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In re Bruess, No. 19-2714, was decided by the District Court for the District of Minnesota. The debtor claimed that her bankruptcy lawyer made an error by filing a chapter 7 case on her behalf and thereby making her homestead interest in property subject to creditor claims. The court also held that the malpractice claim was an asset of the bankruptcy court. I don’t doubt that the reasoning was correct, but the practical effect is that the debtor’s interest in the claim will be subject to the claims of her creditors. The result of the case is a double whammy for the debtor.

Background Facts and Procedural History

On January 14, 2013, Plaintiff Sandra Jo Bruess of New Ulm, Minnesota, was granted a one-third interest in her father’s Brown County property (“Homestead”) valued at $562,760.33.[1] (Notice of Appeal, Attachment 4 (“Order on Appeal”) at 2, October 15, 2019, Docket No. 1.) Despite knowing of the Homestead interest, Bruess’s attorney, Stephen Behm, advised her to file for bankruptcy relief. (Id. at 4.) Behm incorrectly assured Bruess that her entire interest in the Homestead would be protected in bankruptcy. (Id.) On December 15, 2014, Bruess filed for Chapter 7 bankruptcy and claimed an exemption on her one-third interest in the Homestead. (Id. at 2.)

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The issue that arises often in litigation is: when was the plaintiff put on notice that the lawyer may have breached the duty of care? The answer to this question often determines whether or not the statute of limitations bars a claim. A case decided by the Delaware Supreme Court earlier this year captioned, ISN Software v. Richards, Layton & Finger 226 A.3d 727 (Del. Supreme Court), offers a thoughtful discussion of that very issue.

ISN Software wished to convert to an S Corporation. However, four of its shareholders could not legally be shareholders of an S Corporation. Thus, the question was how can we remove these shareholders from our company? The law firm allegedly advised ISN to use a merger to cash out the four shareholders. The way it typically works is that the company offers the shareholder a cash payment. If the shareholder accepts the cash offer, that is the end of the matter. If the shareholder elects appraisal, there is a court case where a judge decides the value of the shares. In this transaction, all four shareholders were eligible for appraisal rights. The law firm told the client in 2013 that its legal advice on who was eligible for appraisal was incorrect.

The company proceeded to litigate the value of the shares. When the court made its decision, the value was substantially higher than ISN thought it would be. ISN then sued the law firm for malpractice. The Delaware courts held the the case was time-barred because the cause of action accrued in 2013 (when the firm told the client that the advice it had given was incorrect) not 2018 when the unfavorable litigation ruling occurred.

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On June 30, 2020, the Missouri Supreme Court decided Laughlin v. Perry and Flotman, No. SC98012. The court held that the defendants, two public defenders, were immune from suit because public defenders are state employees performing discretionary acts. In Laughlin’s case, the two public defenders missed a jurisdictional problem with his prosecution in state court for burglarizing a post office. They did not object that the Missouri courts lacked jurisdiction over the federal post office. Eventually Laughlin discovered the jurisdictional problem, filed a habeas corpus petition and was released from custody.

This is a policy question and the Missouri court has resolved it in favor of the public defenders. I do not question the statutory interpretation, but the ruling creates a moral hazard and a further risk for those who cannot afford an attorney in a criminal proceeding.

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The case of Breitenstein v. Deters, 19 -cv-413 (S.D. Ohio Western Division) is unusual. Plaintiff retained the Defendant lawyers to represent her in a medical malpractice case. The underlying case was dismissed, but the plaintiff appealed that decision. While the appeal was pending, she sued her lawyers for legal malpractice. The court dismissed the legal malpractice case because plaintiff filed the case before her underlying case was resolved.  In other words, the plaintiff filed suit too soon. This case was decided in the 6th Circuit, under Ohio law. (In Illinois, the result might have been different.)  The discussion by the court notes that plaintiff might win her appeal and thus the dispute with her lawyers is not ripe.

Here, Defendants contend that dismissal for lack of subject matter jurisdiction is proper because Plaintiff’s claim lacks ripeness. The primary basis for Defendant’s argument is that Plaintiff’s 2013 suit is still pending on appeal. As such, Defendants are still representing Plaintiff. (Doc. 3 at 3). Because the appeal is ongoing, Defendants assert that Plaintiff has not yet suffered any ascertainable damages from the underlying lawsuit. Id. at 1. Further, because Defendants have tolled the statute of limitations, Plaintiff may bring her claims, if appropriate, within a year after the appeal is over. Defendants therefore conclude that Plaintiff does not face a threat of future harm that warrants the Court to entertain the matter before it is ripe. (Doc. 7 at 1-2).

In support of their assertions, Defendants heavily rely on the decision in Kovacs v. Chesley to support their arguments for dismissal. Kovacs v. Chesley, 2000 U.S. App. LEXIS 8989 (6th Cir. 2000). The fact pattern in Kovacs is similar to the current matter: Plaintiff sued her attorneys for negligent evaluation of her medical records during Defendant’s representation of Plaintiff in a medical malpractice lawsuit. When Plaintiff brought the lawsuit against her attorneys, the underlying lawsuit was still undergoing settlement processes. Consequentially, the Court of Appeals for the Sixth Circuit upheld this Court’s dismissal of the case for lack of ripeness. (Id. at 2-3).

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Whether or not a case is barred by the statute of limitations in the legal malpractice context is not a matter of science, but rather of art. Indeed, you may think the case you filed was timely and a thoughtful defense lawyer will use the facts to creatively argue that your client should have “discovered” the injury and the malpractice long before you think they might have discovered the injury. Often the statute of limitations is the only defense the lawyer has. If that defense fails, there is no defense to the case.

The Court of Appeals of Utah recently decided a case where the negligence occurred long before suit was filed, but the plaintiff successfully argued that the lawyer fraudulently concealed the cause of action. In other words, plaintiff claimed that the lawyer was negligent and then hid the evidence of the negligence so the statute of limitations would expire. The case is First Interstate Financial LLC v. Scott Savage and Savage Yeats and Waldron, P.C., No. 20180660-CA. The Plaintiff alleged that it lost a jury trial due to the negligence of the lawyer defendant. The problem for plaintiff was that the verdict occurred in 2010, which would render the case time-barred by the statute of limitations.

The court set for the pertinent facts and the statute of limitations issue as follows:

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The opinion in Lloyd’s Syndicate 2987 v. Furman, Kornfeld & Brennan, LLP, 2020 NY Slip Op 02365 is pithy but worth considering.  Apparently the law firm advised an insurance company that it could deny coverage to a policyholder. That decision proved to be in error and the insurance company sued the law firm. Result: case dismissed.

The pertinent part of this pithy opinion is quoted here:

In this legal malpractice action, plaintiffs allege that they sustained damages when they relied on defendants’ negligent advice that they could disclaim coverage of their insured in an underlying malpractice action. In support of their motion to dismiss, defendants properly relied on documentary evidence, including the challenged disclaimer letter and the relevant policy, since their authenticity is undisputed and their contents are “essentially undeniable” (see DSA Realty Servs., LLC v Marcus & Millichap Real Estate Inc. Servs. of N.Y., Inc., 128 AD3d 587 [1st Dept 2015]; see also Kaplan v Conway & Conway, 173 AD3d 452, 453 [1st Dept 2019]; CPLR 3211[a][1]). The disclaimer letter sets forth an analysis of plaintiffs’ right to refuse coverage to their insured on two independent bases. Plaintiffs’ failure to allege with specificity or argue that one of the two bases for defendants’ advice was incorrect, requires dismissal of this legal malpractice action.

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This is another very important and recurring issue in the legal malpractice field. Most states have a rule that provides that a criminal defendant cannot sue his former attorney unless he establishes that he is actually innocent. Texas prefers the term “exoneration.” This year the Texas Supreme Court, in Gray v. Skelton, No. 18-0386, held that a criminal defendant can sue her lawyer once her conviction is vacated. During the malpractice case, however, she must demonstrate that she was innocent.

Patricia Skelton was an attorney who was convicted of fraud for allegedly altering a will. (She apparently cut and pasted signatures from one version of the will which had been damaged by water to another version printed out of a computer) After her conviction the probate court hearing the estate case found that there was no alteration of the terms of the will. Eventually Ms. Skelton was able to get her criminal conviction vacated. She then sued her criminal defense attorney for legal malpractice. The lower courts dismissed her case, but the Texas Supreme Court reversed and reinstated the case. The opinion discusses prior Texas decisions and then provides a legal definition of “exoneration.”  The discussion is quoted below:

Under the now so-called Peeler [v. Hughes and Luce, 909 S.W. 2d 494 (Texas 1995)\ doctrine, convicts may not sue their criminal-defense attorneys for malpractice unless “they have been exonerated on direct appeal, through post-conviction relief, or otherwise.” Id. at 498. This is so, the Peeler plurality explained, because “allowing civil recovery for convicts impermissibly shifts responsibility for the crime away from the convict.” Id. Without this rule, malpractice claims brought by convicted criminals would “drastically diminish[ ] the consequences of the convicts’ criminal conduct and seriously undermine[ ] our system of criminal justice.” Id. And as the plurality also noted, permitting a convicted criminal to recover damages through a legal-malpractice claim would allow that criminal “to profit by his own fraud, or to take advantage of his own wrong, or to found a claim upon his iniquity, or to acquire property by his own crime.” Id. at 497 (quoting State ex rel. O’Blennis v. Adolf, 691 S.W.2d 498, 504 (Mo. Ct. App. 1985)).

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One defense in a legal malpractice case is that the lawyer exercised judgment (usually at trial) and, therefore, he should not be liable for legal malpractice.

One way to explain this is to make an analogy to the role of a baseball manager. In my example, the manager’s team is leading 5-4 and there are two outs and two runners on base. The manager elects to intentionally walk the other team’s clean up hitter, Jones. He elects to have his pitcher pitch to the next hitter in the line up. Unfortunately, that hitter hits a home run (a grand slam) and four runs cross the plate. The angry fan (or newspaper columnist) says “He should not have intentionally walked Jones to pitch to Brown. If he had only done that, we would have won the game.” This is a classic case of a judgment call gone wrong. The manager made a decision after carefully weighing the odds and it turned out poorly. That is not baseball malpractice and it isn’t legal malpractice either if the lawyer elects not to call the criminal defendant to the stand or elects not to call an expert witness who will only support the State’s theory of the evidence. The key inquiry is whether or not the lawyer actually weighed the possible outcomes before he made his decision. In other words, was it a judgment call, or just a blunder?

In Schaeffer v. Thompson, No. 2180834 (Court of Civil Appeals of Alabama, February 20, 2020), the plaintiff claimed that the lawyer committed malpractice in the underlying case. Plaintiff obtained testimony by an expert witness that the lawyer’s work did not meet the standard of care.

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In Moreton Binn v. Muchnick, Golieb and Golieb, P.C. 2020 NY Slip Op 02020, the plaintiffs sued their lawyers for allegedly poor advice causing them to lose majority control of a series of corporations they owned. The court rejected the claims for a variety of reasons. First, some claims were dismissed because the lead plaintiff clearly consented to the transaction. Second, additional claims were dismissed because the plaintiffs engaged successor counsel to advise them on the 2016 transaction.  The relevant portion of the opinion states:

Plaintiffs allege that their long-time attorneys, defendants John Golieb, Esq. and Muchnick, Golieb & Golieb, P.C. (together, the Golieb defendants), gave poor advice in connection with a series of transactions in 2014, 2015 and 2016, resulting in the loss of plaintiffs’ majority interest and dilution of their interest in their airport spa business, XpresSpa Holdings, LLC (XpresSpa), as well as other damages. The motion court correctly concluded that documentary evidence, including emails and transaction documents, rendered it “essentially undeniable” that plaintiffs were advised of and/or otherwise understood the terms of the transactions they entered into in 2014 and 2015, as well as their alternative options, if any (see Amsterdam Hospitality Group, LLC v Marshall-Alan Assoc., Inc., 120 AD3d 431, 432 [1st Dept 2014] [internal quotation marks omitted]). Those documents “conclusively establish[] a defense to the asserted claims as a matter of law” (Leon v Martinez, 84 NY2d 83, 88 [1994]; see CPLR 3211[a][1]).

The court correctly concluded that plaintiffs failed to establish that the Golieb defendants were the proximate cause of any damages in connection with the 2016 vote on the merger of XpresSpa and its acquisition by Form Holdings Corp. Documents show that plaintiff Moreton Binn voted in favor of the merger “under protest,” that he felt “frozen. . . out” of the merger negotiations, and that he received inadequate information from Form Holdings — factors outside of the Golieb defendants’ control. Moreover, in connection with their execution of the Joinder Agreement relating to the merger, plaintiffs retained separate counsel to represent them and the minority shareholders in evaluating the voluminous merger and acquisition documents by reviewing the documents and summarizing their terms for the minority shareholders. Thus, separate counsel was an intervening and superseding cause of any damages (see Boye v Rubin & Bailin, LLP, 152 AD3d 1, 10 [1st Dept 2017]).

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The case, Herren v. Armenta, No. 1-CA-CV-18-0381 (Arizona Court of Appeals January 14, 2020) is a legal malpractice case where Herren lost her underlying case, a business dispute. As we shall see, despite evidence of negligence she also lost the legal malpractice case.

In the underlying matter, Herren hired Armenta to defend a lawsuit by Tonto Supply over a gravel-mining contract. The defense did not go well as we can see from this quote:

¶4 Tonto Supply then filed a multi-claim lawsuit against Herren, and Herren hired Arizona-licensed Holden and her firm to assist with the lawsuit. After Appellees filed an answer and counterclaims on Herren’s behalf, Tonto Supply filed five motions for partial summary judgment on various claims and counterclaims and sent Herren a request for admission of 25 factual matters. Appellees did not respond to the request for admissions and failed to timely respond to the partial summary judgment motions. Appellees were late responding to four of the motions, even after obtaining an extension following the initial deadline, and Appellees neglected to respond at all to one of the motions.

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