Litigation Funder Whacks Texas Lawmaker with $2.9M Legal Malpractice Judgment

Texas Lawyer reported that a U.S. District Judge ordered a Texas attorney to pay $2.9 million to a client, for failing to disclose his relationship with the judge who was presiding over the client’s case.

Background

The Law Funder, LLC, which is based in New York City, and according to its Bloomberg profile, “advances funds for motor vehicle accidents, slip and falls, products liability, discrimination/wrongful termination,…and commercial litigation”, hired sole practitioner Sergio Muñoz Jr., who is also a member of the Texas House of Representatives, representing District 36, to represent it in a divorce proceeding in which it claimed an interest in a Mexican law firm that was part of the division of assets.

Law Funder alleged that Muñoz failed to disclose that he used to be a partner in the law firm of Contreras & Munoz, with Jesses Contreras, the judge hearing the matter.

The Brownsville Herald reported that in July 2012 – over a year after Law Funder had retained Munoz – state senior District Judge Dick Alcala disqualified Contreras from hearing the divorce case “because of the corporate association with defendant Sergio Muñoz Jr., that was in existence when they were lawyers together and continued through the time Muñoz appeared for Law Funder.” Further, “…Judge Contreras arguably had an interest in the subject matter of the litigation and the court resolved that doubt in favor of disqualification.” 

Lawsuit

Law Funder sued Munoz and his firm in December, 2014 in US District Court, Southern District of Texas, claiming that it wouldn’t have hired him, if it had known of his prior relationship with Contreras.

Default Judgment

Munoz answered the suit, but Judge Alvarez granted a default judgment to Law Funder in February, 2017, ruling that he had delayed the case by refusing to cooperate in the discovery process, and that Law Funder had presented enough evidence to prove that Muñoz committed legal malpractice by failing to disclose his relationship with Contreras.

“The existence of defendants’ corporate association with Judge Contreras thus created a duty for the defendants to be honest with plaintiff from the beginning about this relationship, so plaintiff could make an informed decision about whether or not to retain defendants as counsel of record,”.

The judge also decided that Law Funder had sufficiently pled actual damages that Muñoz’s business relationship with Contreras led to Contreras’ disqualification, reversing years of litigation that cost Law Funder over a million dollars.

Damages

According to PACER’s summary of the docket (reg. req’d.), a bench trial on damages was held on 9/12/17. Defendants demanded a jury trial on damages, but the court denied it, based on precedential case law holding that defaulting defendants have no Constitutional right to a jury trial. Law Funder then presented its case, submitting exhibits and examining three witnesses, whom Defendant cross-examined.

Judge Alvarez entered her Final Judgment (PACER reg. req’d.) on 9/29/17:

On February 2, 2017, the Court granted judgment on liability in favor of Plaintiff The Law Funder, LLC and against Defendant Sergio Munoz, Jr. and Defendant Law Offices of Sergio Munoz, Jr., P.C.1 Thereafter, on September 12, 2017 the case came on for a trial on damages. Plaintiff and Defendants presented their cases to the bench and rested. The Court, having reviewed the evidence and other relevant documents, hereby GRANTS judgment as follows:

 It is ORDERED, ADJUDGED AND DECREED that Plaintiff The Law Funder, LLC have and recover from Defendant Sergio Munoz, Jr. and Defendant Law Offices of Sergio Munoz, Jr., P.C. jointly and severally the sum of $2,988,660.61. The Law Funder is also entitled to court costs.2 Post-judgment interest will accrue at an annual interest rate of 1.31%.3

IT IS SO ORDERED.

DONE at McAllen, Texas, this 29th day of September, 2017.

Munoz subsequently filed a Motion for Relief From Judgment, which Law Funder opposed, then a Notice of Appeal, and then a Motion for a New Trial.

The Law Funder, LLC v. Munoz, Jr. et al, Case Number: 7:14-cv-00981.

Johnny Depp Seeks To Have Ex-Lawyers Walk the Plank in $30M Malpractice Claim

Actor Johnny Depp, the star of the “Pirates of the Caribbean” movies, which have grossed over $4.5 billion worldwide, has sued his former attorneys for improperly generating about $30 million in contingent legal fees.

Depp, who also starred in “Edward Scissorhands”, “The Lone Ranger”, and dozens of other movies, filed a lawsuit in Los Angeles County Superior Court state court on 10/17/17, against Beverly Hills, California-based Bloom Hergott Diemer Rosenthal LaViolette Feldman Schenkman & Goodman and firm lawyer Jacob Bloom, who represented him from 1999 until early this year.

He alleges legal malpractice, breach of fiduciary duty, unjust enrichment, and violation of several chapters of the California Business and Professional Code.

Depp is represented by a small army of lawyers in his malpractice suit, including Washington, DC-based The Endeavor Law Firm and Stein Mitchell Cipollone Beato & Missner, and local counsel from Buckley Sandler’s office in Santa Monica, California.

Malpractice Complaint

The complaint alleges that Bloom and his firm “engaged in self-dealing and pursued and undertook transactions in the face of undisclosed conflicts of interest for their own financial benefit over that of their clients”, and collected more than $30 million in fees despite not having a written contract with Depp, as required under California law.

Depp also alleges that Bloom and his law firm failed to failed to discover and disclose “years of misconduct” by Depp’s business managers (see below).

Depp claims that the firm’s conduct jeopardized his finances:

“Like many successful artists who depend upon professionals to advise them, Mr. Depp trusted and reasonably relied on defendants, as his attorneys, to handle his legal affairs competently and ethically…Instead of protecting Mr. Depp’s interests, defendants engaged in misconduct for their own financial benefit and violated some of the most basic tenets of the attorney-client relationship, all to Mr. Depp’s serious financial detriment.”

Law Firm’s Response

Bloom Hergott said in a statement to The Los Angeles Times, “In light of the longstanding relationship between the Bloom Firm and Mr. Depp, the Firm is extremely disappointed that Mr. Depp has decided to file this lawsuit”, and the firm intends to defend the lawsuit “vigorously.”

Complaint Against Business Managers

Earlier in this year, Depp sued his former business managers at The Mandel Company Inc. (d/b/a/ The Management Group (TMG)).

That suit accused TMG of taking more than $28 million in fees from Depp that he never agreed to pay, and allegedly failed to perform basic tasks, such as filing his taxes on time and keeping accurate records of his finances.

Depp further alleged that TMG effectively “treated Mr. Depp’s income as their own,” investing the actor’s money in businesses in which TMG held an ownership stake, and loaning his money to third parties without authorization. 

Cross-Complaint

TMG filed a cross-complaint against Depp and other parties, claiming that “TMG repeatedly warned and advised Depp to reduce his spending and sell unnecessary assets.” However, “Depp listened to no one, including TMG and his other advisors.”

He “lived an ultra-extravagant lifestyle that often knowingly cost… in excess of $2 million per month to maintain, which he simply could not afford…Depp, and Depp alone, is fully responsible for any financial turmoil he finds himself in today.”

Malpractice Insurance Issue

If the Bloom Hergott firm refunds fees to Depp, i.e., to settle his allegation of unjust enrichment, or if Depp is awarded punitive damages, any such payment won’t be covered by the firm’s malpractice insurance policy.

The wording in Aspen American Insurance Company’s policy is typical:

I. INSURING AGREEMENTS

A. Coverage

The Company will pay on behalf of the Insured all sums in excess of the deductible that the Insured shall become legally obligated to pay as damages

Words in bold type, i.e., “damages” are defined in the policy:

III. DEFINITIONS

E. Damages means any compensatory sum and includes a judgment, award or settlement, provided any settlement is negotiated with the Company’s written consent.

Damages do not include:

  1. The return, reduction or restitution of fees, expenses or costs for professional services performed, or to be performed, by the Insured and injuries that are a consequence of the foregoing;
  2. Fines, penalties, forfeitures, or sanctions;
  3. The multiplied portion of any multiplied awards;
  4. Injunctive or declaratory relief; or
  5. Punitive or exemplary damages.

(Emphasis added).

 

FURTHER READING

Johnny Depp IMDB Profile

Johnny Depp Wikipedia Page

Vanity Fair article on Johnny Depp’s financial troubles

 

Texas Supreme Court Affirms Dismissal of Malpractice Claim Against Andrews Kurth

Editor’s note: this post was originally published on 10/24/2016. It has been updated to reflect further developments.

Law360 reported that the Texas Supreme Court affirmed an appeals court’s dismissal of a legal malpractice claim against Am Law 200 member Andrews Kurth Kenyon LLP, whose clients incurred a $3 million judgment in a suit filed by the sellers of a home health care agency that they purchased.

Background

According to the appeals court’s decision and a synopsis of the malpractice complaint, entitled Rogers v. Zanetti, James Rogers hired Andrews Kurth attorney Victor Zanetti to represent him in his acquisition of 80% of Accent Home Health from its owners, Daniel and Leslie Alexander.

After the deal concluded, Rogers was added as a signatory to Accent’s bank account, and opened new bank accounts for Accent. Further, his colleague and co-plaintiff, William Burmeisterer, handled Accent’s accounts payable.

A dispute soon arose between Rogers/Burmeister and the Alexanders, who alleged that Rogers had misallocated funds from Accent’s bank account. The Alexanders sued to void the Investment Agreement as unconscionable, unenforceable, illusory and void, and also brought claims for fraud and breach of fiduciary duty.

Rogers/Burmeister asked Attorney Zanetti to refer them to a lawyer to defend them; he recommended his colleague, Charles Perry, of Andrews Kurth, who accepted the case.

The matter was tried in 2004. The jury found that the Rogers/Burmeister defendants had committed fraud and breached their fiduciary duties, and awarded the Alexanders over $3 million in damages. Further, the trial court ruled that the Investment Agreement was void.

The defendants appealed the judgment, and the Dallas 5th Court of Appeals affirmed.

Malpractice Complaint

Texas Lawyer reported  that in 2012 – eight years after the trial – the Rogers/Burmeister defendants sued Andrews Kurth, and attorneys Zanetti and Perry for negligence and breach of fiduciary.

Their counsel stated that his clients had paid the Alexanders’ about $100,000 of the judgment, which by then had increased to about $5 million.

The primary allegations against the Andrew Kurth defendants were::

  • Zanetti had a fiduciary duty to recommend an outside lawyer, since the contract that he had drafted was at the center of the litigation, but instead recommended a co-worker, whose fiduciary duties were split between his clients and his firm. “This irreconcilable conflict of interest compromised the entire strategy for defending the case…Perry and Andrews Kurth LLP found themselves in the untenable position of choosing between defending the work product of Zanetti that had sparked the litigation and acting as zealous and competent advocates for the plaintiffs, who were the firm’s clients.”
  • Perry didn’t hire an expert to counter the Alexanders’ expert’s valuation of their business, and thus failed to rebut their damages claim.
  • Perry advised his clients to prepare documents detailing the services that they were providing to Accent, which were to be used in deposition, but he allegedly tried to “hoodwink” the court by pretending the documents were old invoices, rather than having been prepared for litigation purposes. Rogers was forced to pay $25,000 in sanctions when the court discovered the truth. (Following the sanction, Andrews Kurth suggested that their clients find new counsel, which they did.)
  • Perry failed to tell his clients that he had received a $450,000 settlement offer from the Alexanders before trial, which “would have released the [Clients] from liability and given them control over Accent.”

Rogers/Burmeister seemed to believe that this was their strongest claim.

According to the Appeals court decision, they elicited deposition testimony from the Alexanders’ attorney (Marketos) that

“he sent a settlement demand to (Rogers/ Burmeister) soon after the (Alexanders)… filed (suit) and got no response. The record contains the settlement offer itself, which was dated August 6, 2003. The Alexanders offered to let Rogers continue using the Accent name and to execute mutual releases of all claims if Rogers paid them $450,000…Marketos said the demand was a “starting point,” but he could not remember how much authority he had to go below $450,000.

Rogers testified by affidavit that the Lawyers did not communicate the settlement offer to him and that he did not learn about it until 2013…

Rogers further said, “Had I known that I could have settled the case with the Alexanders and Pucci and received control of Accent for $450,000, I would have instructed my attorneys to negotiate the best possible resolution and release without incurring the time or expense of litigation.”

He also said that the Alexanders… made settlement demands of over a million dollars after the trial court sanctioned him.”

Law Firm Response

Andrew Kurth filed a motion for summary judgment that argued “(1) no evidence of causation, (2) collateral estoppel, (3) the unlawful-acts doctrine, (4) the statute of limitations, and (5) impermissible fracturing of negligence claims into fiduciary breach claims.”

The trial court granted the motion.

Appeals Court

Plaintiffs appealed, and the Fifth Court of Appeals upheld the lower court’s dismissal in June, 2015.

Regarding the settlement offer, the court ruled:

“…the clients contend that they would have avoided a much larger liability and acquired Accent as well if they had known about the settlement offer. For this to be true, they would have had to both reach a settlement and perform its term…But they adduced not evidence that they could pay the Alexanders $450,000, as the actual settlement offer demanded, or any lesser amount that the Alexanders would have accepted. Without such evidence, there is a fatal gap in the but for cause evidence.”

Supreme Court Appeal

Rogers/Burmeister appealed the dismissal to the Supreme Court, arguing that the lower courts erred by applying the “but for” legal malpractice causation evidence standard to their claims.

That standard requires that plaintiffs prove that they would have prevailed at trial “but for” their attorney’s alleged legal malpractice. Instead, plaintiffs argued that their claims should have been evaluated on the basis of whether the Andrew Kurth defendants’ alleged wrongdoing was a substantial factor in bringing about their complained-of injuries — not the “case within a case” test that asks whether the clients would have prevailed “but for” the firm’s alleged errors.

According to Texas Lawyer, Rogers/Burmeister’s lawyer said the review of the case — and whether the “but for” legal malpractice causation evidence should be applied to it — is important.

“The standard that should have been applied is the substantial factor causation test. It means I don’t have to prove I would have won this case, but the lawyer’s negligence was substantial in causing some quantifiable harm…Had the trial court and the Dallas Court of Appeals applied the correct standard, there is absolutely no question that this case should have been decided by a jury and not a court in a one-page order,” he said.

The Supreme Court accepted the case for review, and scheduled oral argument for Jan. 11, 2017.

Defendants Brief

Texas Lawyer reported Andrews Kurth argued in its Supreme Court brief, that its former clients reliance on the “substantial factor” causation standard should fail, and their alleged damages due to the lost settlement opportunity are “sheer speculation”.

“For example, there is no evidence in the summary judgment record that plaintiffs had the financial capacity or desire to settle the case at any amount — much less the (as of yet, hypothetical and unspecified) amount acceptable to Accent… Instead, plaintiffs ask the court to reverse summary judgment based on their sheer speculation that an agreement would have been reached. But plaintiffs’ assertions of ‘possibility, speculation, and surmise’ are ‘no evidence of causation’…Plaintiffs’ lost settlement opportunity thus fails as a matter of law.”

Further, because the investment agreement at issue was procured by fraud perpetrated by Rogers, one of the plaintiffs, and any negligence in drafting a contract is irrelevant if a party’s intentional fraud voids it.

Oral Argument

Andrews Kurth reiterated during oral argument before the Supreme Court that Rogers/Burmeister presented no proof that they would’ve accepted the Alexanders’ settlement offer, or had the money to pay it.

Thus, even if Andrews Kurth had breached its duty by not relaying the settlement offer, the plaintiffs didn’t prove that the case would’ve settled.

Supreme Court Ruling

The court concluded that the lower court had correctly pointed out there was no evidence in the record that Rogers could have paid the $450,000, or that the case would have settled for that amount.

“A plaintiff need not prove causation with absolute certainty, but the evidence must establish causation beyond mere possibility or speculation,” the court wrote, explaining it the appellate court didn’t err in applying the “but-for” causation to the malpractice allegations. “Moreover, the court did not err in affirming the summary judgment because Rogers’ summary-judgment evidence fails to raise a material fact issue as to the causation element of Rogers’ negligence claims.”

Rogers/Burmeister’ attorney said he was disappointed by the court’s ruling, and called it  a “giant step backwards for the rights of clients who are unfairly harmed by mistakes of their lawyers that easily could have been prevented.”

“The bottom line is this is a big victory for careless lawyers whose clear mistakes have harmed their clients at the expense of people who depend on lawyers for fair and honest legal services,” he said.

 

About the author: Curtis Cooper is Managing Principal of Lawyers Insurance Group, a legal malpractice insurance brokerage, whose mission is to obtain the best terms that are available in the market for every law firm. Apply on-line to obtain no-cost, no-obligation quotes from “A+”-rated insurers.

Client Trumps Kasowitz Benson Suit For Fees With Claim For Billing Fraud

National Law Journal reported that Kasowitz Benson Torres, best known for name partner Marc Kasowitz’s representation of Donald Trump, has been sued by a corporate client for billing fraud, after the firm sued the client for over $1 million in unpaid fees.

Representation and Fee Suit

Patriot National, Inc., which is publicly-traded, and claims to be “one of the largest private employers in Broward County”, Florida, provides back-office functions to insurance companies. It hired the Kasowitz firm in 2016 to defend it against three federal court suits pertaining to stock sales. The firm also represented some of Patriot’s defendant directors in a shareholder derivative case in Delaware state court.

However, in February, 2017, Patriot informed Kasowitz Benson that it was going to hire different counsel, which would be approved by its insurance carrier, so that it could be reimbursed for attorney fees. The Kasowitz firm had never sought such approval.

The firm claims that it began working with new counsel, but also informed Patriot that it had placed a lien on the file for the federal court actions, because Patriot still owed it about $1 million for work it did in December 2016. Kasowitz Benson also stated that it had never agreed to condition payment for its services on an insurer’s reimbursement.

Patriot then paid that bill, and Kasowitz Benson waived its retaining lien and turned over its file, relying on Patriot to pay its remaining bills, which totaled $1.097 million.

However, Patriot didn’t pay, so Kasowitz Benson filed a collection lawsuit against it in May, 2017 for the $1.097 million.

The fee suit stated that its work for Patriot included opposing applications for temporary restraining orders and preliminary injunctions, conducting expedited discovery and reviewing tens of thousands of documents.

Malpractice Suit

Patriot countered by filing a suit against Kasowitz Benson on 6/30/17 in Broward County, Florida, alleging fraud, malpractice, breach of fiduciary duty, and breach of contract. It seeks “recoupment” of “approximately $2 million” that it paid the firm, plus expenses and damages.

The filing opens with a flourish, claiming that “Instead of receiving legal services commensurate with a law firm that represents the President of the United States, (Patriot) was subjected to fraudulent billings, malpractice and other egregious misconduct that has caused millions of dollars in damages.”

Patriot alleges that the firm’s invoices showed that that the amount of time the firm spent on tasks were unnecessary, duplicative, non-billable activities or “grossly excessive (and in some instances appear to be beyond what would be humanly possible).”
Among the examples it cites:

  • Kasowitz Benson spent “an inordinate and unreasonable amount of time researching basic hornbook legal principles” and drafting affirmative defenses that “were stricken in large part by the court…as being factually and legally deficient”, which prejudiced Patriot.
  • Kasowitz Benson billed 2.7 hours for an e-filing, which was a non-billable activity, five hours to “assist filing”, and an attorney charged more than 13 hours on one day for “cite-checking” and general help with filing”. (Note: per the engagement letter, hourly billing rates for attorneys ranged from $290 to $1,250.)
  • One biller brazenly claimed he billed 24 hours, i.e. every waking moment, to Patriot National on drafting tasks. Together, he and his like-minded Kasowitz colleagues billed Patriot National 154.4 hours for a single, non-trial, day.”
  • The firm billed more than 83 hours to assemble binders.
  • “One Kasowitz biller would routinely bill…for hours beyond that which is possible”, for example, “272.8 hours over a 17-day period (an average of 16 hours per day)”.

The suit claims that “given these fraudulent billing practices, it is no surprise that the law firm managed to bill its…client more than $3.4 million in attorneys’ fees and costs in less than a year.”

Patriot also alleges  that “by failing to become approved counsel for the inusrer providing coverage” to Patriot, “the law firm created a situation where replacement counsel was forced to redo substantial work, causing the client to incur significant—but entirely unnecessary—costs.”

Further, Patriot claims that when it “was required” to replace Kasowitz Benson with insurer-approved counsel to defend it in the securities suits (Cahill Gordon and Greenberg Traurig), the firm “improperly threatened to impose a lien on the files in an attempt to extract even more money from Patriot…despite the pendency of multiple cases in litigation with sensitive, court-imposed deadlines…”

Patriot accuses Kasowitz of “fraud, greed, extortion and other blatant misconduct”, which “represents everything that is wrong with the legal profession”.

Law Firm’s Response

Kasowitz Benson said in a statement:

“All of our billing was entirely appropriate, covering expedited motion practice and discovery in three cases in which we represented the company. Further, Patriot National never objected to any of our bills or work throughout our representation of it.”

It intends to fight the “frivolous” lawsuit:

Missed Deadline in Med Mal Suit Results in Plaintiff Win in Legal Mal Suit

legal malpractice missed deadlineThe Connecticut Law Tribune reported that a jury ruled in favor of the mother of a deceased young man, who sued the estate of the attorney  who allegedly mishandled her son’s medical malpractice claim.

Background

Peter Gonzalez, 25, sought medical attention from Med-Help, a walk-in center based in Bristol, CT in July, 2010.

He later was admitted to Bristol Hospital, and died from complications of a perforated appendix that had been left untreated.

His mother, Tina Gonzalez, retained Enfield, CT attorney David E. Marmelstein to file a medical malpractice claim, even though Marmelstein reportedly had little, if any experience handling such matters.

Marmelstein allegedly “failed to timely and properly investigate and prepare the medical negligence claim to comply with Connecticut legal requirements.” As a result, the two-year statute of limitation expired before suit was filed.

Marmelstein died of a heart attack in October 2013, about 14 months after the statute of limitations expired.

Lawsuit and Outcome

Tina Gonzalez sued Marmelstein’s estate in Hartford Superior Court.

A six-person jury deliberated for two hours, before finding in her favor.

She and Marmelstein’s estate had reached a confidential settlement agreement prior to trial, payment of which was presumably contingent on the jury ruling in her favor.

It’s not known if Marmelstein had a legal malpractice insurance policy that defended and indemnified his estate for this matter.

Reaction

Gonzalez’ attorney told the Connecticut Law Tribune “This was a very unique case…Legal malpractice is somewhat of a rare claim. But, underneath this is a case within a case. We actually had to put on two cases: medical malpractice and a legal malpractice case.”

He added that the jury agreed that Gonzalez would’ve won the medical malpractice case, if it went to trial, and that Marmelstein was at fault for not filing a claim prior to the statute of limitations expiring.

“He [Marmelstein] got involved in a case that would have been better served by another attorney.”

The attorney also stated that Tina Gonzalez “should not have had this drag on for six years without a resolution. The fact that this is over and there is closure to her son’s death is satisfying to her and the rest of her family.”

Comment

Risk Management Rule #1 for every attorney should be “don’t dabble” in cases that are outside of your area of expertise. This is especially true for litigated matters like this one, because it’s easy to miss an SOL, as happened here, or commit another error, due to lack of understanding of the relevant rules of civil procedure.

The Lawyer.com profile of attorney David E. Marmelstein of Enfield, CT, who’s likely the same attorney that handled this matter, lists his practice areas as Construction, Consumer Protection, Environmental Law, Mental Health, and Land Use & Zoning.

None of these are remotely related to medical malpractice, which is one of the most complex practice areas. These cases generally take a long time and great expense to litigate, and are difficult to win, even if the fact pattern favors the plaintiff. Firms that specialize in Plaintiff Med. Mal. cases are best equipped to handle them

Every attorney should recognize his or her limitations, and refer matters outside of their expertise to local counsel who’s competent in such matters. Such counsel will often pay a referral fee, especially for matters like this one, where the damages are significant.

Referral is thus in the best interests of the referring attorney and the client.  

Failed Real Estate Deal Lands Carlton Fields A Malpractice Claim

Legal Malpractice Carlton Fields

Daily Business Review reported that a former client is suing Am Law 200 member Carlton Fields Jorden Burt, LLP and two of its attorneys, for legal malpractice over a failed $25 million land deal.

Background

Real estate investor 276 Port L.P., sought to buy an 8.5-acre parcel of land in Fort Lauderdale, several minutes from Fort Lauderdale International Airport. 

The property was encumbered by five ground leases with a remaining term of about 40 years. The leaseholder was interested in selling the leases, but Port believed “certain perceived defaults” would allow it to terminate them, including the leaseholder’s removal of a motel and other structures, and failure to post surety bonds.

The parties agreed on a purchase price of $25 million. Port put down a deposit of $200,000, which would become non-refundable after the 60-day due diligence period expired.

According to court filings, “the $25 million purchase price for the property was premised on the assumption that the leases were in default or would be in default at some future time and could be terminated.” If the leases stayed in place, the $25 million price tag would have “been excessive and unjustified”.

Port retained Carlton Fields and its attorneys Gross and Steinman in April, 2016, to work on the deal, including “Review and analyze ground leases for potential defaults and develop strategy for resolving same including possible litigation…”, according to the engagement letter between the parties. The firm charged $595 per hour with a $10,000 retainer.

Port claims that:
“Carlton Fields sent a six page Opinion Letter to Port, opining that there were numerous violations of the Leases based on defaults that had occurred in 2007 and Carlton Fields also opined that:

“We believe that the likelihood of prevailing on some of these claims, at least in connection with terminating the Ground Leases, would be greater than 50% . . . .”

Port said it relied on that opinion, but it turned out be erroneous, which caused it to lose its deposit, when the deal didn’t close.

Port also claims that:
“Carlton Fields terminated its representation of Port on September 12, 2016, and Port had to find successor counsel. Carlton Fields refused to turn over Port’s file until after Port gave the law firm a full release. Carlton Fields attempted to coerce a release from Port and conceal further evidence of its malpractice.”

Berger Singerman, Port’s successor counsel, concluded that “there was no viable way to acquire the Property and then terminate the…Leases, because all such claims were barred as a matter of law. “

Malpractice Claim

Port’s complaint alleges negligence and breach of fiduciary duty against Carlton Fields, Gross and Steinman, and negligent misrepresentation against Carlton Fields and Gross.

“The Carlton Fields Opinion Letter was erroneous. Carlton Fields failed to reasonably investigate the facts and failed to research and analyze the relevant law.

Among other things, the Leases were not in default and could not be terminated because:

-The alleged defaults occurred in 2007 and 2008. Any claims of default under the Leases would be barred by the 5-year statute of limitations, waiver and estoppel.

-In May 2013, the existing landlord had issued an Estoppel Certificate for the benefit of the Tenant’s predecessor in interest, which stated that “Tenant is not in default under any of the Leases.”

“…Carlton Fields was wrong,” said Port’s attorney. “If the opinion had been, ‘You can’t terminate the ground leases,’ my client would have gotten their deposit and gone on to do different things.”

Firm’s Response

Carlton Fields filed an answer alleging that Port had contributory/comparative negligence for its damages, failed to mitigate its damages, etc. It also filed a counterclaim for breach of contract, alleging that Port failed to pay its invoices, which according to Port totaled at least $96,311, and asked the court to award compensatory damages, pre- and post-judgment interest, reasonable costs and other relief.

It denies any wrongdoing, and promised to “staunchly defend” itself against the plaintiff’s attempt “to blame Carlton Fields for its own business decisions.”

“Against Carlton Fields’ advice, Port publicized the litigation strategy to potential investors, which then caused problems between Port and the seller,” said the law firm’s outside malpractice defense counsel. “The deal failed to close for this and other reasons unrelated to the firm’s work.”

The ‘publicity’ counsel referred to was an information package that Port sent to potential investors, which included the Carlton Fields Opinion.

Boies, Schiller & Flexner, which was counsel for the ground lease tenant NAP 17th Street, obtained it, and advised Carlton Fields that NAP 17th Street would sue for slander of title if Port or JDM (the property seller) asserted that the leases were in default or tried to cancel them.

JDM then informed Port that it would not extend the closing on the sale of the property, unless Port agreed to indemnify it, if NAP 17th Street sued it. Port declined to do so, and the transaction did not close, which caused Port to lose its deposit

Analysis
If Port’s allegations are true, then attorney Gross should’ve concluded that the ground leases couldn’t be terminated.

Despite that, the firm appears to have a good contributory negligence claim, as Gross’ letter stating “We believe that the likelihood of prevailing on some of these claims, at least in connection with terminating the ground leases, would be greater than 50%”, while incorrect, was hardly a ringing endorsement, let alone a guarantee of victory.

Also, Port’s hard damages appear to be limited to its lost deposit of $200,000 and the fees it (presumably) paid Berger Singerman. Assuming the total is $250,000 or less, it’s likely within Carlton Fields’ malpractice insurance deductible or self-insured retention.

All of these factors should encourage a settlement of this matter, before litigation expenses mount.

$850K Malpractice Verdict in the Case of the Missing Expert Report

Legal Malpractice Expert Report

The New Jersey Law Journal reported that a Passaic County jury awarded $850,000 to the plaintiff in a legal malpractice case whose attorney failed to obtain an expert report.

Underlying Case

Plaintiff Aref Abuhadba hired Thomas Doerr of Berman Sauter Record & Jardim in December, 2010, to sue various contractors who allegedly designed and built a retaining wall on his property that cracked and bulged right after it was completed, and had to be shored up. The wall was intended to facilitate construction of a residence on a mountaintop lot in Totowa, NJ.

Doerr filed suit on Abuhadba’s behalf in March 2011, but allegedly failed to take any steps to secure expert reports by the agreed-on deadline, or for months afterward.

That led to the court granting defendants’ motion for summary judgment.

Abuhadba’s effort to vacate the summary judgment failed.

Firm Disbands

Berman Sauter shut down after Abuhadba lost his case, but before he sued it.

The firm is also a party to another malpractice suit—Berman, Sauter, Record & Jardim v. Robinson. That suit began as a fee dispute, but one of the defendants filed a counterclaim alleging that Sauter negligently handled a real estate matter.

The case achieved notoriety in legal circles, due to a dispute over whether the same judge could preside over it at both the trial court and appellate levels. The NJ Supreme Court ruled that he wasn’t precluded from doing so. The case is scheduled for a retrial on May 1.

Malpractice Claim

Abuhadba filed a malpractice suit against Attorney Doerr and the Berman Sauter firm, after it had disbanded.

Their defense was that an expert repeatedly promised to produce his report, but failed to do so. However, Doerr claimed all his interactions with the expert were by phone, so there was no correspondence to support that claim.

The jury obviously didn’t believe the firm’s defense. The $850,000 it awarded Abuhadba is the amount that he stood to recover in the legal malpractice case, according to his attorney, and he’ll seek interest and a fee award, pursuant to Saffer v. Willoughbywhich permits fee shifting in legal malpractice cases.

The verdict was covered by Berman Sauter’s malpractice insurance policy.

Analysis

This appears to be an open-and-shut case of legal malpractice, so why was it tried, i.e., why was ‘good money thrown after bad’ defending an apparently unwinnable case?

Since the firm’s malpractice insurer paid the verdict, it also provided a defense. So why didn’t the defense counsel it retained evaluate the case early on as unwinnable, and recommend that it be settled?

Alternatively, if that did happen, and the insurer agreed, but the firm refused to consent a settlement, which is required by all legal malpractice policies, then why didn’t the insurer cite the “hammer clause”, whereby if a firm refuses to agree to a settlement recommended by the insurer, it must pay out-of-pocket any indemnity + defense costs over that amount that the insurer incurs.

It’s unlikely that if Berman Sauter’s insurer did send it a “hammer clause” letter, that the firm, which as noted, had already disbanded, would’ve withheld its consent to a settlement.

By allowing the case to be tried, the insurer and the firm may both be exposed to a fee shifting award (the insurer’s exposure depends on how much, if anything, is left on the per claim limit of the firm’s malpractice policy, after payment of the verdict and defense counsel’s fees).

Most importantly, why didn’t the attorney either retain an expert or tell the plaintiff that he couldn’t find one, and then withdraw from the case?

Wrong Word in Contract Leads to $2M Malpractice Suit

Legal Malpractice Taylor EnglishWrong Word in Contract Leads to $2M Malpractice Suit

Daily Report Online reported that Taylor English Duma, a 133-lawyer firm based in Atlanta, and one of its partners, have been sued for malpractice for allegedly mis-drafting a purchase agreement.

Background

Alpharetta, GA-based Opsolve, LLC provides support services to energy companies.

It agreed to purchase all of the stock of software company Enercom, in 2013. Taylor English partner Jeff Woodward represented OpSolve in the acquisition.

OpSolve claims that the agreed purchase price was Enercom’s 2013 revenue minus a guaranteed payment of $275,000, with the total payment capped at $730,000.

Enercom’s 2013 revenue was about $513,000, so under the agreed-upon formula, the purchase price should have been about $238,000.

However, OpSolve alleges that the agreement drafted by Woodward called for a purchase price of Enercom’s 2013 revenue plus $275,000, again capped at $730,000.

As a result, Enercom’s shareholders demanded $455,000 plus the guaranteed payment—a difference of $217,000. (It’s unclear where the $455,000 figure comes from: $513,000 + $275,000 =$788,000, which would be reduced to $730,000, per the cap. This is the amount Enercom should’ve demanded, if the contract was for revenues plus $275,000, adjusted for the cap).

Litigation

OpSolve alleges that “rather than admitting his negligence and mistake, (Woodward) instead chose to influence his client OpSolve in a manner which required OpSolve to pursue litigation,” against Enercom.

Enercom presented OpSolve with a demand letter, which was rejected, and then sued OpSolve in May 2014, in Fulton County Superior Court.

OpSolve’s defense strategies included that a “mutual mistake” was made by both parties in drafting the agreement, and that it contained “ambiguities” that should allow it to be reformed under Georgia law.

“Predictably, however, the litigation strategy was disastrous,” OpSolve claimed, and cost it “substantial and completely unnecessary legal fees on top of the additional amounts it already owed to Enercom under the clear and unambiguous terms” of the agreement.

OpSolve alleges that two other Taylor English partners, Patton and Weber, reviewed the agreement and Enercom’s demand letter at Woodward’s request; Woodward then advised OpSolve to reject it.

Three months later, Weber sent a memo to Patton, warning that Enercom’s court filings provided “ample support for their legal argument” that the purchase agreement was “unambiguous on its face.”

She also asked whether Enercom had “raised the issue” of Georgia’s frivolous litigation statute. “I think we need to be cautious of how we proceed given the arguments we are
attempting to raise potentially lack both legal and actual authority.”

A  few days later, Patton advised OpSolve’s managing partner via email, that “absent clear evidence” that Enercom “understood the deal the same way we did, we will not win” on the issue.

Patton also advised Woodward in a private email that, “At this point, my opinion is that we are throwing good money after bad” defending the case, and “allowing opposing counsel to run up their legal fees.”

OpSolve claims that Woodward never told it that his colleague Patton had recommended that OpSolve honor the agreement as written and get out of the suit, and that “Woodward persisted in the position that his work was correct and that OpSolve could prevail in the litigation, contrary to the advice” of his colleagues.

In October 2014, Enercom issued a settlement demand for $600,000: $455,000 owed under the contract plus $150,000 in attorney fees and expenses.

OpSolve rejected the demand on the advice of its counsel.

In September 2015, the Court granted Enercom summary judgment on all of its claims.

The parties then agreed to a mediation, at which the matter was settled.

OpSolve alleges that Woodward’s “disastrous” advice to litigate the matter threatened to drive it into bankruptcy.

Aftermath

OpSolve claims that Woodward emailed its managing partner Carr after the settlement, offering to “touch base tomorrow on how [Taylor English] can help with the costs.”

OpSolve then “communicated with [Taylor English] in an attempt to recoup their damages…However, despite Woodward’s tacit admission to committing malpractice and causing harm to OpSolve”, no assistance was forthcoming.

OpSolve’s malpractice counsel said that Taylor English neither offered assistance nor responded to his efforts to discuss the case. “They in essence forced this issue…They never offered anything. They never responded to the demand letter” that he sent in December, 2015.

Malpractice Claim

OpSolve sued Taylor English and Woodward in January, 2017 in Fulton County Superior Court, for legal malpractice, breach of fiduciary duty, breach of contract, and punitive damages, as well as a claim under a Georgia statute that permits the recovery of fees from a party that has been “stubbornly litigious”, and acted in bad faith.

OpSolve seeks more than $600,000 in damages on each of three counts, litigation expenses of at least $150,000, the disgorgement of more than $182,000 in fees it paid Taylor English, and punitive damages of more than $500,000.

Firm’s Response

Taylor English’s general counsel, John Gross said “We are confident that the legal work we provided to OpSolve far surpassed what it has alleged, and we intend to defend this baseless claim vigorously on behalf of our firm and our lawyers.”

Analysis

Assuming OpSolve’s allegations are correct, then there was an obvious risk management failure on Atty. Woodward’s part in not catching the error in the contract.

This wasn’t a misspelling, etc., so it’s not something that a proofreader would likely have caught. It was thus incumbent on Woodward, as the contract drafter, to review the document, and ensure that it reflected his intent.

Further, if he did make the mistake as alleged, he should’ve admitted it. Instead, he apparently compounded his error by not admitting it, and instead encouraging OpSolve to litigate Enercom’s lawsuit, and raise meritless defenses, i.e., “mutual mistake” and “ambiguities” in the contract.

On the other hand, Enercom’s attorney presumably reviewed the contract before Enercom signed it, and discovered the error. If so, wasn’t he or she ethically obligated to point it out? And if not obligated, how about doing it anyway, as a matter of honesty? Instead, Enercom appears to have played “gotcha” with OpSolve.

Also, Woodward’s colleague Patton emailed OpSolve’s managing partner that “absent clear evidence” that Enercom “understood the deal the same way we did, we will not win” on the issue. However, Enercom must have understood the deal the same way OpSolve did, i.e., the agreed-upon price was “revenues minus” , not “revenues plus”, otherwise, Woodward didn’t make a mistake, and there’d be no grounds to sue him for malpractice.

There presumably was a paper trail of emails, letters, phone call notes, contract drafts, etc., stating that the terms were ‘minus’, not ‘plus’. Why not use that to seek rescission of the contract, i.e., present it to the court in response to Enercom’s suit, as proof that the wording in the contract was due to a unilateral error by OpSolve’s counsel, and didn’t reflect the parties’ intent?

If the answer to that is that the courts are reluctant to void a contract due to one party’s mistake, especially when that party was represented by counsel, then Woodward and Taylor English should’ve advised OpSolve to pay Enercom before Enercom filed suit.

The firm should also have considered paying for its mistake, including involving its legal malpractice insurer, many of which offer pre-claim assistance to head off the possibility of a malpractice claim being filed.

By not doing those things, Taylor English invited a malpractice claim, and it got one.

50 Cent Raps Reed Smith With $35M Malpractice Claim

Curtis Jackson Legal Malpractice ClaimLaw.com reported that rapper 50 Cent, fresh off of a $14.5 million settlement of a legal malpractice claim against Garvey Schubert Barer, has filed a $35 million claim against Am Law 100 firm Reed Smith LLP.

The rapper, whose legal name is Curtis Jackson III, alleges that Reed Smith and its attorney, Peter Raymond, mishandled his defense against a lawsuit filed by Lastonia Leviston, the mother of his rival rap artist Rick Ross’ children, who alleged that Jackson violated her privacy by posting a sex tape of her and her then-boyfriend on his website in 2009.

A jury awarded Leviston $5 million in damages, which grew to $7 million after punitive damages were added. The judgment led Jackson to file for Chapter 11 bankruptcy in July, 2015.

Jackson’s malpractice claim accuses Reed Smith of:

  • Not calling prospective witnesses who could’ve swayed the jury or mitigated the damages that were awarded to Leviston;
  • Not adequately preparing for trial;
  • Charging excessive fees.

The main allegation regarding witness testimony is that the Reed Smith and attorney Raymond failed to locate and depose or produce for trial the other party in the sex tape,  Maurice Murray, and then “attempted to hide their negligence by misrepresenting that they made a good faith effort to locate Murray … when, in fact, Murray was easily locatable and available to be interviewed and called as a pre-trial and trial witness.”

Jackson alleges that Murray gave him the sex-tape, and that Murray had the “authority and right” to share and publish it.

Jackson also claims that Reed Smith failed to depose William Ross, who first published the sex video on his music website, and Ross’ Internet Service Provider. “Ross and the Internet provider should also have been deposed to establish Jackson’s defenses [that he did not initially post the video] and, at the very least, would have severely mitigated both the actual and punitive damages against Jackson as found by the jury.”

Jackson also alleges that “Reed Smith and Raymond, without consulting Jackson and without his consent, stipulated with attorneys for Leviston … that Reed Smith would not examine…[Murray and Ross] in pre-trial discovery proceedings and that no witness would be called at trial unless the identity of the witness was disclosed pursuant to the [binding, pretrial] stipulation.”

Regarding the legal fees, Jackson alleges that that Reed Smith and Raymond didn’t notify him before increasing the hourly billing rate that was specified in the retainer agreement. He claims to have paid the firm $1.5 million in legal fees and expenses for its representation in the sex tape matter.

Jackson also alleges that Reed Smith handled his case so poorly, that he had to obtain new counsel on the eve of trial. However, the firm “failed and refused to cooperate with new trial counsel, which caused Jackson to be subject to an unfavorable jury verdict.”

He demands that Reed Smith, which had represented him for 12 years, reimburse him for the $7 million verdict, and pay him an additional $25 million in damages.

IP Firm’s Appeal of $9M Malpractice Verdict is Denied, Part III of III

Editor’s note: this post was originally published on 10/26/2015. It has been updated to reflect recent developments, and divided into three parts for easier reading. This is part III. Part I  Part II  

Further Activity
2015

July: ATS&K filed a Notice of Appeal.

October 13th: The Court approved Protostorm’s motion to register the Amended Judg-ment in federal district courts, state courts in California, Florida, Texas, etc., “and in such other jurisdictions as Protostorm may determine…that the judgment debtors’ assets have been or may be found”. It subsequently registered the judgment in Minnesota.

October 14th: The court granted Protostorm’s motion to hold ATS&K, its managing part-ner Schiavelli, and its equity partners in contempt for violating the Court’s December, 2014 order, which limited “ATS&K’s ability to transfer monies.” Those limitations were imposed “to provide additional security to Protostorm regarding its ability to recover on the judgment”, and were in lieu of ATS&K posting a bond to stay enforcement of the judgment while its post-trial motion was pending.

The Court Order prohibited ATS&K from “paying expenses beyond ‘operating expenses incurred in the ordinary course of business[.]’” However:

“…it is undisputed that, after informing Protostorm that it had ceased providing legal   services as of April 30, 2015, ATS&K made payments to firm members and various      third parties totaling $118,033 in May 2015.

 (Further), ATS&K unreasonably failed to inform the Court that it had ceased perform-  ing legal services in April or seek guidance from the Court on whether it was permitted to make payments for expenses that logically could be deemed non-operating.”

As a remedy, the Court ruled that the “surplus in ATS&K’s accounts at the close of April 2015 ($60,209.00), plus ATS&K’s total revenues in May 2015 ($163,970.00) compensates Protostorm for ATS&K’s contempt of the December 24 Order…”

The total sanction against ATS&K and Schiavelli was thus $224,179.00, which “shall be enforceable against ATS&K’s assets and Schiavelli’s personal assets.”

October 20th: In a letter (PACER reg. req’d.; document #725) to Judge Chen, ATS&K’s counsel foretold its appeal strategy, stating that since the briefing on the post-trial motions in June:

“there have been numerous additional decisions demonstrating that (i) Protostorm’s   invention is unpatentable under Alice…; (ii) patentability under Alice is to be decided  as a matter of law and thus not waived; (iii) patentability of that alleged invention is  judged under the Alice standard, which applies retroactively; and (iv) a patent prose-  cution malpractice claim fails in the absence of a patentable invention.”

The attorney cited Encyclopedia Britannica v. Dickstein Shapiro LLP, in which “the Court rejected the exact arguments that Protostorm has made here”, Kroy IP Holdings, LLC v. Safeway, Inc., and OIP Technologies v. Amazon.com, Inc.

The attorney concluded “there are significant questions whether (Protostorm) will be able to prevail on appeal.”

October 27th: ATS&K appealed the Contempt Order.

November, 2015 – ATS&K filed its opening brief with the Second Circuit appellate court, reiterating its claim that Protostorm’s invention isn’t patentable under Alice, and without a patentable invention, Protostorm LLC can’t sustain a claim for malpractice. “Because Protostorm had no patentable invention, any alleged malpractice by ATSK did not result in a cognizable harm.”

The firm argued that Alice and similar decisions have held that abstract computerized ideas like Protostorm’s method for providing advertising in the context of Internet video games, cannot be patented under Section 101 of the Patent Act. “Rarely has there been such an abundance of directly applicable, uniformly-decided precedent on the critical question at issue.”

ATS&K also contested District Court Judge Chen’s refusal to set aside the jury verdict, because it didn’t raise these defenses until after the trial, when it filed its 50(a) motion. The firm argued that it “preserved its Section 101 argument by raising it in its post-trial motion…(Further), even if ATSK had not asserted the defense in its post-trial motion…a party can raise a pure question of law such as ATSK’s Section 101 argument for the first time on appeal.”

ATS&K also argued that even if Protostorm’s invention wasn’t fatally flawed, it failed to prove damages, which is an essential part of a New York legal malpractice case. Finally, it claimed that Judge Chen’s order that it pay nearly $225,000 in sanctions was “plainly contrary to law…The order must have been ‘specific and unambiguous,’” the firm said, contending it was not.

2016

March – Protostorm filed a cross-appeal challenging Judge Chen’s ruling that the damages apportioned to ATS&K attorneys Brundidge (15%) and Bailey (6%) should be assigned to ATS&K.

June – former ATS&K attorney Carl Brundidge urged the Second Circuit to deny Protostorm’s cross-appeal, arguing that it agreed to let Judge Chen determine the apportionment of compensatory damages among the defendants, but after final judgment was entered holding ATS&K solely responsible, it tried to change its theory on the apportionment of damages and have Brundidge held jointly and severally liable.

Brundidge argued that Judge Chen was correct to deny Protostorm’s attempt to change the damages apportionment. Further, “Mr. Brundidge would be substantially prejudiced by now applying joint and several liability to hold him liable for $6.696 million in compensatory damages, plus over $1 million in prejudgment interest. It is necessary and appropriate to find waiver here because Mr. Brundidge was deprived of an opportunity to offer evidence relevant to the issue of joint and several liability at trial.”

He concluded that Protostorm must be held to its decisions, and since the apportionment of damages was consistent with Protostorm’s trial strategy, the Second Circuit should affirm the district court’s apportionment decision.

August – ATS&K filed a brief with the Second Circuit reiterating its earlier argument that Protostorm’s patent would be considered an abstract computer idea under Alice, and a patent prosecution malpractice claim can’t be sustained with regard to an unpatentable invention. “When the law is properly applied, Protostorm’s claim crumbles and the judgment against ATSK must be set aside.” It also argued that Protostorm misstated the law when it claimed that Alice cannot be applied retroactively, and wrongly claimed that its invention was more than an abstract computer idea.

Protostorm also filed a brief, which opposed the argument of ATS&K attorneys Brundidge and Bailey that Judge Chen correctly absolved them of individual liability. The company said as agents of ATS&K at the time the patent application was allegedly mishandled, the attorneys are “jointly and severally liable” for the damages and interest awarded to Protostorm. “Under the case law cited in Protostorm’s opening brief, nothing could be clearer than the applicable tort law principles that a principal is liable for the negligent actions of its agent under the doctrine of respondeat superior and the agent, in this case Brundidge and Bailey, remains liable for the agent’s negligent acts,”

Brundidge also filed a brief, which sought to revive the Statute of Limitations defense that had been rejected by the lower court in 2011, via denial of defendants’ MSJ. He claimed that “there is no dispute” that Protostorm filed its malpractice claims against him “many years” after New York’s three-year statute of limitations for such claims had expired.

He also sought to have the $100,000 judgment against him for punitive damages overturned, arguing that Protostorm failed to show that his alleged errors in handling the patent application “were intentional, wanton or malicious”, and that the record demonstrated that he warned Protostorm that its patent would be abandoned by the firm unless it took further action, according to his brief.

November – Oral argument took place before a panel of Second Circuit court judges.

ATS&K, Bailey, Schiavelli, and Brundidge urged the panel to reverse the judgment for Protostorm LLC, because its invention wasn’t patentable, even though they failed to raise the patentability defense at trial.

They relied primarily on Encyclopedia Britannica v. Dickstein Shapiro LLP, (see Part II), which their attorney argued “is on all fours with this present case”.

Protostorm’s counsel countered that the defendants were trying to “undermine” the jury’s findings by making the appeal about patent law instead of legal malpractice. “This is not a patent-law case…We can’t pretend that there was not an actual trial here.”

The sides also argued over what portion of damages each defendant could be held responsible for, and over whether a Judge Chen’s contempt order and sanctions against ATS&K and attorney Schiavelli were proper.

The judges raised the possibility that defendants had waived their Alice defense by not bringing it up before trial, and asked if there weren’t also factual issues to consider, which would preclude a ruling on patentability based solely on the law.

December – The Second Circuit upheld the District Court’s judgment against ATS&K.

The panel ruled that defendants couldn’t raise the argument that Protostorm’s invention was unpatentable on appeal based on Alice, because they failed to preserve the argument in their motions for judgment as a matter of law during trial.

The panel also found that the jury’s verdict was supported by Protostorm’s damages model offered at trial.

Wrapping up the other outstanding issues, the panel:

  • Rejected attorney Brundidge’s arguments that Protostorm’s suit against him was time-barred as a matter of law, ruling “the jury’s verdict on the statute of limitations was legally proper and was supported by sufficient evidence.” Brundidge is thus responsible for the judgment against him of $100,000 in punitive damages, as awarded to Protostorm by the District Court.
  • Reversed Judge Chen’s contempt ruling against former ATS&K Managing Partner Alan Schiavelli for violating the terms of a December 2014 court order barring the firm from making payments outside of normal operating expenses, because he was no longer the managing partner when those payments were made.However, the panel upheld Judge Chen’s contempt ruling against ATS&K itself (and presumably, the sanctions of $224,179.00).
  • Denied Protostorm’s cross-appeal seeking to hold attorneys Brundidge and Bailey jointly and severally liable with ATS&K for the judgment, ruling that its counsel had waived the issue at trial.

III. Next Steps

A. Defendants can request that the Second Circuit rehear the panel’s decision en banc, but this case doesn’t appear to be complex or important enough for the request to be granted.

B. It’s bitterly ironic that the seeming conclusion of this nearly nine year-old legal malpractice claim may spawn further legal malpractice claims:

    • ATS&K may have a viable malpractice claim against its trial counsel for failing to preserve during the trial the argument that Protostorm’s invention was unpatentable, based on Alice. As noted, the appeals court ruled that this omission prevented defendants from raising that argument on appeal.
    • Protostorm may have viable malpractice claim against its trial counsel for waiving its right to seek to hold attorneys Brundidge and Bailey jointly and severally liable with ATS&K for the judgment.

      As mentioned above, Protostorm moved to register the judgment in other jurisdictions where defendants may have assets, a clear sign that it was concerned about its ability to collect. As mentioned in Part II, ATS&K essentially shut down in April, 2015, so it doesn’t have ongoing cash flow. Further, its assets have likely been removed, and Protostorm has no recourse against its former equity partners. Therefore, having Brundidge and Bailey declared jointly liable for the verdict would’ve given Protostorm additional leverage, although it’s unclear if they have sufficient assets to satisfy the balance of the judgment, after ATS&K’s malpractice insurance policy is exhausted.

IV. Lessons

A. Law Practice Risk Management

This case stemmed from the simplest of errors – the failure to check a box on a patent application.

A logical way to prevent such errors is to have a second set of eyes review every patent application before it’s filed; a competent paralegal would’ve easily caught the error.

ATS&K was also undone by failing to utilize two essential law practice risk management techniques:

  1. Engagement letter – one of its main purposes is to specify the scope of services that a firm will provide. If ATS&K and Protostorm had signed an engagement letter stating that the firm would only file the patent application, i.e., not prosecute it, then the court may well have granted its motion for summary judgment. And if the engagement letter stated that the firm would both file and prosecute the patent, then perhaps it would’ve felt compelled to do so, rather than ceasing work on it.

Further, a well-drafted engagement letter includes a fee agreement that specifies the rate the firm will be paid, and the billing and payment cycle, and provides that the firm may withdraw from representation for non-payment of fees.

Having this in writing may have motivated Protostorm to pay ATS&K’s bill, which in turn would’ve motivated the firm to continue handling the matter after 2001. Conversely, it would’ve given the firm solid grounds to withdraw, if Protostorm didn’t pay its bill.

  1. Termination letter – ATS&K’s failure to send one to Protostorm in late 2001 for non-payment of fees (assuming they were still owed), tolled the Statute of Limitations, which in turn led the court to deny the firm’s Motion for Summary Judgment based on the SOL having expired before the complaint was filed.

Instead, the court found that there was a question of fact as to whether or not the attorney-client relationship was terminated before June, 2007, when the firm told Peter Faulisi that the patent application had been abandoned.

Another error that was made didn’t affect the outcome of the case, but is a ‘red flag’ for IP practitioners: ATS&K didn’t object to attorney Worthington, a non-IP practitioner, filing a second provisional patent application that covered new features of Protostorm’s invention.

IP litigator Paul Swanson states:

“The involvement of unsupervised, non-patent practitioners in the preparation and filing of the second provisional patent application cast a large dark cloud of legal uncertainty over Protostorm’s PCT patent application…According to ATS&K’s ethics expert witness…(that) unauthorized filing ‘by itself, would have severely reduced if not eliminated the likelihood that any patent would have ever been enforced in litigation or otherwise.’” 

That in turn would’ve likely led to a malpractice claim.

V. Conclusion

After nine years of litigation, a trial, and an appeal, this case still isn’t over: the parties are involved in ongoing litigation with Minnesota Lawyers Mutual, ATSK’s malpractice insurer.

We’ve covered that in this post.