• December 31, 2012
Madeline Island View

Madeline Island View

Twin Cities powerhouse Robins Kaplan (RKMC) is taking a run at fellow Minnesota legal institution, Dorsey & Whitney, in a legal malpractice case on behalf of two disappointed real estate investors, Andrew Czajkowski and David Perbix in connection with their purchase of a partial interest in Woods Manor, a Madeline Island Bed and Breakfast, when it was encumbered by a mortgage, of which the investors were unaware.

As an alumnus of both of these excellent law firms with great respect for the lawyers at both, as someone with no actual knowledge of any of the details of the allegations, and as someone with little experience in structuring real estate transactions and setting out the limits and scope of a transactional lawyer’s duties in that context, I withhold judgment on both plaintiffs and defendants in this lawsuit.

Nevertheless, I think (1) the allegations might be useful for review by Minnesota lawyers to get a sense of what RKMC, at least, appears to think is the appropriate standard of care for representation in a real estate transaction, and (2) there might be possible pointers that clients and lawyers might consider to avoid such misadventures.  (Regardless of the merits of the claims, a lawsuit between attorneys and clients, like any break-up, is inherently unfortunate regardless of whose fault it is.)

First, it would seem that one would likely want to determine, when buying an interest in real property, whether there are any mortgages recorded against the property.  Whether or not it is a lawyer’s job to flag that issue in any particular case, it would seem that anyone, represented or not, should be aware that mortgages exist and that they can have an important impact on the precise nature of a seller’s ownership interest.

As such, the issue raised by this Complaint is reminiscent of one covered in an earlier Minnesota Litigator post: as between attorney and client, who’s job is it to find out if the client has insurance coverage for a lawsuit?

Second, it is probably not ideal in a commercial transaction to have the seller recommend a lawyer to the buyer as apparently happened in this case.  Complaint, Para. 15.  Even if the legal representation is flawless, if there is any mishap down the road, the client who’s adversary recommended his lawyer might have a tendency to suspect collusion of one kind or another.

Third, the Complaint appears to allege that D&W represented buyer and seller jointly.  Complaint, Para. 15.  As a litigator, this seems fraught with risk.  On the other hand, in many transactions, friendly parties have no interest in doubling up on lawyers’ fees so we all recognize and understand the impulse to have a single lawyer “paper” the “deal.”  But it must follow, then, that the transactional lawyer is not entirely “your” lawyer looking out solely for “you,” in particular, in those circumstances.

Finally, in reading Mr. Czajkowski’s Complaint, it seems to suggest that D&W performed almost NO work on plaintiffs’ behalf in connection with this transaction.  The Complaint, essentially, is a long list of what was NOT done.  The only affirmative work would appear to have been the drafting of a TIC Agreement (tenancy in common) (Complaint, Para. 29.)

The engagement letter (excerpted in the complaint at Para. 18) seems quite ambiguous about what work D&W was engaged to perform for the plaintiffs.  The question, therefore, it seems to me, may be, “when the scope of an engagement is vague or ambiguous, in the context of a real property transaction is represented by counsel, what actions by legal counsel are implicitly required by the applicable standard of care”?

It would be interesting to see how much plaintiffs were billed for D&W’s work on this matter.  If it was a pittance, would that not serve as notice to the clients that the lawyers viewed the engagement as narrow and limited?  (Detailed billing, like a well-written engagement letter, is another risk mitigation safeguard for law firms and lawyers.)

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