Although it is uncommon to ignore legal precedent, it does happen from time to time when it is outdated, no longer applicable or due to the political/philosophical makeup of the presiding judiciary.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.

Prudent professionals maintain different types of insurance to protect against various risks. Some typical policies for professionals may include D&O, cyber, and/or E&O policies. The foregoing policies and others may overlap, while others allow gaps for claims that would not be covered. It is incumbent upon each professional to purchase the perfect mix applicable to her practice; there is no one size fits all and more is not necessarily sufficient. Although multiple policies may fit together seamlessly to form a safety net, other policies allow for gaps in coverage that could result in out-of-pocket exposure.

Professionals may assume that multiple policies working together will afford them coverage from all claims. Wrong. Professionals should be cautious that policies do not leave holes. Consider, for example, a consumer services company that is sued for alleged violations of state unfair business statues for misleading advertising claims. The company maintains both D&O and E&O coverage, and tenders the claim to each carrier. Instead of receiving “double” coverage, the employer soon learns that the D&O insurer has rejected that claim because it falls within its “professional services” exclusion, while the E&O carrier avers that the claim is a non-insured wrongful act, which falls outside the scope of its narrowly defined “professional services” provision.

While it is impossible to foresee every type of claim, professionals can take steps to protect themselves from gaps in coverage when negotiating their D&O and E&O policies. Specifically, when possible, the company should review the language of each policy together to ensure that the D&O “professional services” exclusion is clearly defined and is no broader than the definition “professional services” covered under the E&O policy.  Additionally, the insured professional should be sure to scrutinize how each policy interacts and clarify which policy has priority under particular circumstances. By taking steps in advance to clarify and coordinate policies, professionals will be in a better position to respond to a potential claim.

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.

Did you know that approximately 55,000 attorneys will face an allegation of Professional Liability this year?   As professional liability is our speciality, we thought we would share some insight into professional liability litigation and where your firm can help prevent it.

Litigation Statistics

  • More than 70 percent of reported claims arise from firms with less than five attorneys.
  • One out of every five claims is initiated by a non-client.
  • Claim damages of over $2 million have doubled in frequency since 2010.
  • Damages are paid on 1/3 of all claims.

Alleged Errors

  • Failure to Know (11.3%) – This category applies where the attorney was unaware of the legal principles involved, or where the attorney did the research but failed to ascertain the appropriate principles.  The category also applies where the lawyer simply fails to see the legal implications of the known facts, such as where the attorney knows the client has children who are not to receive anything under the client’s will, but fails to recognize the requirement that the children be mentioned in the will.
  • Planning Error (8.9%) – This category applies, for example, to a contested proceeding where a lawyer has an adequate knowledge of the facts and legal principles and makes an error in judgement as to how the client’s matter should be handled. The cases here are those involving allegedly wrong decisions where the lawyer knows the facts and law.
  • Inadequate Discovery/Investigation (8.8%) – This category includes cases where the claimant alleges that certain facts which should have been discovered by the attorney in a careful investigation or in the use of discovery procedures were not discovered or discerned.
  • Failure to File Documents Where No Deadline is Involved (8.6%) – This category applies when there is no deadline by which an act has to occur to be effective, but rather where the filing of a document or notice is necessary to perfect a client’s interests against the claim of another party. A typical example is the requirement for filing of a mortgage on real estate to protect the priority interest of the mortgagee against those acquiring a subsequent interest.
  • Failure to Calendar Properly (6.7%) – This category covers the situation where the lawyer was aware of the existence of a time deadline and what it was, but did not initiate any kind of calendar entry as a reminder to himself or others in the office.

Riskiest Areas of Practice

The following areas of practice are the  most likely to be involved in a claim:

  • Real Estate
  • Collection/Bankruptcy
  • Corporate & Securities
  • Litigation Defense
  • Personal Injury
  • Trusts & Estates
  • Business Transactions/Commercial Law
  • Intellectual Property

Moonlighting is the practice of working for more than one employer or working for yourself while working for an employer.  Attorneys who moonlight may be asking for trouble. Many employers have policies forbidding the practice, some going so far as to deem it grounds for immediate termination. A recent case provides an extreme example of moonlighting at its worst.

The debacle arose when a client brought a malpractice suit against two attorneys employed by a law firm. The plaintiff claimed that she was directed to pay retainer fees to an entity set up by her attorneys, thereby diverting fees from the law firm.  In the wake of the suit, the attorneys resigned. The case is a severe example of moonlighting gone wrong; indeed, the attorneys were in a sense stealing from their employer.

However, other cases may present trickier situations.  What if you practice law and develop real estate on the side and want to refer firm clients to the real estate gig? Can you draft a will for your great-aunt, without involving your firm?  Can you collect referral fees without involving your employer? These may be examples of moonlighting, and the above case demonstrates such “side jobs” may become a dangerous business.  Here are some things to keep in mind if you are asked to do legal work outside of your firm’s purview.

Colossal Conflicts. Firms expend significant resources to identify and deal with any potential conflict quickly and in accordance with ethical and statutory mandates.   Moonlighting is done off the firm’s radar and outside their control, which may lead to you retaining your own “client” who may have several and/or significant conflicts with existing or potential firm clients.  Imagine your firm’s reaction if it loses a major client when that client finds out it was adverse to the client you took on your own.

Rogue and Responsible. You likely will not escape personal liability if the moonlighting sours.  In fact, if it does, your firm may claim its insurance is not on the hook, leaving you to fend for yourself financially.  Further, your firm can pursue you for any damages it sustains.

Slippery Side Shops. Watch out when referring clients from your firm to any law-related business in which you have an interest. Rule 5.7 requires that you advise this client that the law-related services are not legal and do not entail attorney-client protections, and further requires that you disclose your interest in the law-related business to the client and obtain written consent.