Updated post (February 8, 2019): One fertile patch for malpractice claims are financial transactions and a lawyer’s undisclosed conflicts of interest or breaches of fiduciary duties (the duty of loyalty, candor, confidentiality). These are common pinch-points because transactional lawyers are, in an important sense, in between parties as much as they are on one side or the other in transactional work. In other words, if Party A and Party B are negotiating to form Venture X together, the parties obviously want to be collaborative rather than adversarial. Their lawyers, too, would like to be everyone’s friend (and likely hope to be Company X’s lawyers for years to come)….

Then there’s the challenge that ventures may and often do involve not just two parties but many more. Still further, Parties A, B, C and D are often non-human entities. Each maybe composed of multiple members or shareholders, some of whom are also non-human entities, etc. etc. And, of course, Party A might own a minority interest in Party D. 

Still further, transactional lawyers add their sprawling business ties (and their law firms’ ties) sometimes accumulated over decades to these risky and complex situations. Every time, they owe their allegiance to the client or clients they represent in the deal at hand — for sure — but also, for some, there is an irresistible (sometimes inconsistent) allegiance to themselves and their law firms.

The essential claim in Azarax’s professional malpractice lawsuit against a transactional lawyer is that he, as Azarax’s predecessor’s lawyer, failed to disclose his involvement with another business (“WCV”) and conspired to shift a lucrative business opportunity from Azarax’s corporate predecessor to WCV in which the lawyer had an ownership interest. This, in turn, is alleged to have caused Azarax’s initial public offering (“IPO”), which would have raised hundreds of millions of dollars, to crash and burn.

If these claims are true, this would appear to be an open-and-shut case of breach of fiduciary duty and professional malpractice in our view.

But factual allegations can be wrong, of course, and what appears to be an open-and-shut case, even if all of the facts are as alleged, can be deceiving, particularly when it comes to the enormous hurdles of legal malpractice actions.

Legal malpractice cases are fairly rare and successful ones are rarer still. As we point out in the original post, below, we have identified the main challenges as “the three C’s” (cost, culture, and causation).

The challenged lawyer in the Azarax case attacks every part of the legal malpractice case: (1) an attorney-client relationship, (2) causation; and (3) damages. (And then some. For example, there was a company named “Convey Mexico” originally involved in this matter and there is a significant question as to whether and how Azarax can claim to be the successor-in-interest in Convey Mexico. (See here at pp. 4-5.))

As for the first element (the existence of an attorney-client relationship), there either was one or there was not. This presents more of a factual question than any complex legal issue.

“A Tough Knot to Crack” (photo by Jay Fanelli)

It is the second element — causation — that can be a very tough knot to crack or hurdle to overcome.

In the Azarax case, must the Plaintiff prove that, in the absence of their lawyer’s alleged betrayal, they would have won the lucrative contract that they lost due to the betrayal (in their view)? Or is it enough for the Plaintiff to prove that the lawyer usurped their opportunity and the prospect of a lucrative business relationship? Can the lawyer defend by arguing (with some kind of expert testimony, presumably) that the Plaintiff was ill-equipped to move forward with the contract and inevitably would not have been successful? This appears to be what the lawyer-defendant argues is arguing the Plaintiff would have to show (see here at pp. 20-22).

Before even getting to a determination of damages (which might present a huge hurdle down the track), must the Plaintiff’s legal malpractice expert opine as to the likely success of the Plaintiff’s IPO or success in the underlying business venture? Must the plaintiff’s legal malpractice expert, in particular, weigh in on that? (It would seem rare to have an expert on legal representation and the standard of care who also has the industry-specific technical knowledge as to whether the plaintiff would have successfully “closed the deal” and made millions of dollars for years to come.) Is some expert testimony required at all or would it be sufficient to have Atarax owners supply testimony on that at trial?

The decision is in the able hands of U.S. District Court Chief Judge John R. Tunheim (D. Minn.). We will stay tuned.

[Ed. Note: Minnesota Litigator readers with astounding memories may recall that we covered this case some time ago.]

Original post (October 26, 2017): (under the headline Thoughts About Legal Malpractice Claims for Non-Lawyers: The Three C’s):

Over the past seven years of practice, LEVENTHAL pllc has handled over a dozen claims for clients with claims of legal malpractice or claims related to legal malpractice (e.g., fee disputes) against Minnesota lawyers. All but one of the ten has been resolved favorably for our clients.

Over that same period of time, we have consulted with over 100 potential clients who feel strongly that they have been the victims of legal malpractice.

 

Why do so many people feel so strongly that they are the victims of legal malpractice but nine times out of ten we won’t take their cases?

1. Cost: It is extremely rare that a client is prepared to pay a lawyer hourly to bring a legal malpractice case. So such claims are generally brought on a contingent fee basis. If your legal damages are less than $100,000, it is extremely difficult to bring a legal malpractice case that will make economic sense. That is, if the case is taken on a contingent fee basis, the legal malpractice lawyer’s investment of time will be far greater than his share of the recovery. And it is nearly impossible to win an award of attorneys’ fees for the legal malpractice plaintiff. Conversely, influenced by popular culture, many people have the impression that one can simply inflate a damage claim in a malpractice case or conjure up a dollar amount out of thin air (“you cannot imagine the pain and suffering that nincompoop lawyer put me through–I say we demand $1 million!”). This impression is mistaken. As all trial lawyers have told clients — there is a world of difference between “what you think you should be entitled to” and “legal damages” realistically recoverable in civil litigation. Looking at “cost” from another angle, lawyers can be extremely expensive and sometimes egregiously expensive. Some lawyers will take several hours to write an email and the like. Excessive fees ≠ legal malpractice.

2. Causation: Very often, potential clients come to consult with a legal malpractice lawyer with iron-clad evidence of their previous lawyer’s mistake(s). Based on that, the potential clients feel strongly that they have a “slam dunk” case. In fact, frequently, the evidence is the previous lawyer’s own admission of having made a mistake (missing a deadline, for example). Sometimes, the potential client’s evidence is a judicial opinion that openly highlights or criticizes a lawyer’s lapse. But keep in mind, first, that lawyers are people, people make mistakes, and the law does not impose a standard of perfection on lawyers (or people generally).

Second, and far more importantly, a lawyer’s failure to call a witness, to make an argument, to attend a hearing, might be the basis for a legal malpractice lawsuit, but very often it is not. A legal malpractice plaintiff must not only establish that her lawyer made a mistake, and must not only establish that the mistake was of a seriousness that rose to the level of a breach of the standard of care for lawyers in the community, but she must also prove that the lawyer’s error(s) CAUSED the client’s loss. Often, potential clients will go through their stories of alleged malpractice by their lawyers and, in their own telling, they recount how the judge was an idiot who fouled up, how the other side’s lawyer lied, how witnesses perjured themselves, and so on. They fail to recognize that spreading responsibility for their misfortune among several parties (and there are, of course, very often multiple causes for misfortunes, legal or otherwise), they have identified the fatal defects of their supposed legal malpractice claims.

Third, unlike many medical malpractice cases, where patients might be passive participants in their medical care, often clients are critical participants in the attorney-client relationship. It is not uncommon for lawyers to defend claims of malpractice by blaming the clients for a bad outcome (for example, failing to disclose material information, not following legal advice, not seeking advice before acting, etc.).

3. Culture: There are several points that fall under this heading. First, many lawyers who are NOT experienced in bringing or defending legal malpractice claims misinform their clients that the clients have decent malpractice claims against former lawyers. “Successor lawyers” can be somewhat cavalier or casual in criticizing clients’ prior counsel. Part of this is, frankly, marketing: trash-talking against a competitor or 20/20 hindsight. Part of it is the calculated management of expectations (“I will do what I can for you but the previous lawyer really screwed things up”). Part of it is sincere and, perhaps, justified criticism, but criticism that is often detached from an appreciation of the causation piece of a legal malpractice action. In particular, lawyers who reject clients’ cases where previous lawyers were retained will often attribute their rejection to actions taken or not taken by the earlier counsel. This is easier than telling a client to his face many other reasons for turning away a case: (1) that he has no claim and never did, or (2) that the client may have had a claim but the client, himself, messed it up one way or another; (3) that the second lawyer does not care for or trust the client, and so on.

And, finally, as to the “culture component” of the challenge of legal malpractice actions: lawyers do not like them and judges are lawyers, of course. “There but for the grace of God go I,” is a common-place adage that trips off lawyers’ lips when they hear of claims of legal malpractice. We lawyers say it often. You know judges are thinking it. This is the bottom layer of difficulty in bringing a successful claim for legal malpractice.

If, after reading this and thinking about your case, you still think you might have a viable claim for legal malpractice, call me, at LEVENTHAL pllc, to discuss: 612-234-7349.

NOTEThis Post Is NOT Legal Advice. Please NOTE our Disclaimer.

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