A Lawyer’s Worst Nightmare: The High Stakes Claim Against Counsel

The incidence and severity of claims against counsel is steadily increasing. Insurance carriers report that larger reserve claims are becoming more common. Four out of eight carriers reported recently paying a settlement or judgment in excess of $100 million.

At the Spring 2015 National Legal Malpractice Conference, held April 8-10 in Washington, D.C. by the ABA Standing Committee on Lawyers’ Professional Liability, Sig Wissner-Gross of Brown Rudnick LLP in New York explained that transaction size is increasing and, as a result, failed transactions are becoming bigger every day. “Billion-dollar transactions and frauds are not unusual,” he said.

According to Wissner-Gross, claims against counsel can be “split into pre-Madoff and post-Madoff” time frames. To prevent claims, firms need to establish systems to monitor and rein in rogue partners. After a transaction fails or fraud is uncovered, partners and scammers disappear, leaving the law firm to answer to angry investors. Those investors look more and more to the attorneys and their insurance as the available deep pockets. The unrelenting pressure to generate revenue has led firms to accept clients of dubious character, which can result in more risk and more claims.

Fellow speaker Roy Reardon, of Simpson Thacher & Bartlett LLP in New York, agreed that plaintiffs will put the biggest number they can on the suit to generate publicity.

Hot Spots

The increase in both claims and severity will continue for a few reasons. First, plaintiffs’ counsel are highly skilled and generally working on contingent fee agreements. As a result, they will be vigorous and persistent. Second, publicity is disturbing to firms, which plaintiffs’ counsel know and use to their benefit. The press finds lawyer liability cases more interesting now than in years past.

Reardon said he foresees increases in claims in a number of areas:

• cybersecurity breaches and other claims related to confidential information;
• lateral hiring and law firm mergers;
• receivership and bankruptcy;
• conflicts of interest; and
• board service.

In many bankruptcies or receiverships, the lawyers and firms are considered the only deep pockets left. Conflict of interest claims are scary claims to defend, and so should be avoided if at all possible. Every firm should have staff devoted to finding and addressing conflicts.

According to Reardon, the days of institutional law firms—where one firm does all the legal work for a particular client—are gone, mainly because of cost. The splintered relationships result in less loyalty and make claims more likely.

His best advice to defendants: when you get a serious case, hire a lawyer who will take it to verdict, if that’s what the case requires. Plaintiffs’ lawyers don’t make as much money trying cases, and they prefer to settle if possible. Trial is all consuming and prevents other money-making work.

Media Attention

Zoe Tillman, a reporter for the National Law Journal, shared her thoughts on high stakes, high publicity claims. Legal publications are written for the legal community, and so more time and space is spent on these sorts of claims.

Where a firm is a large part of its home community, the story may become national. The media pay close attention to developments in case law. In addition, the media are interested in what they can learn about law firms (traditionally private organizations) through the claims made and the litigation process.

Of course, good stories and big names draw attention, as well as the size of the claim and the relation of the claim or the players to other news of the day.

Don’t Say Nothing

The panelists also addressed how a law firm should handle media interest in a case against it. Media coverage is a constant irritant and can affect client relations. As a result, there’s a risk to saying “no comment”: you’ll end up with the media’s view of the case as influenced by the plaintiff’s lawyer. A statement to the media is delivered as much to the defendant firm’s partners as it is to the public.

According to Reardon, “no comment” is a strategy that should be rarely employed. To the extent there’s a nugget you don’t want the media to miss, you should speak up. It’s important to prepare a statement ahead of time and designate a single contact person to avoid muddling the message.

‘Trust but Verify’

Wissner-Gross encouraged lawyers to “trust but verify” their clients and potential conflicts. A rigorous conflicts process should be employed despite the huge pressure to generate revenue. By not taking a case or a transactional matter, a potential problem can be avoided completely.

Reardon advised knowing your client through relationship building and a healthy investigation. Tillman reminded that once a case is in court, everything is public knowledge. People are watching, and they know what’s happening, so be prepared to answer knowledgeable questions and provide substance.