Declarations and Exclusions

Delegation is Not Representation: Attorney's Delegation of Responsibility to Non-Attorney is not "Excusable" Neglect

Every so often a busy attorney must rely on a non-attorney staff member to keep track of important deadlines, such as the last day on which to file an appeal. If the non-attorney misses the deadline, however, the U.S. Court of Appeals for the 9th Circuit will have no sympathy for the attorney and will not permit him or her to be relieved of the consequences of the omission.

Laffit Pincay Jr. and Chris McCarron -- two well-known and successful jockeys -- were engaged in litigation with Vincent Andrews Management Co. and its principals for some 13 years, finally obtaining a judgment against the Andrews parties in 2002. When the judgment arrived, a non-attorney calendaring clerk in the unnamed "large law firm" representing Andrews notified the handling attorney. An e-mail exchange followed, in which the attorney relied on the calendar clerk to determine and make note of the deadline to appeal. The clerk's calculations were inaccurate, and the appeal date came and went without action being taken. On discovering the error, the attorney quickly sought an order from the trial court to extend the appeal date. The attorney argued that his reliance on the calendar clerk was reasonable and that the error was the result of "excusable neglect." The trial court agreed and granted the extension; Pincay and McCarron appealed that order -- that is, they appealed from the extension of their opponent's time to appeal -- and the 9th Circuit has now ordered the extension reversed, cutting off Andrews' appeal. The judges in the majority were unequivocal in their disapproval of the attorney's excuse:

Andrews’ counsel did not show good cause for his failure to file on time, nor can his action be classified as excusable neglect. What counsel did was to delegate a professional task to a nonprofessional to perform. Knowledge of the law is a lawyer’s stock in trade. Bureaucratization of the law such that the lawyers can turn over to nonlawyers the lawyer’s knowledge of the law is not acceptable for our profession.

(Emphasis added.) In dissent, Circuit Judge Andrew T. Kleinfeld did not endorse the attorneys' erroneous practice, but urged that the lower court was within the bounds of its considerable discretion in excusing it:

My dissent is directed to the proposition that compels the majority’s conclusion: 'Not knowing the law governing one’s practice is different from mere neglect, and it cannot be classed as excusable neglect,' especially when compounded by delegation of that knowledge to a non-lawyer. This holding is erroneous. Ignorance of the law and negligent delegation can indeed be classed as excusable neglect. And ignorance of the law plus negligent delegation—not knowing that the deadline for filing a notice of appeal in a civil case where the government is not a party is 30 days, not 60, and relying on a calendar clerk’s reading of Federal Rule of Appellate Procedure 4—is the precise error that the Andrews’ lawyer made.

The majority fleshes out this concept of ignorance of the law, qualifying it with its concern that the lawyer delegated professional tasks to a non-lawyer to perform. Delegation may be negligent, but negligence, under Pioneer, can be “excusable neglect.” There is no difference in principle between negligent mistake of law and negligent supervision. All professionals delegate. Medical doctors delegate many traditional duties to physician’s assistants and nurses. Lawyers and judges delegate to associates, law clerks, interns, paralegals, calendar clerks, and secretaries. Lay calendar clerks commonly set trial dates for district judges, who delegate to them to avoid Speedy Trial Act errors. Of course delegation can be excessive, but what matters is the degree of supervision.

He adds an expression of concern for the perhaps unintended consequences of the majority's strict interpretation, with a nod to the likely consequences of the ruling for the attorney involved:

Good lawyers commonly give their adversaries stipulations relieving them of inadvertent errors not going to the merits. The rigid per se rule the majority creates today will make it difficult for them to do so. Our court thereby damages the mutual civility and accommodation that characterizes the practice of law at its best. This unnecessary rule will be career-destroying for decent lawyers who make inadvertent errors.

The 9th Circuit's decision in Pincay v. Andrews (Dec. 10, 2003), Case No. 02-56577, can be found at the following link in PDF format.

Attorneys Behaving Badly [A Continuing Series]: No Recovery of Fees For Law Firm Disqualified for Actual Conflict of Interest

What Is Wrong With This Picture?  A law firm already engaged in a dispute over fees with a former client takes on the representation of a third party in an action against the same former client.  The former client moves, successfully, to disqualify the law firm from representing the third party on the ground that the law firm possesses confidential information acquired in the prior attorney-client relationship, and therefore has an actual conflict of interest.  Later, the third party settles with the law firm’s former client, and the law firm seeks to recover a percentage of that settlement as fees for pursuit of the claim from which it was disqualified.  Do the attorneys get paid?  They do not, in the opinion of California’s First District Court of Appeal.

The firm of Aguilar & Sebastinelli represented Richard Peterson in connection with a number of matters involving his business and professional interests through the early 1990s.  (The appellate court makes oblique references to several insurance-related enterprises and a condominium in the Cayman Islands, but is otherwise discrete.)  The Aguilar firm collected over $1.5 Million in fees for its services, but the relationship ultimately broke down, with the Aguilar firm suing for Peterson for additional fees.  Meanwhile, A.I. Credit Corp., Inc. (AICCI), represented by another firm, had obtained a judgment against Peterson for some $675,000.

An attorney at the Aguilar firm knew an attorney representing AICCI, and through that connection the Aguilar firm was ultimately retained by AICCI, on a contingent fee basis, to pursue enforcement of AICCI’s judgment against the Aguilar firm’s former client, Peterson.  Peterson, through new counsel, moved successfully to have the Aguilar firm disqualified from representing AICCI against him, on the relatively obvious ground that the Aguilar firm had acquired confidential information, and thus had a conflict of interest, arising from its former representation of Peterson.  AICCI returned to its original attorneys and was able to reach a settlement under which Peterson would pay the $675,000 judgment against him.  The Aguilar firm then filed a claim for 30+% of the settlement, on the ground that it was entitled to recover under its contingent fee agreement with AICCI.  The trial court and the Court of Appeal disagreed, and spurned the Aguilar firm’s attempt to obtain a benefit from a representation in which it possessed a clear, adjudicated conflict of interest.

The Court of Appeal in its opinion evinces no patience at all with the Aguilar firm’s arguments, which it characterizes as “riddled with errors.”  It notes that the firm did not appeal -- and hence cannot now contest -- the original disqualification order, so it is conclusively deemed to have had an actual conflict of interest in taking on AICCI’s representation against Peterson.  The rule is clear that a law firm in that position has no entitlement to fees following its breach of its professional obligations.  (Any other rule would result in their being no consequence at all for a patent dereliction of ethical duty.)

The Aguilar firm also argued, in effect, that AICCI should not be relieved of any obligation pay fees to the firm because AICCI was itself seeking to take advantage of the firm’s access to private information about Peterson.  Be that as it may, the Court of Appeal concludes, the firm must still bear the loss for its own straying from the straight and narrow path of professional responsibility.  To the extent the contract with AICCI specifically contemplated taking advantage of the firm’s conflict of interest, it was an illegal contract, and ““the law is not to be subsidized to overthrow itself. . . .’”

None of the participants emerges from the Court’s opinion smelling like an ethical rose, but the Court reserves its particular scorn for the attorneys involved, who are by their calling presumed to know better.  Once again, what we might call the “Nixon rule” -- that a professional should listen closely to that little voice that says “We could do it, but it would be wrong” -- plays out for all to see.

The decision in A.I. Credit Corp., Inc. v. Aguilar & Sebastinelli (Dec. 1, 2003), Case No. A101841, is available at these links in PDF
and Word formats.

Attorneys Behaving Badly: No Recovery for Services Rendered When Attorneys Withdrew Unilaterally After Client Raised Legitimate Questions

There is a special store of scorn and derision on which appellate judges can draw when they conclude that attorneys have behaved in a manner exactly reflecting credit on their profession. Most often, the judges’ low opinion of counsel’s performance will be displayed to a limited audience when the appeal comes on for oral argument. When, however, the court concludes that attorneys should be made an example of, the court’s expressions of disapproval will be incorporated in the court’s opinion, and the opinion will be certified for publication.

The Court of Appeal for the Fourth District has just published such a decision. The issue before the court is whether the attorneys, who had withdrawn from representing the plaintiffs in an insurance “bad faith” case based on the attorneys’ seemingly unilateral determination that there had been a “breakdown” in the attorney-client relationship, evidenced by a single letter from the client asking questions about the content of a pleading, could claim nearly half of a later settlement as the value of the services they had rendered before withdrawal. Finding the withdrawal to have been purely for the attorneys’ own convenience and not compelled by any ethical obligation, the court concludes that the attorneys are entitled to nothing in the way of compensation.

The flavor of the opinion is captured in the introductory summary, which merits quotation at length:

A real estate empire collapses. The estate’s bankruptcy trustee, through its attorney of record, sues the empire’s accountants for their role in the collapse. The parties settle. As part of the settlement, the trustee’s attorneys now represent the accountants in a suit against their malpractice insurer on a contingency fee basis (while still representing the trustee in enforcing the settlement). The accountants waive the obvious conflict.

The accountants then write a letter asking some questions as to the basis for the suit against their malpractice insurer, which they have every right to do. After all, it is just as likely that they will be sued for malicious prosecution as the attorneys if the lawsuit is unsuccessful. The attorneys, however, are offended. Perhaps they sense they are being set up to take the fall if the litigation fails and they and their clients find themselves sued for malicious prosecution. But they never say that. In their motion to withdraw as counsel, the merely cite, without elaboration, a ‘break down in communications.’

The accountants, however, don’t think the differences are irreconcilable and oppose the withdrawal. Now chastened and humbled for being so uppity as to question their lawyers, they practically beg the attorneys to return.

The accountants lose the withdrawal motion. The trial court will not force unwilling lawyers to work for willing clients. So the accountants thrash around for a new law firm, and eventually find one, but not one willing to take the case on contingency.

Then comes the surprise. With their new attorneys, the accountants settle with the malpractice insurer on favorable terms, obtaining a large sum of money. The original attorneys return to assert a quantum meruit claim on the settlement. Can they?

Of course not. Taking umbrage at being asked facially legitimate questions by one’s client about the basis for a lawsuit is not justifiable cause warranting recovery in quantum merit. [Citation omitted.] Clients have every right to ask questions of their lawyers as to the basis of a lawsuit, and the asking of such questions is not a reasonable basis to claim a ‘break down in communications.’ If there was any ‘break down,’ it was the lawyers who did not want to answer legitimate questions posed by their clients as to the validity of their clients’ claims against their malpractice carrier.

In the remainder of the opinion, the court provides a blow-by-blow account of the prior litigation, the correspondence that precipitated the claimed "breakdown," and the circumstances under which the original attorneys sought to be paid. The court emphasizes the rule that an attorney who withdraws from a contingent fee case because he must -- because ethical rules require the withdrawal under the circumstances -- or an attorney who has been "fired" by the client unilaterally, may recover the reasonable value of the services rendered prior to the termination of the relationship, in order to avoid giving the client a "free ride" on the attorney's efforts. However, attorneys who withdraw for reasons of their own, thereby relieving themselves of the risks and costs that they had previously agreed to bear in the litigation, cannot not thereafter claim any benefit when the case is successfully completed by others.

The decision in Rus, Miliband & Smith v. Conkle & Olesten (Nov. 21, 2003), Case No. G030325, is available at these links in PDF and Word formats.

Only the Innocent Need Apply -- Criminal Defendant's Malpractice Claim Against Defense Counsel Rejected

In a claim for legal malpractice, the disgruntled client is generally required to prove that the prior representation would have produced a better result but for the negligence of the attorney. A new decision from California's Fourth District Court of Appeal reminds us that a convicted criminal can only prevail against his former defense attorney if he can prove that he was wrongly convicted, i.e., that he was in fact innocent of the crime.

Lindsel Redante was convicted on multimple charges of sexual offenses involving minors. Attorney Alan Yockelson was appointed to represent Redante in an appeal from his conviction. The appellate court affirmed the conviction, and the California Supreme Court decined review. Redante demanded that Yokelson draft a petition for habeas corpus. Yokelson did so and forwarded it to Redante for his use. Redante then represented himself in a series of unsuccessful habeas corpus cases in state and federal courts. Dissatisfied, Redante then sued Yokelson seeking damages for malpractice. The trial court granted judgment in Yokelson's favor, which the appellate court confirmed.

The Court of Appeal points out the following grounds on which it found no potential liability against the attorney:

♦ An appellate attorney need not make every argument the client demands. He is only obliged to raise those arguments that are potentially meritorious.*

♦ A criminal defendant "has no constitutional right to counsel in habeas corpus proceedings, and consequently, no right to effective assistance of counsel."

♦ A criminal defendant who sues for legal malpractice must prove his actual innocence of the underlying criminal charge. A non-innocent defendant cannot claim to have been harmed by an attorney's negligence. Redante never alleged or attempted to prove he was factually innocent in the context of his malpractice claim. Even if Yokelson had committed an error -- which the Court concluded he had not -- that error did not place Redante in any worse position than his own criminal conduct warranted.

The decision in Redante v. Yockelson (October 30, 2003), Case No. D041480, can be found at these links in PDF and Word formats.

Oh, Behave! No Injunction Against Lawyer-on-Lawyer Violence Absent Evidence of a Threat of Future Harm

The Court of Appeal has reversed and vacated an anti-harassment injunction issued in favor of one attorney and against another, finding that a single instance of violence, threats or harassment is insufficient to support issuance of an injunction absent a showing of a threat of future harm.

Russell and Douvan were attorneys on opposite sides of a dispute. Following a hearing, Douvan, according to Russell, followed Russell into an elevator and grabbed his arm. Russell sought an injunction under California’s anti-harassment statute, Code of Civil Procedure §527.6. Although the underlying case had concluded by the time of the injunction hearing and both attorneys acknowledged that they did not have anything otherwise to do with one another, the trial court concluded that a battery had been committed and issued the injunction. Douvan appealed, and the Court of Appeal concluded that the trial court should not have issued the injunction.

The appellate court’s reasoning was simple: even when an injunction is authorized by statute, the remedy can only operate prospectively. Injunctions deal with future harm, not with events in the past. Absent evidence that there was an actual threat of future wrongdoing, no injunction could be justified.

When the [trial] court concluded that a single act of unlawful violence required the issuance of an injunction, it construed its role too narrowly. There may well be cases in which the circumstances surrounding a single act of violence may support a conclusion that future harm is highly probable. That finding, however, must be made and the court failed to do so here.

The appellate court was silent on the ethical or disciplinary consequences of even a single act of lawyer-on-lawyer violence. We trust that the Court does not mean to be understood as endorsing a “one free bite” rule for attorneys.

The Court's decision in Russell v. Douvan (Sept. 30, 2003), Case No. A096261, can be found at these links in PDFand Word formats.

[Thanks to Ken Lammers at the CrimLaw blog and to The Southern California Law Blog for their links back to this post. Both are well worth your while, if you aren't already checking them regularly.]

Liability Insurer's Failure to Settle Causes No Damage When No Actual Judgment is Obtained Against Its Insured

Under California law, when a liability insurer unreasonably rejects a proposal to settle a third party’s claim against its insured for an amount within the limits of the available coverage, the insurer is liable for the resulting harm to its insured if the third party later obtains a judgment against the insured for an amount exceeding the policy limits. In a new “bad faith” decision, the California Court of Appeal has reemphasized the need for an actual judgment against the insured as a prerequisite to any claim against the insurer, and rejected a claim for damages based on an agreed settlement between the third party claimant and the Trustee in the insured’s Chapter 7 bankruptcy case.

A simplified version of the facts:

Anthony Choy suffered severe injuries in an automobile accident. He attributed his injuries to an allegedly defective “lift kit” he had purchased from Shamrock Tire, and sued Shamrock for damages. Shamrock requested and received a defense against Choy’s claims from Shamrock’s insurer, Redland. Early on, Choy offered to settle his claims for the $500,000 limits of Redland’s policy; Redland rejected that proposal. Choy then proposed to Shamrock’s attorneys that he would release Shamrock from any personal responsibility in exchange for an assignment of Shamrock’s claims against Redland for Redland’s allegedly unreasonable refusal to settle with Choy. (That proposal was alleged not to have been conveyed to Shamrock by its attorneys -- who were being paid by Redland. See the extended portion of this post for more on the attorneys’ involvement in the case.) Later, while Choy’s suit was still pending, Shamrock filed for bankruptcy, stating in its petition that it possessed only $2,100 in assets.

In the Bankruptcy Court, Choy reached an agreement with the trustee, Wolkowitz. Choy and Wolkowitz agreed that they had a mutual interest in maximizing the amount of damages recovered from Redland. They further agreed that Choy’s claims for his injuries were worth more than $26 million. The agreement was approved by the Bankruptcy Court, with no opposition being submitted by Redland. Wolkowitz then filed suit against Redland in state court, seeking the full $26 million damages based on Redland’s refusal of the opportunity to settle with Choy for its $500,000 policy limits. The trial court dismissed the case, and the Court of Appeal has affirmed.

Relying principally on the California Supreme Court’s decision in Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718, the Court of Appeal emphasized that an actual judgment, with a weighing if evidence and a determination of the actual degree of the insured’s liability to the injured third party, is an indispensable prerequisite to the insurer’s liability for any amounts in excess of policy limits. The claim in the bankruptcy case, in which the amount of Choy’s damages was determined by agreement, did not satisfy the requirement of a judgment:

“[A] bankruptcy court allowance of a claim does not provide sufficient assurance that a stipulated claim, approved without objection and without a contested evidentiary hearing, will accurately or reliably reflect the debtor’s actual liability on the claim. We therefore conclude that for purposes of an action against the debtor’s insurer based on an unreasonable refusal to settle, the bankruptcy court’s approval of an uncontested claim without an evidentiary hearing provides no reliable basis to establish damages resulting from the refusal to settle.

The trustee has thus alleged no damages caused by Redland’s refusal to settle other than the amount of the allowed claim and has not shown how he could amend the complaint to allege any other damages. Since, as we have explained, the allowed claim can provide no reliable basis to establish damages in any amount, the complaint does not properly allege damages resulting from the refusal to settle.

The opinion in Wolkowitz v. Redland Insurance Company (Sept. 25, 2003), Case No. B158594, is available at the following links in PDF and Word formats.

Attorney Must Be Disqualified from Representation in Opposition to a Former Client If Current Case Bears a "Substantial Relationship" to the Former Representation

The Court of Appeal for the 5th Appellate District has revisited the standards to be applied when an attorney represents the opponent of a former client and the forme client moves to disqualify the attorney. Reversing a trial court ruling that allowed the attorney to continue in the case, the appellate court determined that the lower court had not applied a correct standard in ruling on the motion to disqualify. The court remanded the case for application of the "substantial relationship" test. The court articulated that test as follows:

[T]he question whether an attorney should be disqualified in a successive representation case turns on two variables: (1) the relationship between the legal problem involved in the former representation and the legal problem involved in the current representation, and (2) the relationship between the attorney and the former client with respect to the legal problem involved in the former representation.

The decision in Jessen v. Hartford Casualty Ins. Co., (Aug. 25, 2003) Case No. F041425, can be found at these links in PDF and Word formats.

A factual summary and other comments will be found in the Continuation of this post: