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A decision from the 3rd U.S. Circuit Court of Appeals last Monday provided some guidance on a recurring question: When does a conversation about a potential claim create an attorney-client relationship? In reversing the dismissal of a malpractice claim, the three-judge panel found that attorneys can expose themselves to malpractice liability unless they make it absolutely clear they will not handle the claim. The decision dealt with an existing client who sought advice on an issue related to ongoing litigation. But the court did not rule out that an attorney-client relationship could exist before the attorney is hired. The case, Dixon Ticonderoga Co. v. Estate of William F. O’Connor, No. 99-6054, involved a malpractice claim against Harold Friedman, who was defending Dixon Ticonderoga Co. in a suit over an environmental cleanup. Dixon alleges that in 1989 Friedman discussed with outside general counsel Richard Joyce a possible claim against William O’Connor, over his handling of the sale of the Dixon property that was the subject of the cleanup. Dixon, a Florida pencil maker formerly based in Jersey City, blames Friedman for letting it miss the limitations date against O’Connor. According to the court, Friedman admitted that he told Joyce he doubted the claim had merit and that this probably constituted advice to a client. Friedman also testified that he told Joyce he didn’t like to handle claims against lawyers. He also said, “I’m certainly not going to handle a claim that I don’t think has a foundation.” Friedman acknowledged that he probably billed Dixon for his talk with Joyce and that he never followed up on it. But he disputed Joyce’s testimony that Friedman said he would check to see whether someone else at his firm would take the case. Friedman, now a partner with Newark, N.J.’s Stryker, Tams & Dill, was then a partner with Franzblau Dratch, also a defendant in Dixon. In finding a possible attorney-client relationship on the claim against Friedman, Chief Judge Edward Becker cited Section 26 of the Restatement of Law Governing Lawyers. This provision finds a relationship where “the lawyer fails to manifest lack of consent” to an individual seeking legal services. The court noted that the parties agreed to the Restatement standard. Friedman’s existing representation of Dixon did not of itself create an attorney-client relationship on the claim against O’Connor, the court found. But it was a strong factor in determining “whether Dixon reasonably relied on Friedman to provide such services and whether Friedman knew or should have known that it was doing so,” said Becker. “The fact that Dixon was already relying on Friedman for advice and representation in a closely related matter supports an inference that Dixon expected Friedman to advise it about a potential malpractice action against O’Connor and that Friedman knew or should have known that fact,” Becker added. Another supporting factor was Friedman’s admission that he advised Joyce on the merits of the O’Connor claim, said Becker, who was joined by Judges Thomas Ambro and Walter Stapleton. Friedman also told Joyce that a decision on suing O’Connor could wait because he was still seeking a dismissal of the cleanup suit against Dixon by property buyer Venture Dixon. In light of the existing representation, this could reasonably be understood as “a promise by Friedman to revisit the matter,” Becker wrote. Lisa Brody, a partner with Philadelphia’s Kleinbard, Bell & Brecker who represented Dixon in the 3rd Circuit case, says Friedman relied too much on the fact that he never agreed to litigate the case, ignoring his broader advisory role. According to Brody’s partner, Steven Engelmyer, one way to view the ruling is that “it puts the onus on the attorney to clarify the situation.” The appeals court found there were issues of fact not only about the attorney-client relationship but also about whether Friedman was negligent. Becker contrasted Friedman’s alleged inaction over the O’Connor claim with a lawyer’s “specific duty to research, monitor, and advise … clients about statutes of limitations.” U.S. District Judge Katharine Sweeney Hayden threw out the claim against Friedman in 1999 after finding that, even assuming the existence of an attorney-client relationship, Friedman breached no professional duty. Friedman’s lawyer, Andrew Epstein, a partner with West Orange, N.J.’s Lampf, Lipkind, Prupis & Petigrow, notes that on remand, Sweeney Hayden will have to address an issue she called “problematic” for Dixon but didn’t need to resolve before: whether Dixon had a valid claim against O’Connor so that it was harmed by Friedman’s inaction. Last week’s ruling in Dixon also affirmed District Judge William Bassler’s 1996 dismissal of Dixon’s malpractice claim against O’Connor’s estate as untimely. The case stretches back to 1982 when Dixon retained O’Connor to handle the property sale. O’Connor was a partner at the Jersey City firm Schumann Hession Kennelly & Dorment, also named as a defendant in the case. The firm is now known as Schumann, Hanlon, Doherty McCrossin & Paolino. Between the April 28, 1983, sales contract and the Feb. 24, 1984, closing, the Environmental Cleanup Responsibility Act went into effect on Jan. 1, 1984. O’Connor, who died before Dixon was filed, apparently never mentioned ECRA to Dixon. The company said it first learned that ECRA applied to the transaction from Friedman in late 1984 or early 1985. The buyer, Venture Dixon, wrote to Dixon in 1985, demanding that Dixon comply with ECRA. Friedman wrote back on Oct. 21, 1985, but the court did not state the contents of the letter. Venture cleaned up the property and sued Dixon for the cost in May 1986, obtaining a $3 million verdict against Dixon in 1991. The 3rd Circuit found Dixon’s claim against O’Connor accrued no later than Oct. 21, 1985, and expired by October 21, 1991, well before Dixon sued O’Connor and Friedman in Hudson County Superior Court in March 1996. The 3rd Circuit held that Dixon knew by Oct. 21, 1985, of O’Connor’s negligence and that it had been harmed as a result. The harm was the legal fees Dixon incurred in responding to Venture’s ECRA-related demands. Becker’s opinion characterizes the nature of O’Connor’s alleged malpractice as “critical” to when the clock started running. Because it was not a case of bad advice but of the failure to mention ECRA, Dixon did not have to await the eventual verdict against it but had reason to believe O’Connor erred when it learned that the transaction’s closing date had rendered it subject to ECRA. Franzblau Dratch lawyer Richard Garofalo, a partner with Montclair, N.J.’s Garrity, Graham, Favetta & Flinn, says the gist of the case is that Dixon polluted the property and is “looking to pass on that liability to someone else, and the lawyer’s the easy mark here.” The lawyer for O’Connor’s estate and for the Schumann firm, Peter DeSalvo, of Roseland’s Soriano, Henkel, Salerno, Biehl & Matthews, was away on vacation and could not be reached.

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