Legal Malpractice: Gordon & Rees Settles Claim For “Fatally Negligent” Settlement Agreement

Legal Malpractice Gordon & ReesTexas Lawyer reported that three weeks before trial, AmLaw 200 mem-ber Gordon Rees Scully Mansukhani, LLP settled a malpractice lawsuit filed by a physicians’ group that alleged it drafted a “woefully inadequate” settle-ment agreement in a business dis-pute.

Background
The underlying case involved a dis-pute among the six physician-partners of Med-ical Anesthesia Associates (MAA), of Houston, TX, which provided anesthesia and pain management at medical facilities.

According to plaintiffs’ malpractice complaint, in June 2007, MAA entered into an “ex-clusive and lucrative” contract to provide anesthesia and other services to Sugar Land Surgical Hospital.

In the fall of 2011, the hospital informed MAA that physician-partners Thomson and Linde “were trying to secure MAA’s exclusive provider agreements for themselves in violation of their duties to MAA.”

MAA fired Thomsen and Linde, and MAA and three of the other partners – Chang, Sickler, and Wong – hired Gordon Rees to represent them in the dispute with Thomson and Linde.

On Oct. 10, 2011, Thomson and Linde sued MAA and Chang, Sickler, Wong, and Lai (the other physician-partner) for tortious interference and breach of fiduciary duty, among other allegations.

The defendants referred the lawsuit to Gordon Rees, and filed a counterclaim that al-leged tortious interference, breach of contract, breach of fiduciary duty, etc.

On Oct. 14, 2011, the hospital notified MAA that it was terminating its contract as of Jan. 15, 2012, which cost MAA millions of dollars in revenue.

The lawsuit between the four MAA physicians and Thomson/Linde was mediated on Dec 8, 2011. However, in the roughly six weeks leading up to it, Gordon Rees allegedly “churn(ed) fees in excess of $250,000” to draft and file motions and pleadings.

At mediation, Gordon Rees advised the four MAA physicians to enter into a settlement agreement with Thomson and Linde that provided for the six physicians to form a new company called Sugar Land Anesthesia, which would be 75%-owned by Thomson and Linde.

The agreement was finalized, but Gordon Rees allegedly failed “to include definitive language in the settlement agreement concerning the new company…to bind the parties (which) was fatally negligent and caused a clearly foreseeable onslaught of subsequent, yet entirely avoidable, litigation.”

On Oct. 5, 2012, Chang, Sickler, Wong, and Lai – the four MAA physicians – sued Thomson, Linde, and related companies for breach of the settlement agreement, and other causes of action.

They claim that they spent more than $1.3 million on attorney and expert fees on the matter, “arguing about the vague terms contained within the settlement agreement and its overall incompleteness.”

The case was settled on April 1, 2015, when Thomson and Linde agreed to pay them $2,125,000.

Malpractice Claim
Chang, Sickler, and Wong filed suit on behalf of MAA in the 269th District Court in Harris County, against Gordon Rees, Houston office managing partner Joseph DiCecco, part-ner Glenn LeMay, and senior counsel Christopher Raney, alleging negligence and breach of fiduciary duty in drafting the settlement agreement that created Sugar Land Anesthesia.

“Rather than ending the dispute among the parties, the deficiencies in the settlement agreement—which was the product of over $250,000 in unreasonable attorney fees— caused an onslaught of continuing yet completely avoidable litigation amongst these same parties concerning the terms in the agreement and what the agreement was sup-posed to contemplate. Even worse, due to the lack of specificity and protections in the agreement, the legal document was used as a proverbial license to steal, ultimately damaging plaintiffs over $1,800,000”.

The plaintiffs sought $1.8 million in actual damages, plus punitive damages and fee forfeiture for “knowing and intentional breach of fiduciary duty.”

Gordon Rees attorney DiCecco said “we vehemently disagree with the assertions made in the pleadings, and look forward to the opportunity for the truth to prevail on the re-cord.”

Litigation
In March, 2016, the court granted Gordon Rees’ motion for summary judgment on the negligence claim.

Settlement
On August 8, 2016, the plaintiffs’ filed a motion to dismiss their lawsuit with prejudice.

The judge granted the motion, and the case was concluded.

DiCecco of Gordon Rees said that the negligence claims that were dismissed via sum-mary judgment were the “most significant aspect of the case”, and that summary judg-ment “speaks volumes” about the suit.

He added, “subsequently, the parties were able to amicably resolve the remaining port-ion of the dispute in a confidential settlement”.

Plaintiff’s attorney Lance Kassab confirmed the settlement, but wouldn’t discuss the terms, due to the confidentiality agreement.

Legal Malpractice: Entrepreneur Claims Andrews Kurth Conflicts Cost Him His Company

legal malpractice conflictsTexas Lawyer reported that an entrepre-neur who sued a venture capital firm for defrauding him out of his company, has amended his complaint to add a legal malpractice claim against the law firm that represented him, AmLaw 200 member Andrews Kurth.

Kyle Samani co-founded Pristine Eyesight in 2013, to use Google glass to deliver a video communication platform, primarily for health care providers. It changed its name to Pristine, and its focus to enabling field workers, i.e., inspectors, technicians, process engineers, claims adjusters, etc., to col-laborate with remote colleagues via video communication.

Samani alleges that Pristine hired Andrews Kurth to prepare a financing agreement be-tween it and venture capital investor S3 Ventures, which along with two other venture capital firms, invested $5.4 in the company in 2014. The other firms aren’t named in the suit, but a sister company of S3, and two S3 executives, who also invested in Pristine,  are named in the suit.

However, while “Andrews Kurth purported to represent (Pristine’s) interests”, it actually represented “S3’s interests to the detriment of Kyle Samani”.

Samani claims that an Andrews Kurth lawyer who drafted the financing agreement told him, “‘I am about to send you a bunch of documents. It is my job to read them, so you should probably just go through and docusign them.'”

He states that he took that lawyer’s advice, not realizing – because it was never ex-plained to him – that Andrews Kurth was representing only Pristine, and not him per-sonally.

He alleges that a year later, after S3, its sister company, and its executives who had invested in Pristine, learned that some of its shares had traded privately for $1.20 a share, and that the company was on the verge of closing several more large sales con-tracts, they terminated him as CEO, “claimed the right to force a sale of (his) roughly 700,000 unvested shares in Pristine for $0.01 each”, and barred him from participating in governance of the company, even though he’s a member of its board.

The defendants allegedly bought his 700,000 shares for $7,000, even though they had a market value of more than $1 million.

“After the financing agreement was executed, the same one he was instructed not to read,…Mr. Samani was stripped of his job without cause, and stripped of his ownership of the company without compensation.”

Samani alleges that Andrews Kurth placed S3’s interests ahead of his interests, advised him not to read important documents before signing them, and failed to advise him of:

  • Obvious conflicts between S3 Ventures, its employees and the firm;
  • The conflict of interest between him and Pristine;
  • That he should hire his own counsel before signing the financing agreement;
  • His potential downside in the financing agreement.

Lessons:

Law Practice Risk Management:

I. Conflict of Interest

A. According to the Texas Lawyer article, Samani claims that Andrews Kurth (AK) “had a long relationship with S3, providing legal work to a number of S3 portfolio com-panies”, which is presumably the basis of his allegation that there were “obvious conflicts” between AK and S3.

However, Samani doesn’t allege that AK represented S3 in this matter, so there was no  violation of Texas Disciplinary Rules of Professional Conduct Rule 1.06. Conflict of In-terest: General Rule, which prohibits a lawyer from representing opposing parties to the same litigation, or representing a person if it:
(1) involves a substantially related matter in which that person’s interests are materially and directly adverse to the interests of another client of the lawyer…; or

(2) reasonably appears to be or become adversely limited by the lawyer’s or law firm’s responsibilities to another client or to a third person or by the lawyer’s or law firm’s own interests.

Samani will likely be unable to prove this allegation, because a lawyer is not precluded from representing a party in a matter, just because it once represented the other party or its partners, especially when the present representation is non-adversarial, as this one was.

B. Samani alleges that AK failed to inform him of the conflict between himself and Pris-tine. 

Rule 1.12. Organization as a Client states:

(a) A lawyer employed or retained by an organization represents the entity…

Section (e) states:

(e) In dealing with an organization’s directors, officers, employees, members, share-holders or other constituents, a lawyer shall explain the identity of the client when it is apparent that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing or when explanation appears reasonably necessary to avoid misunderstanding on their part. (Emphasis added)

Further, Comment 4 to Rule 1.12 states

4. …when the organization’s interest (becomes) adverse to those of one or more of its constituents…the lawyers should advise any constituent whose interest the lawyer finds adverse to that of the organization of the conflict… (and) that the lawyer cannot repre-sent such constituent, and that such person may wish to obtain independent represent-ation. Care should be taken to assure that the individual understands…the lawyer for the organization cannot provide legal representation for that constituent individual…(Emphasis added)

Here, Samani may have a stronger case, because in his role as Pristine’s CEO, he app-arently hired AK, was its primary contact, and approved payment of its bills, but claims to have been was unaware that AK represented only Pristine, but not him personally. As co-founder of the firm, its CEO, and a major, if not majority stockholder, he probably saw no distinction between himself and Pristine.

If AK informed him in writing at the start of its representation of Pristine, that it wasn’t also representing him personally, then it will likely prevail, but if it didn’t, it should have, if not at the start, then after it prepared the financing agreement, which while presumably in Pristine’s best interests, may have been “adverse to those of the organization’s constit-uents with whom the lawyer is dealing”, i.e., Samani.

Finally, Comment 5 to Rule 1.12 states in part:

5. A lawyer representing an organization may, of course, also represent any of its di-rectors, officers, employees, members, shareholders, or other constituents…

It’s unclear why AK didn’t represent Samani, as it doesn’t appear that representing both him and Pristine would have been adverse to either one.  However, it would have been adverse to S3, because AK would have been obligated to advise Samani not to sign a financing agreement that gave S3 “the right to force a sale of (Samani’s) roughly 700,000 unvested shares in Pristine for $0.01 each”, which Samani alleges was well-below their market value.

Samani’s counsel will likely try to prove that AK didn’t represent Samani in order to aid S3. If he succeeds, then AK may face a potentially large judgment, and punitive dam-ages.

AK should have either represented both Samani and Pristine, or advised Samani to ob-tain his own counsel. The onus is on the law firm to clarify which party it is – and isn’t – representing, so if AK failed to do so, it may be found to have committed malpractice.

Will a jury of Kyle Samani’s peers – which will include small business owners, if his attorneys are adept at jury selection – believe him if he testifies that he thought AK was representing both himself and Pristine, the company he co-founded and led? Al-most certainly yes.

II. Engagement Letter

If AK produces a properly drafted engagement letter signed by Samani, then it will almost certainly prevail, perhaps via summary judgment. However, based on the com-plaint, it appears that AK either didn’t send Samani an engagement letter, or did, but didn’t require him to sign and return it, before it began work on the financing agreement.

If true, that was a mistake, because an engagement letter may have eliminated any confusion by Samani: according to legal malpractice insurer the Bar Plan, a properly drafted engagement letter will “clearly define” the “client, scope, subject matter and goals of the representation.”, disclose any potential conflict of interest, and set forth “the client’s right to independent counsel”.

Just as a kingdom was lost for want of a nail, Andrews Kurth may find that a legal malpractice claim was lost for want of an engagement letter.

Further reading:

Pristine Inc. co-founder sues S3 Ventures LLC alleging unjust termination – Austin Business Journal

Tech Lawyer Analyzes Kyle Samani’s Case  

 

Legal Malpractice Insurance: Reimbursing Over-billed Clients Isn’t Covered, No Matter What You Call It

Legal Malpractice Insurance: Over-Billing By Any Other Name Isn’t CoveredAttorney Karen Rubin of Thompson Hines wrote a post about Edward T. Joyce & Assocs., P.C. v. Professionals Direct Insurance Co. (PACER identification required for access), a case in the Northern District of Illinois, in which the court held that the Joyce firm’s legal malpractice insurer didn’t have to indemnify it for attorneys’ fees that the firm was ordered repay due to its misconduct, because the policy excluded coverage for sanctions.

Fee Dispute and Arbitration

According to attorney Thompson, “the Joyce Firm represented more than 100 individuals and entities as plaintiffs under a contingent fee agreement.  After obtaining an arbitration award against the insolvent defendant, the Joyce Firm hired additional co-counsel to help…pursue a claim against the defendant’s insurer”, which resulted in an $8.6 million settlement.

“Plaintiffs, however, disputed the amount and basis of the Joyce Firm’s fees arising from that settlement, and also disputed who was responsible for paying the additional co-counsel’s fees. Plaintiffs demanded arbitration, seeking, among other things, “equitable disgorgement.”  The arbitrator found several instances of misconduct on the part of the Joyce Firm…(and) determined that “as a sanction,” it had to pay 25 percent of the co-counsel’s fees, or about $150,000.”

The firm “was also ordered as ‘a sanction’” to repay the plaintiffs more than $405,000 in fees that it had previously collected as “contingent hourly fees” under an attempt that it made to modify the original fee agreement “by adding a provision for an hourly contingent fee.”

The law firm appealed, but “the trial court confirmed the arbitration award, the court of appeals affirmed, and the state supreme court denied a petition for leave to appeal.”

Malpractice Insurer Denies Coverage

The Joyce Firm’s legal malpractice insurer refused to indemnify it, i.e., to pay the sanctions that the arbitrator awarded to plaintiffs, due to an exclusion in its policy for “any claim for fines, sanctions, penalties, punitive damages or any damages resulting from the multiplication of compensatory damages”. Note: the words in bold type are defined in the policy; damages means “monetary judgments, awards or settlements unless otherwise excluded.”

Declaratory Judgment

The Joyce Firm responded by filing a declaratory judgment action against its insurer, arguing that despite the arbitrator’s use of the term “sanction”, he meant disgorgement, as he found that the firm did not intend to violate the law or the rules of ethics. (Recall that the plaintiffs in the underlying case demanded “equitable disgorgement” from the firm.)

The district court rejected that argument, citing the arbitrator’s “stated imposition of sanctions,” and the state court of appeals’ affirmation of the arbitration award, which “expressly and repeatedly referred to the damages award as a sanction.” It granted summary judgment in favor of the insurer.

LESSONS

Law Firm Risk Management

Attorney Thomson points out thatModel Rule 1.5(b) requires that once agreed to, any change in the basis or rate of the fee must be communicated to the client. That was apparently not carried out adequately in this case, providing one of the implicit bases for the arbitrator’s award against the firm.”

Clearly, any firm that attempts to modify a fee agreement during an engagement, doesn’t get the client’s approval – as apparently happened to the Joyce firm – but bills the client as if it had approved the modification, is inviting a fee dispute that it’s unlikely to win.

Usually, the client refuses to pay the fees, the firm sues to collect – if pre-suit collection attempts are unsuccessful, and the amount is large enough – and the client then files a counterclaim for malpractice. This case differs in two respects: the client paid the Joyce firm’s modified fees, i.e., the contingent hourly fees, probably because it didn’t want to jeopardize the underlying case, which was a wise decision, considering it obtained an $8.6M judgment, and the fee dispute was arbitrated, likely due to an arbitration clause in the engagement letter between the Joyce firm and its client.

However, the outcome was as expected: the client contested the unapproved fees, and prevailed.

Legal Malpractice Insurance

Ironically, even if the court had accepted the Joyce firm’s argument that the arbitrator meant “disgorgement”, rather than “sanctions”, there still wouldn’t have been any coverage, because its legal malpractice policy also excludes coverage for “any claim for legal fees, costs, or disbursements paid or owed to you.” The arbitrator ordered the firm to repay $405,000 “in fees it had previously collected” from its client, which is clearly a “claim for legal fees…paid or owed to you”.

The bottom line is that any demand for reimbursement/disgorgement of fees, even if it’s couched as “sanctions”, as in this case, won’t be covered by a legal malpractice policy, either because of an exclusion like that contained in the Joyce firm’s policy, or because of the definition of “Damages”, as in the Markel Insurance Company’s policy: “Damages means compensatory judgments, settlements or awards, but does not include punitive or exemplary damages, fines or penalties, sanctions, the return of fees or other consideration paid to the Insured…”

 

Legal Malpractice: Andrews Kurth Hit With $200M Verdict

Legal Malpractice Andrews Kurth $200 Million VerdictBloomberg BNA reported that Houston-based oil and gas law firm Andrews Kurth was hit with a $200M legal malpractice verdict by a Harris County District Court jury, a figure equal to about two-thirds of the firm’s reported gross revenue in 2014.

Background

The claim arises out of a dispute between Scott Martin and his brother Ruben over management of Martin Resources Management Corp. (MRMC), a drilling rig supply company that was started in 1951 as a successor to a firm founded by their father. In 2002, it became the general partner in Martin Mid-stream, which stores and distributes natural gas, provides marine transportation, and manufactures sulfur. MRMC also owns 35% of publicly-traded Martin Midstream Part-ners, L.P.

Ruben Martin was CEO of MRMC, and chairman of the company’s board of directors, while Scott Martin was Executive VP and a member of the board.

According to a court ruling in another case involving Scott Martin and MRMC, an “in-ternecine power struggle over the control of MRMC arose between Ruben and Scott. Ruben contended that Scott was trying to take control of the company, while Scott took the position that it was Ruben’s goal to “freeze” Scott out from corporate management. Beginning in 2006, the brothers’ relationship began to deteriorate regarding the general direction of the company, and their collegial relationship was finally fractured in 2007, when Ruben decided that MRMC should seek to acquire a refinery, while Scott opposed the move.”

According to the original petition in this case, and other court filings, by January, 2008, the situation had deteriorated to the point that litigation “was imminent”, as Scott Martin believed his brother was trying to marginalize his role in the company, and dilute his shares.

Their mother Margaret attempted to mediate a settlement, and after several discussions in which Andrews Kurth “was closely involved” as counsel for Scott Martin, a document entitled “Margaret’s Settlement Proposal”, signed by Ruben Martin, was presented to Scott Martin and Andrews Kurth.

Andrews Kurth “then altered the document in a number of respects”, and “assured Scott that it would protect his and SKM’s interests while settling the dispute with Ruben”. (SKM is a partnership owned by Scott Martin and his wife Kim).

Scott Martin signed the settlement agreement, but a few months later, concluded that his brother wouldn’t comply with the agreement’s terms, and had Andrews Kurth sue Rue-ben Martin on his behalf in an attempt to enforce it.

However, although Scott Martin won some damages, “the Settlement Agreement was ultimately held to be unenforceable upon appeal. The Texas appellate courts determined that…it was no more than an unenforceable agreement to agree.” Further, Andrews Kurth billed Scott Martin over $3M in fees and costs for what was “ultimately a doomed effort”.

After that, “nearly a dozen lawsuits followed that engulfed” Scott Martin and SKM, which wouldn’t have occurred “if the Settlement Agreement did what it was intended to do: settle the disputes between Scott and his brother.”

The dispute and litigation finally ended when Scott Martin sold his interest in MRMC back to the company, however, he alleges that he had to do so at a discount.

Legal Malpractice Suit

Scott Martin sued Andrews Kurth for making “a number of errors…which prejudiced Plaintiffs in the litigation” against Ruben Martin, including:

  • “Not advising Scott to resign as a trustee for a trust for Ruben’s heirs” when their dispute  led to litigation. “This led to an adverse judgment against Scott of over $3,000,000.” (The award was overturned on appeal)
  • “Failing to draft an enforceable agreement.”
  • “Failing to advise Scott of the fiduciary/liability ramifications of filing a shareholder derivative lawsuit against MMRC’s directors and employees”. As a result, “Scott was sued three times…resulting in two adverse judgments against him.”

He also alleged that internal firm emails mocked him and his “precarious financial condition”

Trial and Verdict

A trial was held, and on Nov. 11, a 12-person jury found Andrews Kurth 100% negligent, and awarded Scott Martin $167 million for the loss of his ownership in MRMC, if cal-culated as of 10/2/2012, and more than $29 million for fees and expenses incurred.

Post-trial motions

After the trial, Martin requested a hearing for judgment, which the judge set for November 23rd. Andrews Kurth then filed a motion to continue the hearing until at least Dec. 14.

Among other things, the firm wants the court to examine the date of injury used to calculate damages. The court asked the jury to calculate Scott’s loss-of-stock-value claim based on three possible dates of injury, Oct. 2, 2012, Aug. 12, 2010 and June 10, 2008. The jury calculated damages at $167 million, $99 million and $82 million for each of the dates, respectively.

Attorneys for the firm claim the plaintiff did not pick the date until after the jury decision, and then picked Oct. 2, 2012, the date with the highest value.

“Tens of millions of dollars hang on the determination of this issue alone, yet we have no authorities to support their post-verdict selection,” the firm said in its filing.

Firm’s statement

“We will remain committed to the post-verdict and appellate process and we are confident that we will ultimately be vindicated,” said Bob Jewell, managing partner of Andrews Kurth, in a statement.

Shortly after the suit was filed in 2013, Jewell described Scott Martin’s suit as simply an attempt to avoid paying the more than $2 million in outstanding fees. “Scott Martin’s claim has no merit…Andrews Kurth represented him in a professional and competent manner more than five years ago, and he received an unquestionably positive result in connection with that representation.” Jewell added that Martin was intricately involved in directing the litigation, and expressed no complaints about legal services he was receiving when he signed a promissory note in 2010 to pay the fees.

Martin et al. v. Andrews Kurth LLP, case number 2013-61098, 234th Judicial District Court of Harris County, Texas.

4/21/16
UPDATE:

Texas Lawyer reported that the case been settled, although “terms of the pre-judgment settlement are confidential”.  The case went to mediation in January. The parties filed a Motion to Dismiss on April 6, and the judge signed it on April 7th.

Legal Malpractice: Get Rich or Sue Your Lawyer: 50 Cent Seeks 75M From Law Firm

Legal Malpractice

The Connecticut Law Tribune reported that Curtis James Jackson III, the Grammy award-winning rap artist whose stage name is 50 Cent, is suing his former law firm for $75 million for malpractice and inadequate representation in business matters.

Jackson, who filed for Chapter 11 bankruptcy last July, filed his malpractice suit against the law firm of Garvey Schubert Barer in U.S. Bankruptcy Court in Connecticut.

Headphones Venture

According to the court filings, Garvey Schubert Barer represented Jackson from 2010 through 2014, including in various matters involving Sleek Audio LLC, which develops audio headphones.

Jackson reached an agreement with Sleek Audio to develop and market a wireless headphone called “Sleek by 50”, in hopes of duplicating the success of Dr. Dre, Jay-Z, and other rap artists who had released their own lines of headphones. He invested a total of $2 million in the company.

However, Jackson alleges that Sleek Audio never marketed or sold the Sleek by 50 headphones, so he created SMS Audio, LLC in 2011 to develop and market headphones under his own brands, “Street by 50” and “Sync by 50.”

Jackson claims that Garvey Schubert Barer and its attorneys told him that his headphones didn’t infringe on Sleek Audio’s intellectual property rights.

Arbitration

Sleek Audio filed an arbitration claim against Jackson for lost profits and revenues, due to the similarities between the “Sleek by 50” headphones and Jackson’s SMS headphones. The arbitrator ruled in favor of Sleek Audio, and ordered Jackson to pay it $18.4 million.

His malpractice suit alleges that “GSB and attorneys Beckner, Moon and Trinchero failed to employ the requisite knowledge and skill necessary to confront the circumstances of the case.” Further, “among GSB’s numerous failures was its inexplicable decision not to call technical and damages experts to rebut expert testimony offered by Sleek — failures relied upon by the arbitrator in crediting Sleek’s experts and entering an eight-figure award in Sleek’s favor.”

Law Firm Response
Business Insider reported that the law firm issued this statement in response to Jackson’s lawsuit: “… Mr. Jackson’s complaint against GSB omits a number of relevant facts and misstates a number of others…Our attorneys properly counseled Mr. Jackson and his sophisticated team of financial and operational advisors about the transactions and the arbitrations with Sleek…We look forward to demonstrating that our attorneys handled the Sleek matters appropriately in all aspects.”

Lessons:

Law Practice Risk Management:

The firm’s strategy in defending the arbitration may have been sound, but it could still lose the case if it didn’t fully document it, and communicate it to Jackson, its client.

Legal Malpractice Insurance:

This lawsuit is further proof that business law firms, especially those that handle intellectual property matters, need to have a malpractice insurance policy with high limits.

Put aside Jackson’s $75M demand, which is likely inflated. The $18M arbitration award against him is real – although he may not have paid it, due to his bankruptcy filing – and if he prevails, the law firm could be facing a judgment of that much, plus interest. The total payout may exceed $20M, including defense costs.

Further, even if the law firm prevails, its defense costs will likely be well into six figures; seven figures, if the case is tried, because experts will be needed to testify about the soundness of the firm’s handling of the arbitration, and Sleek Audio’s damages.

Firms that skimp on their malpractice insurance policy limits in order to save on their premium, regret their decision after being served with a “high-dollar” lawsuit, because if their policy limit is exhausted by payment of legal fees and costs before the case is resolved, then they’ll have to fund future costs + any judgment or indemnity payment out-of-pocket.

A complicating factor is that the Garvey firm has about 100 lawyers, and firms that size generally have a Self-Insured Retention (SIR) of $100,000 or greater per claim on their malpractice policy, which means that their insurer won’t make any payments until the SIR has been exhausted.

The higher the SIR, the lower the premium, but if a firm chooses a high SIR, i.e., $1M or greater, in order to save money on its malpractice premium, and it gets sued in a high-dollar matter, those premium savings will be more than offset by its payment of its SIR.

Firms need to do a thorough analysis of their malpractice claims history and their current practice before choosing an SIR.

UPDATES

11/9/15

Garvey Schubert petitioned the Connecticut bankruptcy court to transfer the case to New York, where the work was done.

5/19/16

http://www.marketwatch.com/story/50-cent-may-soon-emerge-from-bankruptcy-under-234-million-plan-2016-05-19

“50 Cent is closer to emerging from bankruptcy after a judge approved a plan this week for the rapper to pay up to $23.4 million in future earnings to his creditors.

The Grammy Award-winning artist, whose real name is Curtis James Jackson III, filed for chapter 11 bankruptcy last summer after losing a $7 million defamation lawsuit brought by a woman after he released a sex tape of her.

He also owes $18.1 million to Sunburst Bank and Sleek Audio LLC over a failed headphones venture; $4 million to mortgage lender SunTrust Banks Inc. STI, +0.60%  ; and $1.2 million to ASCAP for advance payments on song royalties. All told, his debts total $32.6 million.

Under the plan approved Wednesday by a judge in Hartford, Connecticut, 50 Cent will repay between 74% and 92% of his debts over the next five years. The filing listed 50 Cent’s assets, including a 21-bedroom Connecticut mansion once owned by boxer Mike Tyson, valued at $8.25 million, which will be sold; about $10.6 million in cash and securities; and a Bentley valued at $167,000. He also included 70% of whatever he wins from a pending malpractice lawsuit.” (Emphasis added)