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Professional Liability Update: The Long Good Bye -- This Tail Is No Mystery
By Allen L. Michel
Business litigation is often resolved by one party's agreeing to make payments to the other party over a period of months or years. Such settlements are sometimes secured by stipulated judgments, and are usually subject to summary enforcement by the court.
As commonplace as case resolutions like this may be, few lawyers appreciate the risks presented by them. After the settlement agreement is signed and exchanged, and the court is notified of the settlement, and the initial cash payment is delivered, is the lawyer's retention concluded? May the lawyer for the party making monthly payments safely close her file and put it in storage? Or will the lawyer's ongoing duty grow a "tail" that extends for years the lawyer's exposure to a suit for malpractice?
LaClette v. Galindo
The recent unanimous decision in LaClette v. Galindo (2010 DJDAR 7177, 2010 Cal. App. Lexis 687) illustrates the peril facing a lawyer who fails to attend to basic housekeeping matters at the end of a case, such as substituting out as counsel of record and stating clearly in writing that the engagement is concluded. LaClette is a California legal malpractice case in which the client sued her former counsel more than two years after agreeing to a settlement that required her to make monthly payments totaling $175,000. After paying close to $100,000, the client concluded that her lawyer's handling of her case, and especially its settlement, was below the standard of care.
Ms. LaClette and her employer, Elite, a real estate brokerage, had been sued by their client, a purchaser of real property, who decided against an inspection based on LaClette's assurances that, since there were no problems at the property, an inspection was unnecessary. When defects were subsequently discovered, the buyer sued the brokers for breach of fiduciary duties.
On the day of trial, a settlement was reached that called for LaClette to pay $25,000 to the plaintiff, with Elite paying a like amount. The defective property was to be sold; Elite agreed to act as a broker and to waive commission on the new sale. However, the settlement was later set aside when the trial court determined that the value of the property was too low to allow the plaintiff to achieve her settlement goal of selling the property and thereby recouping the balance of her loss.
The case against LaClette and Elite was thereupon tried to an adverse verdict. Before the punitive damage issue was put to the jury, the parties reached a new settlement. Elite and LaClette agreed to pay $350,000 to the plaintiff, one-half each. LaClette's share was to be paid in monthly installments of $3,500, so her financial obligation stretched out more than four years. The case was not dismissed, and LaClette's lawyers remained counsel of record for both her and Elite.
When LaClette finally sued her lawyers for malpractice after two years of making payments, they argued that the quiet passage of time was objective evidence that there was no continuing representation that would toll the statute of limitation (C.C.P. § 340.6). They emphasized that no legal work had been done or required, and there had been no communication between them and their client for over two years.
Although the trial court agreed that the malpractice suit was time-barred, and granted summary judgment, the court of appeal reversed. It noted the "ongoing counsel of record" issue, and observed that any problems relating to the settlement were reserved for the underlying trial judge to resolve, so there was a triable issue of fact whether to credit LaClette's assertion that she reasonably assumed her trial counsel continued to represent her. Thus, the long-term payout aspect of the settlement added a tail to the representation, which in turn prevented the one-year statute of limitations from barring the malpractice claim.
Discussion
One of the easiest ways to prevent malpractice claims is to clearly state at the outset, in writing, the agreed scope of retention. Engagement letters that succinctly identify the lawyer's task-and that expressly identify issues or matters outside the scope of retention-put the lawyer and the client on the same page and can also help the lawyer stay on task.
Of course, in many cases the client's goals change. In LaClette, the outcome of litigation-always unpredictable in the best of circumstances-required a modification or clarification of the scope of retention. LaClette's counsel could have been more attentive to the need to clarify that, since all that was left to do was the payment by the client of monthly obligations, the firm's retention was concluded. LaClette could have been substituted in pro per as a matter of formality and to prevent more legal fees from accruing.
At the conclusion of every case, a lawyer following best practices will send the client a clear written statement that the retention has come to an end. This is particularly appropriate where the client does not have a pre-existing relationship with the lawyer on other matters, and where there is no known task facing counsel that might fall close to the initial scope of retention.
A well-written "good bye" letter need not be cold or impersonal. It might accompany a final bill; it might clarify file-retention expectations, or state who will retain the "original" version of settlement agreements. In the appropriate case it might even express regret about a disappointing outcome.
But such a letter is important not only because it prevents confusion about who is or will be doing what, but because it may be the only document that confirms the end of the "continuing representation" that would otherwise toll the client's one year deadline to sue for malpractice.
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