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When a bank’s loans to several borrowers went bad, the bank wasn’t the only one left holding the bag�its lawyers were as well. Affirming $1.4 million of a $1.7 million malpractice judgment against 20 lawyers, the Massachusetts Appeals Court held on Oct. 21 that the attorneys were liable because in addition to representing the bank, they represented the borrowers and a major bank customer who helped arrange the loans. Lawrence Savings Bank v. Levenson, No. 01-P-36. According to the court, Paul Allen was one of Lawrence Savings Bank’s largest and most favored customers. Allen encouraged the bank to hire his friend, Jeffrey Diminico, as a vice president and loan officer. Allen also persuaded the bank to retain Boston’s Davis Malm & D’Agostine for legal work, and the firm represented the bank in most of its major construction and commercial loan transactions. The Davis Malm firm had represented Allen before he began doing business with the bank and continued to represent Allen on various matters at the same time that Diminico was sending bank business to the firm. Davis Malm also represented the bank on several loans where Allen had referred the borrowers to the bank, and where the firm also represented the borrowers, the court said. When five of these borrowers defaulted, the bank sued 20 of the firm’s lawyers, alleging negligence, breach of contract and breach of fiduciary duty. A Salem, Mass., jury found for the bank on four of the five loans, awarding damages to the bank on three of them, but it also found that the bank was comparatively negligent in some of the transactions. The trial court denied the attorneys’ motion for a judgment notwithstanding the verdict, entering a $1.7 million judgment, encompassing lost principal and the bank’s cost of providing the funds. While the appeals court reversed the “cost of funds” part of the award, holding it was duplicative of statutory prejudgment interest, it rejected the lawyers’ argument that Diminico’s knowledge should have been imputed to the bank. Upholding the balance of the judgment, the court said that evidence was sufficient for the jury to find that Diminico was a “faithless agent,” and that the lawyers “were well aware that many of Diminico’s and Allen’s actions were adverse to the bank’s interests.”

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