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Law firm should have paid closer attention to its responsibility to client

January 2nd, 2014  |  Ron Miller

A law firm is still on the hook for legal malpractice stemming from a memo it drafted and provided to a former employee of a client after the memo was later used against the client in litigation by that employee. In D’Andrea v Epstein, Becker, Green, Wickliff & Hall, PC, a Texas Court of Appeals found that preparation of the memo implicated the law firm’s fiduciary duty to the client and also determined that fact issues remained as to whether a reasonably prudent attorney would have foreseen that the memo would likely harm the client and whether it was foreseeable that the discharged employee would have used the memo against the client.

In 2009, an attorney for Epstein Becker spearheaded the drafting of a memo at the request of the general counsel for one of his clients. The attorney was representing the client in another, unrelated matter. A month prior to requesting the memo, the general counsel had allegedly secretly deposited over $400,000 belonging to client in an account under his sole control. The stated purpose of the memo was to apprise client’s president and board as to the company’s potential exposure arising from the alleged misconduct of the client’s owner.

While working on the memo, the firm contacted no officers or directors of client other than the general counsel and the factual basis of the opinions in the memo were based on the general counsel’s declarations. The firm did not perform an independent investigation. As work on the memo continued, the law firm received information that indicated that the general counsel would soon be fired or had been fired by the client. Nevertheless, upon completion of the memo, it was sent to the now former general counsel by way of his personal e-mail address and to the president of the client.

The client alleged that the memo “all but destroyed” the medical practice operated by the client. It sued the law firm alleging negligence, breach of fiduciary duty, intentional tort, and common law fraud. However, a trial court granted the law firm’s motion for summary judgment on all claims.

Fiduciary duty. Although the subject matter of the memo was not substantially related to the law firm’s representation of the client, preparation of that memo implicated its fiduciary duty to the medical practice, ruled the appeals court. The fact that the bankruptcy litigation for which the attorney was retained and the memo were unrelated did not establish that the firm’s work on the memo did not breach its duties arising from the bankruptcy matter. Moreover, whether a conflict of interest existed could not be decided as a matter of law. A violation of state disciplinary rules of professional conduct was not necessary to show that the firm could be held liable for breach of fiduciary duty. At any rate, official comments found in the disciplinary rules indicated that the propriety of representation could depend on the nature of the litigation and, the appeals court determined, preparation of this memo fell into the “high-conflict part of this spectrum.”

Foreseeability. The appeals court next determined that the trial court erred in concluding, as a matter of law, that the law firm’s malpractice and fiduciary duty did not proximately cause the client’s harm and that the evidence conclusively established that such use of the memo was not a foreseeable result. First, the client had presented evidence that preparing a written investigation report could breach the standard of care because it was foreseeable that such a document would become public. It also presented evidence indicating that such reports carry a high risk of creating confusion and credibility issues and also run risks of potential unfairness. Lawyers should consider carefully whether to what opinions to reduce to writing during internal investigations because written opinions could be harmful. This was supported by an email from one of the law firm’s associates who suggested that the firm conduct a more formal inquiry. The appeals court therefore determined that summary judgment was inappropriate because there were fact issues regarding whether a reasonably prudent attorney would have foreseen that harm to the client that likely would result from a written memo, whether that attorney would have produced the memo and what steps he would have taken before doing so.

Employee’s use of the memo. Second, there was evidence of indications to the law firm the general counsel was considering litigation, which raised a fact issue regarding whether the general counsel’s actions were foreseeable. Here, the client presented evidence that the general counsel’s use of the memo was foreseeable by the law firm, where the attorney working on the memo had previously looked into getting him a job at the firm and that he had referred the general counsel to a plaintiff’s attorney certified in labor and employment law.

There was also evidence to suggest that the law firm’s attorney may have known that the employee would soon be fired. The general counsel’s imminent departure became apparent as the memo progressed and the firm’s attorney solicited advice from the other members of the firm, noting that the general counsel thought he would be fired the next day or in the days following. He also emailed a copy of the finished memo to the general counsel’s personal account. Thus, the evidence suggested that the law firm’s attorney knew the general counsel was about to be fired, that litigation over that termination was possible, and that the general counsel wanted the client to be on notice regarding certain whistleblower claims. As a consequence, the appeals court reversed the trial court’s grant of summary judgment against the client’s claims.