Legal Malpractice

Attorney Fees, Dismissal and Legal Malpractice

By (Andrew Lavoott Bluestone)

Here is an article from Hinshaw which tells us that  "A law firm may represent itself and may pursue not only contract or quasi-contract but also tort theories in suing a former client, at least as long as the amount sought in damages does not exceed the amount of unpaid legal fees"

"Law firm Pedersen and Houpt provided a variety of legal services to Summit Real Estate Group, LLC (Summit) including successfully litigating a breach of contract claim. Soon thereafter Summit’s assets were transferred to another entity, Main Street West, and Summit was dissolved. The two members of Summit were 50 percent owners of Main Street West. Id. Pedersen and Houpt brought suit to recover attorney’s fees naming five closely related defendants including Summit and Main Street West.

Pedersen and Houpt sued on multiple causes of action including breach of contract, quantum meruit and account stated. However, given Summit’s insolvency, Pedersen and Houpt’s best chance at recovery was through more far-reaching legal theories such as piercing the corporate veil and unjust enrichment. Defendants argued that these more far reaching legal theories were “an attempt to create new liabilities beyond the scope of [Pedersen and Houpt’s] contractual relationship with its clients.” Id at 8. Defendants consequently asserted that any use of confidential information to pursue these “new liabilities” was beyond the scope of Illinois RPC 1.6(c), which provides: “[a] lawyer may use or reveal * * * (3) confidences or secrets necessary to establish or collect the lawyer’s fee.” Id.

The trial court agreed with the defendants’ argument and granted a motion to compel Pedersen and Houpt to seek outside counsel. Reviewing this decision on an abuse of discretion standard, the court of appeals reversed, noting that the plaintiff’s legal theories were within the scope of RPC 1.6(c)(3) and that requiring Pedersen and Houpt to seek outside counsel did not resolve or even address the issue of the scope of RPC 1.6(c)(3).

The appellate court’s reasoning was based on the premise that limiting the legal theories available under RPC 1.6(c)(3) would reward fraudulent behavior by clients and would not serve any reasonable client expectation or legitimate purpose. The appellate court also noted that the damages sought by Pedersen and Houpt were limited under all theories to the amount of legal fees owed. Consequently, Pedersen and Houpt was not attempting to profit improperly from its former attorney-client relationships "

Full post as published by New York Attorney Malpractice Blog on January 09, 2008 (boomark / email).