Legal Malpractice: The New Tort de Jure?
A soon-to-be-released study by the American Bar Association shows that the number of legal malpractice suits lodged against "white shoe" firms has risen dramatically since 1996. While the case volume is still small, this study represents a costly, long-term problem for large corporate law firms. As these claims become more and more prevalent, these upscale law firms will find firms such as mine, Heygood, Orr, Reyes & Bartolomei, to be formidable adversaries.
In the recent ABA study released to Legal Times last week which compared two four-year periods, 1996 to 1999 and 2000 to 2003, the ABA found that legal malpractice cases of $2 million or more jumped 60 percent. The growing severity of claims stems in part from the major corporate scandals of the past five years, which have opened law firms up to new liabilities, insurers and law firm managers say the fallout goes beyond some of the biggest headlines.
As most people who follow the legal world already know, the 56 year-old venerable Jenkens & Gilchrist closed its doors on March 31, 2007. How did that happen? At one time Jenkens was the biggest firm in Dallas, boasting almost 600 lawyers firm-wide. However, all it took was for some of the newly acquired partners in Chicago to show the guys in Dallas how much money could be made doing tax shelter opinions and the rest, as they say, is history. My friend Michael Shore represented numerous "investors" in the tax fraud scheme Jenkens was pushing and the cards came tumbling down ? so much so that Jenkens is now out of business.
I suspect we'll be seeing more and more claims for legal malpractice in the years to come. Since when did law firms get into nefarious business dealings anyway? I thought they were supposed to keep you out of trouble. If all it takes is $100,000 to get an opinion for the likes of Dorsey & Whitney that your transaction or business practice is kosher, then we're in for a bunch of legal malpractice claims being lodged against firms far more venerable than Jenkens. Big time corporate law firms should get armed and ready for firms like Heygood, Orr, Reyes & Bartolomei to take them to battle when they cross their fiduciary duty lines. We are an aggressive bunch that knows how to get to trial, fight the good fight and win.
My firm has begun applying a legal theory - deepening insolvency - that hadn't previously been used against lawyers. In a nutshell, what that means is that advisers, typically lawyers and/or law firms, added to the insolvency of a failing financial company through bad advice or by failing to blow the whistle on a company's wrongdoing.
Most of the lawsuits stem from company bankruptcies, and the damage claims can often skyrocket into the tens and hundreds of millions of dollars. "What you're seeing more and more is the claim being asserted against law firms," says Kevin Rosen, head of Gibson, Dunn & Crutcher's legal malpractice defense group.
In earlier articles, I wrote about the two Delaware cases filed against Pepper Hamilton in recent months. One suit by the bankruptcy trustee and another by the insurer of Pepper Hamilton's former client, the Student Finance Corp., contend that Pepper Hamilton lawyers contributed to Student Finance's bankruptcy and its alleged corporate practice of disguising faulty loans.
But the fallout goes beyond some of the biggest headlines. Recently, three major law firms, Sidley Austin Brown & Wood; Pepper Hamilton; and Gunster, Yoakley & Stewart have each been hit by suits with claims that top $100 million. I called for comments, but each firm declined. (I'm kidding, I didn't really call for comments.)
Other firms have seen eight-figure jury verdicts. Just this February, a Texas court ordered Baker Botts, along with co-defendant Wells Fargo & Co., which served as executor of an estate, to pay $71 million to the trust of a widow for breach of fiduciary duty while planning her husband's estate. Further, last month, Seyfarth Shaw got popped by a Los Angeles jury with more than $35 million in claims and punitive damages for mishandling a lawsuit for one-time client and Tae Bo creator Billy Blanks. Now how in the world did they screw over a cultural icon like Billy Blanks? Billy, next time you need representation, call me.
Back in the 1980's, O'Melveny & Myers got slammed with numerous lawsuits after the savings and loan scandals. Nevertheless, O'Melveny rebounded with flying colors and is now one of the top global law firms. I wonder what is going to happen to all the law firms that helped destroy companies such as New Century Financial, NovaStar, Accredited Home Lenders, IndyMac Bancorp, etc.? I predict the lawsuits will begin to fly shortly. Why? Because, all it takes is a few hundred thousand dollars and you can get a white shoe firm to bless your transaction. I wonder how the shareholders of New Century, NovaStar, Accredited, etc. feel about that now?
While most legal malpractice cases are handled by firms like Heygood, Orr, Reyes & Bartolomei, even some white shoe firms are getting in on the act. Indeed, how's this for a tittie twister? Hunton & Williams, is representing Earthlink Inc. in a $1 million legal malpractice case against Powell Goldstein in Atlanta. Of course, not to be outdone, Powell Goldstein has countersued Hunton & Williams, alleging conflict of interest because Hunton & Williams was Earthlink's general counsel and, Powell Goldstein claims, was itself responsible for the legal mistake that cost Earthlink $1 million. Here's the real doozy: Hunton & Williams just picked up 94 lawyers from the now defunct Jenkens & Gilchrist to expand their Dallas office. Yes, the same Jenkens & Gilchrist that imploded because of legal malpractice and for participating in tax fraud!
For the record, I know many Jenkens (now Hunton & Williams) lawyers and they are good lawyers. Heck, my best friend from law school, Edmund Sim is a partner in Hunton's Singapore office. I would be remiss to also mention that he is one of the smartest men I've ever met. How I talked him into being my moot court partner in law school, I'll never know.
©2007 Angel Reyes
www.ReyesLaw.com
As most people who follow the legal world already know, the 56 year-old venerable Jenkens & Gilchrist closed its doors on March 31, 2007. How did that happen? At one time Jenkens was the biggest firm in Dallas, boasting almost 600 lawyers firm-wide. However, all it took was for some of the newly acquired partners in Chicago to show the guys in Dallas how much money could be made doing tax shelter opinions and the rest, as they say, is history. My friend Michael Shore represented numerous "investors" in the tax fraud scheme Jenkens was pushing and the cards came tumbling down ? so much so that Jenkens is now out of business.
I suspect we'll be seeing more and more claims for legal malpractice in the years to come. Since when did law firms get into nefarious business dealings anyway? I thought they were supposed to keep you out of trouble. If all it takes is $100,000 to get an opinion for the likes of Dorsey & Whitney that your transaction or business practice is kosher, then we're in for a bunch of legal malpractice claims being lodged against firms far more venerable than Jenkens. Big time corporate law firms should get armed and ready for firms like Heygood, Orr, Reyes & Bartolomei to take them to battle when they cross their fiduciary duty lines. We are an aggressive bunch that knows how to get to trial, fight the good fight and win.
My firm has begun applying a legal theory - deepening insolvency - that hadn't previously been used against lawyers. In a nutshell, what that means is that advisers, typically lawyers and/or law firms, added to the insolvency of a failing financial company through bad advice or by failing to blow the whistle on a company's wrongdoing.
Most of the lawsuits stem from company bankruptcies, and the damage claims can often skyrocket into the tens and hundreds of millions of dollars. "What you're seeing more and more is the claim being asserted against law firms," says Kevin Rosen, head of Gibson, Dunn & Crutcher's legal malpractice defense group.
In earlier articles, I wrote about the two Delaware cases filed against Pepper Hamilton in recent months. One suit by the bankruptcy trustee and another by the insurer of Pepper Hamilton's former client, the Student Finance Corp., contend that Pepper Hamilton lawyers contributed to Student Finance's bankruptcy and its alleged corporate practice of disguising faulty loans.
But the fallout goes beyond some of the biggest headlines. Recently, three major law firms, Sidley Austin Brown & Wood; Pepper Hamilton; and Gunster, Yoakley & Stewart have each been hit by suits with claims that top $100 million. I called for comments, but each firm declined. (I'm kidding, I didn't really call for comments.)
Other firms have seen eight-figure jury verdicts. Just this February, a Texas court ordered Baker Botts, along with co-defendant Wells Fargo & Co., which served as executor of an estate, to pay $71 million to the trust of a widow for breach of fiduciary duty while planning her husband's estate. Further, last month, Seyfarth Shaw got popped by a Los Angeles jury with more than $35 million in claims and punitive damages for mishandling a lawsuit for one-time client and Tae Bo creator Billy Blanks. Now how in the world did they screw over a cultural icon like Billy Blanks? Billy, next time you need representation, call me.
Back in the 1980's, O'Melveny & Myers got slammed with numerous lawsuits after the savings and loan scandals. Nevertheless, O'Melveny rebounded with flying colors and is now one of the top global law firms. I wonder what is going to happen to all the law firms that helped destroy companies such as New Century Financial, NovaStar, Accredited Home Lenders, IndyMac Bancorp, etc.? I predict the lawsuits will begin to fly shortly. Why? Because, all it takes is a few hundred thousand dollars and you can get a white shoe firm to bless your transaction. I wonder how the shareholders of New Century, NovaStar, Accredited, etc. feel about that now?
While most legal malpractice cases are handled by firms like Heygood, Orr, Reyes & Bartolomei, even some white shoe firms are getting in on the act. Indeed, how's this for a tittie twister? Hunton & Williams, is representing Earthlink Inc. in a $1 million legal malpractice case against Powell Goldstein in Atlanta. Of course, not to be outdone, Powell Goldstein has countersued Hunton & Williams, alleging conflict of interest because Hunton & Williams was Earthlink's general counsel and, Powell Goldstein claims, was itself responsible for the legal mistake that cost Earthlink $1 million. Here's the real doozy: Hunton & Williams just picked up 94 lawyers from the now defunct Jenkens & Gilchrist to expand their Dallas office. Yes, the same Jenkens & Gilchrist that imploded because of legal malpractice and for participating in tax fraud!
For the record, I know many Jenkens (now Hunton & Williams) lawyers and they are good lawyers. Heck, my best friend from law school, Edmund Sim is a partner in Hunton's Singapore office. I would be remiss to also mention that he is one of the smartest men I've ever met. How I talked him into being my moot court partner in law school, I'll never know.
©2007 Angel Reyes
www.ReyesLaw.com
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