Ten Things Every Law Firm Should Know About Legal Malpractice Claims

We live in litigious times. Here are some tips that can help reduce your firm's exposure to a successful malpractice claim.

1. Conflicts of Interest

As a general proposition, legal malpractice cases are difficult cases for plaintiffs to win. In our experience, the old adage that “juries hate lawyers” is simply not true. Most jurors have had limited experiences with lawyers and, for the most part, those experiences have been positive. Many cases also founder on the issue of proximate causation (ie, “What difference would it have made if the lawyer had acted perfectly?”).

The one factor that consistently changes the odds is an actual or perceived conflict of interest. Jurors expect and assume that lawyers will give their undivided loyalty to each individual client. If there is credible evidence that the lawyer's allegiance was divided among clients with conflicting interests or ' even worse ' that the lawyer put his/her own interests above the client's, then the lawyer is at a distinct disadvantage.

How do you avoid conflicts of interest? First, by having a first-rate system for checking conflicts at the start of an engagement. We advise firms to use a “belt and suspenders” approach to conflicts checks, ie, the use of a firm-wide conflicts database plus regular e-mails or memos reporting on new cases. Remind the lawyers in your firm to recheck for conflicts as additional parties come into a transaction or deal as it develops. Make sure you know who your firm represents in a transaction ' and who it does not represent ' and put it in writing. Any lawyer who proposes to represent multiple parties in a matter should be required to obtain approval in advance from the managing partner or her designee. Lastly, extreme care and attention should be paid in obtaining conflict waivers from clients, and all such waivers should be in writing and contain sufficient detail to withstand subsequent challenge.

2. “Bad Documents”

Virtually every malpractice case uncovers a cache of bad documents in the law firm's files. The worst of these are memoranda in which lawyers openly criticize their own clients or colleagues in a pending matter, or speculate about their malpractice exposure if things don't turn out well. Why lawyers write these memos in the first place is a mystery. An even greater mystery is why some lawyers bill their client for writing these memos and then place them in the client's files, thereby rendering them the property of the client. These documents are always discoverable in a legal malpractice case. Depending upon the nature of the documents and their subject matter, they may also be admissible at trial as substantive evidence or for impeachment purposes. Like conflicts of interest, bad documents put the law firm on the defensive and can greatly increase the risk of an adverse verdict and ' in extreme cases ' an award of punitive damages.

You must educate the lawyers in your firm about the risks of creating these kinds of documents. Encourage them to talk about issues and concerns with their colleagues before putting their thoughts in writing. If, after discussion, a lawyer concludes it is necessary to document concerns about a particular client or matter, the memorandum should be addressed in confidence to the managing partner and/or loss prevention counsel. The memo should also be kept separate from the client's files and ' under no circumstances ' should the time spent preparing or reviewing the memo be billed to the client.

One category of bad documents worthy of separate mention is the growing problem of e-mail. E-mail is often treated as a substitute for informal conversation, but it leaves a permanent record. Many lawyers save all e-mails, and some routinely print out hard copies and place them into the clients' files. The day is also fast approaching when smart plaintiffs' lawyers will seek and obtain in discovery all electronic documents, including e-mails. And, as we now know, even “deleted” e-mails can be retrieved with some effort. In addition to following the above recommendations concerning bad documents in general, we urge every firm to develop and enforce strict policies with respect to the creation, circulation and preservation of e-mails.

3. Suing Clients

The one sure-fire way to get sued for legal malpractice is to sue your former client for unpaid legal fees. Our general advice is: “Don't do it.” Try to get your clients to agree (either at the outset of an engagement or even after a dispute arises) to agree to mediate or arbitrate a fee dispute under the auspices of a local bar association, most of which now offer these services. In all cases the decision to sue a client should be made by the managing partner, following a careful malpractice review and a “risk/benefit” analysis of the amount likely to be recovered vs. the risks and costs associated with a potential malpractice claim.

A related question is whether to assert a counterclaim for unpaid fees once the firm is sued by a client for malpractice. If the firm has made genuine efforts to collect its fees, and especially if a reasonable argument can be made that the malpractice claim was asserted by the client solely to avoid payment, it may be a good idea to assert the counterclaim.

4. Withholding Clients' Files

Another difficult situation is one in which a law firm is discharged during the pendency of a matter and threatens to withhold files from a client or successor counsel as a means of getting paid. Here again, our general advice is: “Don't.” Many states have complex rules that entitle the client to the return of all his/her original documents, all pleadings in the case and all work product for which the client has paid. Most also have a broad ethics rule requiring the lawyer to provide the client with anything he or she needs to avoid prejudice in a pending matter. Given the scope and the inherent ambiguity of these rules, it is much better to be safe than sorry by returning all files promptly upon request and pursuing your payment remedies separately.

5. Parallel Disciplinary Proceedings

Malpractice claims often go hand-in-hand with complaints to bar disciplinary officials. A lawyer who attempts to defend both proceedings simultaneously can find himself “whipsawed” between an aggressive bar counsel and plaintiffs' lawyer, often making inadvertent admissions in one proceeding that can be used against him in the other. We recommend that the lawyer make every effort to stay the disciplinary proceedings until the malpractice case has been resolved. Often the settlement or dismissal of a malpractice case will result in the disciplinary proceedings being abandoned by the complainant or bar counsel.

6. Internal Investigations

Good managers tend to like to get to the bottom of things quickly. When a complaint (be it formal or informal) comes in from an existing or former client, management will frequently conduct a quick-and-dirty investigation of the matter, interviewing attorneys and creating various internal memoranda. Be warned: Today's internal investigation is tomorrow's discovery. There are several reported cases holding that, at least in those situations where the law firm continues to represent the client, such internal investigations are not protected, in whole or in substantial part, by either the attorney-client or work-product privileges. Be sure to know the law in your jurisdiction before launching such an investigation. In addition, there are several steps a law firm can take to maximize protection of such investigations, such as designating an attorney who has no involvement in the underlying matter as “counsel to the firm” to conduct the investigation. Safer still is to immediately engage outside counsel to conduct the investigation.

7. “A Fool For A Client”

Once a claim is asserted against a lawyer by a client or a disciplinary investigation commenced by bar counsel, it is never a good idea to have the accused lawyer be the principal spokesperson for the firm with respect to the claim. While the accused lawyer may need to provide essential information, and her views about the claim should certainly be heard and respected, every lawyer loses her objectivity to one degree or another under these circumstances. Remember also that everything the targeted lawyer says or writes becomes a potential admission against herself and the firm. In all cases, someone other than the accused lawyer should respond to the client or bar counsel.

8. Report, Report, Report

Most professional liability policies are “claims made” policies, meaning that the applicable policy is the one in existence at the time a claim is first made against the law firm. Since there can be much ambiguity about what constitutes a claim, it is better to err on the side of caution and report any semblance of a claim to your insurer. We have seen more than one firm be denied coverage where there was a delay in reporting and/or the firm changed carriers (or simply renewed its policy) between the time an initial complaint was received and a malpractice suit filed. All attorneys should be encouraged to report to management any form of a complaint from a client, without fear of embarrassment or retribution.

9. Non-Engagement and “Kiss-Off” Letters

Whether an attorney-client relationship has been created is ordinarily a question of the client's reasonable expectations. Avoid ambiguity and risk by encouraging lawyers in your firm to send out “non-engagement letters” whenever they decide not to take on a matter after an initial consultation. Also, in many jurisdictions, statutes of limitations on malpractice claims are tolled during the attorney's “continuing representation” of a client. It is good practice to send a termination letter at the end of every engagement, especially one that has been less than successful. Such letters can and should be phrased tactfully, so as not to preclude the possibility of a possible future engagement.

10. Ombudsman

The easiest malpractice claim to defend is the one that never arises. Many potential malpractice claims can be avoided if a firm has a culture and procedures in place whereby junior lawyers and staff can discretely raise concerns about the manner in which a particular matter is being handled. Consider asking a senior lawyer who is widely respected throughout the firm to serve as an ombudsman or mentor and to whom anyone can go to express concerns about the handling of a client matter.

Follow these simple guidelines and minimize the risk of a substantial malpractice judgment against your firm.

We live in litigious times. Here are some tips that can help reduce your firm's exposure to a successful malpractice claim.

1. Conflicts of Interest

As a general proposition, legal malpractice cases are difficult cases for plaintiffs to win. In our experience, the old adage that “juries hate lawyers” is simply not true. Most jurors have had limited experiences with lawyers and, for the most part, those experiences have been positive. Many cases also founder on the issue of proximate causation (ie, “What difference would it have made if the lawyer had acted perfectly?”).

The one factor that consistently changes the odds is an actual or perceived conflict of interest. Jurors expect and assume that lawyers will give their undivided loyalty to each individual client. If there is credible evidence that the lawyer's allegiance was divided among clients with conflicting interests or ' even worse ' that the lawyer put his/her own interests above the client's, then the lawyer is at a distinct disadvantage.

How do you avoid conflicts of interest? First, by having a first-rate system for checking conflicts at the start of an engagement. We advise firms to use a “belt and suspenders” approach to conflicts checks, ie, the use of a firm-wide conflicts database plus regular e-mails or memos reporting on new cases. Remind the lawyers in your firm to recheck for conflicts as additional parties come into a transaction or deal as it develops. Make sure you know who your firm represents in a transaction ' and who it does not represent ' and put it in writing. Any lawyer who proposes to represent multiple parties in a matter should be required to obtain approval in advance from the managing partner or her designee. Lastly, extreme care and attention should be paid in obtaining conflict waivers from clients, and all such waivers should be in writing and contain sufficient detail to withstand subsequent challenge.

2. “Bad Documents”

Virtually every malpractice case uncovers a cache of bad documents in the law firm's files. The worst of these are memoranda in which lawyers openly criticize their own clients or colleagues in a pending matter, or speculate about their malpractice exposure if things don't turn out well. Why lawyers write these memos in the first place is a mystery. An even greater mystery is why some lawyers bill their client for writing these memos and then place them in the client's files, thereby rendering them the property of the client. These documents are always discoverable in a legal malpractice case. Depending upon the nature of the documents and their subject matter, they may also be admissible at trial as substantive evidence or for impeachment purposes. Like conflicts of interest, bad documents put the law firm on the defensive and can greatly increase the risk of an adverse verdict and ' in extreme cases ' an award of punitive damages.

You must educate the lawyers in your firm about the risks of creating these kinds of documents. Encourage them to talk about issues and concerns with their colleagues before putting their thoughts in writing. If, after discussion, a lawyer concludes it is necessary to document concerns about a particular client or matter, the memorandum should be addressed in confidence to the managing partner and/or loss prevention counsel. The memo should also be kept separate from the client's files and ' under no circumstances ' should the time spent preparing or reviewing the memo be billed to the client.

One category of bad documents worthy of separate mention is the growing problem of e-mail. E-mail is often treated as a substitute for informal conversation, but it leaves a permanent record. Many lawyers save all e-mails, and some routinely print out hard copies and place them into the clients' files. The day is also fast approaching when smart plaintiffs' lawyers will seek and obtain in discovery all electronic documents, including e-mails. And, as we now know, even “deleted” e-mails can be retrieved with some effort. In addition to following the above recommendations concerning bad documents in general, we urge every firm to develop and enforce strict policies with respect to the creation, circulation and preservation of e-mails.

3. Suing Clients

The one sure-fire way to get sued for legal malpractice is to sue your former client for unpaid legal fees. Our general advice is: “Don't do it.” Try to get your clients to agree (either at the outset of an engagement or even after a dispute arises) to agree to mediate or arbitrate a fee dispute under the auspices of a local bar association, most of which now offer these services. In all cases the decision to sue a client should be made by the managing partner, following a careful malpractice review and a “risk/benefit” analysis of the amount likely to be recovered vs. the risks and costs associated with a potential malpractice claim.

A related question is whether to assert a counterclaim for unpaid fees once the firm is sued by a client for malpractice. If the firm has made genuine efforts to collect its fees, and especially if a reasonable argument can be made that the malpractice claim was asserted by the client solely to avoid payment, it may be a good idea to assert the counterclaim.

4. Withholding Clients' Files

Another difficult situation is one in which a law firm is discharged during the pendency of a matter and threatens to withhold files from a client or successor counsel as a means of getting paid. Here again, our general advice is: “Don't.” Many states have complex rules that entitle the client to the return of all his/her original documents, all pleadings in the case and all work product for which the client has paid. Most also have a broad ethics rule requiring the lawyer to provide the client with anything he or she needs to avoid prejudice in a pending matter. Given the scope and the inherent ambiguity of these rules, it is much better to be safe than sorry by returning all files promptly upon request and pursuing your payment remedies separately.

5. Parallel Disciplinary Proceedings

Malpractice claims often go hand-in-hand with complaints to bar disciplinary officials. A lawyer who attempts to defend both proceedings simultaneously can find himself “whipsawed” between an aggressive bar counsel and plaintiffs' lawyer, often making inadvertent admissions in one proceeding that can be used against him in the other. We recommend that the lawyer make every effort to stay the disciplinary proceedings until the malpractice case has been resolved. Often the settlement or dismissal of a malpractice case will result in the disciplinary proceedings being abandoned by the complainant or bar counsel.

6. Internal Investigations

Good managers tend to like to get to the bottom of things quickly. When a complaint (be it formal or informal) comes in from an existing or former client, management will frequently conduct a quick-and-dirty investigation of the matter, interviewing attorneys and creating various internal memoranda. Be warned: Today's internal investigation is tomorrow's discovery. There are several reported cases holding that, at least in those situations where the law firm continues to represent the client, such internal investigations are not protected, in whole or in substantial part, by either the attorney-client or work-product privileges. Be sure to know the law in your jurisdiction before launching such an investigation. In addition, there are several steps a law firm can take to maximize protection of such investigations, such as designating an attorney who has no involvement in the underlying matter as “counsel to the firm” to conduct the investigation. Safer still is to immediately engage outside counsel to conduct the investigation.

7. “A Fool For A Client”

Once a claim is asserted against a lawyer by a client or a disciplinary investigation commenced by bar counsel, it is never a good idea to have the accused lawyer be the principal spokesperson for the firm with respect to the claim. While the accused lawyer may need to provide essential information, and her views about the claim should certainly be heard and respected, every lawyer loses her objectivity to one degree or another under these circumstances. Remember also that everything the targeted lawyer says or writes becomes a potential admission against herself and the firm. In all cases, someone other than the accused lawyer should respond to the client or bar counsel.

8. Report, Report, Report

Most professional liability policies are “claims made” policies, meaning that the applicable policy is the one in existence at the time a claim is first made against the law firm. Since there can be much ambiguity about what constitutes a claim, it is better to err on the side of caution and report any semblance of a claim to your insurer. We have seen more than one firm be denied coverage where there was a delay in reporting and/or the firm changed carriers (or simply renewed its policy) between the time an initial complaint was received and a malpractice suit filed. All attorneys should be encouraged to report to management any form of a complaint from a client, without fear of embarrassment or retribution.

9. Non-Engagement and “Kiss-Off” Letters

Whether an attorney-client relationship has been created is ordinarily a question of the client's reasonable expectations. Avoid ambiguity and risk by encouraging lawyers in your firm to send out “non-engagement letters” whenever they decide not to take on a matter after an initial consultation. Also, in many jurisdictions, statutes of limitations on malpractice claims are tolled during the attorney's “continuing representation” of a client. It is good practice to send a termination letter at the end of every engagement, especially one that has been less than successful. Such letters can and should be phrased tactfully, so as not to preclude the possibility of a possible future engagement.

10. Ombudsman

The easiest malpractice claim to defend is the one that never arises. Many potential malpractice claims can be avoided if a firm has a culture and procedures in place whereby junior lawyers and staff can discretely raise concerns about the manner in which a particular matter is being handled. Consider asking a senior lawyer who is widely respected throughout the firm to serve as an ombudsman or mentor and to whom anyone can go to express concerns about the handling of a client matter.

Follow these simple guidelines and minimize the risk of a substantial malpractice judgment against your firm.