Author: Aaron Johnson

It should be no surprise that attorney/client communication errors are the leading cause of malpractice claims.  In fact, over the last decade, more than one-third of malpractice claims are caused by some communication error.

There are three types of communication-related errors. The most common is a failure to follow the client’s instructions. Often these claims arise because the lawyer and client disagree on what was said or done – or not said or done. These claims tend to come down to credibility, and the case will typically come down to how well the attorney documented his or her file on the matter in question.  Without significant notes or documentation, the chances for the attorney to win decrease significantly.

The second most common communication error is a failure to obtain the client’s consent or inform the client. These claims involve the lawyer doing work or taking steps on a matter without client consent (e.g., seeking or agreeing to adjournment; making or accepting a settlement offer); or failing to advise the client of all implications or possible outcomes when decisions are made to follow a certain course of action (e.g., pleading guilty on DWI; exercising a shotgun clause).

Poor communication with a client is the third most common communication error. These claims often involve a failure to explain to the client information about administrative things such as the timing of steps on the matter or fees and disbursements. This type of error also arises when there is confusion over whether the lawyer or client is responsible for doing something during or after the matter (e.g., sending lease renewal notice to the landlord, renewing a registration, or filing).

On top of being the most common malpractice errors, communications-related claims are also among the easiest to prevent. You can significantly reduce your exposure to this type of claim by controlling client expectations from the very start of the matter, actively communicating with the client at all stages of the matter, creating a paper trail by carefully documenting instructions and advice, and confirming what work was done on a matter at each step along the way.

Law firms are being targeted more and more for cyber attacks, as was evidenced by a recent attack on 50 prestigious law firms targeted by Russian hackers.  The targeted firms tended to be transactionally oriented; the hackers’ apparent plan was to obtain confidential, market-moving information and trade on it.

To help keep your firm safe, here are five tips to keep your firm safe.

1. Backup, backup, backup — early and often.

You need to have your data backed up if you suffer some misfortune, such as a fire or flood in your office or a massive hack of your computer system. Backing up to the cloud is an increasingly popular option, but be careful when selecting a service. Some services are more vulnerable than others.

2. Use two-factor authentication.

Two-factor authentication is an increasingly popular and effective way to protect the security of online accounts.  Yes, it can be a pain since it’s slower and more cumbersome than simply entering a single password. But the security it offers can be extremely beneficial.

3. Consider using a password manager.

Ideally, it would be best if you had a different password for everything you log into.  Most often, though, that’s simply not practical.  Password managers can help keep your passwords organized and secure.

4. Educate your colleagues about cybersecurity.

You might be savvy about cybersecurity, but all it takes is one weak link in your organization to throw your computer system into chaos. For example, a Florida firm was recently hacked after a secretary clicked on an email attachment labeled “résumé for your review,” but it was actually malware.

5. Don’t let the perfect be the enemy of the good.

Unfortunately, you can never be 100 percent secure. A good starting point is assessing your computer systems to figure out what your potential issues and biggest risk points are. This is what several law firms are now doing in the wake of the hacking reported, often with outside consultants or technology firms’ help.

Lawyers wear many hats; the key is not to wear them all simultaneously.   Many lawyers are well versed in areas outside of the law and can be sources of non-legal knowledge for clients.  However, lawyers need to be mindful when their services extend beyond the traditional landscape of legal advice.  Mixing business interests and legal advice can easily get you in hot water if the transaction goes awry.  Take, for example, the case of Burk & Reedy, LLP v. Am. Guarantee & Liab. Ins. Co., in which a professional liability insurer denied coverage for an attorney involved in both the legal and business aspects of a transaction.

The case stemmed from a failed business transaction.  Plaintiff (an attorney) was a co-managing member with an ownership interest in a Company.   Plaintiff executed an agreement with an outside investor (Investor), whereby Investor was to secure collateral for a loan to the Company in exchange for a percentage of ownership in the Company.  The investor ultimately used his personal property as collateral and secured the loan for the Company.   The Company, however, defaulted on the loan, and the lender foreclosed on Investor’s real property to repay the loan.

The investor sued Plaintiff to recover the money and real property he lost in the business venture, alleging, among other things, that Plaintiff committed legal malpractice.  Investor alleged that Plaintiff provided legal advice in connection with the decision to invest; Plaintiff communicated his consent to act as counsel for Investor concerning obtaining the loan; Plaintiff breached the Rules of Professional Conduct by acting as counsel to the Company while maintaining ownership in the Company, and Plaintiff conducted business with his client, Investor.

Plaintiff was insured under a professional liability insurance policy. The insurance policy specified that the insurer would pay claims “based on an act or omission in the Insured’s rendering or failing to render Legal Services for others.”  However, the policy also contained two important exclusions.  These exclusions precluded coverage for any claims based upon or arising out of 1) the insured’s capacity or status as an officer, director, partner, trustee, shareholder, manager, or employee of a business enterprise and 2) the alleged acts or omissions by any insured for any business enterprise in which any insured has a controlling interest.  The insurance company refused to defend Plaintiff because of these two policy exclusions.

Plaintiff then filed a separate action against his insurance company.  The court found that the malpractice claim clearly fell within the policy exclusions.  As the court stated, the “allegations demonstrate that [Plaintiff] simultaneously wore two hats while advising [Investor] to invest in [the Company]—that of an attorney and that of a managing member of [the Company].”  The court further found that Plaintiff not only provided legal assistance to Investor during the loan application process but also simultaneously engaged in conduct that advanced the business interests of [the Company].  The court concluded the insurer did not have a duty to defend or indemnify the Plaintiff in the underlying action.

This case serves as a good reminder that attorneys need to be cognizant of their ethical obligations at all times.  Failure to recognize when the lines are becoming blurred can not only be an ethical violation but, as in this case, result in a lack of malpractice coverage.

Although it is uncommon to ignore legal precedent, it does happen from time to time when it is outdated, no longer applicable or due to the political/philosophical makeup of the presiding judiciary. Also, new laws can create problems for attorneys.  When the law is clear, an attorney’s obligations are clear – he or she must apply the applicable law to the facts of the case.

What happens, though, when the applicable precedent is overruled altogether?  The attorney cannot be expected to anticipate the change of law, right?

A recent decision holds that an attorney does not have an obligation to anticipate a change in precedent. In Minkina v. Frankl, (Sept. 15, 2014), the Massachusetts Supreme Judicial Court declined to hold that a defendant law firm committed malpractice when it failed to anticipate a substantial change in the law that eliminated the existing precedent.

The Case
In the dispute, the law firm represented a plaintiff in an employment discrimination suit.  At issue was an arbitration provision in the plaintiff’s employment agreement and its enforceability.  The defendant sought to enforce arbitration by pointing out a well-established precedent that supported the provision’s enforceability.  The court ruled in the defendant’s favor and compelled arbitration.

However, after the decision was rendered, the Supreme Court actually changed the associated law thus eliminating the well-established precedent.

After the Supreme Court decision, the plaintiff then sued his former counsel alleging that the firm was negligent in its failure to anticipate the change in law.  The law firm successfully moved for summary judgment using the argument that it had no duty to foresee the changes.  The Supreme Court held the decision on appeal.

The Supreme Court’s decision affirms that attorneys have an obligation to apply the current law, but cannot be expected to anticipate changes to the law or its established precedent.  This is simply too high of a standard to hold an attorney.

What this case does do, though, is highlight the need for attorney malpractice insurance.  While the suit against the law firm held no merit, there were still costs associated with defending the firm.  A solid malpractice policy, in addition to paying any necessary claims, provides all necessary defense costs (above the applicable deductible) to exonerate the accused party.

If you would like find out more about whether or not your policy provides the necessary coverages, please contact our office at (866) 883-1709 to find out more.

The Model Rules of Professional Conduct prevent lawyers from representing conflicting clients.  A conflict of interest may arise when the representation of one client is directly adverse to another client.  Just how far the requirement of “directly adverse” may extend was recently addressed by the Massachusetts Supreme Court in an interesting case involving IP litigation. While one inventor retained Firm to represent him on screwless eyeglass hinges, another inventor had already retained Firm to secure a related patent in the screwless eyeglass market.

Once one inventor discovered that the Firm was also working with a competitor, he filed suit against the Firm, alleging legal malpractice and breach of fiduciary duty.  The Firm moved to dismiss the complaint for failure to state a claim.

The plaintiff alleged that the Firm violated rules of professional conduct, which prevents a firm from representing a client if the representation is “directly adverse to another client.”  Here, the clients were not directly adverse in the traditional sense such that they appeared on opposite sides of the litigation, but rather the plaintiff argued that the Firm’s other client was directly adverse to him because they were competing in the “same patent space.”  The State Supreme Court disagreed.  It found that the inventors were not actually competing for the same patent but rather different patents for similar devices.  This was evidenced by the fact that the Firm was able to obtain patents for both clients successfully.

The court noted that in the area of patent law, the simultaneous representing of clients for competing patents is considered a subject matter conflict, which does not necessarily equal a violation of the Rules of Professional Conduct.  However, it noted that while an actionable conflict of interest did not arise in the instant case, it could potentially arise under different factual circumstances. For example, if both patent applications had been “identical or obvious variants of each other,” then the parties’ legal rights would have been in actual conflict.  In such a case, the Rules of Professional Conduct would have obliged the IP Firm to disclose the conflict or obtain consent from both parties.

The Rules of Professional Conduct clearly prohibit a firm from representing a client, not only in the scenario outlined above, but also when any of the firm’s attorneys would be prohibited from representing that client under the Rules. While the court did not determine that an actual conflict of interest existed in this case, it noted that nothing in the opinion “should be construed to absolve law firms from the obligation to implement robust processes that will detect potential conflicts.” This case serves as a good reminder of the importance of adequate conflict checks for any potential conflict that could arise.  As the court stated, law firms “run significant risks, financial and reputational, if they do not avail themselves of a robust conflict system adequate to the nature of their practice.”

It is not uncommon for lawyers to have different associations with a particular firm. For example, the term “of counsel” is often used to designate a role different from the traditional partner or associate positions.   This may beg the question of what level of involvement an attorney must have to be “associated with” a particular firm for conflict purposes.  A recent case out of the U.S. District Court of New Jersey involving a “seconded” attorney addressed just this issue.

In the underlying suit, Company – a defendant – claimed that one of its former in-house corporate attorneys (“Attorney”) was now employed by the law firm (“Firm”) representing the plaintiff. The company demanded that Law Firm withdraws from the case due to former client conflicts under Professional Conduct Rules. The Law Firm declined and a motion to disqualify ensued.

According to the opinion, Attorney previously worked in-house for Company and handled similar issues to those before the court. Attorney eventually left Company and obtained a job with Law Firm.  As soon as Law Firm hired an attorney, she was “seconded” to one of the Firm’s clients.  “Secondment” refers to the hiring of a lawyer from a law firm on a full-time, priced-fixed basis for a set period of time.  The attorney executed an agreement with the Law Firm, which provided that she shall not continue to work on behalf of the Firm during the term of her secondment.

The company argued that Attorney had a continuing relationship with the Law Firm, so her conflict should be imputed.   The district court first determined that Attorney’s was non-temporary.  The court then found that the Law Firm repeatedly held out Attorney as an “associate of the firm, with no caveats or provisos concerning her secondment or transient status.”  She was listed as an “Associate” on the Firm’s website and was designated to a certain practice group within the Firm.  The Firm had also included the Attorney’s biography when pitching work to other potential clients and reported her as an associate to outside organizations.

As a result, the court concluded that the Law Firm could not “now conveniently eschew that relationship for conflicts analysis.”  The court disqualified the Firm based upon the imputed conflict.

The case serves as a good reminder that firms need to consider all attorneys associated with the firm when conducting a conflict check before accepting a new matter.  Firms need to be mindful of what level of association attorneys in different roles have with the firm and whether they need to be considered in the conflict analysis.  When in doubt, it’s best to address the potential conflict head on and notify the appropriate parties at the outset to avoid any issues down the road.

If you’re a good lawyer, you won’t get sued for malpractice, right?  This belief may be comforting, but it’s a myth. Good (and bad) lawyers get sued. There is no simple way to predict if your client will sue you for malpractice. In order to prepare for the likelihood of malpractice claims, it is necessary to actively engage in risk management.

“Hiring” Clients

Every lawyer approached by a potential client must first ascertain if they have the necessary expertise for the matter. An eager lawyer may be tempted to take on every client, expecting to learn the area of law. This is dangerous behavior in most cases. While it is acceptable for a family lawyer to take on a trust and estates matter that is new to them, it would be foolish to take on a securities matter. Every attorney must identify areas of expertise and interest and “hire” clients in these areas.

Having identified the matter as one in which you have expertise, the attorney must then assess available resources. If the attorney’s calendar is full or if the matter will take too much time, it is best to not take on the client. By taking on the client when you are too busy, you would expose yourself to double the risk, from the client you are short-changing to take on the new matter and from the new client.

Assuming the matter is within your area of expertise and you have the time to take on the client, you must engage in formal checking for potential conflicts of interest. Lawyers must have stringent conflict checks. This is not only a risk management consideration, but also a major factor in ethics rules. Conflicts checking involves not only knowing and applying ethics rules, but also setting up a formal system. Ideally, a computerized system should be used to maintain client and matter lists. Even if the lawyer is a solo practitioner, it is important to set up these systems, not only in anticipation of future growth, but also in realization that your memory will fail you in this crucial area of risk management.

Once a person has passed the conflicts check and you are ready to take them on as a client, the engagement letter and/or fee agreement may also serve as a risk management tool. In addition to clearly setting out the terms of service, the agreement can potentially include fee arbitration and mediation clauses. It is very important to check with your state bar to determine whether these clauses are permissible and the limits on the use of each clause. However, if permitted, lawyers should use these clauses to manage risk. In addition, as clients are often emotional and full of expectations, a law firm should use both dis-engagement and non-engagement letters. It is very important that the client know and understand when you refuse or conclude service.

Handling Cases

Studies consistently show that missed deadlines are a major cause of malpractice claims. Considering the ready availability of electronic tools, caseload management is much easier today. Research the automated docket and calendaring systems available and invest in one that will grow with your practice. In using the system, one person should have specialized knowledge of the available tools.

Insurance Policies

While every lawyer in the firm should read the policy and be familiar with its general provisions, one person should be tasked with maintaining it. This person should know the policy extremely well and he or she should handle all purchase decisions. This person should be the main point of contact with the insurance company. It might be advisable for this person to receive additional training in identifying risks and advising on a recommended course of action.

Finances

Every jurisdiction has clear rules regarding the handling of client finances. The mishandling of client finances is one of the primary causes of malpractice claims. Learn the rules, but make sure you have someone who has specific expertise in this matter. Often, different types of cases allow for different types of financial handling.

Knowing the applicable statute of limitations for your case is critical for every attorney.  In the world of legal malpractice, there are many variables in play: the jurisdiction, the facts, tolling and the extent of the underlying representation. Therefore, it’s important for attorneys to know the various nuances of the statute of limitations doctrine in their jurisdiction.  For this reason, attorneys will want to take note of a recent decision out of the South Carolina Supreme Court that overruled precedent on when a legal malpractice claim begins to run.

In Stokes-Craven Holding Corp. v. Robinson , the plaintiff appealed a dismissal of all legal malpractice claims in favor of a law firm based upon the expiration of the statute of limitations.  Plaintiff – an automobile dealership – was on the wrong end of a large jury verdict. Following the verdict, the dealership appealed to the Supreme Court which ultimately affirmed the jury’s verdict but issued a remittitur, reducing the amount of punitive damages.

It wasn’t until after the court affirmed the jury verdict when the plaintiff filed a malpractice claim against the law firm that represented it during trial.   Defendant law firm filed a motion for summary judgment on statute of limitations grounds arguing that the claim accrued when the jury rendered its verdict and had expired.

On appeal, plaintiff argued it did not know that it might have a claim for legal malpractice on the date the verdict was entered.   The state supreme court overruled prior precedent and held that “the statute of limitations for a legal malpractice action may be tolled until resolution on appeal of the underlying case if the client has not become aware of the injury prior to the decision on appeal.”

The court noted that this new rule provides a threshold limit to the tolling of the statute of limitations while still advancing the purpose of the statute of limitations, which is to protect against stale claims and punish litigants who delay in asserting their rights.

Most jurisdictions allow some form of tolling if the client is not aware of the injury or could not reasonably become aware of the injury.  When and if a statute is tolled often depends on specific facts.  The rule set forth by the South Carolina Supreme Court puts a hard deadline on when the tolling stops and eliminates the room for guesswork as to when the statute begins to run.

Ugh…deadlines. Many classes of professionals are bound by deadlines. Attorneys are no different. Pleading requirements, discovery responses, motions, hearings and other proceedings must all be calendared to ensure that an attorney meets all deadlines. In fact, an easy path to malpractice is to miss a deadline. A recent New Jersey verdict highlights the importance of complying with deadlines and maintaining clear and open communication.

In the underlying case, Plaintiff hired Attorney to pursue an action against a number of parties for their negligence in designing and building a retaining wall needed to support the foundation for Plaintiff’s house. Allegedly, the wall “cracked and bulged” when it was completed causing expensive repairs.  Plaintiff alleged that Defendant Attorney failed to secure an expert by the deadline which resulted in summary judgment on behalf of the construction and design professionals. A malpractice suit followed.

In the legal malpractice suit, Defendant Attorney argued that their expert had “repeatedly promised” to deliver an expert report but failed to timely deliver a report. Attorney claimed that he had conducted most of his communications with the expert by telephone and had no documentation to support his alleged efforts to secure an expert report. As a result, last week a jury returned an $850,000 verdict against Attorney Defendant.

There are some valuable lessons here. Primarily, of course, deadlines must be calendared and adhered to. There are myriad court mandated or statutory deadlines that have real consequences if broken. However, it is often the case that deadlines can be extended through motion practice or agreement of the parties. Thus, communication is key. Attorneys facing deadlines may be in a position to buy more time simply by asking. Finally, if an attorney cannot meet a deadline, the client must be notified and the file documented accordingly to prevent a result similar to the foregoing example.

If someone gets to your information in a disposed piece of equipment, it could get really ugly really fast.  Even worse, there is a good chance the State Bar will consider this an ethics violation for failure to take proper precautions to protect client confidentiality. Malpractice claims are likely to follow suit.

There are several options for safely disposing of old equipment. Most are cheap or free and many options don’t require special software.

WIPING OUT HIDDEN STORAGE

What happens to the data on the copiers, fax machines or printers once they are taken away? Most copier and printer companies now include a hard drive destruction or formatting clause in their equipment disposal portion of the lease. Before your lease is signed, make sure that you understand what will happen to the data stored on those hidden hard drives in the copier. As long as it is part of your agreement that the data will be destroyed, you should feel comfortable with the equipment leaving your premises.

WIPING OUT STORAGE ON ACCESSIBLE HARD DRIVES

If you do have a computer that is less than five years old and you are interested in donating or selling it, you need to take measures to destroy the data on the drive. The options for software available to wipe hard drives can be a bit overwhelming. The list below provides some of the options available and their key differences.

• DBAN (www.dban.org). Overwrites entire drive. DBAN offers a complex variety of data sanitation methods to overwrite existing data. DBAN works by simply burning the download to a CD then booting it and following the easy to use instructions. DBAN makes erasure software for smartphones, tablets, flash drives, and servers. All at no cost to you, regardless of whether it’s for personal or business use.

• HDDErase. Overwrites entire drive. Like DBAN, HDDErase runs as a boot file from a download. HDDErase works from any variety of boot media, from CD to flash drive. HDDErase is available here: http://cmrr.ucsd.edu/people/Hughes/

• zDelete (www.zdelete.com). Overwrites individual files and folders, but not entire drive. This is an electronic shredder type software that conforms to the US. Department of Defense guidelines for media sanitation. The full version of the software ranges from $29-49, for 1 to 3 licenses.

THINGS TO AVOID

Some options that remove data do not permanently delete items from the hard drive.

• Recycle Bin and Empty. This is the equivalent of taking the small trash can under your desk and emptying it into a larger trash can in a common area. The items are somewhere you can’t see them, but they aren’t gone. Perhaps the average user can’t locate them, but anyone with basic tech skills or knowledge to download the right application can quickly recover the files.

• Departitioning or partitioning the hard drive. Consider this to be the equivalent of knocking down a wall. It doesn’t actually destroy what’s on the other side, just rearranges the space. While this is labeled as formatting, your computer doesn’t actually overwrite the data, which means it is recoverable.

HIRING PROFESSIONALS

Properly preparing equipment for disposal can be a daunting task. If you don’t have someone in the office who feels comfortable taking on this responsibility, hire an expert to handle it for you. Hiring a professional will provide peace of mind that an expert will not overlook any critical steps in the data wiping process.

Obtaining professional assistance in equipment disposal is essentially the same as hiring a company for shredding or document storage. You’ll need to obtain a written statement regarding confidentiality, destruction methods, and indemnity should they fail to adequately destroy information.

THE QUICK AND DIRTY

If your firm is not interested in investing the time or money into “refurbishing” old computers, there is a “quick and dirty” option for the destruction of data on a hard drive. All of the data on a computer is stored in a removable hard drive. If the hard drive is removed, the data is no longer accessible. By removing and physically destroying the hard drive (with the equivalent of a sledgehammer), the data and physical hard drive will be destroyed. In most instances, the hard drive can be replaced for less than $100 plus the operating system.