Rapidly Developing Law On Attorney’s Fees Increases Risk Of Legal Malpractice

The law surrounding attorney’s fees continues to change rapidly, posing a serious risk of legal malpractice for any attorney who fails to keep abreast of this developing area.

For example, in Texas, any portion of work performed on a case must be segregated in claims where attorney’s fees are recoverable from the work on claims where attorney’s fees are not recoverable.

The Texas Supreme Court first set forth the basic standard of care for segregation in 2006 in Tony Gullo Motors v. Chapa. A reviewing court can reverse the award and remand the case for new trial on attorney’s fees if fees are not segregated as required by Chapa.

shutterstock_331053875Other state courts also have emphasized the importance of segregation of unrecoverable from recoverable fees. In Seeley v. Seymour and Johnson v. Grayson, two California courts reversed an attorney’s fee award and remanded a case, holding the plaintiff failed to submit billing statements to distinguish between prosecution of a slander of title claim and services performed to remove cloud on title because it was possible to separate the claims and the issues were not too closely related.

Attorneys also must be careful to timely disclose in discovery how fees are segregated to ensure evidence is admissible at trial. The Federal Rule of Civil Procedure 37(c) states a party cannot use information to supply evidence on motion, at a hearing, or at trial, if the party failed to provide that information. Similarly, Texas Rule of Civil Procedure 193.6 provides that a party who fails to make, amend, or supplement a discovery response in a timely manner may not introduce such material

An attorney must segregate his time unless the legal services performed are so intertwined that they advance both a recoverable and unrecoverable claim. As recent at October 2017, the United States District Court for the Southern District of Texas in Cypress Engine Accessories v. HDMS affirmed the requirement to strictly comply with the standard set out in Chapa. The Court held that HDMS failed to segregate recoverable fees earned in defending a DTPA claim from unrecoverable fees earned in defending tort claims.

HDMS’s claim for attorneys’ fees was based on two theories: (1) Section 38.001(8) of the Tex.Civ.Prac. & Remedies Code provides for recovery of reasonable attorneys’ fees for a breach of contract claim; and (2) Cypress Engine brought its DTPA claim in bad faith, which entitles HDMS to fees and costs under Section 17.50(c) of the Tex. Bus. & Com. Code.

In response, Cypress Engine argued that: (1) HDMS failed to plead its attorney’s fees as special damages; (2) Texas law does not support recovering attorney’s fees as actual damages, not only as damages incidental to actual damages, which HDMS cannot prove; and (3) Section 38.001(8) does not apply to Cypress Engine because it is a limited liability corporation.

The Court held that a claimant must segregate recoverable fees from unrecoverable fees and that the facts in Cypress Engine were not so sufficiently “intertwined” as to make the tort fees recoverable. The court held that regardless of how nominal, an attorney must segregate unrecoverable fees that do not advance a recoverable claim for attorney’s fees, and a failure to do so, subject the award of attorney’s fees to reversal.

Several other states impose similar requirements. For example, Illinois has set out similar rules for disclosure and segregation of attorney fees in discovery. Article II, Rule 201(b) of the Illinois Supreme Court Rules states that full disclosures are required for any matter relevant to the case and Illinois Rule 219(c) provides that failure to comply with orders or rules of discovery could result in varying punishments from a stay of proceedings to default judgment.

So how does an attorney comply with the standard of care set forth in Chapa? In general, attorneys are not required to keep and produce separate time and billing records for separate claims, but doing so may well be the best practice until the courts further clarify the outer limits of the requirement.

Opinion testimony is a commonly used method to prove the amount of recoverable attorney’s fees. Testimony may come from disinterested attorneys or from the attorney whose fees are in question. Generally, the testimony of an attorney whose fees are in question merely raises a fact issue to be determined by the jury. However, the testimony of an interested party may establish facts as a matter of law if the testimony is accurate, clear, and uncontroverted.

Any attorney preparing to present evidence of attorney’s fees at trial should be aware that a trial court may demand more than mere opinion testimony, however, including an ability by the party seeking to recover attorney’s fees to identify specific evidence in attorney billing records on which the party’s expert’s opinion is based.

The failure to object to the opposing side’s failure to segregate also can serve as the basis for a future legal negligence claim. Best practice requires an attorney to object at trial during the presentation of evidence on attorney’s fees, but an attorney at minimum must object to a party’s failure to segregate at the time the issue is submitted to the jury and include an appropriate jury charge.

Attorneys who do not ordinarily prosecute claims where attorney’s fees can be recovered also are sometimes surprised to learn some states now permit the “lodestar method” to calculate fees in ordinary breach of contract claims. A failure to permit the court to consider a “lodestar” can result in a significantly lower award of attorney’s fees.

The lodestar method has two steps. First, the court determines the reasonable hours worked and reasonable hourly rate for the work performed. Second, the court multiplies the hours worked by the hourly rate, which equals the base fee or lodestar. Next, the court is free to increase or decrease the loadstar if the court believes such adjustment is necessary.

As set out in detail in Cypress Engine Accessories v. HDMS, some attorneys also are surprised to learn that Texas courts that have fully analyzed Tex.Civ. Prac. & Rem. Code §38.001 have concluded the some states do not provide a right to recover attorney’s fees from a limited liability corporation or limited partnership despite years of trial court’s allowing such recovery. An attorney’s failure to object to the submission of attorney’s fees against an attorney’s limited liability corporation or limited partnership is clear legal malpractice.

Statistically, we’ve known for decades that attorneys who sue clients to recover their fees invite counterclaims for legal malpractice.

Now, a rapidly changing area of law as to how and when attorney’s fees can be recovered creates even more risk of exposure for lawyers that fail to properly comply with the standard of care to segregate attorney’s fees and that fail to properly object in discovery and at trial when attorney’s fees should be denied.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

20170712_113656Timothy B. Soefje is the Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC based in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at tsoefje@realclearcounsel.com.

 

Nicole Ward Headshot - 10-31-17Nicole Ward graduated from the University of Oklahoma College of Law in May 2017.  Her practice focuses on labor and employment law, professional liability, construction defect litigation, corporate law, and bankruptcy. She previously interned in-house for the general counsel at a nationwide building materials supplier and for an Administrative Law Judge at the Equal Employment Opportunity Commission (EEOC). At OU, she was a member of the Order of Solicitors, and won the Best Brief Award at the 29th Annual Ruby R. Vale Interscholastic Corporate Moot Court Competition. She served as a member of the Organization for the Advancement of Women Lawyers and served as a CASA volunteer. Contact her at nward@realclearcounsel.com

 

#PLUSin30 – 2017 International Professional Liability Underwriters Society

20170712_113656Privileged that Professional Liability Underwriters Society (PLUS) asked me to participate in its #PLUSin30 series for the 2017 PLUS International Convention held in Atlanta, Georgia on October 31 to November 3, 2017.

Seltzer Chadwick Soefje, PLLC is proud to be actively involved with PLUS since our founding. As a firm, we’ve act as a Gold Sponsor of the PLUS Texas Chapter. Our partner Bob Chadwick served as PLUS Texas Chapter from 2005-2008, and as Co-Chair of the PLUS International Chapter Development Committee.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

20170712_113656Timothy B. Soefje is the Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC based in Dallas, Texas. He is admitted in Texas and Oklahoma. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at tsoefje@realclearcounsel.com.

Legal Dabbling: Hurricanes Create Calm Before Legal Malpractice Storm Surge

As Texans continue cleaning up the destruction of Hurricane Harvey and Floridians brace for Hurricane Irma bearing down on them, many lawyers in the regions will be seduced by the money to be made from the sheer number of insurance claims and lawsuits soon to be filed.

Unfortunately, many of these lawyers will instead find themselves professionally devastated by a legal malpractice claim because they chose to “dabble” in an unfamiliar area of law into which they never shoulMan Storm Umbrellad have ventured.

We already have seen several law firms ramping up on social media and in news reports to grab a piece of the inevitable FEMA, inverse condemnation, and first-party insurance claims to come.

Both massive storms, however, will spur other kinds of complex litigation as well.

We will inevitably see an uptick in claims involving professional negligence against architects, engineers, and design professionals; director and officer liability; building owners, real estate development and management companies; and landlord-tenant disputes just to name a few.

None of these types of claims are any place for a novice. Unfortunately, attorneys unfamiliar with an area of practice often simply don’t know what they don’t know.

Each of these areas of law are exceedingly complex and nuanced. Issues relating to liability, defense, and damages often are not easily identifiable by an inexperienced attorney. A single misstep can lead to disaster for the client and attorney.

The American Bar Association Rules and every other state impose a duty that “a lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.” ABA Model Rules 1.1.

“Dabbling” in an area of law in which an attorney is not familiar, however, remains among the top five reasons for legal malpractice claims nationwide despite the ABA model rules, state bar rules, and the legal and insurance professions’ constant warnings.

The ABA “Profile of Legal Malpractice Claims: 2012-2015” reports that 46 percent of all legal malpractice claims involve “substantive errors,” including a failure to know or apply the law, failure to know or calculate deadlines, inadequate discovery, and errors in procedure strategy.

The ABA report found that more than 60 percent of all malpractice claims involve an area of the law in which the subject attorney works less than 20 percent of the time. Attorneys who practice in a single area of the law account for less than 7 percent of all legal malpractice claims.

According to panelist on a recent ABA webinar, “Avoiding Common Malpractice Missteps: What Every Lawyer Needs to Know (On-Demand CLE),” 13 percent of legal malpractice claims arose specifically because the attorney did not know the area of law.

A recent 2017 study by professional liability insurance leader Ames & Gough reveals that the number of new legal malpractice claims is stabilizing. Claims, however, remain well above historical experience in years preceding the 2007 – 2009 recession that forced many attorneys to expand into unfamiliar areas of practice.

Any lawyer considering assuming the representation or defense of a claim outside the lawyer’s ordinary practice area should answer several basic questions before taking on the client.

  • How complicated is the matter and area of law?
  • What is the amount in controversy?
  • Are the potential fees recoverable worth the risk?
  • How familiar are you with the jurisdiction or venue?
  • Can you spend the additional time necessary to get up to speed on the area of law?
  • Do you have the financial resources to take on the representation in an area where you will need to spend considerable time to learn the law?
  • Can you associate with or turn to experienced attorney for help on the matter?
  • How difficult will the client to be, and does the client have unreasonable pre-claim expectations?
  • Do you have adequate professional liability insurance coverage?
  • How devastating will a legal malpractice claim on the case in question be on your overall law practice and personal life.

If an attorney decides to take on a case outside their regular practice area, the attorney can take a few simple steps to help minimize the risk of a future legal malpractice claim such as:

  • Draft a clear engagement agreement signed by the client.
  • Engage experienced co-counsel early.
  • Research the law and procedure thoroughly upfront before taking on the case.
  • Designate time each day or week to continue learning the law and to work on the claim.
  • Take advantage of continuing legal education courses available online and from the state and local bar association.
  • Participate in networking opportunities with experienced attorneys in the area.
  • Prepare internal memorandum and case evaluations on legal issues as they are identified.
  • Keep the client thoroughly informed as the case progresses.
  • Don’t be afraid to ask for help.
  • Withdraw immediately if it becomes clear you’re over your head.

No lawyer should ever be unwilling to expand their scope of practice simply because of the fear of a legal malpractice lawsuit. No lawyer, however, should ever think that circumstances like Hurricane Harvey or Hurricane Irma present an economic windfall simply because of the volume of legal work that can be expected to result.

Now is no time to “dabble” in an unfamiliar area of law.

Attorneys also should resist the temptation to even “do a favor” for a friend or family member because it usually helps no one. The “favor” often gets pushed to the bottom of the attorney’s stack of things to do, and the client ultimately suffers from delays, missed deadlines, or less than competent representation.

If an attorney decides that now presents a unique opportunity to expand into a new area of practice, be willing to commit upfront the substantial time and resources necessary to comply with ABA Model Rule 1.1, or be prepared for the personal and professional devastation that inevitably will come from a legal malpractice claim.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

20170712_113656Timothy B. Soefje is the Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC based in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at tsoefje@realclearcounsel.com.

Arbitration Clauses Remain Popular, But Frequently Misunderstood And Poorly Drafted

Arbitration continues to serve as a popular forum for resolving construction-related disputes, but unfortunately, clauses compelling arbitration frequently are poorly drafted and misunderstood by the parties involved.

Each state’s laws compelling arbitration are unique and continue to evolve, especially when it comes to compelling arbitration by non-signatories to the arbitration agreement itself. For example, in May 2017, the United States Supreme Court overturned a state-court opinion, ruling that an attorney-in-fact could waive the right to a jury trial on behalf of a decedent even where state law otherwise conveyed to the decedent a “God given right” to a jury trial.

In Kindred Nursing Centers, Limited Partnership v. Clark, the Supreme Court held that the Federal Arbitration Act requires state courts place arbitration agreements “on equal footing with all other contracts.” In so ruling, the Supreme Court overruled the Kentucky Supreme Court’s ruling that to agree to arbitration, “the representative must possess specific authority to waive his principal’s fundamental constitutional rights to access the courts [and] to trial by jury.”shutterstock_376726306

Arbitration presents numerous disadvantages often overlooked by inexperienced parties. Architects, engineers, and other design professionals should consent to a mandatory arbitration clause in their contracts only after a thorough consultation with an experienced, local attorney to fully understand the unique advantages and disadvantages of arbitration in the specific jurisdiction.

Many design professionals wrongly believe that arbitration always offers a more cost-effective and predictable alternative to the jury trial system. While this can be true in some large, complex litigation matters, arbitration can be exceedingly more expensive than some parties believe.

The expense of an American Arbitration Association arbitration, especially if it is a mandatory 3-member panel, easily can exceed five or six figures, which would not be incurred if the case is presented to a judge or jury.

A surprising number of design professionals do not understand exactly what rights they are giving up. Design professionals should fully understand that once they agree to arbitration they almost always waive all rights to appeal except in a few, limited circumstances. Typically, the right to appeal will exist only in cases of corruption, fraud, evidence of partiality or misconduct by the arbitrator, exceeding jurisdiction, or refusing to postpone an arbitration hearing for a good cause.

The limited right of appeal and sweeping decision-making power of a single arbitrator often creates significant levels of anxiety among the participants, especially in high-exposure cases involving issues of law that have not been well-settled in the jurisdiction. Such uncertainty may present a strong incentive by one party to settle a claim it otherwise might be willing to try to a jury if the right of appeal were not waived.

The parties also should carefully draft arbitration clauses to agree in advance about what rules of discovery and evidence will apply to avoid future misunderstandings and confusion. For example, it is not uncommon for design professionals to be surprised that pre-arbitration settlement offers and the limits of existing insurance policies regularly are made known to the arbitrator. Such offers of settlement or existence of insurance policy limits rarely would be shown to a jury in a typical jury trial. Many believe such knowledge of pre-suit offers and insurance policy limits can sway arbitrators to award at least some damages to a party that may not otherwise be awarded.

Arbitrations also have distinct advantages of course. Generally, the parties can obtain a final resolution substantially sooner than with a jury trial. It is not uncommon for an arbitration, even in a complex construction matter, to be scheduled within 6 months to a year. The same matter may take 24-36 months to reach a jury trial. When you consider the waiver of any right to appeal, matters routinely are resolved much quicker in arbitration.

Design professionals, however, are often surprised to find that the other side can frustrate the process by refusing to pay their share of arbitration. This can lead to unexpected delays, which frustrates the purpose of arbitration. A well-drafted arbitration clause should include a harsh penalty for any party that fails to fund its share of the arbitration promptly.

One of the significant advantages of arbitration is the ability to adopt more lax rules of evidence and procedure than available in a court of law. This can make it substantially easier to obtain and admit evidence and witness statements (ie., affidavits). This can prove especially helpful in some construction claims, where work crews who are key fact witnesses have moved on to projects in other states or countries.

The ability to selected arbitrators with specific industry experience and technical backgrounds not usually possessed by a trial judge presents another strong factor in favor of arbitration. While the use of such specialized arbitrators can be substantially more expensive, many design professionals prefer arbitrators experienced in their industry because they believe they can more readily predict the results. If the design professional considers this a significant factor, the requirement to use an arbitrator with specific industry experience in construction-related claims should be included in the arbitration clause itself.

Some design professionals prefer arbitration because it affords the parties the opportunity to resolve their dispute without the public nature of a jury trial. The private resolution of disputes can prove especially advantageous when it involves a high-profile claim, the loss of life on a project, or the potential for long-term, reputational damage to the design professional that may far exceed the amount involved in the dispute.

Finally, many design professionals believe arbitration can level the playing field where they are the “out-of-town” party or the less influential or politically-connected party, such as in disputes with local governmental entities or a large, local employer.

Undoubtedly, arbitration clauses are here to stay in the construction industry. Design professionals, however, should carefully review with an experienced attorney whether arbitration may be the right choice on the project, and then carefully draft an arbitration clause that achieves the benefits intended.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

20170712_113656Timothy B. Soefje is Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC based in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at tsoefje@realclearcounsel.com.

Professionals Risk Waiver Of Confidentiality By Using Unencrypted File-Sharing Programs

A growing number of professionals routinely share large files via cloud-based, file-sharing technology that puts them at serious risk of waiving claims of privilege, trade secrets, or proprietary information if litigation should arise in the future.

In the recent case of Harleysville Insurance Company v. Holding Funeral Home, Inc., a federal judge ruled that this common practice of sharing documents can be the “cyber world equivalent of leaving [privileged documents] on a bench in a public square and telling its counsel where they could find it.”

The judge went on to state, “It would be hard to imagine an act that would be more contrary to protecting the confidentiality of information than to post the information to the worldwide web.”

The facts of the underlying claim were not uncommon. There, a funeral home and insurance company were involved in litigation over the denial of a fire claim. The insurance company claimed the fire was intentionally set aBox Cloud Storagend denied coverage.

The insurance companies’ senior fire investigator sought to share his investigative file with his colleagues at the National Insurance Crime Bureau, and uploaded it to a common file-sharing program on the internet. He then sent an email to the NICB containing a hyperlink to the folder.

The cloud-based, internet folder was not password encrypted. Anyone with the hyperlink could access the entire contents of the folder. The investigator, however, included the following commonly-used statement in his email, presumably believing it was sufficient to maintain the confidentiality of his investigative file:

CONFIDENTIALITY NOTICE: This email contains information that is privileged and confidential, and subject to legal restrictions and penalties regarding it unauthorized disclosure and other use. You are prohibited from copying, distributing or otherwise using this information if you are not the intended recipient. If you received this email in error, please notify me immediately by return email, and delete this e-mail and all of its attachments from your system.

The investigator, thereafter, chose to upload the insurance companies’ entire claim and investigative file to the same Box, Inc. folder so that it could be accessed by the insurance companies’ litigation attorneys. The insurance companies’ attorney downloaded the entire file, including the senior investigator’s original email to NICB that contained the original hyperlink.

In response to written discovery requests from the defendant, the insurance companies’ attorneys produced the senior investigator’s email to the NICB as part of written disclosures. The email, of course, contained the hyperlink to what now included the insurance companies’ entire claim and investigative file. Defense counsel used the hyperlink to access the folder and downloaded the insurance company entire claim and investigative file, which included arguably privileged information.

After discovering the inadvertent disclosure, the insurance company sought to disqualify defense counsel and obtain a court ruling that its claim and investigative file as protected by the attorney-client privilege and the work product doctrine. The defendant argued that the insurance company had waived any privilege by disclosing the hyperlink to the folder in the senior investigator’s email.

The court first addressed whether the privilege was waived under state law, ruling the insurance companies’ disclosure was “inadvertent,” but nonetheless, any privilege was waived because the insurance carrier “knowingly provided access to the information by failing to implement sufficient precautions to maintain the confidentiality.”

The court concluded:

“It does not matter whether this employee believed that this site would function for only a short period of time or that the information uploaded to the site would be accessible for only a short period of time. Because of his previous use of the Box Site, this employee either knew – or should have known – that the information uploaded to the site was not protected in any way and could be accessed by anyone who simply clicked on the hyperlink.”

The court further concluded that the insurance company’s counsel also knew – or should have known, the information was readily available on the internet to anyone with access to the hyperlink.

Applying state law, the court held any privilege was waived because “waiver may occur if the disclosing party failed to take reasonable measures to ensure and maintain the documents confidentiality, or to take prompt and reasonable steps to rectify the error.” Virginia law mirrors many other state jurisdictions.

The court finally concluded the insurance company waived its right under Fed.R.Civ.Evid. 502, that to assert a work product privilege because neither it nor its defense counsel took reasonable steps to prevent its disclosure or rectify the situation.

The court concluded, “the agent’s actions in posting the Claims File where it could be accessed by anyone on the internet is certainly a release of protected information in way that did not limit its future use.”

The court went further, however, to justify its opinion as fostering the better public policy, concluding:

“The technology involved in information sharing is rapidly evolving. Whether a company chooses to use new technology is a decision within that company’s control. If it chooses to use a new technology, however, it should be responsible for ensuring that its employees and agents understand how the technology works, and more importantly, whether the technology allows unwanted access by others to its confidential information.”

As admitted by the court, the outer boundaries of what constitutes a waiver of privilege arising from the use of file-sharing technology is evolving. Few, if any, state or federal courts have specifically addressed the question of waiver or unauthorized access by opposing counsel.

For now, the use of encryption and other password protected, secured portals would seem to be the best practice for professionals who choose to share files that may contain documents that may be protected by privilege, proprietary information, or trade secrets.  At minimum, any documents shared through unencrypted, cloud-based, file-sharing technology should be immediately removed from the internet after shared to prevent unintended disclosure and waiver of any rights to privilege.

Best risk management practice, for now, calls for every professional or firm that chooses to use a cloud-based, file-sharing program to consult with outside legal counsel to develop and implement stringent, internal protocols to protect privileges and other rights, and every professional should insist that all internal risk management teams, insurance carriers, and outside litigation attorneys do the same.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

20170712_113656Timothy B. Soefje is Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC based in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at tsoefje@realclearcounsel.com.

Indemnification Clauses Remain Among Most Dangerous Terms In Any Contract

Past experiences support that indemnification clauses can be among the most dangerous terms in a design professional’s contract.

An indemnity contract arises when a design professional takes on the obligation to pay for any loss or damage that has been or might be incurred by another individual such as an owner, contractor, or subcontractor.

Unfortunately, that same past experience tells us these indemnification clauses often are misunderstood or misconstrued by both parties.shutterstock_528853693

Additionally, non-specific indemnification language can lead to enormous, unintended exposure for the design professional.

Typically, indemnification clauses are governed by state law. And each state’s law of indemnity is unique. Always consult with local counsel to be fully informed about indemnity terms you are being asked to agree to.

But generally, for an indemnification provision to be enforceable, it must provide “fair notice” of “a commitment by one party to pay for the damages resulting from another party’s own negligence. Generally, “fair notice” is a question of law for the trial court. But, in layman’s terms, it means the indemnification clause must be conspicuousness.

This requirement is included so that one party can’t “sneak” indemnification language into a contract. Examples might include the use of all capital letter, large or bold-faced type, or anything that calls the reader’s attention to the indemnification language.

Indemnity provisions hidden among unrelated terms and conditions, or on the reverse side of a document, generally won’t satisfy the conspicuousness requirement.

One pitfall for design professionals arises where they agree to a contract that requires them to “defend” another party to the contract, in addition to the duty to “indemnify. The “duty to defend” is contractual in nature, and is separate from the “duty to indemnify.”

Professional liability insurance policies frequently include contractual liability exclusions. In other words, a professional liability insurance policy may not provide coverage if the design professional contractually agrees to “defend” an owner, contractor or other third party.

Design professionals also should be cautious about entering into contracts that hold the design professional to the same terms and conditions as the prime contract between the owner and architect.

At minimum, request a copy of the prime contract and have it reviewed by an attorney. Frequently, the prime contracts may contain indemnification language creating liability for clams the policy holder never intended to assume.

Indemnification clauses are a minefield of potential liability. By exercising “Contract Review Services,”  it may be possible to avoid agreeing to a duty to “defend” or “indemnify”that the design professional never intended to assume, and even avoid resulting claims and lawsuits altogether.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

Tim Soefje Headshot 01Timothy B. Soefje is Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC based in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje. For more information, visit us at www.realclearcounsel.com or contact Mr. Soefje at tsoefje@realclearcounsel.com.

Design Professionals Should Seek Pre-Claim Assistance Early To Avoid Claims

Even for the most cautious and conscientious design professionals, mistakes are made. Things go wrong. Disputes arise.

It’s a sign of the times that design professionals increasingly are becoming targets for claims and lawsuits. Litigious clients. Injured parties. Construction firms with “cost-recovery” programs trying to re-coup lost profits. Claims can come from anywhere and anyone – all hoping to take advantage of a design professional’s assets or professional liability insurance policy. When an issue arises, seek “Pre-claims Assistance” early.

What’s the difference between a pre-claim and a claim you might ask? Every insurance policy is unique. So, always check with your insurance agent to Contract-Review-01understand your policy terms. But generally, the difference is found in the definitions in your policy.

Typically, an insurance policy defines a claim as a “demand” against the insured for money or services that caused a loss or damages.

A pre-claim is merely an issue or circumstance reported to the insurer that the professional believes could lead to a claim. What kind of issues or circumstances? Obviously, when there’s been an accident or loss on the job, pre-claims assistance should be sought immediately. But it could be something simple. Something much less obvious.

Maybe you’ve encountered unexpected and unique soil conditions on a job site. Or you’ve learned the contractor or a subcontractor is not following specifications.  Maybe it’s an ethical issue involving the contractor or subcontractor. Maybe an inspector, governmental entity or architectural review committee is delaying the project by unreasonably refusing to approve your work.

“Pre-claim Assistance” should be considered when any issue the policyholder believes could lead to a claim. Usually, it’s best to report the issue to the agent or broker first. Let them help you follow the steps set out in the insurance policy to obtain “Pre-claim assistance.”

Again every policy is unique, but typical requirements might include:

  • Written notice on how the professional learned of the issue;
  • What work the professional is performing;
  • A description of what happened;
  • Names of the potential claimants; and
  • A summary of the potential damages or injuries.

Some professionals make the mistake of not seeking “Pre-claim Assistance” quickly enough because they are concerned that reporting an issue will increase their future premiums. Always check with your agent to clearly understand your policy, but seeking “Pre-claim Assistance” is sound, risk-management best practice regardless of the effect on future premiums. But typically, the expenses for “Pre-claim Assistance” are incurred by the insurer, paid outside of the policy limit, and are not subject to a deductible.

Why would insurers do this? Because experience has proven that early intervention by an experienced, pre-claims specialist may help resolve the claim before it develops into a lawsuit, saving the insurer – and the insured – money. Involving experienced claims professionals during the pre-claims period can help prevent costly mistakes that increase the insurer’s ability to settle a claim later, or make it more difficult to defend a claim that develops into a lawsuit.

Sometimes during “Pre-claim Assistance,” the insurer may pay for legal counsel, experts, testing or mediators if the insurer believes they determine it could mitigate the loss or avoid a claim altogether. The professional also benefits in other ways. By seeking “Pre-claim Assistance,” the design professional can lock in the insurance policy limits in effect when the issue is report. Also, expenses incurred by the insured during “Pre-claim Assistance” may count toward the insured’s deductible.

Design professionals deal with problems and conflicts on projects daily. Fortunately, few will ever lead to a claim. But a design professional should trust their instincts and experience to know when an issue or unusual circumstance could lead to a costly claim or lawsuit. Act quickly and decisively to take advantage of “Pre-claim Assistance,” and hopefully avoid a claim altogether.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

Tim Soefje Headshot 01Timothy B. Soefje is Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC. in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje. For more information, visit us at www.realclearcounsel.com or contact Mr. Soefje at tsoefje@realclearcounsel.com

Top 5 Ways Social Media Will Get You Disbarred

Social media for lawyers has become the legal equivalent of playing with fire. Unfortunately, far too many lawyers and law firms wade into using social media lacking even a cursory understanding of the applicable ethical rules in their jurisdiction.

Here are the Top 5 ways social media can get you disbarred, disciplined or fined.

1. BARRATRY

Ambulance chasing has moved to the internet. A lawyer commits barratry when he solicits professional employment arising out of a particular event or series of events from anyone who has not sought the lawyer’s advice social-3064515_1920or with whom the lawyer has no family, or past or present attorney-client relationship. ABA Model Rules on Professional Conduct 7.3.

For example, assume a lawyer on Facebook sees an old high school friend post she has just been injured in a car wreck and is being transported to the hospital. Without thinking, the attorney posts: “Praying for you. If you need my help with filing a claim, give me a call.” What likely was a genuine desire to help an old friend has become clear case of barratry.

 

Imagine a lawyer sees a friend’s tweet expressing frustration about his attorney’s inability to resolve a contested probate matter quickly. The lawyer tweets back: “Sounds to be me like you have a need for speed. #TopGunForHire.” The responding attorney may have only thought he was being cleaver. Unfortunately, he also has committed barratry. The tweet also could subject the lawyer to discipline for communicating with a person the lawyer knows is represented by counsel as discussed further below. ABA Model Rule 4.2.

Lawyers are subject to disbarment or severe discipline for acts of barratry, which also has been a crime in most states for some time. See, Texas Penal Code 38.12. In addition, lawyers who commit barratry are subject to forfeiting their hard-earned attorney fees even after a case is concluded at least in most states.

Recently, some states are enacting laws that create civil causes of actions against the attorney. These barratry statutes typically permit the alleged victim to recover substantial, statutory penalties and an award of attorney fees. See, Texas Government Code, §82.065 et. seq. In Texas at least, a lawyer may not require a client to sign an engagement agreement that waives the client’s right to bring a claim for barratry under the statute. (Texas Opinion 637).

Unfortunately, an entire cottage industry of lawyers filing civil barratry claims now has sprung up in some states. Almost every time, the lawyer has a simultaneous grievance claim filed against him with the state bar.

As these claims grow in number, some members of the defense bar and legal industry analysts are left wondering whether at least some of these civil barratry claims were themselves unlawfully solicited, and in some cases fabricated entirely. Regardless, with tens of thousands of dollars available per claim, lawyer can be assured their social media accounts will be trolled for evidence they have unlawfully solicited anyone who chooses to file one of these civil barratry claims.

2. LACK OF CANDOR TOWARD THE TRIBUNAL

As trial judges and other lawyers become more savvy about social media, unethical lawyers will find themselves held to answer for false statements made to the court or to others. ABA Model Rules 3.3 and 4.1.

For example, a lawyer who chooses to lie to a judge or opposing counsel to obtain a continuance by claiming to be in trial or in a deposition out-of-town in another proceeding should be careful to turn off his Facebook location setting or insure his wife’s Instagram photos don’t reveal his Las Vegas getaway.

As early as 2009, one Texas lawyer learned how dangerous social media can be. The lawyer sought a continuance on the pretext her father had died.  The social media savvy judge, however, used the lawyer’s social media accounts to uncover the lawyer had posted photos of herself drinking and partying instead of mourning her father’s death.

3. UNINTENDED ATTORNEY-CLIENT RELATIONSHIP

Social media is about engaging with other people. Lawyers, however, are not like other people.

In general, no lawyer should engage with anyone on social media about a specific legal matter unless the lawyer intends to create an attorney-client, or at minimum a “prospective client” relationship. ABA Model Rule 1.18.

The Restatement (Third) of the Law Governing Lawyers, Section 14 provides a two-part test to create an attorney-client relationship.

First, a person manifests an intent that a lawyer provide legal services. Second, the lawyer either; (a) manifests consent, or (b) fails to manifest lack of consent and knows or reasonably should know the person reasonably relied on the lawyer to provide the services.

All the obligations of the attorney-client relationship such as a duty of competency, confidentiality, competency, and diligence are imposed on an attorney who even unintentionally enters into an attorney-client or “prospective client” relationship. See, ABA Model Rule 1.7. Under ABA Model Rule 1.10, even an inadvertent client relationship  can be imputed to the lawyer’s firm.

In other words, an attorney who engages a friend or follower on Facebook or Twitter should follow the same rules that would apply in an in-office setting.

The lawyer should clearly disclaim that any attorney-client relationship exists until an engagement agreement is signed by both parties. Additionally, the lawyer should clearly manifest his lack of consent to an attorney-client relationship after deciding to reject the client.

4. PROHIBITED COMMUNICATIONS

Social media can be a minefield of potential ethical violations for any lawyer who ventures into communications with anyone about a specific legal matter.

Sending a friend request or invitation to connect to the opposing sides of a case for the purpose of obtaining access to the person’s social media content will subject a lawyer to discipline, especially where the lawyer knows the person is represented by counsel. ABA Model Rule 4.2.

Lawyers also should proceed with caution before connecting via social media with a witness in a specific matter. Some jurisdictions require the lawyer to affirmatively disclose to the witness the reason for the lawyer’s attempt to connect via social media.

In other states, the lawyer is prohibited from using false pretenses, dishonesty, or an alias to gain access the other individual’s social media content. Kentucky (Op. KBA E-434), New York City (Op. 2010-2), New York State (Op. 843), and Oregon (Op. 2013-189).

The “real-time” nature of social media subjects uninformed lawyers to unintentionally disclosing confidential client communications. ABA Model Rule 1.9. For example, one lawyer forfeited a substantial settlement when his daughter violated the confidentiality term in a settlement agreement by posting details about the settlement on Facebook.

A public defender was suspended for 60 days after posting on social media that his client may have committed perjury. In re Peshek, M.R. 23794 (Ill. May 18, 2010). Even a nonspecific tweet such as, “just had a client lie on the stand for the first time,” could subject a lawyer to discipline if lawyer’s location or time of the tweet revealed the particular client’s identity.

5. UNAUTHORIZED ADVERTISEMENT

Most lawyers and law firms wouldn’t dream of publishing an advertisement in a newspaper or on television without submitting it to their state bar association for approval. A surprising number of lawyers, however, remain unaware that social media landing pages can be advertisements subject to the local disciplinary rules.

A lawyer’s profiles and home pages on social media sites such as Facebook, Twitter, and LinkedIn can be advertisements where the landing page is generally available to the public. As such, lawyers must comply with their state’s version of the ABA Model Rules 7.1, 7.2, 7.3 and 7.4.

The California state bar concluded that the advertising rules do not come into play if a lawyer’s social media post merely announces a victory or recent publication without suggesting that the lawyer is in the market for new clients. But when a message expresses the lawyer’s willingness to be hired, the advertising rules apply. California (Op. 2012-186).

The California committee concluded that a Facebook post “Case finally over. Unanimous verdict! Celebrating tonight” did not constitute an advertisement because it was not an offer or message about the attorney’s availability for employment. Id.

The panel, however, concluded that when the lawyer posted. “Won a million dollar verdict. Tell your friends to check out my website,” the message asked readers to tell others to look at her website so that they may consider hiring her, and therefore, was subject to the state’s rules on lawyer’s advertising. Id.

Lawyers who chose to use social media for the purpose of advertising must comply with any rules requiring submission of such advertising to any Advertising Review Committee. See, Texas Disciplinary Rules of Professional Conduct, Rule 7.07. Every state’s rules are unique.

The California panel made clear that California lawyers were required to comply regardless of how difficult it may be to comply.

“The restrictions imposed by the professional responsibility rules and standards governing attorney advertising are not relaxed merely because such compliance might be more difficult or awkward in a social media setting.”

California (Op. 2012-186).

Some states, however, have enacted rules that don’t require submitting to an advertising review committee any social media that contains only basic information.

For example, in Texas a lawyer or law firm is not required to submit social media that only includes biographical information, sponsorship of certain activities, or where the communication was not significantly motivated by a desire for, or by the possibility of obtaining, pecuniary gain. Texas Disciplinary Rules of Professional Conduct 7.07(e).

For example, a law firm would not be required to submit their social media posts, encouraging the public to follow their Facebook page, LinkedIn page, or Twitter account.

CONCLUSION

Social media has become pervasive in most lawyers’ every day and professional lives. At least one state’s bar association already has concluded that ABA Model Rule 1.1 requires lawyers to have “a basic knowledge of how social media websites work,” as well as the ability to advise clients about the legal ramifications of using the sites. Pennsylvania (Op. 2014-300).

As a result, best risk management practice suggests that every lawyer and law firm should implement a strong, written social media policy into their firm’s employee handbooks and regularly train their employees on the ethical rules that apply to lawyers and law firms. And, every lawyer should developing a personal, working knowledge of how social media works to avoid the ethical traps waiting for them in cyberspace.

To subscribe to the Professional Liability Update, click HERE and provide your contact information and you’ll receive notice of our updates. 

Tim Soefje Headshot 01Timothy B. Soefje is Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC. in Dallas, Texas. He is admitted in both Texas and Oklahoma. Follow him on Twitter at @TimSoefje. For more information, visit at www.realclearcounsel.com or contact Mr. Soefje at tsoefje@realclearcounsel.com

 

 

 

Design Professionals Must Prepare Now For The Inevitable

A wise old lawyer once said: “If you’re not being sued, you’re not making money.”The point he was making was that as a professional’s business grows, it is statistically inevitable litigation will follow.

We partly can blame the rising volume of construction defect lawsuits brought against design professionals on the litigious world in which we live. Design professionals themselves, however, must shoulder some blame as well.Man-On-Wire-Over-Sharks

Too many design professionals remain uneducated about the litigation traps they unwittingly create daily on a job site; fail to develop internal policies to mitigate against the risk of suit; and remain unprepared to defend against the inevitable lawsuit when it comes.

A design professional’s legal liability typically flows from the duty to act reasonably with the same skill and care ordinarily exercised by other professionals in their field. A design professional is generally civilly liable only for damages arising from defects in their designs, but the full scope of liability for specific defects in construction or other work by the design professional is typically determined by contract.

How design professionals unwittingly create liability:

Design professionals frequently, however, create liability where none otherwise would exist. Sometimes, design professionals create liability because they are trying to be helpful during the construction process. At other times they create liability because of the conflicting responsibilities imposed by their codes of ethics and professional responsibilities.

For example, the National Society of Professional Engineers (NSPE) Code of Ethics directs engineers to report concerns about building safety to the appropriate individuals or authorities. Ironically, the design professional typically could not be held civilly liable for a failing to report a known design defect or safety hazard, even where an injury or death occurs, unless the state where the events occurred imposes a “Good Samaritan Law” that creates such a duty.

A design professional who fulfills this objection and voluntarily reports a defect or safety hazard could prove the key to a successful defense or even the key to avoiding litigation altogether. Unfortunately, conscientious design professionals attempting to meet their professional responsibilities sometimes unwittingly create liability for construction defect where none would otherwise arise.

Assume a design professional reports a design defect or safety concern to a building owner. In an attempt to be helpful, the design professional voluntarily assumes the role of consultant or adviser to help the owner resolve the potential defect or safety hazard. In such a case, the design professional could be held civilly liable in a subsequent lawsuit brought by the owner or a third party if he fails to act reasonably or breaches the applicable standard of care that results in damages.

For example, assume a sound engineer is retained only to design a theater on the second floor of a building. While inspecting the job site, he observes that the second-floor truss system is improperly designed because splices have not been constructed according to the plans. He reports his concerns to the building owner or general contractor.

The architect, however, goes on to offer his unsolicited opinion the trusses should be fine until repairs can be made or the truss system is replaced. The owner relies on the architect’s opinion to delay taking immediate action. The next week, before repairs can be made, the second-floor collapses, causing substantial property damages and serious bodily injury to several people onsite.

In this circumstance, if the architect would simply have reported his concerns and not offered his opinion the trusses would be okay for a few days, the architect would have fulfilled his professional duties and likely have created no civil liability. In this example, however, the architect can be expected to be sued because he offered his professional opinion the trusses likely would be safe for a few days. As a result, it arguably was reasonable for the owner to rely on that representation to delay taking action to mitigate against the collapse.

In another example, assume the sound engineer goes onsite to inspect the progress, and thereafter, prepares a written report to the owner, noting the second floor is “complete.” The sound engineer recommends the owner move forward with the next phase of the project, including installing the theater seating on the second floor. During construction, the second floor collapses because the trusses were not constructed in accordance with the designs of the truss engineer and were insufficient to hold the additional weight of the seating. People are injured. Litigation will inevitably follow.

A creative plaintiffs’ attorney will argue the owner could reasonably rely on the representations by the sound engineer that the second-floor was “complete” only if the engineer had concluded the truss construction by the contractor and subcontractor was performed in accordance with industry standards and the truss engineer’s plans to adequately hold the weight of the theater seating. In this case, the sound engineer may have unwittingly created liability where none otherwise would have existed because he failed to foresee such liability when preparing his report advising the second-floor was “complete” and his phase of the project was ready to proceed.

Ordinarily, a design professional who approves the work of a contractor that later turns out to have been deficient does not automatically mean the design professional will share liability with the contractor. The design professional, however, likely will be placed in the position of having to explain why the observations and tests he made before approving the work did not uncover the defects.

Every design professional firm should take care to develop internal policies and procedures to mitigate against the risk of creating such legal liability. In our examples above, a careful design professional should have implemented an internal policy that prohibited any design professional from individually offering any onsite opinion or consultations that were outside the scope of the written contract with the design professional’s firm.

Where a design professional is asked to offer such an opinion onsite, a clearly-worded policy could be drafted to require the design professional to obtain express, written authorization from a firm supervisor. The supervisor, in turn, confirms in writing with the owner/contractor the scope and limitations of liability applicable to such an unplanned opinions or consultations that are outside the scope of the original contract and arise only because of the unique situation involving a design defect or safety concern.

What to include in a litigation mitigation policy:

A strong litigation mitigation policy should mandate that every design professional who reports any defect or safety concern should immediately document:

  1. who was told;
  2. what was said;
  3. when it reported;
  4. where the report was made;
  5. why the design professional felt compelled to report, and
  6. how the matter was resolved, including whether the design professional offered any opinion or consultation as to how to resolve the defect or safety hazard.

Every design professional firm would be well-advised to develop a written form for reporting such communication, which is signed by the reporting design professional.

The internal litigation mitigation policy should advise all design professionals to routinely clarify in all external oral or written communication that they are making no representations that can be construed as approval of any work performed by any contractor or subcontractor for which the design professional is not contractually responsible. It may be advisable to draft standard, limitation of representation language to be included in any outgoing emails or correspondence.

While such steps may appear excessive and burdensome, invariably lawsuits seem to turn on the innocuous email or handwritten notation prepared without consideration at the time of how the email or report would be used in subsequent litigation.

Additionally, every design professional firm should develop a litigation response plan. For example, every design professional firm should designate an internal litigation response team comprised of senior members of the firm, who are prepared to act quickly when a situation arises.

Every design firm should develop a strong relationship with an experienced construction litigation counsel who becomes part of such a litigation response team. By directing the investigation, litigation counsel can seek to preserve the attorney client privilege for documents prepared as part of the investigation, communications among employees, and investigations of potential witnesses.

The firm’s litigation response plan also should include a well-defined document retention policy to preserve all emails, correspondence, and documentation that may be available for anyone involved in the incident. Frequently, the preservation of documents only arises as an afterthought once a lawsuit is filed, which may be years after emails and a construction file it lost or destroyed in the ordinary course of business.

Experience litigation counsel also can assist a design professional firm and its professional liability insurer to quickly evaluate the design professional’s potential exposure and possibly help coordinate a plan with other potentially responsible third parties to develop a cost-effective a mitigation plan to reduce the future damages and costs of litigation.

Design professional companies must prepare for the inevitability of litigation through a long-term commitment to ethical conduct; the implementation of ongoing, internal training to educate their employees on the legal pitfalls that confront design professionals every day; and development of strong internal policies and procedures to quickly respond and effectively manage the inevitable litigation that will arise. A well-crafted litigation mitigation and response plan is a positive first step.

The basics of a litigation mitigation plan check list:

  1. Establish written ethics policy;
  2. Internal training to avoid creating unintended legal liability;
  3. Documentation of all external communication with owners, contractors, and subcontractors;
  4. Implement limitation of liability language for all external communications;
  5. Require written supervisor’s approval prior to any design professional offering any advice or consultation outside scope of a written contract;
  6. Develop documentation retention policy;
  7. Designated internal litigation response team of senior design professionals and project leaders;
  8. Establish a pre-existing relationship with qualified legal counsel.

 

To subscribe to the Professional Liability Update, click HERE and provide your contact information and you’ll receive notice of our updates. 

For a quick-tip video on this topic and other issues effecting design professionals, architects and engineers, visit http://admiral-design.omnisure.com/quick-tip-videos/

Tim Soefje Headshot 01Timothy B. Soefje is Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC. in Dallas, Texas. Follow him on Twitter at @TimSoefje. For more information, visit at www.realclearcounsel.com or contact Mr. Soefje at tsoefje@realclearcounsel.com