The rule is that an attorney may not do business with a client, may not accept loans or give loans.  There are exceptions, and with enough disclosure the transaction may not result in suspension, but in this particular story:

"A prominent Rochester personal-injury attorney has been suspended for 18 months for a series of disciplinary violations centering primarily on the 200-plus loans he made via intermediaries to his own clients.

A unanimous Appellate Division, Fourth Department, panel found that James J. Moran made more than 200 loans totaling more than $700,000. The panel said that the loans through third parties for non-litigation-related expenses did not "directly" violate the Code of Professional Responsibility, but that Mr. Moran’s actions nonetheless "circumvented" the code, which in itself is a violation.

According to the ruling, Mr. Moran conceded that he knew his conduct violated disciplinary rules, but "he stated that he provided the financial assistance so that his clients would not be required to borrow funds from lending companies at exorbitant rates of interest."

" The committee also claimed that Mr. Moran violated the disciplinary code by posting on his firm’s Web site information about a confidential disciplinary investigation of a rival personal-injury firm, and by failing to include a required disclaimer when referring to himself as a trial specialist on his Web site.

This blurb from Hinshaw raises more questions than it answers.  Read it and try to decipher:

"A federal district court has held that absent reliance by the client of a lawyer, the lawyer’s apparent partner was not liable to the client in a legal malpractice action against the lawyer for the cost of litigation arising out of the lawyer’s allegedly negligent amendment of a trust. The issue before the court concerned whether the apparent partner, who was the lawyer’s father and whose name was on the lawyer’s letterhead, was an apparent partner of the lawyer. The court acknowledged that a partnership by estoppel might be created in such a situation under Wisconsin’s version of the Uniform Partnership Act. It consequently found that the issue was whether the required extension of credit or a change in position was met. The court held that the apparent existence of the partnership, alone, did not establish that those requirements were met without evidence of involvement of the lawyer’s father in the representation. "

Hinshaw reports this months old case about legal fee disgorgement.  We reported on it about a month ago.  Wilson Elser, a big defense firm which handles legal malpractice defense cases, unsuccessfully defended itself on this case.

"Ulico Casualty Company (“Ulico”) is an insurer that specializes in trustee and fiduciary liability insurance. In the early 1980s Ulico entered into managing general agency agreements with Professional Indemnity Agency, Inc. and Professional Intermediary Associates, Inc. (collectively “PIA”) for PIA to serve as its underwriting agent for this book of business. As part of this agreement, the Wilson, Elser, Moskowitz, Edelman & Dicker firm would serve as claims attorneys to handle claims for coverage made by Ulico insureds, as well as provide general claims handling and oversight. The retainer in effect at the time of this controversy provided that “Wilson, Elser shall devote all the time necessary to the business of the Company, but shall not by this retainer be prevented or barred from taking other employment of a similar or other legal character by reason of the employment herein specified.” Id. at 2.

Subsequently, PIA became concerned about Ulico’s declining Best rating and business practices. PIA decided to enter an agreement to place the business with Legion Insurance Company (“Legion”). PIA hoped to move 50 percent to 75 percent of the business from Ulico to Legion. Id. at 3. Wilson, Elser advised PIA that its managing general agency agreement with Ulico was not exclusive and drafted a managing general agency agreement for use by PIA and Legion. Wilson, Elser also prepared filings necessary to obtain regulatory approvals from the state insurance departments for Legion to provide the insurance. The filings included an endorsement to permit Legion to offer more favorable coverage than Ulico and enhance Legion’s competitive position. Id. at 4. Wilson, Elser also offered advice to PIA about strategy regarding the termination of its relationship with Ulico. The court noted it was “undisputed” that in four instances, Wilson, Elser engaged in dual representation of Legion and Ulico on claims by insureds for coverage when both companies had policies that could apply. Id. at 5.

After terminating its relationship with both PIA and Wilson, Elser, Ulico filed suit against Wilson, Elser claiming breach of fiduciary duty, aiding and abetting PIA’s breach of fiduciary duty, legal malpractice, tortious interference with contract and tortious interference with prospective economic advantage. Id. at 6. Ulico moved for summary judgment on the issue of breach of fiduciary duty and for an order that Wilson, Elser return legal fees it received during the period of alleged disloyalty. Id. at 1.

The court noted that “the conflict of interest on which the fiduciary duty claim is premised did not affect Wilson Elser’s representation of Ulico in any litigation, but consisted, rather, in advancing the business interests of certain clients, PIA and Legion, to the detriment of another client, Ulico.” Id. at 10. The court found this situation presented an “egregious” breach of fiduciary duty because the attorney “fostered the business interests and advanced the competitive position of certain clients not over a former client but over a client which the attorney still represented…The undisputed facts…demonstrate that Wilson Elser did not merely assist PIA with preliminary steps to set up a competing business, but rather assisted PIA at every stage of PIA’s plan to transfer Ulico’s TFL business from Ulico to Legion.” Id. at 12.

The fact that the parties had respective expert opinions on the issue of the breach did not create an issue of fact because the existence of the duty and its breach presented questions of law for the court. Id. at 14. The breach does not require the actual use of client confidences but only the “reasonable probability” that they will be disclosed. See Jamaica Public Serv. Co. Ltd. v. AIU Ins. Co., 92 N.Y. 2d 631 (1998). In light of the fact that Wilson, Elser had been Ulico’s claim counsel for more than 10 years, it held confidential information it had acquired from Ulico regarding insureds, premiums, rates, loss experience and profitability, which would have been very useful to Legion in competing with Ulico. Ulico at 15. The court easily rejected the argument that the retainer language about the ability to take other or similar employment allowed this conduct, as it fell far short of the complete disclosure required to obtain the client’s informed consent to this conflict of interest. Id. at 16.

Finally, the court turned to appropriate damages. The court rejected Wilson, Elser’s argument that the fees subject to forfeiture should be only those for services where there was a breach of fiduciary duty. When there is a persistent pattern of disloyalty, “the cases ordinarily order forfeiture without apportioning or limiting the forfeiture to fees for services performed with disloyalty.” Id. at 21. Because the monthly fee structure between Ulico and Wilson, Elser was “tantamount” to a salary and could not be broken down by individual tasks, the court held that the forfeiture of fees should cover all regular monthly fees paid during the period of disloyalty. Id. at 22. The court ordered further proceedings to determine whether, as Ulico contended, the amount to be disgorged equaled $3,420,612.05.

Significance of Case
As a general proposition, the representation of competing businesses vis a vis third parties is permissible without conflicts waivers. Here, as elsewhere, however, the devil is in the details. Where the matters being handled for the competing businesses are as related and the interests of the clients are as plainly adverse as this court found them to be, a critical line has been crossed. And even in the absence of actual harm to a client, one of the consequences of crossing such a line can be a forfeiture of fees "

Attorneys move from firm to firm more often now than in the past.  The NYLJ and Law.Com’s top articles are all about firms reconstituting themselves, and movement of lawyers from hither to yon.

Here is a case from New Jersey about a successful legal malpractice case in which plaintiff recovers from one set of defendants, but has to take an assignment of insurance rights from the second set.  The insurance carrier started to defend under a reservation of rights, and then successfully withdrew.

"The governing legal principles are firmly established. An insurance company may respond to a claim against its insured by advising the insured that it is willing to defend under a reservation of rights or "non-waiver agreement." Merchants Indem. Corp. of N.Y. v. Eggleston, 37 N.J. 114, 126 (1962); Griggs v. Bertram, 88 N.J. 347, 357 (1982). Under such an agreement, the insurance company cannot be held ultimately responsible for payments otherwise required by the insurance policy. The agreement may be "inferred from the insured’s failure to reject the carrier’s offer to defend with a reservation of rights." Merchants, supra, 37 N.J. at 126. But "to spell out acquiescence by silence," the reservation of rights letter "must fairly inform the insured that the offer may be accepted or rejected." Id. at 127-28.

The first judge held that the letter in question failed the test set out in Merchants because it did not literally say you may "accept or reject" the offered defense. But the case does not stand for the proposition that its exact words have to be employed. Here, the letter "specifically disclaimed[ed] coverage for any . . . alleged act, error, or omission that occurred prior to the policy’s retroactive date" and for any member of RRMKK. The letter did not in any way reflect or even suggest a unilateral decision by Harleysville"

"An example of an improper unilateral declaration by an insurance company of its intention to defend while reserving the right to disclaim appears in Sneed v. Concord Insurance Co., 98 N.J. Super. 306, 314 (App. Div. 1967)(the company "’will continue to investigate this matter, but reserves any and all of its rights under the policy contract and may at any time, disclaim liability thereunder’"). By contrast, the language used by Harleysville comports with the reservation of rights letters sustained in Neilson v. American Mutual Liability Insurance Co. of Boston, 111 N. J. L. 345, 349 (E.& A. 1933)("’If this is not agreeable to you, we will return the summons and complaint for such action as you think advisable.’"). We perceive no difference between that statement and Harleysville’s statement that it was "prepared" to defend "if" the insureds were willing "to accept the reservation," particularly when the letter expressly declined coverage for the only period of time during which the insureds could have had responsibility for Kuhn’s actions and suggested that they might want "to retain personal counsel to protect their uninsured interests." In short, because Rubin and Kaplan had been properly notified of the reservation of rights and had not suffered any prejudice from the timing of Harleysville’s withdrawl, they had no enforceable claim to the benefits of the malpractice insurance policy.

Relying primarily on Merchants and Griggs, the Scottos and Rubin and Kaplan argue that even if the reservation of rights letter effectively preserved Harleysville’s rights, there is liability nevertheless because Harleysville did not disclaim for over three years and finally disclaimed while the malpractice case was still pending. Both of those cases are distinguishable because they involve untimely reservation of rights letters, which is not the case here. While those cases would be pertinent by inference if Rubin and Kaplan had suffered prejudice because of the timing of Harleysville’s withdrawal, there was no prejudice here since the "settlement" required nothing of Rubin and Kaplan other than an assignment of rights. "

The Appellate Division, Second Department recognized that there had been potential legal malpractice in the way this law firm handled equitable distribution in this case, and its failure to protect its client.  Wife was client, husband had real property, and due to a failure to file a lis pendens, the real property became part of his bankruptcy estate, rather than the clients. 

"The Firm’s contention that it did not depart from the ordinary standard of care applicable to an attorney in a matrimonial action involves factual issues not properly resolved in the context of a motion to dismiss or for leave to amend (see Ehlinger v Ruberti, Girvin & Ferlazzo, 304 AD2d 925). Moreoever, the Firm did not demonstrate that notices of pendency could not have been filed pursuant to CPLR 6501 in the underlying divorce action, since Hirsch not only asserted a claim for equitable distribution pursuant to Domestic Relations Law § 234, but also asserted fraudulent conveyance and constructive trust causes of action which demanded judgment that would affect title to the properties, and successfully sought issuance of a temporary restraining order and the appointment of a receiver to manage all of the properties at issue (see Ehlinger v Ruberti, Girvin & Ferlazzo, supra; Resnick v Doukas, 261 AD2d 375; Elghanayan v Elghanayan, 102 AD2d 803; Leibowits v Leibowits, 93 AD2d 535, 556; cf. Sehgal v Sehgal, 220 AD2d 201; Fakiris v Fakiris, 177 AD2d 540). "

At this stage of the proceedings, Hirsch need not establish actual damages, but is only required to set forth allegations from which damages attributable to the defendant’s alleged malpractice might be reasonably inferred (see Kempf v Magida, 37 AD3d 763; InKine Pharm. Co. v Coleman, 305 AD2d 151). The proposed amended pleading met this standard by alleging that the filing of a notice of pendency would have provided constructive notice of Hirsch’s claims in the divorce action and thereby prevented the eight properties from becoming part of the estates in bankruptcy of the Trust Entities and/or of Hirsch’s former husband (see CPLR 6501; 11 USC 544[a]; Goldstein v Gold, 106 AD2d 100, 102, affd 66 NY2d 624; In re Borison, 226 BR 779, 787-788; In re Eadie Properties, Inc., 31 BR 812, 814-815). As the Firm did not demonstrate that these allegations are palpably insufficient as a matter of fact or law, leave to amend the counterclaim [*3]should have been granted and the motion to dismiss denied.

.KAPLAN V. PUCKETT (2006-SC-18-DG)

Here is a legal malpractice case from Kentucky, with briefs.

"Legal malpractice. Puckett was found guilty of arson-related murder. Puckett was acquitted at new trial granted because prosecution witness had withheld exculpatory evidence at first trial. Puckett subsequently prevailed in legal malpractice action against original defense counsel. The issue is whether the malpractice verdict may stand in light of the withheld evidence."
Discretionary review granted 8/17/2006
Jefferson Circuit Court, Judge F. Kenneth Conliffe
For Movant: George R. Carter
For Respondent: Bill V. Seiller

Appellant’s Brief
Appellee’s Brief
Appellant’s Reply Brief
COA OPINION: 2004-CA-001750 (PDF)

This attorney prosecuted class actions for big settlements.  Now his millions in fees is in jepordy, based on the allocation of expenses between the groups of clients. The Story.

"Three former clients of trial lawyer John O’Quinn could be receiving millions of dollars back after an arbitration panel ruled the prominent Houston attorney improperly deducted expenses from settlements he won for them.

The three-person panel could decide this month if O’Quinn would have to give back any money. O’Quinn could be forced to return the $18.9 million in expenses plus all of his fees, estimated to be $580 million.

A March panel decision obtained by the Houston Chronicle showed a majority thought the deduction of a total of $18.9 million from the plaintiffs’ settlements was improper. The decision also said the 1.5 percent of general expenses collected by O’Quinn from the women were not authorized by his client contracts. "

Baker Donnelson reports that the US Supreme Court has issued a ruling in Bell Atlantic Corp. v. Twombly an anti-trust case which may revolutionize pleading in all civil cases. 

"In an antitrust case decided on May 21, 2007, the United States Supreme Court abandoned a fifty-year-old liberal pleading rule in favor of a significantly tougher standard applicable to all civil cases that may make it more difficult for plaintiffs to sue and easier for defendants to end lawsuits early, avoiding expensive litigation. The Court’s rejection of the old standard is unequivocal: the court’s old formulation, quoted for half a century in numerous opinions of the Supreme Court and the lower courts, "is best forgotten as an incomplete, negative gloss on an accepted pleading standard."

 

THEIR CONCLUSION?

"For fifty years, courts have evaluated all civil complaints under the standard set forth in Conley v. Gibson, 355 U.S. 42 (1957), which allowed cases to proceed through the process of pre-trial discovery unless, based on the claims alleged in the complaint, the plaintiff could prove "no set of facts in support of his claim which would entitle him to relief." This meant that under Conley, a case brought under the labor and employment laws, a plaintiff needed only to make allegations that put defendants on notice of what the plaintiff’s claims were without asserting all of the facts that supported the plaintiff’s conclusion that the law had been violated. As long as some set of facts might exist to support the plaintiff’s conclusions, the case could go forward. But in Twombly, the Supreme Court rejected this standard, noting that it has "earned its retirement."

The Supreme Court’s new standard asks not whether it is conceivable that some set of facts could be developed to support the allegations in the complaint, but rather whether the plaintiff has stated enough facts in the complaint to allow a court to conclude that it is plausible that the plaintiff is entitled to relief. Thus, defendants can avoid the costs and burden of responding to a complaint and to a plaintiff’s request for discovery by convincing the judge that the plaintiff’s claims are implausible even if they might be remotely possible. Conley was not an antitrust case, and the Court’s rejection of Conley was not limited to antitrust cases. It is likely, therefore, that this new pleading standard will be adopted in civil cases generally. "