TEXAS LAWYER ROUNDTABLE SERIES

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1 Special Advertising Supplement TEXAS LAWYER ROUNDTABLE SERIES legal malpractice: Making Smart Moves HE R R I N G & IR W I N, L.L.P. KEITH LAW FIRM, P.C. LAW OFFICES O F JA M E S E. PE N N I N G T O N, P.C. TH E PE R R I N LAW FIRM P.C. SHUFORD LAW FIRM NOVEMBER 24, 2008 VOL. 24 NO. 34

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3 There is probably no area of law that evokes such strong emotion as the area of legal malpractice. However, it is also an area that might not be as well understood. So the business department at Texas Lawyer held a roundtable with several legal malpractice experts to share their insight on this area as well as what to do to avoid a possible malpractice suit. The following roundtable discussion has been edited for length and style. MIKE ANDROVETT, moderator, attorney, journalist and owner of Androvett Legal Media & Marketing, Dallas: Panelists, please introduce yourselves. But in doing so, transcend the traditional this is who I am and this is my resume and talk about the nature of your work. What's a typical day like? DAVID W. SHUFORD, principal, Shuford Law Firm, Dallas: I really never thought I would sue a lawyer and I sure didn't think I would sit on a panel admitting it in public, but I guess times have changed. With the economy the way it is, I was kind of an establishment lawyer back in the late '80s representing banks doing transactional work and the litigation that went along with it. When all the banks died, I started defending all my real estate friends doing work outs. And a lawyer here in Dallas called me and wanted me to take a legal malpractice case in Longview. I never thought I would sue a lawyer, but trying to feed my family and having nothing else to do at the time I went ahead and took that case thinking nobody in Dallas would know it. Jim Cowles ended up defending the case. Some people found out about it, and I had some success and got a little notoriety. And so the next thing I knew, I'm a legal malpractice expert and that's where my cases tended to come from. So over the last several years, I've kind of specialized in the legal malpractice area. What's a typical day like? It's probably no different than any other lawyer. I do get lots of calls about legal malpractice cases. I find few Special Advertising Supplement of them that are worthy of taking to court. I think a lot of lawyers now are getting more involved with tort reform, looking for some new area. I do get several calls a week from people who want to talk about legal malpractice cases. And most of them are difficult cases, I think as these other lawyers will tell you, because of the case within a case aspect of them. And so you have to look at them very carefully before you take them on. And I do not sue another lawyer lightly because I know that it can be very devastating to them. But it is an area that I think has gained more acceptance over the years. DARRELL L. KEITH, founder, Keith Law Firm, P.C., Fort Worth: I'm a simple, country malpractice lawyer from Fort Worth. For about 40 years I've been fighting the right, doing the Lord's work, prosecuting legal and medical malpractice cases against malpractitioners across the great state of Texas. And unlike David, I sought the world of malpractice because I think that to practice in a profession that's law, medicine, accounting, engineering, architecture, or any of the other professions is a great privilege and an honor to serve folks. We are very blessed as professionals and all professions, including the law, to be given a gift by the Lord, to be able to have the ability to get out and get the education and the experience in order to represent folks. And to me the practice of law is a calling, not a business. I went to Baylor to either be a preacher, a doctor, or a lawyer. And I wound up combining all three by preaching the gospel of malpractice in the temple of justice. And I feel that it is a calling, that it's tough. It's real hard. One of the things that and this may be a theme that you'll hear from me I have learned about is all professions, including lawyers, is that lawyers and other professionals have got to know enough and they've got to care enough. And legal malpractice, like other areas of malpractice, is oftentimes either the lawyer or the law firm or the paralegal didn't know enough and got themselves in trouble or they didn't care enough or a combination. But a lot of times, Legal Malpractice even with the high-powered hot shot lawyers, that have great reputations, they sometimes know enough, but they or their staff doesn't care enough. And it's that lack of caring that gets them in trouble. Anyway, my typical day is just like any trial lawyer, David's and everybody else on the panel. We have four lawyers. I practice with my daughter and two other lawyers, and we have a staff that helps us evaluate. We get a lot of cases that are brought to us. We're very selective. We take less than one or two percent of all the cases we look at. And certainly just because there's a bad result, doesn't mean that a lawyer did anything wrong. On the other hand, it can be an indicator. And we evaluate our cases, work them up, and try to investigate them thoroughly. And then if they're a valid claim, we prosecute it for the client. JIM E. PENNINGTON, founder, Law Offices of James E. Pennington, P.C., Dallas: I started in this area a little over ten years ago, I got a call from a friend of mine who had a client who needed a legal malpractice attorney, and he couldn't find anyone to take his case. It was a smaller case, and the client just needed some help, and I ended up taking the case. And then once you handle one of those cases, people tend to think of you and start referring those cases to you. So for ten years I've been doing almost exclusively legal malpractice. I also handle claims of breach of fiduciary duty, a lot of fee disputes between lawyers and clients, and other related claims. One thing that does bother me is we all get a lot of calls on these cases. And it's frustrating for me when I talk to a client who has a case, and it is clear legal malpractice. You know the lawyer has messed up, but there just aren't enough damages to take the case on a contingency, and those cases we all struggle with, trying to find some way to help that client. I don't have a whole lot of confidence in the grievance committee these days. But we can talk about that a little bit later. DOUG PERRIN, founder, The Perrin Law Firm P.C., Dallas: I practice with my brother Mark Perrin. I've been November 24,

4 Special Advertising Supplement LegaL MaLpractice CHUCK HERRING Charles Chuck Herring, Jr. is a partner in Herring & Irwin, L.L.P. in Austin. His practice focuses on the law of lawyering, representing clients on both sides of the legal malpractice and grievance dockets. He is board certified in Civil Trial Law, served two terms on the Texas Supreme Court s Advisory Committee and was appointed by the court to chair the Statewide Task Force on Sanctions. Herring received a Presidential Citation from the State Bar of Texas for his service as Chair of the Committee on the Prevention of Legal Malpractice and Grievances, and received the First Annual Professionalism Award from the Texas Center for Legal Ethics and Professionalism and the Travis County Bar Association. He is the author of Texas Legal Malpractice and Lawyer Discipline and co-author of the Handbook on Texas Discovery Practice. He has taught, lectured and written many articles on legal malpractice and legal ethics. Herring is an honors graduate of the University of Texas School of Law. practicing law for 31 years. I started practicing in Roswell, New Mexico. I was there for 13 years. It was a great experience in many ways. One is that when you start off when I did and where I did, you get to do a lot of different things. I practiced in a number of different areas and was in court a lot. I came back to Texas in 1990 with what was then the Brown Maroney Firm and practiced on the defense side of legal and medical malpractice cases. That's where Jim and I met each other. I left the firm because I wanted to take a legal malpractice case, and they didn't want me to take it. And that was about 15 years ago. We practice primarily in the areas of legal and medical malpractice. And I would echo some of what Darrell said, we as professionals have a special duty and we all know that. We became lawyers because we wanted to do something worthwhile. We wanted to make the world a better place, and each of us should be held accountable for that. And if we care enough and do enough, then you're not going to hear from me or anybody else on this panel. CHARLES "CHUCK" HERRING, JR., partner, Herring and Irwin, L.L.P., Austin: I worked on my first legal malpractice case 32 years ago when I was clerking for a federal judge, and we had an early generation legal malpractice case, which interested me. And then about 19 years ago I wrote a book called Texas Legal Malpractice & Lawyer Discipline that I update annually, and I sort of got committed to the area. And so my practice now is principally the law of lawyering. I spend a lot of time advising lawyers and law firms, dealing with conflicts of interest, withdrawals issues, fee issues, and structuring contracts and arrangements, and so on. Then I practice on both sides of the docket, both the malpractice and grievances docket. The practice has changed. We'll probably talk about subprime mortgage claims that may be appearing soon. But once a week I get a call from a lawyer who says, Chuck, let me tell you what I did and tell me if there's an issue here. Almost always, when it starts that way, an issue exists and usually the horse is already out of the barn. And so a lot of this is solving the problems, dealing with risk loss and planning after the fact. I would echo what the other panelists have said that the key is always being vigilant in your own practice and always maintaining a good relationship with the client. I see so many cases in which the lawyer just lost touch with the client, bad communications caused the whole deal to go south. ANDROVETT: I went back and I looked at the transcript to our roundtable discussion two years ago. On the heals of a Texas Lawyer story about an increase spike of legal malpractice claims, I asked the panel what they were seeing out there? Are legal malpractice claims across the board rising? Are they rising in one particular area? And I was struck at the time and I was struck again when I read the transcript by one of the panelists who said, "It's bad and it's going to get worse." So that was In 2008, give us a snapshot, what are you seeing out there in terms of either the decrease or increase of claims against lawyers and how do you react to that kind of statement? PENNINGTON: In my own practice I have not seen any increase in the number of claims that have come across. It's like any other practice where you go through periods of time where you see an increase in calls that you get. But there may be weeks go by where I don't get any calls on a case, and then the following week I may get 10 or 15 or more. But certainly over the last couple of years I cannot say that I've seen an increase in the number of my clients. HERRING: If you look at the statistical profiles compiled by the ABA Standing Committee on Lawyers Professional Liability recently updated every four years the number of reported claims has not increased substantially in recent years. The character and mix of claims has changed somewhat. In the most recent profile, a salient point is the increase in claims arising from real estate practice. So that's now approximately percent, second only to personal injury as a practice area generating claims. And that's before the cur- 2 November 24, 2008

5 Special Advertising Supplement LegaL MaLpractice rent economic crisis. Those of you who lived through the S & L debacle in the late '80s and early '90s know that that was a boom time for malpractice cases as the Feds and the alphabet agencies scurried around to try to find deep pockets to put some money back in the tax coffers. And we may see a comparable development as the current economic crisis deepens and expands. There's already been a $4.4 billion lawsuit filed against a major Texas firm by a hedge fund. And when we have these big economic changes and downturns and failures, that understandably generates a lot of dissatisfaction, a lot of searching for people to hold responsible. Many lawyers have insurance and that's a deep pocket. PENNINGTON: Does that firm have a $4 billion insurance policy, Chuck? HERRING: Well, it would need to be $4.4 billion to cover that entire claim so I suspect not. There s also been a trend in the bankruptcy arena, for trustees to pursue claims against lawyers. There's an article I read a couple of months ago on the deepening insolvency theory, which basically is that a lawyer assists a client to hang on longer it should have, causing a worse financial failure for the bankruptcy estate. I understand that that theory has not met with much success yet, but again I m aware of a multi-hundred million dollar lawsuit that has that theory. And we're going to see some more of that sort of thing because it's talked about among the bankruptcy trustees who of course are going to get a tremendous amount of business if the economy continues to suffer. ANDROVETT: A lot of the claims usually arise for lack of administrative acumen, missing statute of limitations or fee disputes. But, Chuck, what I'm hearing you describe are more questions about judgment. I'm guessing in the real estate area questions about judgment regarding conflicts of interest? Are those different kinds of cases and if so, how? HERRING: Sure. In the simplest cases, a lawyer just misses an obvious deadline or something like that. The statute of limitation cases those rarely get filed because they get settled. The conflict of interest cases which I see very often and no doubt my fellow panelists litigate frequently often are attractive cases for plaintiffs legal malpractice lawyers because a key question is loyalty, usually a morality tale is built into the case. Was the lawyer loyal to his or her client? Or the lawyer more loyal to and concerned with his or her own financial interest, selling out the client to represent another client to get an additional fee? Then you get to go into these wonderful instructions that we have on breach of fiduciary duty. And you get to have an expert witness for the plaintiff who traces the origin of fiduciary duty and conflict of interest law back to the Bible and biblical times Matthew 6:24: "No man can serve two masters; for either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve God and mammon." And to the City of London Ordinance of 1280 A.D., which contained a prohibition against attorneys representing conflicting interests. PERRIN: Sure. That's the old Groucho Marx line: Those are my principles, and if you don't like them, I have others. KEITH: I would only add that in my practice I have a special interest in civil litigation malpractice. And while Chuck's book in the introductory portions does an excellent job of summarizing the empirical data and research on the number and frequency of legal malpractice claims, in my area we are seeing a significant increase. I think that it's due in part to two major reasons. One, when folks have a bad result in a civil lawsuit they start looking for another lawyer to valuate if that bad result was due to legal malpractice. And secondly, the age of consumerism has final hit the legal profession. Client consumers of legal services are becoming more aware of their rights and remedies and are seeking litigation lawyers either in the course of the litigation or because of a bad result or a result that didn't meet their expectations. SHUFORD: Yes, and I think there's more lawyers. There are more people DARRELL L. KEITH Darrell L. Keith, a plaintiff s trial attorney for almost 38 years, is the founder of the Keith Law Firm, P.C. in Fort Worth, TX. His focus areas of practice include legal, medical and professional malpractice, personal injury and civil law litigation in state and federal courts. Keith received his B.A. from Baylor University and his J.D. from Baylor Law School. He is included in the "The Best Lawyers in America" list ( ), named a "Texas Super Lawyer" from and Texas Lawyer named him the "Best Plaintiff s Lawyer in Fort Worth." A prolific writer and frequent speaker, he has authored numerous articles on legal and medical malpractice and civil trial law topics. He is an adjunct faculty lecturer in trial advocacy courses at Baylor Law School. Through The Keith Foundation, he has endowed a law and medicine professorship and scholarship and financially contributed to other programs at Baylor Law School and Baylor University. For more information see www. keithlaw.com. November 24,

6 Special Advertising Supplement LegaL MaLpractice JAMES PENNINGTON Jim Pennington is the founder of the law offices of James E. Pennington, P.C. in Dallas. Legal malpractice is the focus of his law practice. He limits his practice, almost exclusively, to representing plaintiffs in legal malpractice cases, which often involve related claims such as breach of fiduciary duty, fee disputes, etc. He is AV rated by Martindale- Hubbell. Pennington received his J.D. from SMU in He began his law career at a large Dallas law firm, working primarily on commercial litigation and insurance defense matters. Later, he worked at Misko, Howie & Sweeney, where he represented plaintiffs in personal injury cases (he was previously board certified in personal injury trial law). In 1993, Pennington opened his own law practice, and a few years later he began representing clients in legal malpractice claims. He has tried several legal malpractice cases to verdict, and authored/ lectured on various legal malpractice topics. looking for work. There's less stigma today filing a legal malpractice. Like I said, I went to another city so people wouldn't know about it. Today, we're on a panel discussing it, and it used to be kind of the hidden stepchild, if you will. And there are also more lawyers that don't have jobs. Tort reform has taken away medical malpractice, so you're seeing people gravitate to another area. In a legal malpractice case since it's in your area that you have expertise in, you feel like you can evaluate a case in whether or not the attorney did malpractice without even going to an expert. So it's an area that people at first blush think they can look at and see what was wrong. Sometimes they don't do the next steps that are required. But I think for those reasons that you will see there has been an increase. And the increase because of consumerism is right too. People get on the Internet now and find lawyers that will take these cases. ANDROVETT: I want to talk a little bit later about the increase in real estate claims. And then also what we might expect now with the financial melt down. But just as a baseline, can we identify the four or five grievances that are most often cited against attorneys? SHUFORD: The calls I get and this will be maybe an indictment of our grievance system that somebody else brought up always go back or a lot of them have to do, No. 1, with deadlines. Lawyers have too big of volume of cases or as Darrell says, they don't care. They don't pay attention to them. I live in mortal fear of the scheduling order. But a lot of lawyers must not and they don't adhere to them or they don't somehow follow them. The second thing is you think about lawyer jokes, and there are a lot of lawyers at the bottom of the food chain. I get lots of calls of people taking retainers and not doing the work or not giving the retainer back at the end of the lawsuit. And it's usually somebody for 5- or 10,000 dollars that hurts them worse than somebody with a major malpractice lawsuit, but you can t take those cases when you've got to go hire an expert to go to trial to get a contingent fee for a $10,000 case? You can't do that. And it's really disappointing. You would be shocked at the number of those kinds of calls that I get. As far as major cases that you take, for me it usually boils down to the lawyer, whether it's a big firm, a big case or whatever, for some reason he just doesn't do the work. He doesn't do the research. He doesn't pay attention. He's got too many other things going on, and he doesn't stick with it and makes a major mistake that results in a case. And if you take a case, you've got to have a passion for it. It's got to be something that you want to work on and that you care enough about. PENNINGTON: There are a lot of common things that we see on a lot of these cases like missing deadlines and maybe not designating experts timely and so on. I also get a lot of calls on family law cases where there's a whole variety of issues. But I suspect that one of the problems in that area is because the client is just never happy when they're going through a divorce and on top of that they may have a problem with their lawyer or they may not. But one thing that I have found throughout all these cases is it matters a great deal in how the lawyer handles the problem with the client. If the lawyer just ignores the client, doesn't call them back, or denies or refuses to accept any responsibility for their mistake, that case is going to get the lawyer in a whole lot more trouble. In contrast, a lawyer is less likely to get into trouble when the lawyer has actually owned up to their mistake and acknowledged they made a mistake or tried to deal with it in a positive manner. PERRIN: The first legal malpractice case I ever handled was in New Mexico over 20 years ago. It involved an old lawyer in Hobbs, New Mexico, a great guy and a great lawyer, and he just screwed up. As I remember, he blew a statute and I called him and said what about this? He said, You know, Doug, I blew it. Come over here and talk to me. So I went over there and sat down in his office. He had his insurance adjuster there. We settled that case, and the client was there with me because 4 November 24, 2008

7 Special Advertising Supplement LegaL MaLpractice he took responsibility for what he had done. And the client loved the guy, he just lost a lot of money because of that. You don't see that sort of attitude very often. PENNINGTON: I think it's especially important for big firms to realize this if they've got a client that could send the firm some future business. By way of example, I had a bank that I represented in a legal malpractice case. The general counsel for that bank was furious with this law firm because they refused to accept any responsibility for the mistake. And it was a clear screw up. They had done some things wrong at trial and on top of that they missed the appellate deadline. They just completely botched the case. But the firm refused to accept responsibility. The general counsel for the bank just told me, he said, Jim, if they would have just tried to accept this and tried to fix it or help me work through this, we would have continued to send business to that firm, even though they messed up. But because of the firm s attitude and their refusal to accept responsibility, he said, forget it. We're not sending them any more business, and he pulled all the business from that firm. HERRING: I absolutely want to echo what they've just said. The No. 1 cause of grievances by far volume-wise is failure to communicate with clients or the alleged failure to do that. Failure to return phone calls. That's it. And then once you have an alienated or disaffected client, things can escalate. Broadus Spivey, a prominent and skilled lawyer, a former State Bar President and friend of ours, tells a great story on himself. He handled Willis v. Maverick, which resulted in the 1988 Texas Supreme Court decision that established the discovery rule in the statute of limitations context for legal malpractice cases. However, the Supreme Court held that the form of the jury issue requested was incorrect because it omitted the should have discovered element, and thus the plaintiffs lawyers had failed not preserved error. As Justice Mauzy said in his dissenting opinion, Willis changed the law to benefit future victims of legal malpractice, but was left without justice herself. After the case ended, Broadus called his client and told her the result, and said that because the court had held that he and his team did not request the issue in exactly the form that the court now held was necessary, she might have a claim against them and she should go talk to another lawyer. The client said, in effect, No, Mr. Spivey, you've been honest and nice and fought this case so hard for so long. I don't need any more lawsuits or any more claims. You've done the best job you could. Thank you. And no claim resulted. That sort of communication and relationship can be so critical. Back to what Jerry said, LBJ once remarked that victory is a term to describe who is left standing amid the ruins. And in litigation that can be so true. We all see it. A client rarely gets the entire loaf of bread at the end of litigation. If the client lacks realistic expectations about that likely result, the client may get very upset, and that may lead to a malpractice claim. ANDROVETT: With someone like a Broadus Spivey, an argument can be made that he is bigger than life. If I'm a managing partner in a mega law firm, I'm reading this and I want to do the right thing, but I've got to sort of shake my head and say, you know what, some of the matters we're involved in are multimega million dollar matters. It's great to say, yeah, we ought to fess up, but it's a little bit more complicated than that. There is a bit of an analogy here in the medical malpractice field where there's a lot of literature that's developed over the recent years about the art of saying, I'm sorry. Is there a form of the apology of the owning up that also protects a law firm from the fear of certain legal liability at the point that they said, I made a mistake. HERRING: No, there's not. If you have malpractice insurance, be sure when that before you have that conversation, that you coordinate with the carrier, because they may have a particular way in which they want that communication handled. But the disclosure must be made, when a lawyer s conduct gives the client a substantial malprac- DOUG PERRIN Reared in Lubbock, the oldest son of two college professors, Doug Perrin graduated from law school at Texas Tech in He practiced law in Roswell, NM until 1990, when he helped open the Dallas office of what was then the Brown Maroney firm. In 1994, he opened his solo practice emphasizing the representation of plaintiffs in medical and legal malpractice cases. He is now a member of the Perrin Law Firm, practicing in Texas and New Mexico. Perrin s youngest brother, Mark is his partner. Lawyers occupy a very special vital role in American society. Abraham Lincoln once famously remarked that being a lawyer provides one a superior opportunity to become a good man. Perrin believes lawyers owe a great responsibility to society in return for the great power vested in us, and we all need to be reminded that ours is a profession, not a mercantile industry. The Perrin Law Firm tries to make the world a little better and a little more fair in our little corner of it. November 24,

8 Special Advertising Supplement LegaL MaLpractice DAVID W. SHUFORD David W. Shuford, principal at Shuford Law Firm, attended Southern Methodist University where he played football on the 1966 SWC Championship team and graduated with a B.B.A. (major in economics) in After graduation, he was a coach at SMU. While coaching, he attended law school at SMU where he was a member of the Law Review. After graduation in 1970, Shuford joined the law firm of Rain, Harrell, Emery, Young & Doke. In 1973, he joined the firm of Hewett, Johnson, Swanson & Barbee which he left in 1976 to form his own firm. Shuford concentrates his practice in representing plaintiffs in professional malpractice cases against both lawyers and accountants. He accepts a limited number of major cases in which the professional has breached his duty to properly and competently represent his client. To learn more about his background and professional accomplishments, please see tice claim the Restatement of the Law Governing Lawyers, for example, says exactly that, the disclosure must be made. And Rule 1.03 says that a lawyer must explain a matter to permit the client to make informed decisions concerning the representation. One of the points we've hit on is the broader point of communication and honesty and forthrightness, and the clients are going to like you better if they feel that you are openhanded and forthright and honest. Lawyers who are arrogant or noncommunicative can be their own worst enemies. PERRIN: Along that line, I heard Gerry Spence say one time that he felt the LSAT was one of the worset things to happen to the legal profession. His point was that the LSAT measures how smart you are, but it doesn't measure your courage. It doesn't measure your heart. It doesn't measure your conscience. It doesn't measure your honesty. And with law schools under pressure now to improve their ratings with the U.S. News and World Report hell, I'm not sure I could get into law school anymore. A lot of people say I shouldn't have. But the point is that sometimes with the great intelligence and great power that comes in a big firm situation, there's sort of a natural feeling there that I'm kind of above all this, but it's very harmful. PENNINGTON: I would like to emphasize one thing that Chuck already mentioned. Lawyers have a fiduciary obligation, if they believe that they have made a mistake representing their client, to fully disclose that mistake to the client. And I think a lot of lawyers either don't know that or perhaps they even disagree with that, but that's certainly my opinion on that. KEITH: Disclosure may be good for the soul along with confession, but most malpracticing lawyers are loathe to admit that they've done anything wrong. I agree with Jim, there is a dueling conflict with the duty of disclosure and the fiduciary duty to the client along with the duty or the desire of self-preservation and the duty not to breach any contractual relationships or obligations under the malpractice policy. But I would strongly advocate to any lawyer that is worried about being sued, certainly they can consult with an attorney or their malpractice carrier and so forth, but I think that it's imperative to have the conversation with a client to disclose sufficient information. You don't necessarily have to admit fault. And if you're worried about DTPA liability and using phrases like "mistakes of judgment" or "opinion" or "advice" can be carefully crafted. But as one that believes in our system and in our duties, I think a lawyer whose exposure to malpractice is going to incur the wrath and the anger of a client if they stonewall the client and don't give any useful information to help the client in making a decision and understanding what happened and whether to seek further legal advice to determine whether they have a meritorious case or not. SHUFORD: I hate to be cynical but if you talk to the insurance company and their lawyer they'll never confess to anything. The insurance company attorney will say things like, Well, we don't know whether you committed malpractice until we've had a chance to conduct discovery. So, in my practice I haven't had a confession yet. ANDROVETT: Generally speaking society doesn't have the best opinion on lawyers. Yet honestly, most people like their lawyer. And if you're a mother or father and your child is going to law school, you're justifiably proud. But if I say, Hey, by the way I'm moderating a legal malpractice roundtable today, a layperson would probably say, Boy, that's like shooting fish in a barrel. But yet I've heard several of you say these are not easy cases to prosecute. So with that sort of context, why are these cases so hard? PENNINGTON: Well, one of the reasons is because of the expense involved. These cases almost always require you have to have an expert, another lawyer to be your expert witness and that's not cheap. And then in addition to that, you've got to prove the underlying case. And a lot of this depends on how difficult or complex the underlying case was. So there's additional expense involved with that. Usually 6 November 24, 2008

9 Special Advertising Supplement LegaL MaLpractice it's not so much trying to prove the lawyer committed malpractice. The more challenging part is in establishing causation. In other words, what would have been the likely result if the lawyer had not screwed something up. KEITH: In complex civil litigation malpractice practices you always have a case within the case. You have the discovery, the expense and the experts. You oftentimes have two lawyer experts. You have the legal experts to prove the legal malpractice case, and then you have the underlying experts if it's a medical malpractice case or a product liability case or some complex commercial litigation case and you have economists, number crunchers, or other types of experts. So you just are doubled up with expense and complexity. And although we hear and read constantly about how our profession is all banged up in the public eye, when you get down to the courthouse and you have a great legal malpractice defense lawyer like Jim Cowles who can personalize the jury's identification and sympathy, if not empathy, with the individual attorney, and if the attorney makes a good appearance, if he walks, talks, and acts like Perry Mason and has a good story, then a jury can very well feel a strong degree of affinity and sympathy for that individual defendant as a professional who was trying to help the client. So the generic concept or the public's attitudes toward the legal profession in my experience often do not translate into the same negative attitudes by the juries in the courtroom. And oftentimes, depending on the jurisdiction, the judges are very protective of the local lawyers and you'll get hometowned real good if you're an out-of-town lawyer unless you have a visiting judge and that's another story. HERRING: And then once you win you've got the appeal. The current Texas Supreme Court, of course, is conservative. It's probably not likely to be extremely supportive of large malpractice awards against big firms. So that s something else that a plaintiff s legal malpractice lawyer has to take into account in evaluating a claim. SHUFORD: Agreeing with everything that's been said, although you may be able to evaluate malpractice cases because you're a lawyer, sometimes explaining those concepts to a jury simply where they can grasp them can be a difficult chore. ANDROVETT: Are fees relevant in this regard? Are what the lawyer charges and what the law firm charges relevant to jurors? HERRING: Well, it certainly can affect the jury's view. I've had a number of judges tell me about jurors who have told them, Golly, we heard that lawyer charged $400 an hour or $300 or $200. And it just sounds like a gargantuan amount of money to a layperson. And then when the defendant is one of the large law firms, which has 15 associates and five legal assistants working on some giant matter that went south, it can be a challenging matter to explain to the jury. Large firms also can have the disadvantage of being viewed as billing machines, with large numbers of partners and associates evaluated for salaries and bonuses and advancement based on fees and revenues. So those matters can affect a jury s view of the conduct. PERRIN: One of the biggest changes that have happened in my career as a lawyer is just the amount of money in the system and the amount of money at stake. And with a lot of money comes a lot of opportunity for greed and even corruption. And so when you're talking about the big firm situation, the practice of law becomes less of a profession and more of a business. And when it becomes just a money-making enterprise, then those attitudes that go into just making money tend to take over. ANDROVETT: For those of you who defend law firms, do you have an extra level of dread if you find out that the lawyer at issue is a first-year associate who might be making 165? That's a charged question and implicit as it is I would imagine jurors might have some issues with that. HERRING: If the argument can be made in a conflict of interest situation: The lawyers engaged in this conduct because they wanted more fees and MIKE ANDROVETT is in business to make sure that his lawyer clients get positive news coverage and their law firms are marketed effectively through advertising and public relations. Androvett is the founder of Androvett Legal Media & Marketing, the largest public relations and advertising firm in the Southwest exclusively devoted to lawyers and the legal profession. Established in 1995, Androvett Legal Media serves the specialized needs of law firms in communications with outside audiences, including news media coverage, brochures and Web sites, and sophisticated advertising of all kinds. Androvett s firm assists lawyers in virtually all areas of practice while observing the highest ethical standards. Lawyers and their clients who receive media training from Androvett Legal Media are much better prepared to deal with reporters and TV camera crews. And, as a former chairman of the State Bar of Texas Advertising Review Committee, his expertise and experience is essential to firms seeking to comply with the state rules governing lawyer advertising. Androvett and his team take the mystery out of public relations and advertising by recognizing law firms true goals and providing the know-how to make them happen. He can be reached at or November 24,

10 Special Advertising Supplement Legal Malpractice more money. So now we're going to get to talk about money, about how salaries and partnership decisions can be affected by billings, how a conflict of interest between the client s interest and the lawyer s personal financial interest. That can be a challenge for the lawyers in such firms, as well as for counsel defending the lawyers. PENNINGTON: That issue is probably like most other issues. It depends on how strong the evidence is that you've got to back that up. I had a case last year that went to trial. And I had some really great evidence against a lawyer for overbilling the client. I mean, it was some of the best evidence you could ever get. I had copies of his invoice where he started marking through them. The original draft had pen marks where he had crossed through line item by line item the hours he was billing the client and he would mark off 1.5 hours and cross through it and write in 3.5. And he was doing that consistently throughout the bill. And he was using a disbarred lawyer as a paralegal who he was paying $100 an hour to do the work and then turning around and billing the client at the rate of $350 an hour. Those are just great facts. And so in that case, obviously, I was able to convince the jury what he was doing was wrong. But, if you've got just an ordinary case where a lawyer is billing and can justify his time, I don't necessarily 8 think that there's a built-in prejudice jury that the lawyer really doesn't make a lot of money. And to the extent against that. KEITH: Well, believe it or not there's that the plaintiff 's lawyer wants a lot of money and wants punia flip side to this. In my practive damages and sues for tice I unfortunately have a breach fiduciary duty reputation around Fort I went to and wants disgorgeworth and Tarrant Baylor to either be ment of fees and County, that if the all of those things right case comes a preacher, a doctor, that come down along I will repor a lawyer. And I wound the pipe, you've resent an uninup combining all three by got to be presured lawyer who preaching the gospel of pared to mitigate has been sued for against those legal malpractice malpractice in the matters by having and I've handled temple of justice. full disclosure, geta few of those. And ting the accountant, oftentimes the lawyer if they have an accounis a sole practitioner, tant, to come down and personal injury, general testify about how much money practitioner or family practitioner who got themselves into a bind and they made. And usually it's very moddecided that they couldn't afford or est, explain what the overhead is, and didn't want to pay a legal malpractice be prepared to demonstrate to the jury premium until it hits the fan and they that the lawyer doesn't make a whole get sued and they realize their legal lot of money and that the plaintiff lawfees are going to be far more than the yer is overreaching. premium that they could have paid. ANDROVETT: How do you react when But in any event, a lot of times these a lawyer says to you, You know what, if folks don't have a lot of money and the I have insurance, I'm just going to be a plaintiff lawyer gets carried away and bigger target, so I'm not going to carry sues them for a whole bunch of money. legal malpractice insurance and take my Again, I'm not a defense lawyer. I do chances. not represent insurance companies. PENNINGTON: I actually hear that a Let me make that clear. But on those lot. And I can't say it's not a factor that rare occasions that I'm defending a I take into consideration when I evalulawyer in those situations, you've got ate a case. I mean, I do look at whether to be prepared to demonstrate to the or not the lawyer has insurance. But I have taken cases where there is no insurance or where there's not enough insurance. And so it's not always a guarantee that you're not going to get sued. PERRIN: For me it actually makes it more likely that the lawyer will be sued because of the very attitude that goes behind it. So if the lawyer doesn't have any insurance, doesn't have any money, okay, well, give me a judgment. And if you don't want to give me a judgment, then let's see what happens. HERRING: As a practical matter, lack of malpractice insurance can be an effective deterrent against claims, at least in some situations. What plaintiff s lawyer wants to pursue a defendant who has no insurance? Now I have Darrell L. Keith November 24, 2008

11 Special Advertising Supplement Legal Malpractice taken large judgments against lawyers who did not have insurance. Sure, that happens. A lawyer may do that in a case of egregious misconduct. But sometimes lawyers carry no insurance as a deliberate tactic. According to a recent survey, over 60 percent of Texas solo practitioners don't have insurance. However, most lawyers in Texas do have insurance because the percentages of insured lawyers are very high when you consider large firms and medium size firms. Or a modest policy that is self-liquidating may encourage a settlement so that the policy is not eaten up by defense fees. Those are tactics that I think are common, but they are not always successful and obviously carry risk. PERRIN: Just a quick horror story a along with that. A lawyer in Fort Worth, who did not have insurance, had settled a woman's case for $250,000. It was a good personal injury case. He then lied to her about not having the money and one thing after another. Finally, she comes to me and we find out that the case had been dismissed because it had been settled. We get a copy of the settlement check and it shows that he forged her name to the settlement check. The guy lived in a $3 million house in Fort Worth, Texas and had no insurance. And I reported it to the State bar. And a couple of years later they finally got around to investigating it. Before the hearing was coming up, the lawyer committed suicide and it turns out there were other clients in the same situation. KEITH: Well, the mere fact that the lawyer is uninsured A client rarely gets the entire loaf of bread at the end of litigation. If the client lacks realistic expectations about that likely result, the client may get very upset, and that may lead to a malpractice claim. standing alone is not a reason to turn down a case. Obviously, a prudent plaintiff's legal malpractice lawyer needs to exercise due diligence and ascertain the solvency and the potential ability of a lawyer/law firm Chuck Herring defendant to satisfy a judgment or to come up with a settlement. And then if it turns out that the potential defendant lawyer or law firm or both are judgment proof, then you've got to make a judgment call as to whether you want to take it on as a pro bono case to help strike a blow to get corrective justice for society and helping the profession clean up its act or not incur that significant expense and time. It's a very tough decision because if you're trying to help folks and you're trying to help them understand that the legal profession has integrity and will police itself and you have a case of real strong, clear liability, but you have problems of collectability from the defendant or potential defendant to lawyer or law firm, then that can be at least for me a lot of personal angst. SHUFORD: I think notwithstanding what a lot of the discussion is about, if you are a plaintiff's lawyer you have an empathy with your clients. When somebody calls you that has really been aggrieved, I think it can be more satisfying than anything to successfully represent them. I'm not a missionary, but the most satisfying case that I've probably had in the practice of law was after I got some publicity over in Fort Worth and a little old lady called me up and I went over and met with her and her son and daughter who were both 40, and I was thinking how am I going to turn this case down because I'm not going to be able to make any money on it. It was against a State senator from Tarrant County. And I wrestled with it. And I'm walking out to my car and it was kind of raining, and the son came out and said, Wait just a minute mom's got something for you. And he came out with a big piece of Ginger cake. And I went, hell, I'm going to have to take this case, and I took the case. And I will say I had a very fine defense attorney on the other side. And we were able to settle it to her benefit. And it's probably goes without saying, but she wrote me a note afterwards. And at one time I did some defense cases and I don't think anybody ever said thank you. On the plaintiff's side, every now and then you get a thank you and a pat on the back and it makes it all worthwhile. ANDROVETT: I know none of you on the panel intend it this way, but to an unsophisticated ear such as mine there are two terms that sound like they could be the same, but I know that they're not. I want you to explore the differences. And that is legal malpractice and then breach of fiduciary duty. In the real world, what's the difference? PENNINGTON: Legal malpractice basically is just negligence. It's a lawyer just being negligent and dropping the ball. Breach of fiduciary duty is a related concept, but it is different. A breach of fiduciary duty is where the lawyer takes advantage of the client, usually by putting the lawyer s interest first and foremost over the client s interest. An example of a breach of fiduciary duty claim might be as Doug mentioned a minute ago, this lawyer taking a client's settlement money and putting into their account and never giving it to them. HERRING: The anti-fracturing doctrine is a major focus in many recent Texas appellate decisions. The basic idea, and you see this again and again in court decisions, is that nothing is to be gained by fracturing a cause of action that arises from bad legal advice or improper representation into claims for negligence, fraud, breach of contract, breach of fiduciary duty, etc. Thus, considerable recent Texas case law focuses on what is legal malpractice in the sense of professional negligence, as opposed to other causes of action. Texas law clearly recognizes other causes of action, such as breach of fiduciary duty, fraud, DTPA violations, and the like, against lawyers, in some factual settings. And of course the underlying theory of the antifracturing doctrine is debatable. It s fine to say nothing is to be gained by November 24,

12 Special Advertising Supplement Legal Malpractice recognizing multiple causes of action, KEITH: My view is that legal malbut obviously that s not true from practice is not a separate cause of the client s perspective because the action with separate elements. It is an client may benefit from longer stat- over arching description of all of the utes of limitations, statutory remedies cause of action that are recognized or for multiple damages, attorney s fees, potentially recognized under Texas law. and on other procedural and remedial And to follow up on what Chuck was issues. talking about with respect to the fracperrin: The law is exactly as Jim turing doctrine and the anti-fracturing described it. Larry Doherty wrote an doctrine, the first cousin of that is article several years ago in which he the anti-miscasting of DTPA cases argued, I think sensibly, that legal or claims in legal malpractice. malpractice is actually just It's also been developed in a category of cases. It medical malpractice, should not be equatand that's where... [S]ometimes with ed to negligence. the courts look If they're under very carefully at the great intelligence and legal malpracallegations of great power that comes in a tice, there's negdtpa violabig firm situation, there's sort of tions on the ligence. There's a natural feeling there that 'I'm part of attorbreach of fiduciary duty, there neys and other kind of above all this,' but it's is breach of conp rofessionals, very harmful. tract, et cetera. not only to see if With this issue of they come within fracturing and the purview of the and some of the courts professional exception of appeals are remarkably that was enacted in 1999 restricted in terms of what they by the legislature, but also to define as a breach of fiduciary duty determine whether or not the plaintiff case as opposed to a negligence case. has attempted to mistake a negligence And my favorite case on that is that or gross negligence claim as a DTPA Deutsche case from the Houston 14th violation. And the Courts look very Court. It has an excellent discussion of strictly upon DTPA claims, and many what is a breach of fiduciary duty claim times strike them down as just being a and what's a negligence claim. miscasting of, say, a negligence claim. Doug Perrin 10 PENNINGTON: I think it actually even goes back further. I mean, a lot of people are familiar with the old contort line of cases where the courts have analyzed cases to determine whether a claim is a breach of contract claim or whether it's a tort. And so the argument Darrell is talking about is basically along the lines of the same analysis in those cases. ANDROVETT: In the damage model, are the plaintiffs wanting their fees back? Are they wanting punitive damages? Are they claiming mental anguish? What are the rules of the road there? SHUFORD: Well, sometimes all of the above and sometimes it's because of ignorance because they don't know what they can recover. I've got a case that will be argued before the Supreme Court in Texas on December 9th on whether or not you can recover attorney fees in a legal malpractice case. It is Akin Gump vs. National Development and Research Corporation and Robert Tang. Robert Tang is National Development Research Corporation. He was a consultant that assisted a company in trying to locate or in building a power plant in China. Akin Gump represented him. Akin Gump failed to submit a proper special issue. And although he won all of the issues at trial, he not only was unable to recover, he also got stuck for $600,000 in attorneys fees from the other side. Let me just say this as an aside, I really think that that case boiled down to Akin Gump's failure to designate an expert on time which forced them to try and jury rig the special questions that were submitted to back into the damages. They've appealed it, not on the negligence but on the attorneys' fees. We recovered $216,000 in attorneys' fees at trial and Akin Gump was denied any recovery of a 10 percent contingent fee they had in the underlying case. PENNINGTON: David, I'm sorry to interrupt. Why don't you clarify the attorney fees you're talking about. SHUFORD: These were the attorneys' fees paid to Akin Gump the underlying case, is that what you meant? PENNINGTON: These were not David's attorneys' fees that he was trynovember 24, 2008

13 Special Advertising Supplement Legal Malpractice ing to recover. SHUFORD: No, I was on a contingent fee which was recoverable. But the $216,000, we were awarded that at trial. The Dallas Court of Appeals took that away from us. The judge sitting by assignment named Bea Ann Smith wrote a very good opinion, and she recognized that there is a split of authority in Texas. One view being that you can only recover attorneys' fees when they're provided for by statute. And the second theory was that if you lost the case, you shouldn't be allowed to have your attorneys' fees because you didn't do any compensable work that you're entitled to. And the client is paying me to recover what they should have been awarded in the underlying case. So that's going to the Supreme Court. And maybe we'll get some clarification on that fact. The second thing is if Akin Gump had won the underlying case, would have gotten the 10 percent contingency. They had an hourly rate with a contingency. And the jury didn't award them any attorneys' fees. And the Judge wrote about that how they had not done any compensable work. And with the largest kahones known to man, they think that they should get a 10 percent contingent fee for a case they lost if we get it turned around. That's beyond the pail for me. But at any rate, those two issues are going to be before the Supreme Court, and we're going to argue those December 9th. And just as an aside, that's one reason that you see lawyers sometimes trying to use the allegations for negligence in the breach of fiduciary duty because breach of fiduciary duty allows you to get forfeiture of the underlying fees. Whereas in some jurisdictions you can't recover your attorneys' fees because of the split authority I'm talking about. KEITH: I think it's important for y'all to know that if a lawyer has a good, solid even strong trust relationship with the client and they let them down, the client has a deep feeling of a betrayal of trust. And it is hurtful, and abiding. And again, because I do so much litigation malpractice, they want a measure of justice that they November 24, 2008 feel they were denied in their lawyer's similarly situated. alleged or perceived mishandling of the ANDROVETT: Now that we have subcase, whether by way of settlement prime and we've got hedge funds and we which I hope we have a chance to talk have recriminations over stock funds and to because I'm seeing more and more corporate investments, what do you see complaints about lawyers that going forward in that regard? are not advising clients SHUFORD: I don't think appropriately on settlelawyers are the guaranments or an unfators of society's ills. Lawyers have a vorable or less adeif you can boil it fiduciary obligation, if quate result at the down to something courthouse. And specific like incorthey believe that they have the lawyer has to made a mistake representing rect legal opinion, explain that to one thing. their client, to fully disclose Ithat's them. That is the don't pretend that mistake to the client. to understand all malpractice lawyer has got to review the derivatives and and evaluate, as securitization. But as David said, and advise I can tell from what I'm the client on what mealistening to it's like the sure of justice they can obtain emperor who had no clothes. based on what they were allowed in the They just kept paying each other more underlying case, the case within a case. money for it. It kind of reminds me Most malpractice victims want what of the story about these two guys who I call corrective justice. They may had owned a horse in a little town. want a pound of flesh from the indi- They lived on each side of the town. vidual, the lawyer or lawyers involved, One guy drove by and saw the horse or they don't want it to happen to and said, I like your horse. I'll pay someone else, or they want the system you 100 bucks for it. A month later to work. They want the legal system to the other guy drives to the other side demonstrate that a wronged client can of the town and says, I like that horse, get a measure of corrective justice in and I want him back. I'll pay you 200 the system, not only for themselves but bucks for it. And they continue on for the sake of the system and others with that. And then one day he goes Jim Pennington 11

14 Legal Malpractice over and says, Where's the horse? And he said, I sold it to some guy driving down the road. And he said, Well, hell, we were both making a good living off of that horse. I don't think a lawyer is guilty if the horse goes down the road. AUDIENCE MEMBER: There's the old antidote that a lawyer doesn't want to sue the client for nonpayment of their bills because the client is going to turn around and say, well, of course, I didn't pay the bill, you messed up the case. Is there any truth of that old antidote or is it just a story? KEITH: It's not an antidote. It's a living, breathing reality. HERRING: Some insurance policies even provide that if a claim arises when a lawyer sues a client for fees, the claim is excluded from coverage. A legal malpractice claim is classified as a compulsory counterclaim if a lawyer sues a client for fees. The standard advice from carriers is: Don't sue clients for fees. Lawyers sometimes do it, of course, and sometimes win, but it is probably rare that they don't draw a legal malpractice counterclaim of some kind in response. PENNINGTON: There is another alternative or several other alternatives which a lot of us don't really stop to think about them. The Dallas Bar Association does have a fee dispute committee set up to resolve disputes with clients. Now, it's voluntary. Both the lawyer and the client have to agree, otherwise they don't get involved. But if both sides agree to it, it's basically like binding arbitration. You present your fee dispute before the panel. And I would urge a lot of people to consider that because it's a cost-effective method of resolving that or just trying mediation even. If you're having a problem, you can agree to pay for the mediation. It depends how much is involved. But there are other alternatives I would encourage you to consider doing before When somebody calls you that has really been aggrieved, I think it can be more satisfying than anything to successfully represent them. David W. Shuford Special Advertising Supplement filing suit because Darrell is right, you will almost guarantee yourself to be sued in a counterclaim. ANDROVETT: You as a lawyer gain an extra level of protection by asserting in the representation agreement an arbitration policy? PENNINGTON: There are a lot of firms now that are doing that. In fact, I've got a case right now that I just filed for arbitration, because the contract had an arbitration clause in it. And I've tried to bust some of those clauses, and there are ways to do that. It depends on the facts and the type of case. But this one in particular I just went ahead and filed arbitration because there are certain advantages to arbitration. One of the benefits, as Chuck pointed out earlier, is I don't have to worry about the court of appeals. HERRING: The O Quinn case certainly showed that large awards can occur in arbitration cases. On the other hand, one needs to be a little cautious still about that because we have a split authority in Texas on the enforceability of arbitration clauses as to legal malpractice claims in some settings. In In re Godt, the Corpus Christi court of appeals held the Federal Arbitration Act inapplicable to a malpractice dispute that did not involve interstate commerce, and found the arbitration provision to be unenforceable under Texas law because it involved a contingent fee contract that was not signed by the lawyer, and also because, according to that court, Texas law considers a legal malpractice claim to be personal injury claim and thus arbitration is unenforceable unless each party to the claim, on the advice of counsel, agrees in writing to arbitrate and the agreement is signed by each party and each party s attorney. Most Texas decisions have gone the other way on that personal-injury categorization issue, but the Corpus Christi court recently reaffirmed its holding. So we have a split in authority. Also, the ABA ethics opinion on arbitration ruled that a lawyer must fully inform a client of both the advantages and disadvantages of potential arbitration between the lawyer and client before having the client enter an attorney-client contract containing an arbitration provision. Thus, under that analysis a potential Rule 1.08(g) issue has to be considered. Fully disclosing all possible disadvantage could involve a lot of explanation, including concerning venue, expense, giving up a jury trial, giving up a public forum, limited right of appeal, etc. PENNINGTON: Before you do that, let me encourage you to really think through the cost involved in that too. If it's a big case with a big commercial client and you're a large downtown firm, the cost may not be a consideration. However, if it is a smaller case, cost should be a consideration. But arbitration can be extremely expensive. You've got to pay that lawyer for his time to sit through your hearing and there are filing fees. The filing fee for the one I just filed was $6,000 just to file the claim. And later on we're going to end up having to pony up a much bigger chunk of money to pay the three panel members that are going to sit on the arbitration panel. So those can be very expensive. Many of the clauses say that the parties are going to split the arbitration costs 50/50. But if you put in there that the client is going to pay for everything, then you may have a problem being able to enforce the arbitration provision for the reasons Chuck mentioned earlier. For more information on upcoming events and sponsorship opportunities, contact Deni Ruddy at , ext November 24, 2008

15 We just gave you5 more reasons to go online! Our new, enhanced Web site features: new look: redesigned with bold, clean graphics better organization: easier navigation to find what you want, fast expanded content: more articles, analyses and decisions, plus new sections and our fresh and feisty Tex Parte blog powerful search: new featuring LAW.COM the new search tool focused on the legal web T uest free alerts: sign up to receive Daily News & Case Alerts Try it today!

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