Bracewell & Giuliani has argued that it was unreasonable for the wife of one of its former clients now suing for malpractice to believe she had also been represented by the firm, particularly because she never signed an engagement letter.

In Sanford v. Bracewell & Giuliani, Bracewell was sued in the Bucks County Court of Common Pleas on Feb. 15 by Craig and Mary Jo Sanford, who allege the firm didn’t do enough to recover $12.5 million in lost proceeds of the sale of their business. Bracewell removed the matter to federal court the following month and its next filing was a motion to stay the matter pending arbitration.

Bracewell has contended that Mary Jo Sanford was never a client and therefore could not bring legal malpractice or breach of contract claims against the firm in court.

The plaintiffs, however, argued in an Oct. 14 filing that Sanford had been an “implied client” of the firm because she had an equal interest in the money Bracewell was hired to recover from the sale of the business, adding that whether the firm believed it was representing Sanford is irrelevant if she reasonably believed the firm was representing her.

But on Monday, Bracewell responded in a reply brief in support of its motion to stay pending arbitration that Sanford’s interest in the money did not make her a client of the firm and called the plaintiffs’ arguments a “last-ditch battle” to keep the case in court.

“Plaintiffs cite no legal authority for such an amazing proposition, and that is because there is none,” the firm said in the filing. “There could not be: Claiming an interest in the property with respect to which a lawyer has been retained by someone else obviously does not make the claimant a client of that attorney. Were the law otherwise, shareholders would be clients of firms retained by corporations, spouses in community property states would be clients of the lawyers hired by their husbands or wives, and joint tenants would always be clients of law firms hired by each other in any matter relating to their tenancy.”

The defense added that Sanford failed to meet any of the four criteria for an implied attorney-client relationship as set forth by the U.S. Court of Appeals for the Third Circuit in the 2004 case Capitol Surgical Supplies v. Casale.

In Capitol, according to the defendants, the Third Circuit said an implied attorney-client relationship only occurs where “(1) the purported client sought advice or assistance from the attorney; (2) the advice sought was within the attorney’s professional competence; (3) the attorney expressly or implicitly agreed to render such assistance; (4) it is reasonable in the circumstances for the putative client to believe the attorney was representing him.”

“In their effort to salvage at least a shred of the case they have placed before this court, plaintiffs concoct several different theories behind the claim that Mary Jo Sanford became a client of the firm otherwise than through the engagement letter, even though each theory flies in the face of what Ms. Sanford stated in the verified complaint, and cannot be reconciled with her testimony that she never discussed such an engagement, never signed (or even saw) the engagement letter, and never sought or received legal advice from any B&G attorney,” Bracewell said in its filing.

According to the complaint in Sanford, the Sanfords owned and operated a medical waste disposal business. In 2005, the Sanfords sold the company for more than $14 million, ultimately leaving the couple with more than $12.5 million in U.S. bank accounts. A prior attorney for the couple told them to move the money to offshore accounts.

In 2007, the Sanfords met Jamie Smith, apparently a well-known international security expert, former Navy Seal and CIA operative, and owner and CEO of SCG International LLC, who represented that he had the knowledge and experience to move their money offshore, according to the complaint.

The Sanfords entered into an agreement in which Smith would hold the couple’s $12.5 million in a secured account to allow it to accrue interest.

Under the terms of the deal, the money was to be returned May 27, 2009, according to the complaint.

During the term of the note, Craig Sanford repeatedly tried to check on the status of his money but was often told Smith would get back to him. In the spring of 2009, Sanford began receiving letters from an attorney for Smith who said the $12.5 million had not performed well in the market and that Smith wanted to reach a new payback agreement, according to the complaint.

Sanford insisted he didn’t “invest” his money and demanded a return of the full $12.5 million. When the note came due in May 2009, the Sanfords did not receive their money or a payback proposal from Smith, according to the complaint.

Craig Sanford spoke to his neighbor in the Pocono Mountains about his situation. That neighbor was Bracewell attorney David Stockwell, then a partner in the New York and Dubai offices of Bracewell and a resident of Wayne County, Pa., according to the complaint.

Bracewell agreed to represent the Sanfords, who paid the firm $50,000, they said in the complaint. New York white-collar defense partner Jonathan N. Halpern entered the engagement agreement with the Sanfords in September 2009.

But the Sanfords alleged in their complaint that Bracewell’s work on the matter was “incomplete, inconclusive and inadequate to accomplish the goals” of the Sanfords and the firm took “no steps” to locate or recover the Sanfords’ money.

The Sanfords said in the complaint that Bracewell failed to contact Smith or seek an injunction prohibiting him from using or distributing the money.

In their Oct. 14 filing, the plaintiffs, arguing that Mary Jo Sanford believed she had been a client of Bracewell’s during that time, said she and her husband had a conversation with Stockwell in their home about the case in July or August 2009, before the engagement letter was signed.

“Mrs. Sanford’s presence during the conversation between Mr. Sanford and Mr. Stockwell would have destroyed attorney-client privilege—unless, of course, she too was considered to be a client of the firm,” the plaintiffs said. “It is reasonable to infer that at least Mr. Stockwell must have thought that Mrs. Sanford was a client, at least at the time the conversation took place.”

But Bracewell said in Monday’s filing that because no engagement letter had been signed at the time of the conversation, there was no attorney-client privilege.

“No confidences were shared, and certainly no legal advice was given,” Bracewell said in the filing. “This was a chat among friends, one of whom was a lawyer, inquiring into whether the lawyer might have a partner who could provide legal advice.”

Bracewell further argued in the filing that the plaintiffs continue to “drift in and out of the arguments” that Mary Jo Sanford was a client and that she was a third-party beneficiary of her husband’s agreement with Bracewell.

The firm said in the filing that the latter position was “invented in order to avoid seeing this litigation stayed.”

Either way, the firm said, her claims would be bound by the arbitration clause of that agreement.

Counsel for Bracewell, Steven M. Schneebaum of Fox Rothschild in Washington, D.C., declined to comment beyond what was in Monday’s filing.

Counsel for the plaintiffs, Clifford E. Haines of Haines & Associates in Philadelphia, said he thought the case should have progressed beyond the dispute over the arbitration clause by now.

“We’ve now spent six months going back and forth over this subject and have yet to have a whit of testimony on the merits,” Haines said.

Zack Needles can be contacted at 215-557-2493 or Follow him on Twitter @ZNeedlesTLI.