Michigan Retroactively Applies Legal Malpractice Six Year Repose Statute to Bar Claims Arising Prior to Enactment of Statute

Phil SeltzerNortley v. Hurst, — Mich App —-; — N.W.2d —- (2017)(Michigan Court of Appeals, issued October 10, 2017, Docket #333240)(2017 WL 4526679)

Phillip E. Seltzer, Esq. of Lipson Neilson P.C., Bloomfield Hills, Michigan
Email: PSeltzer@lipsonneilson.com
Phone: 248-593-5000

In Nortley v. Hurst, the Michigan Court of Appeals held that Michigan’s six-year repose statute for legal malpractice claims applies retroactively to include claims based on facts that occurred prior to enactment and that may not have accrued until after enactment. This is true regardless of whether a plaintiff could not have reasonably discovered the legal malpractice claim or the existence of injury until a time after the enactment of the repose statute.

Plaintiff, Sarah Lynn Nortley, retained Dennis Hurst, of the law firm Dennis Hurst & Associates, in August 2008 to represent her in a divorce proceeding. A judgment of divorce as entered on June 12, 2009 – just 11 days before the tenth anniversary of the marriage. Plaintiff claimed that over 6 years later, after a conversation with her mother, she discovered a person could claim social security benefits through a former spouse if the marriage lasted ten years or more.

Nortley brought a legal malpractice claim against defendants on January 15, 2016, asserting that the failure of defendants to advise her that social security benefits were only available to a former spouse if the marriage lasted ten years or more.

On January 2, 2013 — three and half years after Nortely’s divorce was concluded and over three years before Nortley filed her malpractice claim, the Michigan legislature adopted a six-year statute of repose for all legal malpractice claims. MCL 600.5838b.

Defendants file a dispositive motion seeking summary dismissal under the six-year statute of repose claiming that it barred her claim. The trial court agreed. Nortley appealed claiming the trial court wrongly applied that repose statute because it went into effect after her claim accrued and it did not apply retroactively, would deny her due process, and would deny her a vested right in her cause of action for malpractice.

The Michigan Court of Appeals Decision
In affirming, the Court of Appeals noted that the statute of repose “reflects the reasonable legislative purpose of protecting professionals from stale claims.” “Generally, a new or amended statute applies prospectively unless the Legislature clearly and unequivocally intends for the statute to have retroactive effect.” However, an exception to the general rule presuming prospective application is a statute that is remedial or procedural in nature and whose prospective application will not deny vested rights.

Nortley contended the repose statute should not apply retroactively to bar her malpractice claim because the Legislature enacted it after her claim accrued and did not provide for retroactive application. Nortley argued her malpractice complaint was timely because she filed it within six months of discovering the existence of the malpractice claim, per the statute of limitations in Michigan. Under the limitation statutes, a person can timely file a suit either within two years from accrual of the claim – namely, from the last day the lawyer stops serving the plaintiff in a professional capacity on the matter giving rise to the claim (MCL 600.5805[1] and [6]) or within six months of when a plaintiff discovered or should have discovered the claim, whichever period is later. MCL 600.5838(2).

However, under the six-year repose statute, MCL 600.5838b(1)(b), accrual is not linked to a date of injury or its discovery but, instead, precludes any recovery after a fixed period of time, namely, it bars a legal malpractice claim “six years after the date of the act or omission that is the basis for the claim.”

The Court of Appeals rejected the argument that retroactive application would deny Nortley a “vested right.” The new repose statute did not prevent the filing of a timely claim because of an immediate preclusive effect. Nortley’s malpractice claim accrued after entry of her divorce judgment in 2009. When the repose statute took effect in 2013, she had more than two years to bring a timely claim within the six-year repose period.

The Court also rejected the argument that Nortley’s subsequent discovery of the malpractice claim should change the result. Noting that a statute of limitation bars a claim after it accrues, a repose statute bars a claim after expiration of a specified time period from a designated triggering event – in this instance, the defendant’s negligent act or omission. Accordingly, it may prevent a claim from accruing even if the injury or its discovery happens after the statutory period has expired. In sum, the repose statute “makes clear that the six-year period of repose caps the time for bringing a claim within six months of discovery.”

Finally, the Court rejected Nortley’s due process claim, noting a statute comports with due process if it “bears a reasonable relation to a permissible legislative objective.” Because the repose statute “reflects the reasonable legislative purpose of protecting professionals from stale claims” and its enactment did not have an immediate preclusive effect on Nortley’s claim, no due process violation occurred.

Significance of Decision
The case is significant for lawyer defendants sued for conduct springing from any alleged negligent act or omission over six years from the alleged negligence – regardless of whether that negligence occurred before the enactment of the repose statute. By their very nature, statutes of limitation and statutes of repose are arbitrary and do not discriminate between the just and unjust claim or the avoidable and unavoidable delay.

However, they all recognize the basic notion that a defendant has the right to be free, at some point, from stale claims and the increasing jeopardy of fading memories and lost evidence. Repose statutes attempt to cap or otherwise set the outside time parameter when such claims are deemed expired regardless of knowledge of a claim or the existence of injury.

Summary Dismissal Affirmed In Legal Malpractice Case Where Plaintiff Failed To Show That “Pertinent Decision Makers” Of Government Agency “Would Have” Agreed To A “Better Result” But For The Alleged Incorrect Legal Advice Given By Lawyer During Settlement Negotiations

Phil SeltzerManveen Saluja, M.D. v Honigman Miller Schwartz And Cohn LLP, et al, Unpublished Per Curiam Opinion of the Michigan Court of Appeals, issued March 16, 2017 (Docket No.330367)

Phillip E. Seltzer, Esq. of Lipson Neilson P.C., Bloomfield Hills, Michigan
Contact: PSeltzer@lipsonneilson.com
Phone: 248-593-5000

In Manveen Saluja, M.D. v Honigman Miller Schwartz And Cohn LLP, et al, the Michigan Court of Appeals concluded that in a non-litigation context, where a lawyer’s alleged negligent advice led to an inappropriate settlement with a government regulatory agency, it is still necessary for a plaintiff-client to prove causation by demonstrating a “better outcome” “would have” occurred but for the negligence of the attorney.

Plaintiff doctor had a colleague (Dr. Kumar) who requested medical treatment for her mother (“M”), an elderly woman who lived in India. Plaintiff wrote prescriptions for fentanyl, a schedule II controlled substance, for M, knowing Dr. Kumar would obtain and deliver the drugs to India for his mother. During a six-year period, over 285 fentanyl patches were prescribed.

In 2012, Plaintiff received a call that DEA agents were at her office investigating. Plaintiff called Defendant law firm and talked with Defendant attorney Sprecher. After Sprecher briefly talked with a DEA agent, plaintiff was advised by Sprecher to comply with the investigation. After reviewing M’s file, a DEA agent explained in “an intimidating manner” that a $5,000 fine plus jail time exists for the offense. Plaintiff was then handed a form to sign, allegedly being told to sign it or go to jail. Plaintiff did not call Defendants. After signing the form, Plaintiff voluntarley surrendered her controlled substances privileges and had to surrender her DEA Certificate of Registration. Days later, local DEA offered to partially reinstate plaintiff’s privileges, but restricting her right to order certain controlled substances for three years. Her new lawyer (not Defendants) negotiated the restriction down to two years. A dissatisfied plaintiff contacted the DEA office in Washington D.C. Consequently, the local DEA withdrew the two year deal, but her new counsel later reinstated the three year restriction.

Plaintiff filed a legal malpractice suit, asserting defendants should have advised her she was not required to sit for the DEA interview and she should not have signed a voluntary release of her DEA privileges – the key bargaining chip needed to strike a better deal and achieve a better outcome that what was obtained.

Defendants moved for summary dismissal on the issue of causation. Defendants argued plaintiff could not offer evidence showing the actual negotiated outcome “would have” been “better” had plaintiff been given the purported correct advice. The motion was granted and the case summarily dismissed.

The Michigan Court of Appeals Decision
In affirming, the Saluja panel recognized the requirement of establishing a “suit with a suit” to show causation in legal malpractice — that is, that a plaintiff “would have been successful in the underlying suit.” However, because of no underlying litigation, the court applied an analogous rule: “plaintiff had to offer evidence that but for the malpractice, she would have received a better outcome than the one she received from the DEA”.

Plaintiff primarily relied upon expert testimony to establish causation. The expert testified at deposition if attorney Sprecher had provided “competent advice” – postponing the interview with DEA agents to allow an attorney to be present – “plaintiff never would have voluntarily surrendered her DEA registration.” Possessing the registration “was crucial” because “the registration represented a bargaining . . . ‘chip.’” By retaining that “chip,” there was a “good chance” plaintiff “would have kept her registration intact” instead of receiving a three-year restricted license on her ability to prescribe controlled substances. The expert stated that “good chance” meant “more probably than not and to a legal degree of certainty.”

However, the Saluja panel ruled the trial court correctly held the expert’s “testimony was inadequate to prove causation because it was too speculative.” Even though the expert “opined at . . . that plaintiff would have gotten through this encounter with the DEA with her license fully intact, he admitted, ‘I don’t know that [for sure].’” It was also “telling” he could not “specifically identify what plaintiff’s outcome with the DEA would have been” had attorney Sprecher given plaintiff the alleged proper advice. In particular, the court noted plaintiff failed to present testimony from any “pertinent decision makers” at the DEA to show how negotiations “would have been different had plaintiff not initially voluntarily surrendered her registration.” Accordingly, the expert’s “mere opinion that the outcome would have been different, without any supporting evidence, amounts to nothing more than mere conjecture and speculation” — inadequate to show causation.

In so ruling, the Saluja panel principally relied on another legal malpractice case, Pontiac School Dist v Miller, Canfield, Paddock & Stone, 221 Mich App 602; 563 NW2d 693 (1998), where the “suit within a suit” concept was not applied because of the non-litigation nature of the asserted malpractice. In Pontiac, plaintiff sued its attorneys for recommending a bond offering that allegedly required payment of excessive interest and insurance costs. Expert testimony posited the view that an alternative bond structure would have saved over forty-nine million dollars and, further, if the proper advice had been rendered, “a reasonably informed board of education would have adopted” the alternative proposal. However, no evidence was presented that the decision-makers — the board members — “would have” accepted the alternative proposal if the advice had been given, thereby making the expert’s opinion speculative.

Likewise, the Saluja court determined that, absent testimony from the “pertinent decision-makers” from the DEA showing what they “would have” decided if the supposed proper advice had been rendered, the expert’s subjective belief on this point was nothing more than conjecture on a possible outcome. Accordingly, summary dismissal by the trial court was affirmed.

Significance of Decision
The case is significant for lawyer defendants sued for conduct springing from a non-litigation negotiation/settlement/transactional context. Although the “suit within a suit” concept may not directly apply, a plaintiff is not relieved from the burden to establish that a defendant attorney’s actions were the necessary factual cause of an injury and that actual damages resulted from those actions — namely, that but for the conduct of the attorney, plaintiff “would have” obtained a “better” outcome. Saluja requires that, in non-litigation circumstances, a plaintiff must show the “pertinent decision-makers” on the other side of the negotiation/settlement/ transaction “would have” agreed to the “better outcome” if the proper advice by the attorney had occurred.

Without showing the difference between the negotiation position truly lost (the “better outcome” that “would have” been accepted) and the position a plaintiff actually obtained, any claim of a causal link to actual damages should be considered speculative. The case also demonstrates that expert testimony, discussing probable or likely outcomes, without a factual basis of what “would have” occurred, is legally insufficient to show causation and will be considered conjecture.

Joseph Garin, Jessica Green and Megan Hummel Named 2018 Mountain States Super Lawyers

Garin Green Hummel 2018Lipson Neilson is proud to announce that attorneys Joseph Garin, Jessica Green and Megan Hummel have been named 2018 Mountain States Super Lawyers. This is Joseph Garin’s 12th consecutive year on the Super Lawyers list. Selected as Rising Stars, this is Jessica Green’s 5th consecutive year and Megan Hummel’s 1st year on this list. Rising Stars must be either 40 years old or younger or in practice for 10 years or less; no more than 2.5% of lawyers in the region are named to the Rising Stars list.

Joseph Garin, the Managing Partner of Lipson Neilson’s Las Vegas office, was selected as a Super Lawyer based on his work in the Professional Liability, Nonprofit Organizations, Real Estate, Insurance Coverage, Employment Litigation, and Business Litigation practice areas. Mr. Garin is consulted nationally on the defense of professional liability claims, ethics, employment, insurance coverage disputes, director and officer claims, and risk management. He is the former Chair and current member of the Standing Committee on Ethics and Professional Responsibility to the Nevada State Bar; and a member of the Professional Liability Advisory Board for the national Claims & Litigation Management Alliance (CLM). Comprised of industry leaders from across the United States, this Board guides the development of extensive professional liability resources.

Jessica Green, an Associate in the firm’s Las Vegas office, was named a Rising Star based on her work in the Professional Liability, Employment & Labor, and Business Litigation practice areas. Ms. Green has defended many lawyers and law firms throughout the country during her career and is recognized as an emerging leader in Errors and Omissions (E&O), Employment law, and Insurance Coverage law. She has been a featured speaker at Professional Liability industry conferences.

Megan Hummel, an Associate in the firm’s Las Vegas office, was named a Rising Star based on her work in the Insurance Coverage practice area. Ms. Hummel’s practice is focused on insurance defense, commercial litigation, and appellate law. She speaks fluent Italian and is a member of the National Asian Pacific American Bar Association.

Thomson Reuters, the world’s leading source of information for the legal industry, uses a patented multiphase selection process to identify attorneys for its exclusive lists of Super Lawyers and Rising Stars. This process includes peer nominations, evaluations and independent research.

Founded in 1985, the Lipson Neilson law firm has offices in Las Vegas (NV), Phoenix (AZ) and Bloomfield Hills (MI). The firm is widely known for its excellence in the professional liability lines, offering invaluable insight and experience to its clients across all industries. The firm represents clients in Nevada, across the USA, and around the world.

Contact: Joseph Garin

Legal Malpractice Summary Dismissal Victory by Phillip E. Seltzer and Samantha Heraud

Phil and Samantha 2017As their initial response to a Legal Malpractice Complaint, the Lipson Neilson team of Phillip E. Seltzer and Samantha Heraud challenged the timeliness of the lawsuit under the applicable statute of limitations, after plaintiff terminated a Tolling Agreement. Plaintiff entered into a consent judgment of divorce, which contained a forfeiture provision that allowed for the complete forfeiture of any asset not disclosed at the time of the entry of the judgment.

Plaintiff failed to disclose his ownership and beneficiary status of a 1.5 Million Dollar life insurance policy on his sibling, who died six weeks before the entry of Judgment. Plaintiff’s ex-wife filed a post-judgment motion to enforce the forfeiture clause and obtain the proceeds. Plaintiff then sued his divorce lawyer for including the forfeiture clause in the Consent Judgment. While the underlying litigation over the forfeiture clause played out over the next two years, plaintiff and his prior lawyer (represented by the Lipson, Neilson team) negotiated a limited Tolling Agreement.

A key provision of the Agreement limited the tolling of the legal malpractice claims to those “as currently alleged” in the filed Complaint. It also expressly prohibited the filing of any new claim during the duration of the Tolling Agreement, unless the Agreement was cancelled by providing a thirty-day notice. The Agreement also confirmed that other claims or defenses were not waived or diminished by the agreement.

After plaintiff lost the forfeiture battle to retain the life insurance proceeds, he cancelled the Tolling Agreement. Under Michigan’s two-year statute of limitations, plaintiff only had three untolled days to file a timely complaint, once the 30-day termination notice period expired. Plaintiff’s new counsel eventually filed a new Complaint, but did so five days after the untolled time expired. The new Complaint also contained brand new claims of legal malpractice and new claims of breach of fiduciary duty (which has a longer statute of limitations).

The Lipson Neilson team filed a Summary Disposition motion in response to the Complaint. The Trial Court granted the motion and dismissed the new Complaint with prejudice, based on three findings:

    1. All claims were time barred under Michigan’s two-year statute of limitations, which started accruing from the date the lawyer discontinued serving the client regarding the matter out of which the alleged malpractice arose. In this case, discontinuance occurred on the date the matter was completed via entry of the Consent Judgment, even though additional communications between Plaintiff and the lawyer continued for months concerning the prior completed divorce matter;
    2. The new legal malpractice claims that were added, beyond the original claim, were independently time barred because they were not tolled under the terms of the Tolling Agreement and plaintiff could have cancelled at any time to timely bring those claims and did not; and
    3. The new Breach of Fiduciary Duty claim was also never tolled under the limited terms of the Tolling Agreement, as was now time barred. This claim was also deemed legally redundant of and subsumed in the time barred legal malpractice claim.

This case highlights the importance of “thinking ahead” at all stages in the litigation, including during the negotiation of any pre-suit agreements.

Dax Watson Moderates Panel Discussion Titled “What’s Your Verdict? Potential Pitfalls in PL Defense” at 2017 PLUS International Conference

Dax Watson, Managing Partner of Lipson Neilson’s Phoenix office, was selected by the Professional Liability Underwriting Society (PLUS) to moderate a panel discussion titled, “What’s Your Verdict? Potential Pitfalls in PL Defense.”

The trial of a professional liability loss allows for a number of defenses, but presenting such defenses to a jury poses a number of challenges. This panel explored those challenges through a mock trial of a legal malpractice claim involving estate planning with disgruntled family members. The audience viewed evidence, heard arguments, and was asked to decide the case as if they were on the jury.

Stacked with top speakers from across the country, the 2017 PLUS Conference was a destination event for professional liability insurance professionals. Held during November 1-3, 2017 at the Marriott Marquis in Atlanta, Georgia, this year marked the 30th Anniversary for this event.

Dax Watson focuses his law practice in commercial litigation with an emphasis in real estate matters and professional liability defense. His clients include professionals in the fields of real estate, law, accounting, architecture, and engineering. He regularly appears and represents clients in regulatory matters before the Arizona Department of Real Estate and other state and federal agencies.

About Lipson Neilson
Founded in 1985, Lipson Neilson, P.C. has offices in Arizona, Nevada, and Michigan. The firm is widely known for its excellence in the professional liability lines, offering invaluable insight and experience to its clients across all industries.

Contact: Dax Watson
Phone: 602-382-1500
Email: DWatson@lipsonneilson.com

Summary Dismissal Victory Affirmed by Phillip E. Seltzer and Samantha K. Heraud In Defense of Lawyer and Law Firm on Claim of Legal Malpractice

Phil and Samantha 2017By Opinion dated October 24, 2017, the Michigan Court of Appeals recently affirmed a prior trial court victory achieved by the Lipson, Neilson team in obtaining summary dismissal of a legal malpractice claim on the ground of collateral estoppel. In this case, a former divorce Client sued his attorneys for allegedly coercing him to enter into a Consent Judgment of Divorce, which he asserted was inadequate and patently unfair. The Client had previously tried to set aside the Consent Judgment, through other counsel, based on the claim the Client had been coerced to settle. He was unsuccessful before the trial court and the Court of Appeals. The Michigan Supreme Court also denied leave, ending the post-judgment effort to set aside the divorce Consent judgement.

Afterward, the client filed his legal malpractice claim against his former attorneys. Although the client alleged numerous grounds of malpractice, they were ultimately predicated upon the notion that the negligence and misconduct of the attorneys resulted in forcing and coercing the underlying Consent Judgment. However, because the Client had a full opportunity to litigate the issue of coercion, and lost on that, he was now collaterally estopped from relitigating the same issue of coercion in the legal malpractice case. The summary dismissal entered by the trial court was affirmed by a unanimous panel of the Michigan Court of Appeals.

Summary Dismissal Victory Achieved by Phillip E. Seltzer and Shawn Grinnen In Defense of Lawyer on Claim of Legal Malpractice

Phil and Shawn PhotoA first responsive motion for summary dismissal of a legal malpractice claim was recently granted in favor of a Defendant-Lawyer represented by Lipson Neilson attorneys Phillip E. Seltzer and Shawn Grinnen. The Defendant-Lawyer represented Plaintiff in a prior criminal proceeding involving his alleged failure to register as a sex offender for a prior offense and engaging in sexually abusive conduct with a minor over Facebook. After waiving the preliminary hearing and obtaining discovery, the Plaintiff decided to terminate Defendant-Lawyer and new counsel was appointed. Defendant-Lawyer formally withdrew via court order.

Over a month later, while represented by successor counsel, Plaintiff entered into a voluntary plea agreement, admitted his guilt of the criminal charges on the record, admitted to the location of the crimes, affirmed that his decision to plead guilty was voluntary and without threats or other inducements, and that he was knowingly waiving his right to trial and defend. While serving a four-year sentence, Plaintiff sued Defendant-Lawyer for malpractice, claiming that the waiver of the preliminary exam was critical since the alleged crimes occurred in a different county and no jurisdictional basis existed for his prosecution or guilty plea in the County Court where he was charged.

As an initial response to the Complaint, the Lipson Neilson team filed a motion for summary dismissal arguing that the claim of legal malpractice was barred because: (i) Plaintiff’s voluntary plea of guilty cut off all causation for Plaintiff’s injuries (wrongful incarceration and loss of business and loss of income) as a matter of law, and (ii) Plaintiffs’ statements on the record, concerning his guilt and the location of the underlying crimes, judicially estopped Plaintiff from asserting the crimes occurred elsewhere or that Defendant-Lawyer failed to raise a jurisdictional argument at the preliminary exam. Additionally, during the dismissal motion hearing, Plaintiff’s asserted for the first time that his plea agreement was not voluntary and he lied under oath because his lawyer supposedly told him to so in order to get a more lenient sentence.

As a result, the Lipson Neilson defense counsel spontaneously argued that the legal malpractice claim was also barred under the the doctrine of in pari delicto – the wrongful conduct rule – because Plaintiff’s criminal conduct in committing perjury at his plea hearing was the central cause of his incarceration and consequential damages. Accordingly, such wrongful conduct prohibited Plaintiff from pursuing any civil remedy. The Trial Court granted the motion, adopting the legal grounds presented, and summarily dismissed the case.

Phillip Seltzer and Shawn Grinnen Successfully Defend Law Firm Client Against Tortious Interference and Slander of Title Claims

Victory Achieved by Phillip E. Seltzer and Shawn Grinnen In Defense of a Law Firm Client against Tortious Interference and Slander of Title Claims

Phil and Shawn PhotoThe client-Law Firm, which specializes in representing condominium and community entities, initiated a lawsuit against a condominium developer seeking monetary and declaratory relief. The suit was based on a statute that appeared to mandate the automatic reversion of legal title of unbuilt condominium units to the Condo Owner Association if, after ten years, the Developer failed to build and complete those units per a filed Master Plan.

After a ten-year building hiatus, the Developer began undertaking the build out of three lots (out of dozens still unbuilt) and was in the process of selling one of the lots. The Law Firm, citing the statute, filed a Claim of Interest in the real estate records, on behalf of its client (the Condo Owner Association), asserting property rights in all unbuilt lots, including the three under construction.

A lawsuit followed by the client-Law Firm (on behalf of the Condo Association) against the Developer. Developer filed separate legal claims against the Law Firm claiming that its legal advice and actions constituted slander of title and tortious interference with contractual relations and interference with the economic expectancies of the Developer.

The Lipson, Neilson team argued that no improper tortious interfering conduct existed to sustain the interference claims, only lawful and professional legal advice to clients proffered in good faith to assist in protecting disputed property rights. The trial judge agreed and dismissed the interference claims, noting that the filing of a lawsuit to declare disputed property rights is the essence of proper – not tortious – conduct. The Trial Court also agreed that no slander of title claims could survive because of the lack of legal malice – namely, the law firm engaged in a good faith interpretation of a statute that had never been the subject of a legal opinion by any appellate court or the Michigan Supreme Court.

Under this circumstance, malice did not exist when the position advocated by the law firm is in good faith and posited a reasonable belief in a valid protectable property interest. The non-existence of malice was underscored by the lack of any existing legal authority to contradict the Law Firm’s reasoned belief (even if it is later determined to be legally inaccurate.)

A Bankruptcy Court Order Permitting Creditors to Pursue Legal Malpractice Claims in State Court in the Name of a Debtor’s was an Impermissible Assignment and Violates Public Policy

Joe Garin and Jessica Green 2016By Joseph P. Garin, Esq. and Jessica A. Green, Esq., of Lipson, Neilson, Cole, Seltzer & Garin, P.C., Las Vegas, Nevada; as published in the March 2017 issue of the eAdvisory published by the American Bar Association’s Standing Committee on Lawyers’ Professional Liability

In Tower Homes, LLC v. William H. Heaton, the Nevada Supreme Court concluded a bankruptcy court order permitting a group of creditors to pursue a legal malpractice claim in the debtor’s name constituted an impermissible assignment of the claim which, as a matter of public policy, is prohibited under Nevada law.

Tower Homes, LLC (“Tower”) retained attorney William Heaton to assist with a residential common ownership project. Various individual investors (hereinafter the “Purchasers”) made earnest money deposits before the project was complete and entered into contracts with Tower to reserve condominiums. The project failed and Tower entered Chapter 11 bankruptcy protection.

The Purchasers were among the many creditors in the bankruptcy proceedings. In 2008, the bankruptcy trustee created a plan of reorganization and the bankruptcy court entered a confirmation order. Per the order, the trustee and bankruptcy estate retained all legal claims. In 2010, the bankruptcy trustee entered into a stipulation and order with the Purchasers recognizing the trustee did not have sufficient funds to pursue any legal malpractice claims related to the Purchasers’ lost earnest money deposits, and instead allowed the Purchasers to pursue the claim in Tower’s name.

Pursuant to the 2010 order, in 2012, the Purchasers filed a legal malpractice lawsuit against Heaton, naming Tower as plaintiff. Dissatisfied with the Purchasers’ standing to pursue the legal malpractice claim, the state trial court allowed the Purchasers to seek an amended order from the bankruptcy court. In 2013, the bankruptcy court entered an additional order authorizing the Purchasers to pursue any and all claims on behalf of Tower (specifically including the malpractice case against Heaton) and noted that the recovery “shall be for the benefit of the [P]urchasers.”

Heaton moved for summary judgment in the district court arguing the 2013 bankruptcy stipulation and order constituted an impermissible assignment of a legal malpractice claim. The Purchasers argued federal law permits a Chapter 11 bankruptcy plan to allow named representatives of the estate to bring legal malpractice claims on behalf of the estate, with or without an assignment. The Purchasers also contended that they were assigned only the proceeds, not the entire malpractice claim. The Nevada Supreme Court previously determined that in a personal injury context, the difference between an assignment of an entire claim and an assignment of proceeds was the retention of control; reasoning that when only proceeds are assigned, the original party maintains control over the claim, but when an entire claim is assigned, a new party gains control over it. Despite these arguments, the trial court granted summary judgment in Heaton’s favor on the basis that there was an assignment of the legal malpractice claim contrary to Nevada law. The Purchasers appealed.

The Nevada Supreme Court affirmed summary judgment in favor of the attorney. In its decision, the Nevada Supreme Court reinforced the traditional notion that the assignment of legal malpractice claims is generally prohibited and “[a]s a matter of public policy, [Nevada] cannot permit enforcement of a legal malpractice action which has been transferred by assignment…but which was never pursued by the original client” as “[t]he decision to bring a malpractice action against an attorney is one peculiarly vested in the client.” The Nevada Supreme Court agreed that while a bankruptcy plan may allow an estate representative to pursue the estate’s claim without an assignment so long as the representative is prosecuting the claim “on behalf of the estate,” “[i]f a party seeks to prosecute the action on its own behalf, it must do as an assignee, not a special representative.” The Court reasoned that because the bankruptcy court’s order transferred control and proceeds of the legal malpractice claim to the Purchasers, the Purchasers were not pursuing claim on behalf of the estate as permitted by federal law, but rather pursuing it for their own benefit.

Practice Note: This decision runs contrary to recent decisions in other jurisdictions that seem to relax the standard privity requirements in legal malpractice claims and permit assignments of legal malpractice claims to non-clients in a business context.

Phillip E. Seltzer on Panel of Experts for ICLE Webinar Titled “Identify and Pursue Legal Malpractice Claims”

Phillip E. Seltzer, a Principal and Shareholder of Lipson, Neilson, Cole, Seltzer, Garin, P.C., was selected by the prestigious Institute for Continuing Legal Education (ICLE) to be on a panel of experts for a webinar titled “Identify and Pursue Legal Malpractice Claims.” Posted on ICLE.org, this webinar is available for member viewing and provides continuing legal education credits.

The overall theme of this webinar addresses identifying legal malpractice as a claim, the elements necessary to sustain such a claim, and the available defenses that may bar or defeat such an action. Topics discussed include: strategies for identifying the required elements for a potential malpractice action; the evaluation of the defenses that might bar recovery or defeat a claim; establishing or refuting the applicable standard of care with expert testimony; identifying when a conflict of interest results in divided loyalties, when such a conflict may form the basis of a claim, and the defenses to such conflict of interest claims; and distinguishing malpractice liability from a violation of professional ethical standards and if or when such standards are relevant to litigating a malpractice claim.

Phillip E. Seltzer is an AV-Preeminent® rated attorney that is recognized nationwide for his work in defending legal malpractice claims. He focuses his practice on the litigation of business torts and the defense of professional liability claims, primarily dealing with lawsuits against attorneys. Mr. Seltzer also defends professionals in other fields, including architecture and design professionals, accountants, real estate agents, insurance agencies and insurers, and E&O claims against directors, officers, and employers.

He has served as a hearing officer for the Character and Fitness Committee of the State Bar of Michigan, has published numerous articles and has publicly presented on a variety of topics regarding the defense of legal malpractice claims. He is actively involved in organizations focusing on the law governing lawyers, professional liability, and lawyers’ ethical responsibilities.

Contact: Phillip E. Seltzer
Phone: 248-593-5000
Email: PSeltzer@lipsonneilson.com