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$100 Million Legal Malpractice Verdict Provides Lessons for Litigators

By Sherry L. Talton, Litigation News Associate Editor – March 10, 2011

Late last year, a Mississippi jury awarded verdicts [PDF] totaling over $100 million against a leading law firm for legal malpractice. Recently, the trial judge awarded [PDF] over [PDF] $12.5 million in attorney fees and costs to the plaintiffs based on a punitive damage component of the verdict. The verdict suggests that juries are becoming especially critical when a lawyer is alleged to have represented multiple clients in the same transaction or litigation.

A Dispute Between Founders
The plaintiffs claimed that the law firm, and a senior lawyer at the firm, represented both sides to a transaction and took actions that were detrimental to the plaintiffs. Their complaint alleged that the individual plaintiff, Evans, and another individual, Cagle, who was not a party to the case, founded a company to operate an oil rig. Cagle was a former client of the law firm. The law firm was allegedly retained by Evans and Cagle to prepare documents to form the new company. Evans asserted that the law firm helped Cagle use funds and assets belonging to Evans and the new company to Cagle’s personal benefit. Evans also alleged that Cagle used the law firm to hide those transactions from Evans.

The two-week trial in the case focused on whether the law firm or its senior lawyer had an attorney-client relationship with Evans. Evans alleged that an attorney-client relationship existed because of an engagement letter, some evidence of payment by him to the law firm, the law firm’s failure to terminate the engagement, and other indicia of representation. According to post-trial motions, the law firm and the senior lawyer argued at trial that they did not represent Evans individually and had previously advised him that they did not represent him.

Lessons for All Lawyers
Thomas G. Wilkinson, Jr., Philadelphia, cochair of the Conflicts of Interest Subcommittee of the ABA Section of Litigation’s Ethics and Professionalism Committee, says that this case provides some valuable teaching points. He explains the case primarily involved ABA Model Rules of Professional Conduct 1.7(b), which requires informed written consent to a conflict where multiple clients are involved. He notes that the comments [29]–[33] dealing with common representation are instructive.

Wilkinson says that this case demonstrates how Rule 1.7 can be particularly tricky in the transactional context. "It can be difficult for a lawyer requested to draft transactional documents to step back and consider whether the practical impact of the deal will negatively impact another corporate or individual client. If so, that client should be consulted and informed consent secured or the client should be urged to secure independent counsel to ensure that her rights are adequately protected."

There are practical tips a lawyer who wishes to prevent conflicts between multiple clients should consider, notes Lawrence J. Fox, Philadelphia, past chair of the ABA Standing Committee on Ethics and Professional Responsibility and former member of the Ethics 2000 Commission. First, "lawyers must watch out for accidental clients,” he cautions. “The key is to make it clear who you represent and tell anyone else to get independent counsel. Also, it is important to make the scope of any limited representation clear and get waivers of conflicts of interest. ‘Accidental clients’ often end up being officers or founders of companies," Fox explains. It may be “natural” for entrepreneurs, especially in small closely held companies, to view themselves as “the company.”

Second, Fox suggests that, any time a firm engages in a limited representation, it should make sure that the scope of that representation is clear and get a waiver of conflicts of interest. Third, "anytime there is even a hint that the client thinks there is an attorney-client relationship, the lawyer is well-advised to address the question head-on." Ultimately, the best advice Fox says he can give is: "Law firms don't want to risk going to a jury on these issues, so they must document everything."

"Lawyers are under attack, there is no doubt about it," says Fox. "The fact that this case exists gives us some real lessons."

Keywords: litigation, ethics, malpractice


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