partners who are suing each other find that neither may individually sue the attorneys involved for legal malpractice. 

The back story is that A was a former jet leasing company president who sold his prior company and signed a non-compete.  He teamed up with B, a newcomer to form a new jet leasing company, and they used A’s longtime attorneys, Schulte Roth. Then, horrors!, everyone finds out that A had signed a non-compete, and he withdraws, dooming the company.  B sues the attorneys and finds out that he has no attorney client relationship.

The case continues in a non-legal malpractice setting:  aiding and abetting B while knowing that he had previously signed a non-compete.  Read the entire case for details.

 

 

Campbell Holder, an attorney in Manhattan has the dubious honor of being a jailed legal malpractice defendant.  A significant judgment was just entered against him in Federal District Court.  The New York Law Journal reports:

"An imprisoned former attorney was ordered to pay $250,000 in damages to a client whose case against the Metro-North Commuter Railroad was lost because the lawyer failed to oppose a motion for summary judgment.

Campbell Holder, in prison for stealing over $1.6 million from clients, defaulted on a judgment sought by Christine Robinson, the widow of former Metro-North conductor Charles Robinson.

Mr. Robinson claimed Metro-North forced him into in-patient drug rehabilitation followed a positive drug test on Feb. 8, 1993. Told he would lose his job if he did not comply, Mr. Robinson entered Gracie Square Hospital on March 1, 1993.

He had asked for an independent analysis of his urine test, and on March 5, his physician informed Metro-North that the result of the retest was negative and that Mr. Robinson should be released from the hospital.

But the railroad instructed Gracie Square not to release him until he finished rehabilitation. Mr. Robinson was not discharged until March 29, 1993.

Claiming negligence against the railroad and assault and abuse at the hands of other patients at the hospital, Mr. Robinson retained Mr. Holder to sue Metro-North."

Continuing a trend for bankruptcy/referee/trustee/ unusual settings for legal malpractice litigation, here is an article from NY Lawyer about the settlement of a large legal malpractice "disentanglement" case:

"Wilson Sonsini Goodrich & Rosati has paid $9.5 million to Brocade Communications Systems to release itself — as well its chairman and former Brocade board member, Larry Sonsini — from civil claims stemming from the backdating disaster at the firm’s longtime client.

News of Wilson’s payment was tucked into a footnote in court filings Friday connected to the effort by Brocade’s special litigation committee to recover some of the approximately $830 million it alleges the scandal has cost the company in settlements, legal fees and a missed merger opportunity with Cisco Systems Inc.

The special litigation committee, represented by Dewey & LeBeouf’s Ralph Ferrara, filed suit against 10 former executives and board members late Friday, accusing them of racketeering, securities violations and breach of fiduciary duties. Criminally convicted CEO Gregory Reyes and HR chief Stephanie Jensen are named along with other defendants in the 282-page complaint. The new lawsuit will take the place of pending derivative suits if Brocade wins motions to dismiss them."

Single stockholder corporations are quite common.  Entrepreneurs know that they must start a corporation, and they often equate the corporation’s activities with their own, for they, of course, are the CEO, CFO, COO, and sole shareholder.  Here is an example of what can go wrong.

Baccash v. Sayegh is the story of a sole shareholder who probably has done well with her bridal gown business.  She hears that a competitor is going to retire, and hires attorney to prepare sale/purchase documents.  Here is where things go awry.  Defendant prepares a stock purchase agreement rather than an asset purchase agreement, and plaintiff finds herself [or is it the corporation] indebted to a creditor for $ 50,000.

Plaintiff pays off, and sues attorney.  She wins at trial, only to have the verdict reversed and dismissed.  "Here, the plaintiff’s theory of the case was that she sustained damages because the stock purchase agreement which the defendant negotiated without her knowledge required her to assume responsibility for Peggy Peters’ liabilities, consisting of trade debt and an outstanding bank loan. However, the proof presented at trial revealed that all payments of Peggy Peters’ debts after the February 2001 purchase were made by Bridal Couture rather than the plaintiff, and that Bridal Couture also paid $6,000 in settlement of the creditor’s suit brought against both Bridal Couture and Peggy Peters. Although it is undisputed that the plaintiff is Bridal Couture’s sole officer and shareholder, a corporation has a separate legal existence from its shareholders even where the corporation is wholly owned by a single individual (see Harris v Stony Clove Lake Acres, 202 AD2d 745, 747; see also Rohmer Assoc., Inc. v Rohmer, 36 AD3d 990; Winkler v Allvend Indus., 186 AD2d 732, 734; New Castle Siding Co. v Wolfson, 97 AD2d 501, 502, affd 63 NY2d 782). Moreover, "the courts are loathe to disregard the corporate form for the benefit of those who have chosen that form to conduct business" (Harris v Stony Clove Lake Acres, 202 AD2d 745, 747).

Furthermore, while the doctrine of piercing the corporate veil allows a corporation’s separate legal existence to be disregarded to prevent fraud and achieve equity (see Matter of Morris v New York State Dept. Taxation & Fin., 82 NY2d 135, 141; Millennium Constr., LLC. v Loupolover, 44 AD3d 1016; Rohmer Assoc., Inc. v Rohmer, 36 AD3d 990), the doctrine is typically employed by third parties seeking to circumvent the limited liability of the owners, and requires a showing of a wrongful or unjust act toward the plaintiff (see Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141-142). Even assuming that the doctrine of piercing the corporate veil would be available to allow the plaintiff to disregard the corporate form in which she chose to do business, no evidence was presented to support the trial court’s conclusion that Bridal Couture is, in fact, the plaintiff’s alter ego. Under these circumstances, the plaintiff’s proof was insufficient to establish that she sustained actual damages as a result of the defendant’s conduct (see Rogers v Ciprian, 26 AD3d 1, 6; Winkler v Allvend Indus., 186 AD2d 732, 734). Thus, the plaintiff failed to establish a prima facie case of legal malpractice (see Carrasco v Pena & Kahn, 48 AD3d 395; Edwards v Haas, Greenstein, Samson, Cohen & Gerstein, P.C., 17 AD3d 517), and that branch of the defendant’s motion which was to set aside the verdict and for judgment as a matter of law dismissing the complaint should have been granted. "