Malpractice 'Notice' and 'Claims' Issues In Suits Against Entertainment Attorneys

The increase in recent years in malpractice claims against lawyers has impacted entertainment attorneys, too. If a malpractice complaint is filed, will the attorney's liability policy cover the suit? Two primary concerns here are whether the attorney has timely notified his or her insurer of a malpractice claim and how to determine the number of malpractice 'claims' for purposes of the insurer's malpractice-coverage obligations.

A recent ruling by the U.S. District Court for the Western District of Wisconsin addressed both issues, as well as which state's law should apply in interpreting malpractice policies. McCraw v. Mensch, 06-C-86-S. In the case, Ilinois-based music attorney Linda Mensch had served as counsel for the Wisconsin-based rock group the BoDeans for 12 years, beginning in 1985. She handled the legal work for the formation of the BoDeans operating entity, Keshaw Inc., as well as the group's publishing company, Lla-Mann Music Partnership. Mensch also negotiated a 1996 employment agreement between the BoDeans and their long-time manager Mark McCraw. The band-manager relationship later soured. In the summer of 2004, Mensch was deposed in litigation between the BoDeans and McCraw in Milwaukee County Circuit Court. (The band-manager litigation was settled after the circuit court judge ordered a retrial, following a 2005 trial.) On Dec. 3, 2004, the BoDeans' counsel wrote Mensch that the band planned to file a malpractice complaint against her. '[B]ased on your own testimony, I sincerely doubt that you are surprised to receive this letter,' the BoDeans' lawyer stated in the letter. Mensch sent a copy of the letter to her malpractice insurer, Illinois State Bar Association Mutual Insurance Co. (ISBA), which received it on Dec. 9.

Mensch's ISBA malpractice policies covered claims made against her during or within 60 days of the policies' expiration dates. Mensch was required to inform ISBA of any claims 'as soon as practicable.' The policy definition of a 'claim' was:

1. a demand received by YOU for money or services, or the service of a suit or the initiation of an arbitration proceeding against YOU that seeks DAMAGES arising out of YOUR WRONGFUL ACT;

2. an incident or circumstance of which YOU have knowledge that may result in a demand against YOU that seeks DAMAGES arising out of YOUR WRONGFUL ACT.

In addition, the policies stated:

Two or more CLAIMS arising out of a single act, error or omission or a series of related acts, errors or omissions will be treated as a single CLAIM ' all such CLAIMS will be subject to the Limit of Liability.

In a malpractice-policy renewal application Mensch filed in October 2004, she had responded 'no' to the question: 'During the past 12 months, has any current member of Applicant become aware of any circumstance or incident that could result in a claim or suit which has not been previously reported to ISBA Mutual?'

Prompted by the BoDeans-McCraw litigation, Mark McCraw filed a complaint against Mensch and ISBA in Wisconsin's Dane County Circuit Court. The defendants had the case removed to federal court. McCraw's malpractice complaint alleged negligence by Mensch in failing to tell him of the necessity of an effective written transfer of the copyright interests in the BoDeans songs to Lla-Mann Music and for allegedly misrepresenting the impact of his written employment agreement with the band. Acknowledging Mensch hadn't represented him in the employment-agreement talks, McCraw claimed a continuing attorney/client relationship with Mensch from his stake in Lla-Mann Music. He further alleged that Mensch hadn't properly informed him of joint-representation concerns. The BoDeans sued Mensch separately in Wisconsin Circuit Court, including for alleged negligence in the McCraw-employment-agreement drafting, in not counseling them against being in a partnership agreement with McCraw, and in forming Wisconsin corporate and partnership entities for them without a Wisconsin law license.

ISBA filed for summary judgment that it had no duty to defend or cover Mensch in either malpractice suit, or that it had limited coverage responsibility. Mensch cross-moved for a ruling that she had timely notified ISBA and that the malpractice actions were separate 'claims' under the malpractice-policy definition.

The parties agreed that the notice issue should be looked at under Illinois law. The district court then granted summary judgment for Mensch on this issue, explaining: '[T]he June and July, 2004 depositions [of Mensch] were not sufficient to trigger a notice obligation. Mensch learned nothing at the depositions concerning her representation of the BoDeans that she did not know ten years earlier. Her depositions in connection with the underlying action would have been expected given her factual knowledge of the parties' relationship and would not have suggested a likelihood of personal liability to Mensch. Furthermore, the passage of nearly ten years since the negotiation of the employment agreement and nearly twenty years since the partnership formation would have made it seem even less likely that she would be the object of a malpractice action. ' [Brief] exchanges consist[ing] of several questions concerning her relationship with McCraw ' and whether she held a Wisconsin law license ' would not have made it appear to a reasonable person that a claim may be commenced.'

The court added: 'In this case the delay in reporting was relatively short, particularly in light of the tenuous nature of any claim and the period of time that had passed since the events which might be the basis for a claim. Furthermore, there is no suggestion that Insurer was somehow impeded in its ability to investigate the claim by the delay from July to December. It appears that all witnesses who have relevant knowledge of facts are present in this suit and there is no likelihood that ten years after the relevant incidents their memories faded significantly during the added five months. Insurer cites no Illinois law suggesting that a five month delay is unreasonable.'

Then considering the issue of how to determine the number of malpractice claims against Mensch, the district court noted that 'there is no question that Illinois law[, rather than Wisconsin,] would apply. An Illinois insurer is insuring an Illinois attorney, licensed to practice law in Illinois, and the contract was negotiated and executed in Illinois.'

The court went on to find: '[I]t is apparent the [malpractice] trials may result in proof of discrete acts of negligence which would support a determination that there are multiple claims. For example, McCraw alleges that Mensch was negligent in failing to provide for a written partnership agreement that reflected the transfer of copyrights to Lla-Mann in 1985 when the partnership was formed. Meanwhile, the BoDeans allege that Mensch was negligent in the negotiation of the management contract between McCraw and Keshaw, Inc. in 1996. Certainly these two actions, separated by ten years, are discrete acts of negligence which would constitute separate, unrelated claims for purposes of the 'related acts' limitation in the policy if they are proved at trial.

Thus, the court found that an attorney's long-term legal work involving an artist may be divided into discrete events, even where different contracts at issue encompass the same parties. An interesting question is how such a view might impact relevant statutes of limitations where a client suing a lawyer alleges 'continuous representation.'

The increase in recent years in malpractice claims against lawyers has impacted entertainment attorneys, too. If a malpractice complaint is filed, will the attorney's liability policy cover the suit? Two primary concerns here are whether the attorney has timely notified his or her insurer of a malpractice claim and how to determine the number of malpractice 'claims' for purposes of the insurer's malpractice-coverage obligations.

A recent ruling by the U.S. District Court for the Western District of Wisconsin addressed both issues, as well as which state's law should apply in interpreting malpractice policies. McCraw v. Mensch, 06-C-86-S. In the case, Ilinois-based music attorney Linda Mensch had served as counsel for the Wisconsin-based rock group the BoDeans for 12 years, beginning in 1985. She handled the legal work for the formation of the BoDeans operating entity, Keshaw Inc., as well as the group's publishing company, Lla-Mann Music Partnership. Mensch also negotiated a 1996 employment agreement between the BoDeans and their long-time manager Mark McCraw. The band-manager relationship later soured. In the summer of 2004, Mensch was deposed in litigation between the BoDeans and McCraw in Milwaukee County Circuit Court. (The band-manager litigation was settled after the circuit court judge ordered a retrial, following a 2005 trial.) On Dec. 3, 2004, the BoDeans' counsel wrote Mensch that the band planned to file a malpractice complaint against her. '[B]ased on your own testimony, I sincerely doubt that you are surprised to receive this letter,' the BoDeans' lawyer stated in the letter. Mensch sent a copy of the letter to her malpractice insurer, Illinois State Bar Association Mutual Insurance Co. (ISBA), which received it on Dec. 9.

Mensch's ISBA malpractice policies covered claims made against her during or within 60 days of the policies' expiration dates. Mensch was required to inform ISBA of any claims 'as soon as practicable.' The policy definition of a 'claim' was:

1. a demand received by YOU for money or services, or the service of a suit or the initiation of an arbitration proceeding against YOU that seeks DAMAGES arising out of YOUR WRONGFUL ACT;

2. an incident or circumstance of which YOU have knowledge that may result in a demand against YOU that seeks DAMAGES arising out of YOUR WRONGFUL ACT.

In addition, the policies stated:

Two or more CLAIMS arising out of a single act, error or omission or a series of related acts, errors or omissions will be treated as a single CLAIM ' all such CLAIMS will be subject to the Limit of Liability.

In a malpractice-policy renewal application Mensch filed in October 2004, she had responded 'no' to the question: 'During the past 12 months, has any current member of Applicant become aware of any circumstance or incident that could result in a claim or suit which has not been previously reported to ISBA Mutual?'

Prompted by the BoDeans-McCraw litigation, Mark McCraw filed a complaint against Mensch and ISBA in Wisconsin's Dane County Circuit Court. The defendants had the case removed to federal court. McCraw's malpractice complaint alleged negligence by Mensch in failing to tell him of the necessity of an effective written transfer of the copyright interests in the BoDeans songs to Lla-Mann Music and for allegedly misrepresenting the impact of his written employment agreement with the band. Acknowledging Mensch hadn't represented him in the employment-agreement talks, McCraw claimed a continuing attorney/client relationship with Mensch from his stake in Lla-Mann Music. He further alleged that Mensch hadn't properly informed him of joint-representation concerns. The BoDeans sued Mensch separately in Wisconsin Circuit Court, including for alleged negligence in the McCraw-employment-agreement drafting, in not counseling them against being in a partnership agreement with McCraw, and in forming Wisconsin corporate and partnership entities for them without a Wisconsin law license.

ISBA filed for summary judgment that it had no duty to defend or cover Mensch in either malpractice suit, or that it had limited coverage responsibility. Mensch cross-moved for a ruling that she had timely notified ISBA and that the malpractice actions were separate 'claims' under the malpractice-policy definition.

The parties agreed that the notice issue should be looked at under Illinois law. The district court then granted summary judgment for Mensch on this issue, explaining: '[T]he June and July, 2004 depositions [of Mensch] were not sufficient to trigger a notice obligation. Mensch learned nothing at the depositions concerning her representation of the BoDeans that she did not know ten years earlier. Her depositions in connection with the underlying action would have been expected given her factual knowledge of the parties' relationship and would not have suggested a likelihood of personal liability to Mensch. Furthermore, the passage of nearly ten years since the negotiation of the employment agreement and nearly twenty years since the partnership formation would have made it seem even less likely that she would be the object of a malpractice action. ' [Brief] exchanges consist[ing] of several questions concerning her relationship with McCraw ' and whether she held a Wisconsin law license ' would not have made it appear to a reasonable person that a claim may be commenced.'

The court added: 'In this case the delay in reporting was relatively short, particularly in light of the tenuous nature of any claim and the period of time that had passed since the events which might be the basis for a claim. Furthermore, there is no suggestion that Insurer was somehow impeded in its ability to investigate the claim by the delay from July to December. It appears that all witnesses who have relevant knowledge of facts are present in this suit and there is no likelihood that ten years after the relevant incidents their memories faded significantly during the added five months. Insurer cites no Illinois law suggesting that a five month delay is unreasonable.'

Then considering the issue of how to determine the number of malpractice claims against Mensch, the district court noted that 'there is no question that Illinois law[, rather than Wisconsin,] would apply. An Illinois insurer is insuring an Illinois attorney, licensed to practice law in Illinois, and the contract was negotiated and executed in Illinois.'

The court went on to find: '[I]t is apparent the [malpractice] trials may result in proof of discrete acts of negligence which would support a determination that there are multiple claims. For example, McCraw alleges that Mensch was negligent in failing to provide for a written partnership agreement that reflected the transfer of copyrights to Lla-Mann in 1985 when the partnership was formed. Meanwhile, the BoDeans allege that Mensch was negligent in the negotiation of the management contract between McCraw and Keshaw, Inc. in 1996. Certainly these two actions, separated by ten years, are discrete acts of negligence which would constitute separate, unrelated claims for purposes of the 'related acts' limitation in the policy if they are proved at trial.

Thus, the court found that an attorney's long-term legal work involving an artist may be divided into discrete events, even where different contracts at issue encompass the same parties. An interesting question is how such a view might impact relevant statutes of limitations where a client suing a lawyer alleges 'continuous representation.'