Recent headlines from around the country reveal multimillion-dollar legal malpractice payouts, with firms facing big exposures arising out of predictable and avoidable problems.
These stories are not surprising for regular readers of this column. As reported in many past articles, in a suffering economy, clients and former clients often look to attorneys—who are perceived as having deep pockets—to compensate them for failed businesses, lost homes or risky investments. This year, the number of large verdicts against attorneys confirms the risks of failing to follow effective risk management procedures for avoiding legal malpractice claims.
Notably, these multimillion-dollar payouts reflect trends and risks that can serve as useful tools in designing, implementing and following effective risk management procedures for attorneys. Here are examples with some recommendations for reducing the risk of a runaway jury or an unexpected multimillion-dollar settlement in connection with an avoidable legal malpractice claim.
Reputations mean little to juries
Although smaller firms certainly face the highest frequency of claims, larger law firms continue to face the highest severity of claims. Big firms face big risks. Unfortunately, neither the size of the firm nor the reputation of the attorney provides much insulation from legal malpractice exposure. Some of the bigger verdicts this year were against attorneys with excellent reputations who were part of well-regarded law firms.
For example, a jury in the Washington, D.C., area awarded a $4 million legal malpractice verdict against an attorney repeatedly recognized as one of the best trial attorneys in the Washington metro area. The attorney was a former president of the Association of Trial Lawyers of America and named an attorney of the year by the D.C. Trial Lawyers Association. In spite of his excellent reputation and continued success, he still found himself on the losing end of a malpractice claim.
In another high-profile case, K&L Gates was unsuccessful in its attempt to have a court dismiss a $500 million lawsuit against the firm. Notably, K&L Gates disputes the very creation of an attorney-client relationship giving rise to the litigation.
Oddly, notwithstanding these risks, it is often the most experienced attorneys with the best reputations that skirt firm protocols and ignore risk management procedures. Yet, according to the data, the attorneys who need to strictly adhere to risk management practices and procedures are experienced attorneys with significant clients and significant exposures. Big reputations backed by big firms do little to persuade a jury to find in an attorney’s favor when the rules have not been followed or a mistake has been made.
Conflicts of interest continue
to drive up exposures
Juries do not like conflicts of interest, regardless of how they happen. In fact, even the appearance of a conflict of interest can, and often does, result in some of the largest legal malpractice verdicts.
For example, in October 2013, the Eleventh Circuit upheld a $10 million claim against an attorney who failed to treat escrow funds properly and did not disclose the movement of funds to its insurance company. There were no allegations of fraud or embezzlement—just that the attorney did not follow the proper protocol for managing conflicts.
In addition, a jury awarded $1.2 million against a prominent Florida firm on a claim asserted by the FDIC, where the law firm represented multiple parties in a single loan transaction, resulting in a conflict of interest. Although the firm sought a conflict waiver, it did not properly obtain it.
And a Pennsylvania jury awarded $2.5 million in damages for an impermissible conflict when a firm represented co-agents, where one agent was accused of fraud. The bottom line was the same in each case—juries do not like conflicts of interest.
As these cases make clear, actions alleging a breach of the duty of loyalty result in stiff penalties for attorneys and law firms. There is no good substitute for clear conflict of interest identification procedures and effective protocols for documenting the resolution of identified conflicts of interests. Regardless of the size of the firm or the matter, or the reputation of the attorney handling the matter, effective risk management depends on strict adherence (and, if necessary, enforcement) of these conflict of interest procedures.
Even small mistakes can
cost big bucks
In modern law practice, the time pressures have never been greater, yet the standard of care does not change. Attorneys must perform legal service in accordance with the standard of skill, prudence and diligence commonly exercised by other attorneys. As applied by juries, this means an attorney must focus on the task at hand without the excuse of how busy the attorney is. Against that standard, even the smallest mistake can cost big.
For example, a jury awarded a $4 million verdict against an attorney for drafting a complaint with an errant case style. Once the style was corrected, the statute of limitation had expired and the case was barred —a small mistake (the style of a complaint) causing a substantial verdict.
Unfortunately, this is not an isolated example. In Utah, a jury awarded $12.8 million where a client claimed the attorney failed to keep the client informed as to the risks and options for real estate deals. This was merely a consultation issue, but still resulted in a high verdict.
Similarly, an attorney in Oregon faces a $3.5 million verdict because he failed to turn over notes in discovery that were produced to him by a client. As a complicating factor, the attorney attempted to imply that the client—rather than the attorney—had withheld the documents. Notwithstanding that attempted explanation, the result in that case was a high verdict for what should have been an avoidable mistake. And, if all those examples did not make the point, a Texas attorney must pay nearly $1 million for including the incorrect name on a contract.
But not all of the news is bad. Increasingly, legal malpractice data confirm that effective risk management procedures can substantially reduce these risks. These steps begin with effective client intake procedures and include conflict identification and resolution procedures.
Computers and supporting software with checklists for routine filings in litigation, corporate law and intellectual property prosecution have become an important part of the 21st century law practice. Checklists should include reminders for simple steps that might get overlooked when the attention is on high-level issues. These reminders can include obtaining a proper signature on documents, confirming the filing requirements for the specific courts, or other relevant details.
Obviously, computer systems can be very helpful in avoiding missed deadlines. Docketing software can help ensure that statutes of limitation do not expire without anyone realizing it. Other programs can prevent attorneys from even beginning certain problem representations.
Yet, to be effective, risk management depends on compliance by every attorney in every law firm, regardless of size, experience or reputation. As the verdicts of the last year prove, no attorney is immune from a mistake or a corresponding legal malpractice verdict.
The challenge is to respond to the risk by adapting to the modern-day law practice. In many cases, this depends on some old dogs learning new tricks. The alternative is just too much risk.
J. Randolph Evans and Shari L. Klevens are the authors of “Georgia Legal Malpractice Law,” published by Daily Report Books.