Legal Ethics Issues

July 26, 2013

Connelly v. Hayashi, CA No. G046247: California Appellate Court Reverses Dismissal of Legal Malpractice Action

by Boston Lawyer

The Court of Appeals of California has reversed a lower court’s dismissal of a legal malpractice action on the basis that an implied attorney-client relationship existed. In Connelly v Hayashi, a physician who invented a protein enriched sports drink sought investors to form a new business venture to develop and market the product. The doctor recruited two investors, who recommended an attorney to help them form the new entity.

The attorney prepared various documents in order to establish the company. The attorney also met separately with the doctor and prepared a document, which governed the doctor’s contributions to the entity. The agreement specified that certain intellectual property owned by the doctor would be withheld and directed how his monetary contribution would be applied. Unbeknownst to the doctor, the attorney did not include the requested terms and added other items to the agreement, including language which disclaimed any attorney-client relationship between him and the doctor.

The venture failed and the doctor sued the attorney for legal malpractice. The trial court dismissed the case ruling that the doctor had failed to establish that an attorney-client relationship existed based on the language in the agreement. The court also held that the doctor could not have relied on the attorney’s advice because he admitted that he did not read the agreement before signing it. The client appealed.

The appeals court reversed finding that the attorney’s agreement to prepare the contribution document on behalf of the doctor created an implied attorney-client relationship. The doctor therefore justifiably relied on the attorney to draft the agreement in accordance with his instructions and the attorney’s failure to do so constituted a breach of the attorney’s duty of care.

Decision: Connelly v. Hayashi

May 10, 2013

Roy D. Mercer, LLC v. Hon. Matthew G. Reynolds, Docket No. 33,830: Supreme Court of New Mexico Finds Impermissible Conflict of Interest in Legal Ethics Case

by Boston Lawyer

The Supreme Court of New Mexico has ruled that an attorney and his law firm are disqualified from representing a client because of a conflict of interest. In Roy D. Mercer, LLC v. Hon. Matthew G. Reynolds, a landowner hired a law firm to defend it in a case brought by a railroad company seeking to enforce an easement.

The railroad company had hired a contractor to construct a series of berms, dykes and channels to divert water away from the railway and through the landowner’s property. The contractor was also named in the suit and hired a separate law firm to defend the company.

Two years into the lawsuit, the landowner retained another law firm and it’s prior attorney’s firm disbanded. One of the associates from that firm then joined the law firm that represented the contractor. The contractor’s firm immediately sent a letter to the landowner’s firm informing them that the associate would be screened from the case and requested that the landowner sign a waiver of the conflict of interest.

May 1, 2013

Frasco, Caponigro, Wineman, & Scheible, PLLC v. IGC Management, Inc., No. 308405: Michigan Court of Appeals Affirms Summary Judgment In Favor of Attorney In Legal Malpractice Case

by Boston Lawyer

A Michigan appellate court has affirmed a summary judgment in favor of an attorney in a legal malpractice action. In Frasco, Caponigro, Wineman, & Scheible, PLLC v. IGC Management, Inc., a sub-contractor hired an attorney to recover funds from a general contractor. The general contractor later filed for bankruptcy, and a bank was found to have a priority security interest against the contractor’s assets.

The attorney, who also represented other unpaid sub-contractors, negotiated a mediated settlement with the financers of the project. However, the original sub-contractor did not assent to the terms of the settlement. The attorney informed the mediator and requested that the agreement contain a separate signature line for the sub-contractor, which the mediator failed to include. Nevertheless, the attorney executed the agreement and the bankruptcy court found that the sub-contractor was bound by its terms because the attorney signed on its behalf.

The sub-contractor then sued the attorney for legal malpractice. The attorney moved for summary judgment, which the trial court granted. The sub-contractor appealed.

The appellate court affirmed, finding that although the attorney’s conduct may have breached his ethical duties, it did not constitute malpractice. Under Michigan law, liability for settling a case without a client’s consent stems from a bad faith breach of contract rather than negligence. Here, the attorney did not intend to sign the agreement on behalf of the sub-contractor and had informed the mediator that he did not have such authority. Thus, the attorney acted in good faith and summary judgment was appropriate.

Decision: Frasco, Caponigro, Wineman, & Scheible, PLLC v. IGC Management, Inc.

April 25, 2013

Kouransky, Bouwer & Poracky, P.C. v. The Bar Plan Mutual Insurance Co., No. 10 CV 535: Court Affirms Summary Judgment Declaring that Law Firm Not Entitled to Insurance Coverage in Legal Malpractice Action

by Boston Lawyer

The Seventh Circuit Court of Appeals has affirmed a summary judgment declaring that an insurance company did not have to provide coverage for a legal malpractice claim brought against a law firm. In Koransky, Bouwer & Poracky v. Bar Plan Mut. Ins., an Indiana law firm represented a potential buyer in the purchase of four drugstore franchises in Ohio. The first three sales were consummated and the buyer signed the fourth sales contract and delivered it to the law firm.

However, the firm inadvertently misfiled the fourth contract and failed to forward it to the seller. The seller informed the buyer that it was rescinding the contract because it did not receive an executed contract prior to an agreed upon deadline. An attorney at the firm immediately informed the seller of its error and requested that it go forward with the deal. The seller refused, and commenced an action in Alabama seeking a declaratory judgment that the contract was null and void.

Several weeks later, the law firm renewed its professional liability insurance policy, but did not notify its insurer of the buyer’s potential malpractice claim. Approximately six months later, the buyer wrote the law firm a letter notifying it that he was going to pursue a legal malpractice claim. The law firm forwarded the letter to its insurer.

April 17, 2013

State of Tennessee v. Beeler, Case No. E2010-00860-SC-R11-CD: Attorney’s Criminal Contempt Conviction Reversed in Legal Ethics Case

by Boston Lawyer

The Supreme Court of Tennessee has vacated the conviction of an attorney for criminal contempt. In State of Tennessee v. Beeler, two attorneys separately represented a husband and a wife in criminal proceedings. The husband’s attorney was cross-examining the defendants’ minor daughter at a suppression hearing in the case. During the questioning, the wife’s attorney asked the husband a question, while the husband’s attorney was still standing at a lectern across the courtroom.

The trial judge noticed the interaction, interrupted the examination, and asked the husband’s attorney if he had given the wife’s attorney permission to speak with his client out of his presence. The attorney responded that he did not. The judge then cited the wife’s attorney for criminal contempt finding that he had willfully misbehaved in the presence of the court and violated the Tennessee Rules of Professional Conduct, which prohibits such communications.

At a hearing to show cause why he should not be convicted, the wife’s attorney explained that he was implicitly authorized to communicate with the husband because that same morning the husband’s attorney had allowed him to speak with the husband alone about the same subject matter. The attorney also explained that on prior occasions, they had communicated with each other’s’ clients both in and out of one another’s presence.