Thursday, April 16, 2015

The Cost of Risk – Malpractice Claims, Disqualifications & Sanctions

Two stories highlighting the costs. First, from The Recorder: "Legal Malpractice Claims Are Costing Firms Big Bucks" --
  • "Recent headlines from around the country reveal multimillion-dollar legal malpractice payouts, with firms facing big exposures arising out of predictable and avoidable problems. In difficult economic times, clients and former clients often look to attorneys—perceived as having deep pockets—to compensate them for failed businesses, lost homes or risky investments. This year, the number of large verdicts against attorneys confirms the risks of failing to follow effective risk management procedures for avoiding legal malpractice claims."
  • "Big firms face big risks. Unfortunately, neither the size of the firm nor the reputation of the attorney provides much insulation from legal malpractice exposure. Some of the bigger verdicts this year were against attorneys with excellent reputations who were part of well-regarded law firms."
  • "Oddly, it is often the most experienced attorneys with the best reputations that skirt firm protocols and ignore risk management procedures. Yet, according to the data, the attorneys who need to strictly adhere to risk management practices and procedures are experienced attorneys with significant clients and exposures. Big reputations backed by big firms do little to persuade a jury to find in an attorney's favor when the rules have not been followed or a mistake has been made."
  • "Conflicts of interest continue to drive up exposures. Juries do not like conflicts of interest, regardless of how they happen. In fact, even the appearance of a conflict of interest can, and often does, result in some of the largest legal malpractice verdicts."
  • "As these cases make clear, actions alleging a breach of the duty of loyalty result in stiff penalties for attorneys and law firms. There is no good substitute for clear conflict of interest identification procedures and effective protocols for documenting the resolution of identified conflicts."
  • "But not all the news is bad. Increasingly, legal malpractice data confirm that effective risk management procedures can substantially reduce these risks. These steps begin with effective client intake procedures and include conflict identification and resolution procedures."
Next, from DQED "Disqualification Retaliation: Sanctions for Seeking or Defending Disqualification" --
  • "The issue of disqualification can irritate many lawyers and judges.  For example, some fear that disqualification motions are invariably 'tactical' or 'strategic' moves that should be viewed with 'skepticism' and 'extreme caution.'  Others, however, tend to view the lawyers or firms at issue as ignoring their ethical responsibilities and rationalizing away clear conflicts of interest or other misconduct."
  • "Two very recent examples illustrate the infliction of sanctions. First, the Eastern District of Louisiana just concluded that a plaintiff had brought suit solely as a tactic to have his wife’s lawyers disqualified in a separate divorce proceeding and awarded attorneys’ fees as a consequence."
  • "Second, in an unpublished decision last week, the Second Circuit upheld a high-dollar attorneys’ fees award against Boies, Schiller & Flexner (BSF) for failing to withdraw (and instead making the opposing side file a motion to disqualify): ‘Host moved for sanctions on the grounds that BSF’s representation of Madison 92nd Street Associates, LLC (“Madison”) presented a clear conflict of interest in light of BSF’s earlier, substantially related representation of Host, and that BSF unreasonably refused to withdraw from its representation of Host until faced with a motion to disqualify. The district court agreed, concluding that '[a] clearer conflict of interest cannot be imagined” and that Host was entitled to fees and costs incurred in preparing the motion to disqualify BSF.’"
  • "As an interesting aside, although the district judge in her above ruling was clearly no friend to the large firm of BSF, she happened to be notably nice to another large law firm (namely, Sidley Austin, LLP) last week.  In short, the judge held that because Sidley screened a partner who had represented the other side in the same dispute, Sidley was not disqualified."

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