Conflicts, Mistakes Drive Legal Malpractice Claims

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By Elizabeth J. Cohen

Conflicts of interest are the largest source of malpractice claims for large firms, whereas small to medium-sized firms most often get sued for substantive mistakes, according to a panel at the 17th annual Legal Malpractice & Risk Management conference in Chicago Mar. 6.

And whatever the reason for the claim, causation tends to be the most hotly contested issue in recent big-ticket malpractice cases.

Eileen R. Garczynski reviewed the claim statistics from two different studies, one focusing on small to mid-size firms and the other focusing on mid-size to large firms. Garcyznski is senior vice-president at insurance brokerage Ames and Gough.

Data on small to mid-size firms came from the ABA’s Profile of Legal Malpractice Claims, a study done every four years by the ABA Standing Committee on Lawyers’ Professional Liability. See 28 Law. Man. Prof. Conduct 574, 9/12/2012. The most recent survey was released in 2015 and covers 2012–15.

Statistics on mid-to large-sized firms came from Ames & Gough’s own 2017 claims study, using data from 2016. Ames & Gough conducts an annual poll of insurers for mid-size to large firms; see 31 Law. Man. Prof. Conduct 432, 7/29/15.

Frequency and Severity of Claims

Nine hundred and forty: that is the percentage by which claims costing between $1 million and $5 million to defend and indemnify rose from 2011 to 2015, according to the ABA survey. And the number of claims costing more than $5 million to defend and indemnify? There is no percentage – the absolute number went from zero to 28. (But at the other extreme, the number of claims costing $5,000 or less to defend and indemnify has decreased a bit.)

Ames & Gough’s survey of insurers of mid-size to large firms showed that claims frequency didn’t change much from 2015 to 2016. “Claims went up after the downturn of 2007–08,” Garczynski explained. “They’ve levelled off since then, but they are nowhere near as low as they were before the recession.”

Practice Areas

Which areas of practice generate the most claims against smaller firms? A poll of the audience predicted it would be trusts and estates, but the ABA study showed trust and estates generating only 12 percent of the claims. Plaintiffs’ personal injury work generated almost one fifth of the claims in the 2015 study, followed by real estate and family law. Real-estate claims actually dropped: “After the 2011 study,” Garczynski explained, “real-estate claims were up, but most of them had gone through the system by the time of the 2015 survey,” so plaintiffs’ personal injury regained its traditional top spot.

“Many are predicting that family law will be the next” practice area to see an increase in claims, Garczynski noted.

In larger firms, business transactions generate far and away the majority of claims. The audience correctly predicted this one. “We are seeing more claims for scrivener error and for breach of fiduciary duty,” Garczynski said. And transfers of wealth within the U.S. will probably mean an increase in trusts and estates claims in the next few years, she added. “Trusts and estates practice requires knowing who is the client is and who is not the client, and who speaks for the client.”

Substantive Errors

For small to mid-size firms, the type of error most frequently alleged is a failure to know or properly apply the law, but for larger firms the overwhelming issue remains conflicts of interest. Whether a conflict is the result of an acquisition, a merger, or a lateral hire, firms are often “slow to pull the trigger,” Garczynski explained.

Claims due to lateral hires are increasing, she said. They involve conflicts, inadequate training, or work being done for old clients at the new firm. “The lawyer writes one last letter to the old-firm client,” Garczynski said, “but uses new-firm letterhead.” She added that “things get worse when there’s a bad e-mail.” For example, a group of laterals brings an old-firm client to a new firm, and lawyers at the new firm write memos to the effect that they “shouldn’t be handling it.”

What Gets Litigated

“Causation is where the litigation tends to go,” moderator Thomas P. McGarry of Hinshaw & Culbertson LLP said as he turned to the case law.

“You couldn’t have gotten a better deal on these facts” was McGarry’s shorthand version of the lawyers’ successful causation defense in Saluja v. Schwartz , 2017 BL 83488, Mich. Ct. App., No. 330367, 3/16/17 .

Dr. Saluja called her law firm for advice when DEA agents were at her office investigating how many times she had prescribed fentanyl for a colleague’s mother. She handed her telephone to the DEA agent so the lawyer and the DEA agent could speak. When the agent gave the phone back to her, the lawyer told her to “go ahead with it”—meaning to comply with the investigation. The doctor accordingly produced the file the agents wanted, and signed a voluntary surrender of controlled substances privileges form. She ultimately settled for a three-year restricted period.

But she came to feel she could have gotten a better deal if she had not cooperated and had not signed the form, so she sued her lawyers for not telling her she was not required to comply with the investigation. One of her experts [on standard of care, the court noted, and not on DEA decision-making] testified there was “a good chance” she could have “kept her registration intact” if, for example, her lawyer had advised her to reschedule the interview with the DEA so she could have counsel present. McGarry emphasized that although the expert testified she should have been advised to hold onto her privileges as a bargaining chip, he also testified he could not say for sure what the outcome would have been if she had.

The court discounted the testimony as speculation and conjecture and granted the lawyers’ motion for summary disposition. It found “no evidence from the pertinent decision-makers—namely, anyone at the DEA” that things would have gone differently if she had not initially voluntarily surrendered her registration.

The court of appeals affirmed on causation grounds. It noted that the colleague, whom the DEA also investigated, had not surrendered his DEA registration but had ended up with a similar restricted-license deal: “Thus, the two doctors, one with said ‘bargaining chip’ and one without, each received similar three-year restricted license deals.”

In Brooks v. Lemieux , 2017 BL 87462, Me., Docket: Cum-16-86, 3/21/17 , Brooks alleged that Lemieux, who had represented him in his unsuccessful employment discrimination case, had committed malpractice by failing to comply with filing deadlines and local rules. Brooks also argued he had a viable retaliation claim but Lemieux had brought a discrimination claim. The trial court refused to consider Brooks’s expert’s affidavit as to causation, and granted LeMieux’s motion for summary judgment.

The supreme judicial court ruled that the affidavit was “fatally deficient” anyway, so refusal to consider it was harmless error. The affidavit listed Lemieux’s breaches of the standard of care before “baldly stating that had those breaches not occurred, Brooks would have defeated the motion for summary judgment.” Because the expert had not cited evidence establishing how the breaches were material to the outcome, McGarry explained, Brooks had not made a prima facie showing of causation to defeat the summary judgment.

McGarry urged the audience to compare Saluja with Starwood Mgmt., LLC v. Swaim , 2017 BL 345636, 530 S.W.3d 673, Tex., No. 16-0431, 9/29/17 , a case that “stretches the conclusory line,” as the panelists put it in their materials. Panelist Marjorie Salem Hensel of Bush Ross, P.A. in Florida explained that the attorney/expert’s affidavit in Starwood asserted that had the lawyer followed a particular procedure, the other side “likely would have yielded.” The trial court and the court of appeals rejected the affidavit as conclusory, but the Texas supreme court reversed and held it was enough to counter the defendant’s summary judgment motion.

The DEA had seized seven Gulfstream jets belonging to a charter aircraft company called Starwood. Starwood’s insurer hired Crow to recover six of them, and Swaim to recover the other one. Crow succeeded but Swaim did not. Starwood sued Swaim for malpractice and used Crow’s affidavit to establish causation. Hensel summarized Crow’s affidavit: “I did it; why couldn’t you?” But the trial court and the intermediate appellate court held this was not enough to establish causation; Crow should have made a case-by-case comparison between the facts in the cases he handled and the facts in the case Swaim handled.

The Texas supreme court unanimously reversed: “Had the summary judgment evidence shown that Crow was successful in recovering some of the airplanes but not others, then a more detailed analysis of the merits might have been necessary. But this affidavit, on these facts, only asserts that had Swain challenged the seizure by complying with the notice requirements” rather than by petitioning the DEA for remission “the DEA likely would have yielded as it did in the other cases.”

The panelists also discussed the Seventh Circuit’s treatment of causation in West Bend Mut. Ins. Co. v. Schumacher , 2016 BL 425788, 844 F.3d 670, 7th Cir., No. 14-2731, 12/21/16 . There Judge Posner ruled that the insurer never gave enough specific information about how it could have defended the worker’s compensation case had its lawyer, whom it was suing for malpractice, acted differently. A “rather extreme” conclusion, given that the lawyer admitted liability and “basically didn’t defend,” McGarry said. See Proximate Causation Is Key in Legal Malpractice Cases, 33 Law. Man. Prof. Conduct 149, 3/22/2017 for discussion of West Bend.

McGarry emphasized that jurisdictions can differ on how they treat causation in legal malpractice cases. Hensel agreed: “Getting a summary judgment in Florida is very difficult—the judge finds causation is not clear, so there’s no summary judgment.”

Nonclients

Can the lenders sue the borrower’s law firm over what the court called “a $1.5 billion [with a ‘b’] mistake” in a secured loan closing? Only if the primary purpose of drafting the documents was for the benefit of the borrowers, the court ruled in Oakland Police & Fire Ret. Sys. v. Mayer Brown, LLP , 2017 BL 222907, 861 F.3d 644, 7th Cir., No. 16-2983, 6/28/17 . As Hensel put it, “When is a document deemed your own, and when is it deemed something for the other side?” The court rejected the lenders’ attempt to analogize the loan documents to an opinion letter that is prepared for the benefit of a third party and therefore an exception to the “primary purpose” rule. The court held that the plaintiffs, whose interests in the collateral securing one loan to General Motors, the borrower, were accidentally terminated because of a mistake in the closing papers for another deal between them, could not sue GM’s lawyers for their losses.

“During the drafting process a document goes back and forth. Just because you’re holding it at the end you’re not necessarily liable,” Hensel explained.

Emailing and Texting

“Are you seeing more claims arising from emails?” McGarry asked as the panel concluded.

Yes, Garczynski said. And some younger lawyers and younger clients prefer to text each other. “Folks tend to be more colloquial” in emails and text messages, she said, mentioning a case in which one lawyer’s emails to another referred to the client insultingly.

“Every case that could be bad is worse once you find this kind of discovery,” she warned.

To contact the reporter on this story: Elizabeth J. Cohen at liz.cohen@americanbar.org

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bloomberglaw.com

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