Moving from Bankruptcy court to Federal District Court, the law firm again loses:

"Firm’s Bad Faith Leaves Bad Taste of $877,000 Malpractice Tab

New York Lawyer
April 10, 2007
Reprints & Permissions

By Leigh Jones
The National Law Journal

A Minnesota federal court has found Dorsey & Whitney liable for more than $877,000 for legal malpractice, breach of fiduciary duty and acting in bad faith for its role in a botched Indian casino deal.

Affirming a U.S. Bankruptcy Court decision issued last year, U.S. District Judge Donovan W. Frank ordered Dorsey & Whitney to turn over $887,440 in legal fees it received from former clients it represented in orchestrating a finance deal gone awry for the Akwesasne Mohawk casino in upstate New York.

In a 94-page decision, the judge determined that the 600-attorney firm breached its fiduciary duty of loyalty by representing two adverse clients at the same time and failed to inform its clients that it might have committed malpractice.

A spokesman for Dorsey & Whitney said the firm disagreed with Judge Frank’s decision, which it will appeal to the 8th Circuit Court of Appeals.

Edward Gale, a partner with Leonard, O’Brien, Spencer, Gale & Sayre, in Minneapolis, represented the plaintiffs. "

Zenith Ins. Co. v. Cozen O’Connor, Case No. B184684 (Cal. Ct. App., March 21, 2007).

"The issue presented in this case relates to the nature and extent of the duty, if any, owed to the reinsurer by counsel retained by the ceding insurer to protect the interests of the insured under the underlying policy.

In this action for professional negligence, Zenith Insurance Company (“Zenith”) entered into a contract of reinsurance with Royal Insurance Company (“Royal”). Under the contract, Zenith agreed to reinsure 100% of Royal’s exposure under certain liability policies. After claims were asserted against Royal’s insured, Royal retained the law firm of Cozen O’Connor to provide legal services with respect to the defense of such claims. Ultimately, Zenith filed this action for professional negligence against Cozen alleging that an attorney-client relationship existed based on either: (1) an implied in fact contract; or (2) the theory that Zenith was an intended beneficiary of Cozen’s legal services.

The California Court of Appeals disagreed with Zenith for two reasons. First, under the “intended beneficiary” theory, both Cozen and Royal must have intended Zenith to be the beneficiary of legal services Cozen was to render. The Court held that the fact that Cozen’s representation could incidentally benefit Zenith did “not sufficiently satisfy this predicate.” Moreover, the fact that Zenith agreed to reimburse Royal for all legal fees did not change the conclusions. Second, there was no express agreement between Zenith and Cozen, and Zenith did not allege the predicate facts necessary to establish an implied contract between it and Cozen. Zenith Ins. Co. v. Cozen O’Connor, Case No. B184684 (Cal. Ct. App., March 21, 2007). "

This article from columnists Norman Arnoff and Sue Jacobs [subscription] warns us to protect legal malpractice coverage by carefully answering the application questions.

"Every year someone in each law firm has the task of completing the application for the Lawyers’ Professional Liability Policy commonly called the Malpractice Policy. The policy is "claims-made" so that claims first made during the policy period will be covered during the policy in issue. If the policy is "claims-made and reported" the claim must also be reported during the policy period for coverage.

If the applicant does not disclose or misrepresents a fact that ripens into a claim or lawsuit during the policy term, the carrier may claim the law firm made a false representation of a material fact to induce the carrier to issue the precise policy. The carrier may also attempt to rescind the policy if the claim is significant.

The lawyer may believe she did not purposely answer the question falsely, but, rather, was unaware of all the underlying information. If there is an innocent reason for the nondisclosure the insurer will not be able to rescind. Rather, the carrier will have to establish the misrepresentation to be material and fraudulent, and that it would not have issued the policy for the premium charged if it had the true facts.
"

The Wall Street Journal reports:

"Charter Communications filed a lawsuit Friday against Irell & Manella, accusing the prominent Los Angeles firm of “critical errors” in completing a 1999 cable TV acquisition. The lawsuit alleges, among other claims, legal malpractice and requests damages of $150 million. Here’s the 31-page complaint and a story from Saturday’s L.A. Times.

Charter’s suit, filed in federal court in Santa Ana, Calif., also claims that Irell concealed its mistakes for as many as nine months in 2002 after learning about them. Irell has long represented Charter, a St. Louis-based cable company controlled by Microsoft poohbah Paul Allen. During the entirety of their relationship, Charter has paid Irell $55 million in fees, according to the complaint.

Stephen Higgins of Thompson Coburn in St. Louis filed the lawsuit on behalf of Charter. Also signing on to the complaint: David Freishtat of Freishtat, Mullen & Dubnow in Hunt Valley, Md., and the Enterprise Counsel Group in Irvine, Calif.

“If Charter suffered any loss at all, our firm was not the cause,” Irell partner David Gindler told the LAT. “We are confident that we will prevail as the whole story emerges in court.”

Aquino v Kuczinski, Vila & Assoc., P.C.
2007 NY Slip Op 02801
Decided on April 3, 2007
Appellate Division, First Department

Here is a legal malpractice case arising from defendant’s failure to bring a slip and fall case within the statute of limitations.  Legal Mal case lost becasue attorneys did not produce evidence that plaintiff would have won.  Evidence would have  to show that casino had constructive notice of defective condition causing slip and fall. 

"The issue in this legal malpractice action is whether plaintiff established that "but for" the negligence of defendants in failing to timely commence a personal injury action on her behalf, she would have prevailed in that litigation. On July 4, 2002, plaintiff was walking through the lobby of the Trump Taj Mahal Casino Resort in Atlantic City when she slipped on a substance she identified as vomit. Plaintiff did not see any substance on the floor prior to her fall. She alleges that after she fell, a woman dressed in a blazer and holding a walkie-talkie, whom she believed to be a security guard, came over and told her to get up. When she tried to get up unassisted, she allegedly fell again in the vomit.
In the case at bar, plaintiff failed to introduce any evidence that the casino either created the dangerous condition, or had actual or constructive knowledge of it (see Mercer, 88 NY2d at 956). Plaintiff admitted in both her affidavit and deposition testimony that she has no information regarding how long the vomit was on the lobby floor prior to her accident, thus negating any possibility of proving constructive notice"

"In the final analysis, defendants’ negligence in failing to investigate plaintiff’s case and timely commencing an action does not relieve plaintiff of her burden of proving that she would have prevailed in that litigation but for defendants’ negligence (see Brooks v Lewin, 21 AD3d 731, 734 [2005], lv denied 6 NY3d 713 [2006]; Russo v Feder, Kaszovitz, Isaacson, Weber, Skala & Bass, LLP, 301 AD2d 63, 67 [2002] ["[A] failure to establish proximate cause requires dismissal regardless of whether negligence is established"]). "

"

Shaw, Licitra, Gulotta, Esernio & Schwartz PC v. Hahn, 039977/06
Decided: March 20, 2007

Judge Andrew M. Engel

NASSAU COUNTY
District Court

Judge Engel

The Defendant moves for an order dismissing the Complaint herein, pursuant to CPLR §3211(u)(4), imposing sanctions upon the Plaintiff, pursuant to DR 7-102, DR 7-104, 22 N.Y.C.R.R. §130-1, and 22 N.Y.C.R.R. §130-1.1, prohibiting the Plaintiff from filling my further legal actions against the Defendant and awarding the Defendant damages.

The Defendant seeks dismissal of the present action, alleging that there is a prior action pending for the same relief, between these parties, in the Supreme Court of Nassau County. The Defendant submits a copy of the Summons and Complaint in such action, entitled, Shaw, Licitra, Gulotta, Esernio & Schwartz, P.C. v. Christopher Hahn, hearing Index No. 256/05, (the "Supreme Court Action"). The Plaintiff neither opposes this motion not denies that the action before this court seeks the same relief as is sought in the pending Supreme Court Action. Additionally, a comparison of the two (2) Complaints confirms that the relief sought in this action is contained within the relief sought in the Supreme Court Action.

Accordingly, the Defendants’ motion to dismiss the Complaint, pursuant to CPLR §3211(a)(4), is granted; and, the Complaint is dismissed.

The Defendant seeks the imposition of sanctions against the plaintiff for the commencement of this action, alleging that same was commenced for the sole purpose of harassing the Defendant. As evidence of such harassment, the Defendant not only points to the fact that the Plaintiff, a law firm representing itself, knew there was a prior action pending at the time it commenced this action, but alleges that this is the second time the Plaintiff has commenced the identical action in this court.

The Defendant alleges that in January 2006 the Plaintiff commenced an action against the Defendant, in this court, which was identical to the action presently before the court. A copy of the Summons and Complaint in that action (the "Second Action"), dated January 18,2006, is provided to the court. A comparison of the Summons and Complaint in the Second Action and the Summons and Complaint in the action presently before the court reveals that they are identical. This is not disputed by the Plaintiff.

The Defendant further alleges that following service of the Second Action counsel for the Defendant contacted Plaintiff which agreed to withdraw the Second Action. According to counsel for the Defendant, however, he has never received confirmation that the Second Action was withdrawn. Defendant does not however, allege that the Second Action is actually still pending.

The Official Compilation of Codes, Rules and Regulations of the State of New York, 22 N.Y.C.R.R. §130-1.1, provides, in pertinent part:

(a) The court, in its discretion, may award to any party or attorney in any civil action or proceeding before the court, except where prohibited by law, costs. in the form of reimbursement for actual expenses reasonably incurred and reasonable attorney’s fees, resulting from frivolous conduct, as defined in this Part. In addition to or in lieu of awarding costs, the court, in its discretion may impose financial Sanctions upon any party or attorney in a civil action or proceeding who engages in frivolous conduct as defined in this Part, Which shall he payable as provided in section 130-13 of this Subpart. This Part shall not apply to town or village courts, to proceedings in a small claims part of any court, or to proceedings in the Family Court commenced under article 3, 7 or 8 of the Family Court Act.

(b) The court, as appropriate, may make such award of costs or impose such financial sanctions against either on attorney or a party to the litigation or against both. Where the award or sanction is against an attorney, it may be against the attorney personally or upon a Partnership, firm, corporation, government agency, prosecutor’s office, legal aid society or public defender’s office with which the attorney is associated and that has appeared as attorney of record. The award or sanctions may be imposed upon any attorney appearing in the action or upon a partnership, firm or corporation with which the attorney is associated.

The rest.

Highly respected attorney Thomas Hyland, of Wilson Elser, writes in the NYLJ, in part:

"We write in response to your article, "Judge Orders Firm to Disgorge Fees Over Ethics Breach," (NYLJ, April 5, page 1) which discusses Justice Marcy S. Friedman’s decision in Ulico v. Wilson, Elser, Moskowitz, Edelman & Dicker, granting partial summary judgment against our firm. The article notes that Wilson Elser is an "insurance defense giant." We are proud of our reputation and standing in the insurance defense and greater legal community. We have built this reputation with over 30 years of exceptional service to our clients, and in accordance with the highest ethical standards.

With all due respect, Justice Friedman’s decision is flawed and contrary to the law and facts. As is the right of any litigant aggrieved by the order of a lower court, we intend to appeal. Unfortunately, an erroneous decision may do damage, even if ultimately overturned. While it would be impossible to demonstrate in this forum all of the problems underlying the court’s decision, we feel compelled to note the following:

The court stated that "the facts relevant to [the claim of breach of fiduciary duty] are largely undisputed," yet failed to heed the most important undisputed fact: Wilson Elser did not represent two parties having adverse legal interests. Rather, the claim concerns the propriety of Wilson Elser doing work for an existing client that was potentially adverse to the business interests of Ulico. This is a question of interest to all lawyers. If, for example, a lawyer assists a restaurant in obtaining a liquor license, does he violate his ethical obligations to that client if he also helps another restaurant on the same street obtain a license? A "competitor" is simply and obviously not an "adversary."

Here’s the rest of the letter.

The NYLJ reports "An attorney who violates the state’s official Codes, Rules and Regulations (NYCRR) by failing to obtain a written retainer agreement or letter of engagement from a client in a nonmatrimonial case can still recover fees, an appeals court held last week in a ruling of first impression.

An unanimous panel of the Appellate Division, Second Department, said its interpretation of the rule, 22 NYCRR 1215.1, would not render it "impotent and unenforceable," as the appellant in Seth Rubenstein, P.C. v. Ganea, 2005-07813, had alleged.

Attorneys who fail to heed Rule 1215.1 place themselves at a marked disadvantage, as the recovery of fees becomes dependent upon factors that attorneys do not necessarily control, such as meeting the burden of proving the terms of the retainer and establishing that the terms were fair, understood, and agreed upon," Justice Mark C. Dillon (See Profile) wrote for the court. "There is never any guarantee that an arbitrator or court will find this burden met or that the fact-finder will determine the reasonable value of services under quantum meruit to be equal to the compensation that would have been earned under a clearly written retainer agreement or letter of engagement."

Since 2002, attorneys have been required to obtain retainer agreements or letters of engagement from all non-matrimonial clients under 22 NYCRR 1215.1, a rule that was created by the four Appellate Divisions (matrimonial cases are governed by a stricter rule, 22 NYCRR 1400.3).

The Second Department examined the implications of the 2002 rule after numerous trial courts reached different conclusions ."