The Blog of the Legal Times reports on a legal malpractice trial in the U.S. District Court for the District of Columbia (No. 05-1826) in which the plaintiff, the Nobel prize winning economist Joseph Stiglitz, has sued his former divorce attorney. Judge Leon is presiding over the trial.
In Hillbroom v. PricewaterhouseCoopers LLP, No. 10-CV-92 (D.C. April 7, 2011), the D.C. Court of Appeals reversed the dismissal of a lawsuit against a tax attorney and an accounting firm for professional negligence, breach of contract and breach of fiduciary duty. The alleged negligence was the failure to timely file a formal claim for refunds for federal estate taxes paid on an estate worth approximately $353 million. The trial court granted the defendant's motion to dismiss under Rule 12(b)(6) based on statute of limitations grounds. The D.C. Court of Appeals reversed.
The defendants moved to dismiss based on the three year statute of limitations under D.C. Code sec. 12-301, arguing that the period of limitations began to run at the latest by Dec. 10, 2002, when plaintiffs retained new counsel and admittedly were aware that the defendants had missed the tax refun filing deadlines. The trial court agreed with that, and further found that the plaintiffs suffered a separate injury at the same time when they incurred additional litigation expenses.
The Court of Appeals reversed, noting that D.C. precedent contemplates a flexible, case-by-case approach to determining when the period of limitations began to run. Here, the statutory deadlines for filing formal claims for federal estate tax refunds are subject to various exceptions. The Estate had utilized an informal refund claim, for which there is legal authority. The Court therefore reasoned that without reviewing the Refund Claim Memorandum and an expert opinion -- neither of which were in the record -- it could not say "whether the parties might reasonably have regarded the memorandum as comprehensive enough, specific enough, and clear enough to preserve all the claims at issue."
The Court concluded that neither from the face of the Complaint nor from the undeveloped record can it fairly be said that, for statute of limitations purposes, plaintiffs must be charged with knowledge of their injury when the deadlines for filing of the formal refund claims passed.
The Court, however, disagreed with the plaintiffs' argument that their cause of action did not accrue until they settled the refund claim with the IRS. Rather, the Court held that at the latest, the plaintiffs knew or should have known of their injury -- and their cause of action accrued -- when they learned of the IRS's definitive position disputing the allowability of the refund claims not filed by the statutory deadline. However, the appellate record did not show when the IRS asserted its position. That determination must be based on a fuller record.
The Court also found that the retention of new counsel did not necessarily mean that the plaintiffs sustained injury at that time based on the alleged negligence, because it was possible that the new lawyers were charged with completing work that the defendants had not yet performed. The Court found that the record was insufficient on this point as well.
Thus, the end result of the motion to dismiss in this case was that the defendants incurred all the litigation expenses of the motion and the appeal, and now find themselves remanded to the trial court for further proceedings. In the process, plaintiffs' counsel have acquired a blueprint of the intricacies of the statute of limitations defense prior to discovery. This is not to be critical in the least of the defendants or the defense attorneys for choosing to file the motion to dismiss, which after all was initially successful and resolved a multi-million dollar claim.
Rather, this case illustrates the difficult tactical decisions that must be made by the defense as to how and when to file a dispositive motion. One lesson is that in very technical areas of the law, such as tax or patent law, the question of when a cause of action for legal malpractice accrued for limitations purposes should be the subject of early review by an expert in the field, even when there seems to be strong grounds for a motion to dismiss. There is also a risk/benefit analysis that must be made in each case, weighing the liability exposure of the claim, the chances of success of the motion, and in some instances the possibility that disclosure of the defense will lead to a reasonable settlement, against the costs of the motion and subsequent appeal, and the risk that by fully disclosing the theory of defense, if the motion is denied it might make any subsequent depositions less productive for the defense.
In Minnesota Lawyers Mutual Ins. Co. v. Antonelli, Terry, Stout & Kraus, LLP, No. 1:08-CV-1020 (E.D. Va. Nov. 18, 2010), the Court granted the insurer's motion for summary judgment concerning insurance coverage for the "Blackberry malpractice case."
In the "Blackberry malpractice case", which is pending in Florida, the plaintiffs claim that alleged breaches of duty by the defendant law firm and attorneys prevented them from receiving any share of the settlement of NTP's patent infringement claims against RIM concerning Blackberry wireless messaging technology. NTP's suit against RIM resulted in a $612.5 million settlement, and one of the defendant attorneys is alleged to have received $177 million of the NTP settlement proceeds.
In the coverage action, the Eastern District of Virginia based its ruling on the business enterprise exclusions in the policy, which relieved the insurer from its duty to defend the insureds in the underlying malpractice case.
Essentially, the Court found that the malpractice claims arose out of legal advice rendered by the insured attorneys; that the insured attorneys rendered these services in connection with the Telefind, Flatt Morris, and NTP enterprises; and that Flatt Morris and NTP were both owned, controlled, or managed by the Insureds. The damages alleged in the malpractice action resulted from a conflict of interest between the insureds and the plaintiffs, who claimed an interest in NTP, Telefind, and Flatt Morris. Therefore, the business enterprise exclusions applied.
There was also a Specific Entity Endorsement in the policy, excluding:
Any CLAIM resulting from any act, error or omission arising out of rendering or failing to render PROFESSIONAL SERVICES to or on behalf of the following individual(s), business enterprise(s) or organization(s): "NTP Incorporated"
However, and somewhat curiously, due to the ruling based on the business enterprise exclusions, the Court did not reach the issue whether the Specific Entity Endorsement barred coverage.
This coverage decision has been appealed to the 4th Circuit, which will be the second time the case has reached the 4th Circuit.
More background concerning this decision, and judicial interpretatioin of business enterprise exclusions in LPL policies, is available here.
A recent opinion from the U.S. District Court for the District of Columbia, Hickey v. Scott, 738 F.Supp. 2d 55 (D.D.C. 2010), illustrates how litigation can escalate. In this case, a lawyer successfully represented the client in an EEOC sexual harassment suit. Afterwards, a dispute arose as to the amount of the lawyer's fee.
The lawyer, acting pro se, sued the former client for breach of contract and imposition of a constructive trust. The former client, acting pro se, filed an answer with several counterclaims. Later, the former client retained counsel, and thereafter filed an amended answer along with counterclaims for professional negligence, breach of fiduciary duty, and violations of the D.C. Consumer Protection Procedures Act. The lawyer then answered and filed his own counterclaims against the former client, alleging fraud, abuse of process, and conversion.
Subsequently, in the words of Judge John D. Bates, "[t]he parties fought over almost everything." In resolving cross motions for summary judgment and cross motions for sanctions, the Court ended by awarding Rule 11 sanctions to the former client, and against the lawyer, as a result of the lawyer's counterclaims for fraud and abuse of process. With regard to the abuse of process claim, the Court wrote that:
[A]n ulterior motive by itself is insufficient to sustain a claim for abuse of process. See Scott v. Dist. of Columbia, 101 F.3d 748, 755 (D.C. Cir. 1996) ("As the Restatement of Torts makes clear, the fact that a person acts spitefully, maliciously, or with an ulterior motive in instituting a legal proceeding is insufficient to establish abuse of process."); Morowitz, 423 A.2d at 198. And despite [the lawyer's] speculation, there is no evidence that, through this litigation, [the former client] has "achieve[d] . . . some end not contemplated in the regular prosecution of the charge," or has engaged in a "perversion of the judicial process." Morowitz, 423 A.2d at 198. Hence, summary judgment is appropriate for Scott on this counterclaim.
The Court cited to the case of Houlahan v. World Wide Ass'n of Specialty Programs & Schs, 677 F.Supp. 2d 195, 199 (D.D.C. 2010), which is discussed here.
Interestingly, the retainer agreement between the lawyer and the former client had provided, among other things, that "[a]ny dispute by [the former client] regarding the amount of the monthly statement or procedure for handling the case must be made in writing within 30 days of rendering the statement or the existence of a litigation problem or be waived." Subsequently, the lawyer claimed based on this that the former client had waived her right to sue him for legal malpractice. The former client argued that that portion of the retainer agreement is unenforceable. The Court ruled as follows:
The Court agrees. "It is accepted law that `a promise or other term of an agreement is unenforceable on grounds of public policy if . . . the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.'" See Jacobsen v. Oliver, 555 F. Supp. 2d 72, 79 (D.D.C. 2008) (quoting Restatement (Second) of Contracts § 178 (1981)). Contractual provisions that violate the attorney's rules of professional conduct undoubtedly fall into this category. See id. ("It certainly is true that the former clause could not be enforced in light of D.C. Rule of Professional Conduct 1.2(a), while the latter could not be enforced in light of D.C. Rule of Professional Conduct 1.16(a)(3)."). The D.C. Rules of Professional Conduct provide that a lawyer shall not "[m]ake an agreement prospectively limiting the lawyer's liability to a client for malpractice." D.C. Rules of Professional Conduct 1.8(g)(1); see In re Douglass, 859 A.2d 1069, 1083 (D.C. 2004) ("Rule 1.8(g)(1) flatly prohibits a lawyer from attempting to limit his malpractice liability to a client for services to be rendered in the future."). Thus, paragraph nine's waiver provision cannot be enforced to preclude Scott's malpractice claims
Virginia Supreme Court affirms summary judgment in favor of law firm accused of appellate malpractice
In Wintergreen Partners, Inc. v. McGuireWoods, LLP, the Virginia Supreme Court considered allegations of legal malpractice in an appeal. The Court considered the issue whether the trial court erred in ruling that the client could not prove, as a matter of law, that the judgment against it would have been reversed if a timely appeal had been filed.
The problem with the appeal arose because appellate counsel for Wintergreen failed to ensure that the trial transcripts were timely filed. Because the issues on appeal required consideration of the transcripts, the Court dismissed Wintergreen's petition for appeal. (There is a prior post on this blog about this case.)
The Court reaffirmed its prior holding that, with respect to legal malpractice claims involving an appeal, the standard of review is whether the client can prove that, had a timely appeal been filed, as a matter of law the judgment against him would have been reversed.
Wintergreen claimed that that standard could be met here, because the jury found against Wintergreen while at the same time finding in favor of the two Wintergreen employees directly involved in the accident. Wintergreen argued that that was an inconsistent verdict.
The Court rejected this argument, on the grounds that here, the jury was given instructions that allowed it to assess Wintergreen's and the employees' liability separately. Thus, there was an independent basis of liability against Wintergreen, under which Wintergreen could be liable for tortious acts or omissions in addition to and independent of the acts of the two employees. The Court concluded that reversal would not have been required as a matter of law had the petition for appeal not been dismissed.
Failure to order complete trial transcript results in dismissal of Virginia appeal of $8.3 million verdict
A simple clerical error -- failing to order the complete trial transcript -- resulted in the dismissal of the Virginia appeal of a $8.3 million verdict and also spawned two other lawsuits. These events and their consequences are worth reviewing, as many lawyers will have to admit "there but for the grace of God . . . ."
A 17 year old girl sustained severe injuries, including brain injuries, when skiing in Virginia. Essentially she collided with a snow grading machine that was being driven up the intermediate slope to reach a snow tubing run. On July 16, 2004, after a week long trial, a jury returned a verdict in the amount of $8.3 million against the resort.
The defendant and its insurer certainly anticipated a possible bad result, as they retained prominent appellate counsel shortly before the trial had even begun.
An appeal was noted to the Virginia Supreme Court. Somehow, someway, at least one trial transcript was apparently not timely filed on the appellant's behalf. For that reason, the Virginia Supreme Court ultimately dismissed the appeal in July 2005.
Subsequently, the insurer of the ski resort filed a legal malpractice suit against the trial defense counsel in the Circuit Court for the City of Richmond in July, 2007. Shortly thereafter, the case took on political overtones, as it was revealed in a newspaper story that one of the attorneys involved in the failed appeal was under nomination to the U.S. Court of Appeals for the Fourth Circuit.
On September 10, 2008, one of the defendants in the legal malpractice case filed his own suit against the involved insurers and their counsel, for defamation, abuse of process, and conspiracy to injure the plaintiff in his business. Essentially, he claimed that he had no involvement in the post-trial matters in the skiing accident case, since it was all turned over to appellate counsel.
The latter suit was recently dismissed on Jan. 6, 2009 by U.S. District Court Judge Norman K. Moon, in part due to the absolute litigation privilege and the statute of limitations.
An appeal was taken to the Fourth Circuit concerning the latter ruling. Apparently while on appeal, a settlement was worked out, and as part of the settlement it was agreed that there would be a vacatur of Judge Moon's opinion. Judge Moon, however, denied the request for vacatur.
Meanwhile, the legal malpractice suit arising from the failed appeal was non-suited on March 30, 2009.
The most recent issue of the Solicitor newsletter is out, featuring a review of the professional liability insurance market for attorneys, and an article reviewing legal calendaring programs. The author likes "Deadlines on Demand", which is a web service that provides calendaring information.
D.C. Court Appeals Affirms Summary Judgment In Legal Malpractice Case Where Plaintiff Failed to Identify An Expert Witness
The D.C. Court of Appeals has recently affirmed a decision by the trial court which granted summary judgment in a legal malpractice case, on the grounds that the plaintiff failed to name an expert witness.
Disclosure: This case was defended by one of my partners, David P. Durbin, who has defended many legal malpractice cases over the years.
Legal Malpractice Insurer Wins Summary Judgment in Rescission Action Based on Material Misrepresentations in the Application for Insurance
Applying Virginia law, the U.S. District Court for D.C. granted summary judgment to a professional liability insurer in a rescission action brought against a law firm based on misrepresentations in the application for insurance. The law firm had failed to disclose the existence of a potential claim, which was evidence by a letter from the claimant which announced the intent to bring a claim.
The opinion summarized Virginia law concerning rescission based on a material misrepresentation in the application for insurance.
Man Bites Dog story -- D.C. Law Firm's Default Judgment Against Former Client for Unpaid Legal Fees Is Upheld
Even in D.C., sometimes (but rarely) default judgments are upheld. In a recent case, a law firm's default judgment against a former client for roughly $55,000 in legal fees was upheld.
Generally, law firms are well advised not to bring suit to collect unpaid fees, because more often than not, there follows a counterclaim for legal malpractice. On the other hand, sometimes law firms decide that if the word on the street is that they will not sue to collect their fee, the problem of uncollected receivables will get out of hand. It probably is an issue that is debated from time to time in most firms.