Lessons from Recent Utah Legal Malpractice Cases
by Michael Skolnick
We can all learn from our mistakes. But it’s likely less painful to learn from other’s mistakes – either actual or alleged. This article is offered in that spirit – a compilation of some recent Utah attorney malpractice cases containing a grab bag of valuable lessons for every day practitioners. “Recent” is arbitrarily defined as the last two years.
Utah’s most recent attorney malpractice case is Crestwood Cove Apartments Business Trust v. Turner, 2007 UT 48, 164 P.3d 1247 (Utah 2007). In Crestwood Cove, the former client claimed that the appellee had committed malpractice by failing to timely contest the application of Utah’s unlawful detainer statute and its treble damage provision, and by failing to raise the appropriate measure of damages. The underlying unlawful detainer case is almost comical in its mishandling. Prior to the appellee’s representation, Crestwood had been represented by a succession of other attorneys. Due to the client’s inattentiveness
and various contributions by a variety of counsel, Crestwood’s opponent transformed a judgment for several thousand dollars into ownership of an apartment complex worth millions.
In this case, the appellee unsuccessfully argued to the trial court that it should not have trebled damages in setting the redemption price for the apartment complex. The trial court, as it turns out incorrectly, disagreed and set a redemption price of nearly $1,000,000. Crestwood appealed the trial court’s decision, but eventually settled its claims in the underlying case and dismissed its appeal. Crestwood then filed a legal malpractice action against appellee.
Appellee moved for summary judgment, based on the doctrine of abandonment. Appellee argued that by settling the appeal in the underlying case, the former client effectively precluded appellee from proving that it was judicial error and not attorney error which caused the adverse outcome in the underlying case.
The trial court in the malpractice action agreed and granted appellee’s Motion for Summary Judgment. However, the Utah Supreme Court refused to apply the abandonment doctrine, instead upholding the summary judgment on proximate cause grounds. The supreme court concluded there was no reason to adopt the abandonment doctrine because the existing framework for legal malpractice actions in Utah adequately protects attorneys’ rights, even when there has been a settlement of the underlying case. See Id. ¶24. The supreme court concluded that “it is more appropriate to examine whether the individual facts of each case support a finding of proximate cause.” Id. ¶23.
The supreme court emphasized that it was “not foreclosing the possibility of ever applying the abandonment doctrine. Rather, we simply conclude that it was unnecessary to apply the doctrine in this case, which can be summarily resolved on traditional causation principles.” Id. ¶28. But if the court was not prepared to adopt the abandonment doctrine in this case, where the court agreed that the trial court’s decision in the underlying case was clearly erroneous, it is difficult to see when the abandonment doctrine might pertain.1
This aspect of the Crestwood Cove decision should make attorneys sit up and take notice, because it permits their clients to sue them for a bad outcome without having to pursue a reversal of that outcome in the underlying case. The Crestwood Cove decision effectively shifts the economic burden of proving that judicial error caused an adverse outcome in the underlying case, as opposed to attorney malpractice. The Crestwood Cove court viewed this as simple application of well-established causation principals, but likely did not take into account all the hidden costs in an attorney malpractice case. Those costs include potential loss of professional reputation, economic harm from lost time at work, emotional distress at being sued, and payment of a deductible if the attorney is insured.
Other lessons from Crestwood Cove include the importance of protecting your client’s record at the trial stage. Appellee was accused of not arguing forcefully enough or early enough in the trial that the unlawful detainer statute did not apply. The supreme court rejected that argument, holding that appellee adequately argued inapplicability of the unlawful detainer statute. The fact that appellee raised the argument against unlawful detainer in post trial motions was not determinative. The important thing was that the trial court had a chance to correct its error prior to rendering a final decision.
In Shaw Resources, Ltd., L.L.C. v. Pruitt, Gushee & Bachtell, P.C., 2006 UT App. 313, 142 P.3d 56, the court of appeals considered a case brought by certain oil and gas companies against attorneys who owned an interest in an oil and gas exploration firm. The complaint alleged breach of fiduciary duty, breach of contract, fraudulent non-disclosure, and various related causes of action against the involved attorneys, as well as, the exploration firm in which the attorneys owned an interest. The court of appeals affirmed the trial court’s grant of summary judgment.
Shaw Resources is notable for its thorough discussion of an attorney’s duties when entering into a business relationship with a client. The court held that when a law firm represents multiple clients in the same business and geographic area it owes great caution to those clients in maintaining their confidentiality and loyalty. This is even more true when attorneys in the law firm have personal stakes in the client’s businesses or in similar businesses. The court stated that “[i]n all relationships with clients, attorneys are required to exercise impeccable honesty, fair dealing, and fidelity.” Id. ¶43 (internal quotations marks and citation omitted). Few among us are likely to be able to meet a standard of impeccable honesty, fair dealing and fidelity, at least under the cold scrutiny of a jury of our peers. This strongly suggests the inadvisability of involving oneself in a client’s business, or competing directly with a client’s business.2
Shaw Resources is also helpful for its discussion of formation of an attorney-client relationship, and the importance that an attorney adequately define the scope of that relationship. Shaw argued that it had an attorney-client relationship with the defendant law firm. The firm disagreed, but on appeal the court found sufficient evidence to support Shaw’s claim, thus precluding summary judgment on that element of Shaw’s attorney malpractice claims. The attorney-client relationship issue focused on whether the law firm represented an LLC, along with related entities which included Shaw Resources. Unfortunately, the firm began its engagement with a letter confirming representation of the LLC “and its related entities.” Id. ¶25 (emphasis omitted). In upholding an attorney-client relationship for the related entities, the court of appeals noted “it may well be that there is a duty of loyalty that extends not only to the named or billed client, but also to other related entities of which an attorney has knowledge.” Id. ¶26. The lesson here is that knowing who your client is at the outset of the representation helps avoid a host of problems, including unanticipated conflicts of interest.
In Armstrong v. McMurray, 2005 UT App. 88, 2005 Utah App. LEXIS 88, the court of appeals issued a memorandum decision, not for official publication, wherein the court reaffirmed the inapplicability of the discovery rule in cases where the malpractice plaintiff knew or reasonably should have known of the existence of his cause of action in time to file a claim within the limitations period. The decision relies on Williams v. Howard, 970 P.2d 1282 (Utah 1998). In Williams, the malpractice plaintiff retained counsel to file a personal injury action against Springville City, related to an accident that occurred on July 19, 1991. The attorney did not file a notice of claim prior to expiration of the one year time limit of July 19, 1992. The attorney, in a meeting on July 31, 1992, informed his client of the failure to timely file notice. Plaintiff then filed a malpractice action on July 30, 1996. The attorney filed a motion to dismiss the action, arguing that it was time barred. The trial court denied the motion. The Utah Supreme Court reversed, holding that the four year limitation period began to run on July 19, 1992 – the date on which the client’s potential cause of action against Springville City failed because of failure to file notice.
An important lesson to be derived from Williams and Armstrong is that once an error is made, it is best to notify the client immediately. Aside from likely being required under applicable rules of professional responsibility, prompt, written notice initiates the client’s limitation period, and prevents the client from asserting the discovery rule at some later point in time.
In another unpublished Court of Appeals memorandum decision, Christopher, Farris, White, & Utley, P.C. v. Pugh, 2006 UT App. 68, 2006 Utah App. LEXIS 70, the court affirmed summary judgment on behalf of the defendant law firm. The defendant firm represented Pugh in a Fifth District Court lawsuit pursuant to a signed legal services contract. The central issue was whether Pugh’s deceased son should remain buried in St. George, Utah or be disinterred, cremated, and then have his ashes sprinkled in the Rio Grande River. Pugh became dissatisfied with the firm’s representation,
and while the case was still in the trial court, the law firm withdrew and Pugh retained new counsel. The law firm subsequently sued Pugh for breach of contract, alleging unpaid services in the amount of $9806, plus interest, as provided for in the contract. The firm also sought attorney fees under the contract.
Predictably, Pugh answered and counterclaimed for malpractice.3 The decision notes “[a]fter numerous filings and arguments in the trial court, the trial court granted the law firm summary judgment on its breach of contract claim and dismissed all of Ms. Pugh’s counterclaims. This appeal followed.” Id. The principal lesson to be derived from the Pugh case: don’t sue your client for fees unless you want to receive a counterclaim for malpractice. If you feel you have no choice but to sue your client for fees (perhaps because the fee has grown too large to abandon), have an independent law firm review your entire file to determine whether any possible ground for legal malpractice exists. Even if the reviewing firm gives your file a clean bill of health, you probably still should not sue for fees, due to the above-mentioned hidden costs of a malpractice claim. The firm in the Pugh case probably incurred well in excess of their $9806 fee in such hidden costs.
These are but a few highlights of some of Utah’s most recent attorney malpractice cases. Careful review of these and other similar cases can both help improve the quality of our practices, and avoid errors that may result in legal malpractice claims.
1. The court commented
[up]on reviewing the relevant statutory language, we conclude that it was error for the trial court to apply the unlawful detainer statute to the redemption lawsuit and award treble damages under that statute. The express language of the unlawful detainer statute applies only to tenants ‘for a term less than life,’ and Shangri-La was never a tenant.…[It] was judicial error that necessitated Shangri-La’s appeal – judicial error that cannot be attributed to appellee’s actions and that presumably would have been corrected on appeal had the underlying redemption action not been settled.
Id. ¶¶36, 37 (emphasis added).
2. In a much earlier case the supreme court described the duty of an attorney doing business with his or her client as being “the most perfect good faith” – another fairly difficult standard to attain regularly. See Omega Inv. Co. v. Woolley, 72 Utah 474, 271 P.797, 802 (Utah 1928) (internal quotation marks and citation omitted).
3. ”Predictably” because statistics maintained by legal malpractice insurers demonstrate that a relatively high percentage of fee suits result in a counterclaim for malpractice. That’s why your malpractice insurance application asks how many times you have filed a fee suit in the preceding year.