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When Outside Counsel Drops the Ball and Blames You
From the Experts
George W. Spellmire, Corporate Counsel
May 1, 2014 |0 Comments
In the last 30 years of my practice, I have seen a recurring and troubling pattern in the way legal malpractice cases are litigated. I recently represented a medical corporation in a suit against its former outside law firm for damages stemming from a verdict rendered in excess of its liability coverage in a medical malpractice lawsuit. We alleged that the defense firm, retained by the insurance company, preferred the interests of the insurance company over the interests of the medical corporation, proximately causing a significant excess verdict.
In response to the complaint, the defendant law firm filed a third-party action against the corporation’s president for contribution, alleging that the president’s actions substantially contributed to the plaintiff corporation’s injuries. Despite the fact that the president was a licensed attorney, the president had been out of practice for years while working for the medical corporation. Furthermore, the president had only practiced in the realms of corporate and M&A work, never practicing litigation and certainly never defending medical malpractice lawsuits. Thus, she relied on the litigation expertise of outside defense counsel. Nonetheless, the second it became clear mistakes were made, former defense counsel was quick to blame her for their own ineptitude.
These increasingly common situations often involve the complexities of the “tripartite relationship” between the law firm, the insurer and the insured. When interests diverge in the underlying matter, the conduct of the parties later becomes an issue in malpractice actions, at which juncture fingers are pointed and the blame game ensues. Inevitably, as in the example above, the defendant law firm will file third-party actions for contribution against the general counsel or other high-level corporate officers. These actions, however, are improper and are used both to embarrass the general counsel in their professional roles and as a litigation tactic to apply pressure to the plaintiff.
These forms of third-party contribution actions are improper for many reasons. One, the general counsel (or any corporate officer) is not a third party at all, but rather an agent of the plaintiff. The basic principles of agency render these third-party actions inappropriate, given the general counsel’s acts or omissions in the scope of their employment are imputed to the employer. There is simply no need for the defendants to bring a third-party action seeking contribution by plaintiff’s individual agents for their “share” of plaintiff’s damages, because the affirmative defenses and doctrine of comparative fault already apportion any fault attributable to the plaintiffs themselves.
In Gabriel Capital v. Natwest Finance, an investment company that had invested in a steel mill sued the underwriters for fraud in violation of Sec. 10(b)(5) of the Securities Exchange Act of 1934. The defendant underwriters in turn filed a third-party action against certain executives in the investment company for contribution, alleging that the executives were negligent in exercising their due diligence, and therefore partially at fault for the fraud. The court dismissed the third-party action against plaintiffs, finding that “no authority has been found or cited permitting a contribution claim against a plaintiff’s agent where that claim is identical to defendant’s affirmative defense.” In further support, the court cited New York Islanders Hockey Club, LLP v. Comerica Bank-Texas andConnell v. Breed, Abbott & Morgan. Other progeny demonstrates that courts have repeatedly thrown out claims for contribution based on negligent conduct of agents in which the counterclaim is identical to the defendant’s affirmative defenses.
These third-party contribution claims also cause unnecessary juror confusion and essentially give defendants a chance to argue their comparative fault defense twice: once as comparative fault and again as a claim for contribution. When contribution claims and affirmative defenses are premised on the same arguments, laws and facts, it follows that requiring a jury to consider these arguments separately would cause confusion, complicate presentation of evidence and muddle the jury instructions. See Gibson v. Hickman. Applying an analogous doctrine, courts have previously dismissed various claims as duplicative because they “simply recast contractual claims as negligence counts.” For these reasons alone, these types of third-party actions are improper and highly prejudicial to the plaintiff’s case.
Finally, the general counsel role is unique in that it requires its practitioners to straddle the business and legal worlds. Outsourcing matters to outside counsel is a central and essential aspect of their jobs. The knowledge of general counsel is broad but shallow; this is precisely why they hire outside counsel who have knowledge that is narrow but deep. Therefore, when they hire outside counsel specifically for their superior expert knowledge on a particular legal matter, they are entitled to rely on that expertise. In Cicorelli v. Capobianco, the court found that the plaintiffs, who were sophisticated real estate developers were not contributorily negligent in a real estate transaction, because they hired the defendant to represent them based specifically on his superior knowledge of the legal issues involved.
Relying in part on Cicorelli, another court held in TCW. v. Fox Horan & Camerini that a sophisticated lawyer, but one who had no expertise in the area in question, was not contributorily negligent in relying on a hired lawyer’s expertise in that particular area. Therefore, in situations where general counsel rely on the specific expertise of their outside counsel in the strategic analysis of litigation, they are entitled to rely on that expertise. When something later goes awry, third-party actions against the general counsel for contribution are improper for this reason as well.
The defendants know these basic legal concepts that I’ve discussed, but often they proceed with these actions to embarrass the general counsel in their professional roles, and to harass the party at the corporation with whom they had a previous relationship. These actions must immediately be moved for dismissal to prevent such tactics from taking hold in complex litigation.
George W. Spellmire is a professional liability trial lawyer with over 35 years of experience in representing both corporations and individuals. He has been recognized by The National Law Journal as one of the most prominent professional malpractice lawyers in the United States, and is a Fellow of the American College of Trial Lawyers
Filed Under: Insurance Law
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