Legal Malpractice Suit Over Beehive Defense

The South Dakota Supreme Court has agreed to hear an appeal on a case surrounding the defense of three beehive keepers. One lawyer handled the case of three beekeepers who in 2007 were fighting the restriction and use of beehives on private property. When the attorneys proposed the settlement two beekeepers agreed and one did not, this disagreement later led to the legal malpractice suit.

The case of Roger Hamilton vs. Richard A. Sommers,Melissa E. Neville and Bantz, Gosch & Cremer, Prof, LLC can be viewed here.

Although the lawyer won the case and may withstand the appeal, the case highlights the need for strong conflict of interest documentation. Contact ProtectLawyers.com to discuss putting controls in place to lower your malpractice insurance cost.

Fraud Investigation Forces Law Firm to Pay $23.7M

The Pennsylvania law firm of K&L Gates has reached a settlement for allegations that their fraud investigation work performed on the now defunct LeNature failed to uncover wrongdoing.   In 2003, three board members of LeNature suspected that the founder (Gregory Podlucky) was stealing money from the company.  The board members decided to hire K&L Gates to investigate whether this was true.  Sanford Ferguson led the investigation at K&L and issued a report that no fraud was suspected.

In 2006, LeNature filed for bankruptcy and Podlucky pleaded guilty to defrauding LeNature through the use of two sets of accounting books.  LeNature also tried to IPO in 2006, but it was prevented from doing so by the bankruptcy.  Sanford Ferguson was hired at the beginning of 2006 to assist LeNature and Podlucky in the IPO.

The settlement K&L Gates agreed to does not admit any wrongdoing.  The backruptcy trustee who brought the claim against K&L said that Ferguson lacked the experience necessary to adequately determine whether fraud had taken place.  The trustee also stated that much of the work was performed by junior lawyers.  This alledgedly caused Ferguson to overlook evidence that fraud had taken place and that three years worth of additional theft could have been prevented had he investigated properly.

Disciplinary actions could also face K&L Gates and Fergesun individually.  Now that the civil trial is concluded, the administrative and regulatory bodies will review the facts and decide if a disciplinary proceeding is warranted.

This case highlights a number of risk management issues law firms face today.

The first is to review the relative expertise of a firm to perform the duties they are engaged to do.  The trustee alleged that the lawyer assigned to the LeNature investigation lacked the necessary knowledge to effectively conduct a fraud investigation.  It is important that all firms engage with clients on services that the firm has expertise and confidence on.  If the firm lacks the necessary knowledge; contacting an outside firm, engaging an of counsel, or declining to perform the service are the best routes.

Secondly, proper oversight of junior staff is paramount.  If K&L allowed Ferguson to use junior lawyers to perform much of the work, and if Ferguson lacked the ability to provide proper oversight to the work, this may also have led to important facts going unnoticed.  Law firms should ensure that all work product of junior staff is reviewed and confirmed to avoid mistakes from surfacing or impacting the end result.

Finally, lawyers professional liability claims have deep impact.  K&L now faces a potential regulatory action.  To practice law means the potential for lawsuits – this much is obvious.  What is less obvious is that the impact of these lawsuits are more than just money from the firm’s pocket.  K&L wasted time, resources and money on this trial.  That is time and resources that could have been used to bring in new clients.  Now that the claim is completed, a possible disciplinary action could further hamper the firm’s future.  It is important for firms to consider the implications of a lawsuit on their time, reputation and even their ability to practice law in the future.

To discuss ways to protect your firm or to learn more about transferring some of this risk to lawyers malpractice insurance, contact us today.

Two Firms Sued After they Disband their Practice

Lawsuit Filed for Overbilling

The California-based law firm of Lackie, Dammeier, McGill & Ethir has recently been sued for overbilling by a local police union.  The firm, comprised of former police officers who became lawyers, has faced other recent legal challenges as well.  This most recent matter arises out of a close look at the billing practices and hours of the partners at the firm done by the union.  It is alleged that double or triple billing had taken place, leading to one partner billing 70 hours in a single day and padding the hours elsewhere.  The plaintiff is also presenting evidence that some of the billable hours took place while one lawyer was suspended from practicing law by the state bar.

Law Firm Sued Over Real Estate Transaction

The East Coast firm of WolfBlock, LLP was sued by a client over a real estate deal gone sour.  Two New Jersey property owners have filed an $8M lawsuit against the firm, alleging that the firm represented both them (as the seller) and another party (the buyer) in the same transaction, creating a conflict of interest.  The plaintiffs also claim that the firm mishandled the back-end of the deal and violated various land commitments and partitioning requirements.

This claim serves to remind firms that real estate work has been the named the leading cause of lawyer’s malpractice lawsuits in 2012.  If engaging in this work, it is important to be knowledgeable and follow precise internal procedures and quality control policies.

Lawyer’s Malpractice Tail Insurance

The surprising issue behind both these matters is that the firms are both defunct – yet were still sued.  Many firms erroneously think that once they shutter their doors, the risk is shuttered as well.  This is simply not the case.  In most states, clients of law firms have years to make a claim before the statute of limitations run out.

Both of these cases illustrate that a firm’s risk does not end when their practice does.  If a firm is thinking of closing their practice, the firm is being acquired, or the partners are going separate ways, their completed work while at the original firm does not follow them to a new firm.  This means that the insurance for that original firm must also continue.  This is accomplished by purchasing  an extended claim reporting period on the policy – also known as a “tail.”

A tail allows a firm to stop buying annual insurance, but still report claims that may come in the future on work they have done in the past.  Since discovery of errors and may not arise for months or years after the work is done, it is important for a firm to purchase this tail insurance once closed.  It is also vital for the duration of the tail – the time allowed to report claim in the future – match the longest statute of limitations allowed out of all the states that firm has performed work in.

Tail insurance is often expensive – costing multiples of a firm’s current professional liability insurance premium.  There are ways to mitigate this, and if your firm is looking to close or be acquired, contact us today to discuss.

 

$10 Million Lawsuit Against Lawyer began with a Punch

A Virginia woman has filed a lawsuit against her defense attorney to the tune of $10,000,000.  The suit alleges that Francis Chester, a veteran attorney of 50 years, committed legal malpractice during his work defending her against allegations of punching a police officer.

The woman had charges brought against her by the police officer who said he was punched while serving a warrant to arrest the woman’s son.  The jury found her guilty and she was sentenced to a 6 month jail term.   After filing her own writ of habeas corpus on the grounds of ineffective council, the judge agreed, let her out and she filed suit.  The suit cited the fact that the lawyer failed to make the option of a lesser sentence available and instead proceeded with a “freedom or felony” defense.  The woman also says Chester had a conflict of interest in representing her son as well and made her testify in her son’s trial that she did punch the police officer.  Chester denies wrongdoing, says that the tactics of the defense were approved by the woman and he had no conflicts of interest.

While the amount sued for may be unprecedented and extreme, the matter bring to the surface a number of important items for firms to consider:

1) Client Selection

While it is hard to judge a client’s propensity to sue, it is important to have a formalized client selection process to weed out potential liability risks. Having a formal and robust client selection protocols can save a firm from headaches down the road – whether that is a litigious client, a client that doesn’t pay or a client that demands excessive attention.

2) Documentation

While an initial engagement letter serves to outline the scope of the work and aids in preventing engagement creep, ongoing documentation is vital.  Each juncture and decision in a matter should be discussed and cleared with the client.  When the decision is left to the client, rather than being held in the attorney’s purview, it is important to obtain formal documentation of the decision.  This will avoid future disputes as to the direction of the case or engagement.

3) Conflict of Interest

While the alleged conflict of interest in this particular case is moot, it serves to highlight the need for firms to be diligent with their conflict of interest checks.  Attorneys should clear potential conflicts through the firm partners or central clearing system.  Sole practitioners must be especially diligent when deciding themselves if their may be a perceived conflict in the work they are engaged to perform.

 

Professional liability lawsuits against law firms are bound to happen.  What you do to prepare for them and what you do after they occur is what matters.  It is important to have tight internal controls and robust insurance in place well before a matter arises.  Because lawyer’s malpractice insurance is on a “claims made” trigger, having coverage in place from the start of the firm is prudent.

To further understand “claims made” insurance, learn additional risk management tips or to discuss an adequate risk transfer program for your firm, contact a licensed broker today.

 

Perceived Inexperience Leads to Malpractice Suit

 

Update:  On 10/18/13, a jury found Walker and his firm not guilty of malpractice.  The jury awarded the city of Clinton no award.  Notwithstanding the verdict, the risk management issues remain the same – a firm should be experts or else engage the assistance of experts in all work product.  Even with this victory, the firm has the potential costs of their spent  insurance deductible and potential reputational harm from negative press in the news.  Original Post below:

A Des Moines, Iowa law firm has been sued for work related to False Claims Act defense one of its lawyer performed for the city of Clinton, Iowa.

Michael Walker of the law firm Hopkins and Huebner was engaged by the city of Clinton in 2009 after a whistleblower alerted the government that the city was allegedly filing false medicare claims to increase reimbursements.  Walker took the  case and it was settled shortly thereafter in 2010.  The city agreed to pay $4.5M for the fraud.

The city then retained another lawyer who has expertise in the False Claims Act to investigate the actions of Walker.  This lawyer determined – and has testified – that the Walker committed malpractice in this case because of his inexperience and lack of knowledge of the False Claims Act.  According to the prosecution, Walker committed malpractice when he agreed to take the case and points out that Walker himself has testified that he never even heard of the Act prior to being engaged by the city.  The second act of malpractice was in not filing for dismissal based on various rules in the Act that could have led to either a dismissal or lower settlement payout by the city.

The city has sued Walker and his law firm for $4.67M

Risk Management Takeaways

While this case has yet to be settled, it points to an important aspect of law firm risk management that should be noted.  The very definition of malpractice and professional liability lawsuits encompass the idea that the lawyer was not able to fulfill their services as prescribed by law or as an expert would be expected to act.  When entering a new engagement, lawyers and firms should be quick to determine whether the scope of the work is within the firm’s expertise, or it it lies outside their ability.  Taking a client on who needs work beyond what the firm is capable of can lead to lawsuits – as the Iowa firm has discovered.

If the engagement stretched the firm’s knowledge base, bringing in a co-counsel, hiring an expert or even turning down the case are best practices.  These will mitigate the likelihood of mistakes and therefore mitigate the likelihood of lawyers malpractice lawsuits stemming from errors or omissions in the work product. Contact us to discuss more ways to protect your firm.

Emotional Distress, Failure to Prosecute Lead to Malpractice Claims

Failure to Prosecute Leads to Malpractice Claim

A West Virginia man is suing his law firm with allegations of failing to prosecute properly and diligently.  Henry Martin engaged Neiswoger& White Law Offices in 2009 to lodge and pursue a claim against a racing commission on his behalf.  The law firm filed the lawsuit, but never pursued the matter, according to Martin.  The case was dismissed in 2011.

Martin explains in the lawsuit that the failure of the firm to take any action led to the dismissal.  The complain also alleges that the lawsuit in 2009 was filed after the statute of limitations expired.

While the details of this matter are unknown at this point, the law firm has none-the-less been sued and costs will begin to  incur.  Proper client intake procedures are vital to preventing malpractice suits.  It is best to note the intent of the client and their expectations when engaging them.  Clear documentation of the work product will lead to manageable deliverables and a tickler system can prevent missed deadlines or forgotten case work.

$172 Million Lawsuit filed against NY Law Firm

Hinman Howard & Kattell LLP has been served with a suit from the New York real estate investment group NHAOCG, LLC.   They allege that the law firm mishandled the structuring of a joint venture to invest in real estate, gave bad legal advice and as a result, caused the investment firm to lose out on the investment.

Real estate related claims have been noted as one of the leading causes of professional liability risks for law firms.  This case hints at 2013 continuing to be a year that brings in big names, and severe losses in this industry.  Protecting one’s firm from risks in this area is important for firms who deal with real estate transactions.  It is best to employ additional scrutiny of the final work product or implement a second partner review when engaged with a client who is in the real estate industry.

Emotional Distress Allowed as Damage in Lawsuit

In a first of its kind ruling, the Iowa Supreme Court allowed emotional distress to be admitted as damages in a malpractice suit against a law firm.  The claim arose when Michael Said, a Des Moines lawyer, was engaged to help a couple from Ecuador work on their citizenship.

The couple was in the USA undocumented and wanted to make their stay legal.  Mr. Said instructed the couple to return to Ecuador and have their son – who was a legal citizen of the United States – sponsor them as qualified relatives under immigration laws.  Once in Ecuador, their visas were denied by the American government and they were told they could not return to the states for 10 years.  They were separated from their family during this time.  The couple sued for legal malpractice but had their emotional distress damages kicked out by the lower courts.  However, the Supreme Court ruled that emotional distress could be admitted as damages and allowed the matter to continue.

While this precedent is unlikely to spread beyond Iowa for some time, it is important to note the environment law firms now operate in.  It is equally important to note that emotional distress is typically excluded from legal malpractice insurance policies, so any emotional distress damages would be paid out of the law firm’s own bank account.  Contact us to discuss ways to protect your firm from such lawsuits.

Contact ProtectLawyers.com today to discuss emerging risks and exposures today.

June Update – Claims Increasing against Law Firms, Employment Lawsuits and the Supreme Court

Malpractice Claims Against Law Firms Increasing

In a recent study on the claims experience of seven of the top law firm insurance carriers in the industry, an interesting and alarming trend emerged.  The trend showed an increase in the frequency of law firm claims, and an increase in claims whose total payouts exceed $50M.  Six of the participating insurance companies reported an increase in claims paying out $50M or greater.  Five of the seven reported an increase in claim reports in 2012 over 2011.  The reason for these claim increase is speculative, but real estate services, mergers, lateral hires and work done during the recession are all being listed as major contributing factors.

Firms should take careful note of this trend, as it can directly impact the pricing and terms of their insurance plans in the future.  Many firms find their insurance expense to be the third or fourth most expensive item in their budget and as claims increase industry-wide, insurers may need to increase rates across the board.  Risk management and good internal controls is imperative to keep premiums low.  It is also important to test the market periodically to assure that your firm is obtaining the most favorable terms.  Contact us to formulate a plan that protects your firm.

Pregnancy Bias Settlement

James E. Brown & Associates in Washington State has agreed to a $18,000 EEOC settlement after rescinding a job offer made to an associate when they discovered she was six months pregnant. The woman was interviewed when she was four months pregnant, when the job offer was made two months later she responded to it by email inquiring about the firms maternity leave policy and disclosing she was six months along. The offer was revoked later that day. The firm also agreed to a two-year consent decree to put new procedures and staff training in place.

Supreme Court Rules on Supervisor Retaliation

In another employment related matter this month, The Supreme Court ruled on the definition of “supervisor” as it relates to workplace hostility.  The matter arose after a woman working at a University’s dining services department experienced hostility, discrimination and harassment from a catering specialist who also worked at the same site.  The woman sued the university for creating a hostile work environment.  The catch was that the catering specialist had no managerial or supervisory role of the woman, so the University issued the defense that they did not have strict or vicarious liability in the matter since the catering specialist was not a “supervisor”.

The Court ruled in the University’s favor and explained that “an employee is a ‘supervisor’ for purposes of vicarious liability under Title VII if he or she is empowered by the employer to take tangible employment actions against the victim.”  This rejects the EEOC’s definition of “supervisor” which is much broader and less defined.

It is important to take note that vicarious liability can still be assessed to an organization if harassment is reported, but the company fails to take steps to mitigate or stop the harassment.  The court also stipulates that there may be liability if the employment decision power is concentrated to a small group of people – even if that group does not directly supervise each person for whom their actions impact.

Creating a hotline to report abuse and taking each report seriously will help mitigate lawsuits.  Contact ProtectLawyers.com to discuss ways to protect your firm.

May Wrap Up — FedEx, Divorce, Dewey and Claims Made Triggers

U.S. Postal Service or FedEx?

An Indiana Woman learned that her decision to send a letter via FedEx may have caused her to miss a deadline to file a malpractice claim.  Bonnie Moryl filed a malpractice lawsuit against an Indiana hospital for their alleged role in her husband’s death.  She mailed the suit using FedEx the day before the two year statute of limitations expired.  The letter arrived the day AFTER the statute of limitations expired.

Ms. Moryl argued that by placing the letter with a third party postal carrier, she met the deadline.  The Indiana Court of Appeals ruled against her, explaining that Indiana law states that only registered or certified mail sent through the U.S. Postal Service counted.  FedEx was not good enough.

While this case may be appealed again, and it deals specifically with Indiana State law, it brings to mind the importance of attorneys meeting deadlines for clients.  It is a best practice to use only certified mailings – especially with deadlines are close and when missing such a deadline could lead to a malpractice lawsuit against the attorney’s firm.

Coverage Issues with Estate Referral

New York attorney Roger Giuliani found himself facing four claims after referrals to financial planners went wrong.  This is following a judgement against him for a similar claim in 2004.

Giuliani was sending out mass mailers to seniors offering estate planning services, the people that responded were referred to a financial planner who later defrauded four of them. The attorney malpractice insurance claims came in over two policy periods – one insured by Fireman’s Fund and the other by Zurich.

American Guarantee (Zurich) sued Chicago Insurance Company (Fireman’s Fund) in an attempt to deny coverage for two claims filed under their policy. Fireman’s Fund unsuccessfully argued that the second two claims were the “same or related” to the two earlier claims reported to Zurich.

The case is a good reminder of how the reporting of events under claims made policies can dramatically influence how coverage responds.  Since claims made policy language is standard on lawyer’s malpractice insurance, as well as all directors and officers and employment practice insurance, it is important to understand the implications of this policy language on a firm’s practice.

Appellate Decision Highlights Risk of Divorce Case Work

A Texas Appellate count reversed a lower court’s decision and ruled against a divorce lawyer in a dispute.  The primary reason for the initial dispute was the lawyer’s lack of care in showing that the couple’s residence was community property as opposed to the husband’s property.

The wife alleged that failure to file documentation surrounding the home’s ownership and failure to show that the wife deserved a portion of the equity gave way to the malpractice suit against the Texas lawyer.  The appellate court said the house was the husband’s, but the equity was partially the wife’s due to home equity loan documents.

Divorce work brings a high rate of lawsuits against attorneys.  Since emotions are highly involved in each case, it is important for an attorney to document their file well and to exhaust all possible avenues for the client.

Greenberg Traurig Settles Two Suits

Heller Ehrman, the bankrupt construction law firm, secured a $4.9M settlement from Greenberg Traurig over an undisclosed conflict of interest that lead to a “chaotic, disorderly” bankruptcy process in December 2008. It was alleged that Greenberg did not confirm the Bank of America’s security interest in Heller’s assets and having done so would have revealed that BOA had terminated their interest. Bank of America was a long time creditor of Greenberg.

The second suit was brought by 215 current and former female shareholders who claimed the firm violated the Equal Pay Act by systematically underpaying women. The class was seeking $200M.

Dewy & LeBoeuf Settle Claim for $19.5M

The chairman and insurer of  now defunct law firm Dewey & Lebouef has settled a lawsuit over mismanagement of the firm for $19.5M.  The firm’s directors and officers (D&O) insurance is covering most of this amount, which highlights the importance for D&O coverage as a firm grows or takes on debt.

Contact the experts today to discuss emerging trends and issues.

April Update

1st Quarter Shows Strong M&A for Law firms

Altman Weil posted its Q1 M&A report which showed that 21 firms announced a deal in the first three months of 2013.  This is compared with 14 that were announced Q2 of 2012.  The first three months of the the year showed movement by large firms including Wislon Elser and Kilpatrick Townsend.  Most acquired firms had fewer than 20 attorneys.  The Altman Weil report can be reviewed here.

Merger and acquisitions bring a heightened risk profile for law firms.  Employment practices, professional service expansion, new office spaces, and partner disputes can all lead to claims and lawsuits.  Each firm should be protected from these risks and a comprehensive insurance program review should be undertaken before a merger or acquisition is contemplated. In addition, the cost for tail/run off insurance can be negotiated in advance if a merger is imminent, waiting until the deal is announced does not leave the firm in a strong negotiating position.

Fraudulent “Silica Litigation Machine” Suit Continues

The suit against Houston plaintiff attorneys, The O’Quinn Law Firm, has been put on hold for 60 days and a request to dismiss the lawsuit was not granted. The firm was sued by 31 former clients in December.

The former clients allege malpractice for both questionable expenses and failing to process certain settlements.

The ruling on the request for dismissal is available here.

Suit over Lloyd’s Claim Denial

Los Angeles based Blum Collins LLP has brought suit against Lloyds of London for denying a pending $7M malpractice claim against the firm.

Blum Collins was sued after their client lost a lawsuit contesting the boundary of a neighbors property. A claim filed with Lloyds was denied on the basis that it was foreseeable after Blum waived the statute of limitations on a potential malpractice claim during the appeal.

The case highlights the need to carefully review the claims made triggers and exclusions of any policies and review internal reporting guidelines.  If your firm has been asked to toll or waive the statute of limitation on malpractice claims, or has knowledge of an action that might give rise to a malpractice lawsuit, this should be reported to your insurance broker.

Kansas Supreme Court Ruling Blocks Malpractice Case

The Kansas Supreme Court has issued a ruling, available here, that should give some hope to firms with heavy probate exposures. The court ruling has bared a estate administrator from bringing suit against  the lawyer who preformed the estate planning work for negligence.

As the market for legal professional liability continues to harden, firms providing estate work have been hit especially hard.

Contact ProtectLawyers.com today to discuss emerging issues and how to best protect your firm in a tightening professional liability insurance environment.

5 Tips for Careful Client Intake

The equation is simple – to have a client sue you for malpractice, you have to first have a client.  Therefore, the first line of defense in avoiding lawsuits is to perform adequate due diligence when deciding to take a new client.

Malpractice claims arise when a client was wronged or feels they were wronged. While good internal practices and checklists can help prevent an error while working on an engagement, it is also important to have a system in place to make sure that the clients being brought on are low risk.

Below is a list of five key practices to be aware of when deciding to take on a new client. These can be the foundation of a great client intake procedure.

First, clarify the work product. The client should be clear about what they need, what they expect and the exact nature of the work to be done. A law firm that overreaches or doesn’t understand the full extent of an engagement will find themselves in trouble if a form wasn’t completed, a deadline missed, or a “t” was left uncrossed. Having each client sign an engagement letter that outlines the specific work to be performed will prevent future misunderstandings and may protect you in the event of a lawsuit.

Second, clients that fail to pay are trouble. Before you agree to take on a new client, make sure the client can pay. A firm may decide to file a “suit for fees” if a client that does not pay. However, many lawyers that decide to pursue this route receive counterclaims alleging malpractice by the client. Performing a credit check or asking other lawyers for their experience with the client are two common and simple ways a firm can perform their due diligence. If a credit check is not warranted, then a cash retainer or milestone billing will prevent a firm from doing work for free.

Third, specialize in or avoid real estate related clients. Statistically, more malpractice claims have stemmed from real estate related services in 2012 than any other service. If a new client is seeking real estate services, make sure your firm is able to perform such services. Then tread carefully and watch all deadlines, monies and parties carefully.

Forth, check for conflicts of interest. The firm should utilize a system that intentionally checks for conflicts of interest. The best systems are electronic, regularly updated and regularly used. Paper systems and partner’s memories may be a great first test, but a formal and efficient process is the best.

Finally, have a formal intake procedure. Having a risk management manual that outlines checklists and a new client approval hierarchy will prevent the intake process from being overlooked or taken too lightly. Any partner of a firm should want to know what clients they are taking on and a formal procedure will ensure that they have full knowledge of each client.

Your firms desire to grow. Growing with the wrong clients can ruin a business. These practices tips noted above can help assure that your firm grows carefully, quickly and successfully.

Contact ProtectLawyers.com to learn more about protecting your firm from allegations of malpractice or for a free assessment of your firm’s insurance program.