Legal Malpractice Conference Held in Chicago
Last week was the Legal Malpractice & Risk Management Conference in Chicago. Bob Coleman, the Principal and Founder of my firm, was one of the guest speakers on a panel discussing Successor Entities (mergers v. sale of assets) and issues that arise regarding "who is the client?" There were several interesting and informative discussions on legal malpractice - I have many new ideas of things to cover in the blog. Here is a list of some of the key legal malpractice cases from 2006 - many of which I have written about already - that were talked about at great length during last week's conference:
Hecht, Solberg, Robinson, Goldberg & Bagley v. Superior Court, 40 Cal.Rptr.3d 446 (CA 2006)
Victory Lane Productions, LLC v. Paul, Hastings, Janofsky & Walker, 409 F.Supp.2d 773 (Miss. 2006)
TIG Insurance Co. v. Griffin Winning Cohen & Bodewes, P.C., 444 F.3d 587 (7th Cir. 2006)
Tri-G, Inc. v. Burke, Bosselman & Weaver, 856 N.E. 2d 389 (IL 2006), Illinois Legal Mal Blog Post here| Posted By Cassandra Crotty In Hot Topics in Legal Malpractice | 1 Comments | Permalink
A Problematic Dual Role: Lawyer & Director
Today on the WSJ Law Blog, Peter Lattman wrote about the trend toward discouraging lawyers from serving on public company board of directors, due to the risk of shareholder suits or SEC investigations. This topic struck a familiar cord with me - it is one I have often discussed with my colleagues. It is also an issue that comes up quite often in legal malpractice litigation. In the past, it was considered a good idea for a lawyer to sit on his or her client's board of directors. It was considered good business practice. But today the practice is frowned upon because of the pit-falls that can and many times do arise, including, conflicts of interest, loss of independence, loss of attorney-client privilege, disqualification as litigation counsel, risk of firm liability, and loss of insurance coverage.
One of the biggest problems with lawyers sitting on their client's board is that there just isn't much guidance on the topic from the ABA's Model Rules of Professional Conduct. The only general framework comes from Comment 35 to the general rule governing conflict of interest (Rule 1.7) which states:
A lawyer for a corporation or other organization who is also a member of its board of directors should determine whether the responsibilities of the two roles might conflict. The lawyer may be called on to advise the corporation in matters involving actions of the directors. Consideration should be given to the frequency with which such situations arise, the potential intensity of the conflict, the effect of the lawyer's resignation from the board and the possibility of the corporation's obtaining legal advice from another lawyer in such situations. If there is material risk that the dual role will compromise the lawyer's independence and professional judgment, the lawyer should not serve as director.
The rule gives a tremendous amount of discretion to the lawyer to decide whether serving in the dual capacity, as both lawyer and director, could potentially conflict. This leeway has led many firms to ask their lawyers to just forgo making the determination all-together and say "no" to being on a board of directors outright, as the WSJ Law Blog discusses.
The courts have helped in discouraging the practice, as well. One court laid out the dangers quite clearly when it held that lawyer/directors may be so deeply involved in a company that they are required to undertake the strict investigatory duties of an "inside" director whose standard of care approaches that of a "guarantor of accuracy." See, Feit v. Leasco Data Processing Equip. Corp., 332 F. Supp. 544, 575-76, 578 (E.D.N.Y. 1971). While there has been a decrease in past years of lawyers willing to take on this dual role, it still amazes me how many lawyers believe the benefits outweigh the risks. I think that there will always be a lawyer willing turn a blind eye to the dangers until maybe one day when a rule is adopted that says "A lawyer may not serve on a board of directors of any organization that has retained that lawyer (or his or her firm) to represent the organization in any legal capacity."
Hat tip to two very insightful articles I was unable to link to:
The Conflicting Roles of Lawyer as Director, Robert P. Cummins and Megyn M. Kelly, Litigation Fall 1996, Volume 23, Number 1, Pgs, 48-52.
Legal Status of the Lawyer-Director: Avoiding Ethical Misconduct, Stephen M. Zaloom, 8 U.Miami Bus. L. Rev. 229 (2000)
So you've recently filed a legal malpractice case on behalf of an important new client who was (obviously) not happy with his old attorneys. Over thirty days have passed since the defendant was served with the complaint and, confident that you pled all the elements of a legal malpractice claim, you are expecting to receive an answer to your complaint. Instead, you receive a motion to dismiss. Opening the defendant's brief you see his sole argument: "Plaintiff's Complaint Must Be Dismissed Based Upon the Doctrine of Judgmental Immunity." If you are like most lawyers, you will likely ask yourself, "What is Judgmental Immunity and how did I miss it?" Relax. Your case should be safe, for now at least. The popularity of the Doctrine of Judgmental Immunity, otherwise (and better) known as the "mistake in judgment" defense, has been on the rise. However, this "doctrine" is nothing more than a repackaging of the well-established rule that attorneys will not be held liable for "mere errors of judgment." See Spivack, Shulman & Goldman v. Foremost Liquor Store, Inc., 124 Ill.App.3d 676, 683-84 (1984). It used to be rare to see this "defense" raised in a motion to dismiss because virtually every case holding that attorneys cannot be liable for a mere error in judgment also hold that an attorney will be liable "when he fails to exercise a reasonable degree of care and skill." Id. And, of course, the question of whether an attorney's advice constitutes a mere error in judgment or an actionable failure to exercise a reasonable degree of care and skill is a question of fact, usually to be decided by the trier of fact after listening to expert testimony. Id. Given this background, why are so many defense attorneys now raising the "Doctrine of Judgmental Immunity" in motions to dismiss? Is there any indication that courts have given new teeth to this "defense" or are defense attorneys dragging out a benign old friend in order to buy additional time?
*Contributions to this posting were made by Sean B. Crotty