In a case of first impression, the Washington Supreme Court was asked to determine “whether an attorney hired by a title insurer to represent its insured owed a duty to the non-client insurer and, hence, whether that insurer can sue the lawyer for negligently representing the insured during the defense.” The court concluded that neither the common interest between the insurer and the insured, nor any contractual duty that might be owed by the law firm to the insurer to keep it informed about the progress of the underlying litigation, were sufficient to create a duty of care that would support a malpractice claim by the insurer. Such a duty would also violate the relevant Rules of Professional Conduct, which prohibit an attorney from surrendering his professional judgment when rendering legal services, observed the court.
The case concerned a mechanics’ lien on property in which Sterling Savings Bank had a construction loan. In the litigation over priority of interests, the attorneys hired by Stewart Title to defend the Bank’s interest stipulated that the mechanics’ lien took priority over Sterling’s security interest. Stewart Title then fired the law firm, contending they gave in on the argument too soon. Stewart Title subsequently sued the law firm for legal malpractice. The suit was met with a motion for summary judgment.
On direct review, the Washington Supreme Court held the law firm’s duty ran only to the insured, Sterling, and it owed no duty to Stewart Title, a non-client.
The State of Washington thus joins those jurisdictions which hold the tripartite-relationship gives an insurer no standing to bring a legal malpractice suit against defense counsel for negligence when it defends the insured. Several other jurisdictions have held otherwise, and the Restatement (Third) of the Law Governing Lawyers §51 comment g (2000) argues for a different result.
For more information on professional liability matters, contact attorney William Saturley at 603-410-1500 or any member of Preti Flaherty's professional
liability practice group.
Legal updates, news and commentary from Preti Flaherty's Professional Services Attorneys
US Supreme Court Upholds the Enforceability of Forum Selection Clauses in Construction Contracts
Thursday, December 5, 2013
The United States Supreme Court in Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, No. 12-929 (Dec. 3, 2013) reiterated the priority and enforceability of forum selection clauses in construction contracts. The Supreme Court reversed the decision of the Fifth Circuit upholding the trial court’s decision not to enforce the forum selection clause contained in a construction agreement between Atlantic Marine, a Virginia corporation, and J-Crew Management, Inc., a Texas corporation. The parties’ subcontract included a forum-selection clause, which stated that all disputes between the parties would be litigated in Virginia. When a dispute arose, J-Crew filed an action in the United States District Court for the Western District of Texas. Atlantic Marine responded by filing a motion to dismiss the case or in the alternative to transfer the case to Eastern District of Virginia. The trial court denied both motions and the Fifth Circuit upheld the denials on the basis that Atlantic Marine bore the burden of proving that transfer was appropriate and had failed to meet its burden.
In reversing the Fifth Circuit’s decision, the Supreme Court concluded that “[w]hen the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause” unless there are “extraordinary circumstances unrelated to the convenience of the parties,” which the Court found lacking in the instant case. The Court noted that the “enforcement of valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system.” Thus, when considering the appropriate forum for a dispute, “a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.” The Supreme Court found that the Fifth Circuit erroneously placed the burden on the party seeking to enforce the forum selection clause rather than the “party acting in violation of the forum-selection clause,” who should have borne the burden of showing that public-interest factors overwhelmingly disfavor a transfer.
This is a very important decision from the Supreme Court that once again reiterates the priority of forum selection clauses in determining where disputes should be litigated. This is a good reminder when entering into a contract to pay attention to the forum selection clause included and where a potential dispute down the road may be litigated because courts are going to hold you to the forum identified in those clauses.
For more information on professional liability matters, contact attorney Nathan Fennessy at 603-410-1500 or any member of Preti Flaherty's professional liability practice group.
In reversing the Fifth Circuit’s decision, the Supreme Court concluded that “[w]hen the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause” unless there are “extraordinary circumstances unrelated to the convenience of the parties,” which the Court found lacking in the instant case. The Court noted that the “enforcement of valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system.” Thus, when considering the appropriate forum for a dispute, “a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.” The Supreme Court found that the Fifth Circuit erroneously placed the burden on the party seeking to enforce the forum selection clause rather than the “party acting in violation of the forum-selection clause,” who should have borne the burden of showing that public-interest factors overwhelmingly disfavor a transfer.
This is a very important decision from the Supreme Court that once again reiterates the priority of forum selection clauses in determining where disputes should be litigated. This is a good reminder when entering into a contract to pay attention to the forum selection clause included and where a potential dispute down the road may be litigated because courts are going to hold you to the forum identified in those clauses.
For more information on professional liability matters, contact attorney Nathan Fennessy at 603-410-1500 or any member of Preti Flaherty's professional liability practice group.
Beware of Copyright Infringement in Construction Projects
Thursday, November 21, 2013
On November 8, 2013, the Fifth Circuit Court of Appeals affirmed a $3.2 million jury award in favor of Kipp Flores Architects, L.L.C. ("KFA") against Hallmark Design Homes, L.P. (“Hallmark”), in a copyright infringement action. The jury in the U.S. District Court in Houston found that Hallmark infringed KFA's copyrights by constructing hundreds of houses from KFA’s architectural plans without purchasing the plans for each house as required. KFA alleged that Hallmark obtained copies of certain of its copyrighted architectural designs pursuant to a license from KFA allowing Hallmark to build one home based upon each design. According to KFA, the agreement expressly provided that additional licenses for additional units could be purchased, but Hallmark failed to pay the additional license fees in connection with its reuse of the licensed plans. The jury returned a verdict compensating KFA for the amount of profits that Hallmark earned from the sales of the homes in question that were built based upon KFA’s architectural plans. The appellate court rejected Hallmark's arguments that the evidence was insufficient to support a jury finding of “substantial similarity” and concluded that the matter had been well tried at the district court.
This is a reminder for all architects and design professionals to take care in ensuring that they do not copy or otherwise infringe another professional's copyrighted designs. It also creates an incentive for design professionals to take steps to register their designs with the U.S. Copyright Office to ensure that their hard work is not being copied and used without appropriate compensation.
For more information on professional liability matters contact attorney Nathan Fennessy at 603.410.1500 or a member of Preti Flaherty's Professional Liability Group.
This is a reminder for all architects and design professionals to take care in ensuring that they do not copy or otherwise infringe another professional's copyrighted designs. It also creates an incentive for design professionals to take steps to register their designs with the U.S. Copyright Office to ensure that their hard work is not being copied and used without appropriate compensation.
For more information on professional liability matters contact attorney Nathan Fennessy at 603.410.1500 or a member of Preti Flaherty's Professional Liability Group.
Gas on the Fire: First Circuit's Homeowner's Insurance Carrier Decision After a "Conflagration"
Tuesday, November 19, 2013
"It seems self-evident that a story which involves throwing gasoline on a smoldering fire is unlikely to have a happy ending. That is true here, but the parties to this appeal have sifted through the embers and identified what some might regard as an oxymoron: an interesting insurance coverage question." - Vermont Mutual Insurance Company v. Andrew Zamsky
In a decision issued on October 9, 2013, the First Circuit Court of Appeals ruled that a homeowner’s insurance carrier owed a duty to defend and indemnify its insured against personal injury claims arising from an accident occurring on uninsured property owned by the carrier’s policyholder. In Vermont Mutual Insurance Company v. Andrew Zamsky, the defendant, Andrew Zamsky, was an insured under three homeowner’s policies issued to his parents by Vermont Mutual. The three policies, on three different properties owned by Zamsky’s parents, required Vermont Mutual to defend and indemnify all insured persons for claims for “bodily injury” caused by a covered “occurrence.” Zamsky’s parents also owned a fourth property that was not insured. Unfortunately, the injury occurred on the uninsured property.
One evening in the fall of 2008, Zamsky, his girlfriend, and several of their friends drove to the uninsured property and decided to make an outdoor fire. One of the friends retrieved a portable fire pit from a shed on the property, and they placed it on a deck attached to the house. They tried to start a fire, but the wood was damp and would not stay lit. Another friend then grabbed a container of gasoline and poured it on the fire. As the First Circuit explained, the “consequent conflagration set at least three of the assembled persons aflame.” One of them, Zamsky’s girlfriend, was badly burned. She eventually sued, asserting “a golconda of negligent acts and omissions.” Vermont Mutual provided Zamsky with a defense to the litigation under a reservation of rights but, while that case was still pending, filed a declaratory judgment (“DJ”) action in Massachusetts Federal Court, seeking a determination that it was not required to defend or indemnify Zamsky under the policies.
In the DJ action, Vermont Mutual relied on an “uninsured location” exclusion of the policies, which excluded coverage for any injury “arising out of a premises” owned by an insured, but that was not itself an “insured location.” Vermont Mutual argued that, because the injury had occurred on the uninsured property, it was not required to either defend or indemnify Zamsky.
The First Circuit rejected Vermont Mutual’s argument. The Court found that the “arising out of a premises” language was ambiguous, and it interpreted that provision to mean “arising out of a condition of a premises.” Although the injury occurred on the uninsured property, it had not resulted from a “condition” of the uninsured property. Because the injury resulted from events that occurred on the property, and not from any condition of the uninsured property itself, the Court held that the exclusion did not apply and that Vermont Mutual owed a duty to defend and indemnify Zamsky.
For more information on professional liability matters contact attorney Greg Moffett at 601-410-1500 or a member of Preti Flaherty's professional liability group.
In a decision issued on October 9, 2013, the First Circuit Court of Appeals ruled that a homeowner’s insurance carrier owed a duty to defend and indemnify its insured against personal injury claims arising from an accident occurring on uninsured property owned by the carrier’s policyholder. In Vermont Mutual Insurance Company v. Andrew Zamsky, the defendant, Andrew Zamsky, was an insured under three homeowner’s policies issued to his parents by Vermont Mutual. The three policies, on three different properties owned by Zamsky’s parents, required Vermont Mutual to defend and indemnify all insured persons for claims for “bodily injury” caused by a covered “occurrence.” Zamsky’s parents also owned a fourth property that was not insured. Unfortunately, the injury occurred on the uninsured property.
One evening in the fall of 2008, Zamsky, his girlfriend, and several of their friends drove to the uninsured property and decided to make an outdoor fire. One of the friends retrieved a portable fire pit from a shed on the property, and they placed it on a deck attached to the house. They tried to start a fire, but the wood was damp and would not stay lit. Another friend then grabbed a container of gasoline and poured it on the fire. As the First Circuit explained, the “consequent conflagration set at least three of the assembled persons aflame.” One of them, Zamsky’s girlfriend, was badly burned. She eventually sued, asserting “a golconda of negligent acts and omissions.” Vermont Mutual provided Zamsky with a defense to the litigation under a reservation of rights but, while that case was still pending, filed a declaratory judgment (“DJ”) action in Massachusetts Federal Court, seeking a determination that it was not required to defend or indemnify Zamsky under the policies.
In the DJ action, Vermont Mutual relied on an “uninsured location” exclusion of the policies, which excluded coverage for any injury “arising out of a premises” owned by an insured, but that was not itself an “insured location.” Vermont Mutual argued that, because the injury had occurred on the uninsured property, it was not required to either defend or indemnify Zamsky.
The First Circuit rejected Vermont Mutual’s argument. The Court found that the “arising out of a premises” language was ambiguous, and it interpreted that provision to mean “arising out of a condition of a premises.” Although the injury occurred on the uninsured property, it had not resulted from a “condition” of the uninsured property. Because the injury resulted from events that occurred on the property, and not from any condition of the uninsured property itself, the Court held that the exclusion did not apply and that Vermont Mutual owed a duty to defend and indemnify Zamsky.
For more information on professional liability matters contact attorney Greg Moffett at 601-410-1500 or a member of Preti Flaherty's professional liability group.
Knowingly Operating Under a Conflict is Not Dishonest Conduct – NH Supreme Court
Monday, November 4, 2013
In Appeal of David Stacy, 164 N.H. 706 (March 29, 2013), the New Hampshire Supreme Court appears to have split a very fine hair concerning a lawyer’s actions while subject to a known conflict of interest. While the distinction drawn by the Court prevented a claimant from draining funds from the Public Protection Fund, it may spawn coverage litigation and raise questions about professional discipline that the Court failed to anticipate.
An earlier case before the Court set the stage for this ruling. In Wyatt’s Case, 159 N.H. 285 (2009), the Court suspended an attorney for knowingly operating under a conflict of interest when he simultaneously represented the conservatorship estate of the petitioner, and the petitioner. The petitioner made a claim against the attorney for the fees paid him during the period of the conflict, and then subsequently sought reimbursement from the Fund for the balance of the unrecovered fees and costs.
The Court noted that the Rule creating the Fund is consistent with the ABA’s Model Rule, pursuant to which public protection funds generally reimburse losses caused by the dishonest conduct of lawyers. The Court found “dishonest conduct” meant wrongful acts in the nature of theft or embezzlement of money, or the wrongful taking or conversion of money, property, or other things of value. The Court found, however, that “knowledge of a conflict of interest is not the equivalent of knowingly dishonest conduct,” and ruled that Wyatt’s actions were not conversion. In so ruling, the Court protected the Fund and made it more difficult to recover against lawyers, but did it open up other questions?
For example, in making the precise distinction it did, the opinion could make for more confusion in coverage questions. When is knowing conduct that involves a conflict going to be covered? Equally important, how will the Attorney Discipline Office apply this standard in future claims of unethical behavior? Only time will tell if the Appeal of Stacy is the last word on Attorney Wyatt’s actions, or the first of many decisions examining the consequences of knowingly operating under a conflict.
For more information on professional liability matters, contact attorney Bill Saturley at 603.410.1500 or a member of Preti Flaherty's Professional Liability Group.
An earlier case before the Court set the stage for this ruling. In Wyatt’s Case, 159 N.H. 285 (2009), the Court suspended an attorney for knowingly operating under a conflict of interest when he simultaneously represented the conservatorship estate of the petitioner, and the petitioner. The petitioner made a claim against the attorney for the fees paid him during the period of the conflict, and then subsequently sought reimbursement from the Fund for the balance of the unrecovered fees and costs.
The Court noted that the Rule creating the Fund is consistent with the ABA’s Model Rule, pursuant to which public protection funds generally reimburse losses caused by the dishonest conduct of lawyers. The Court found “dishonest conduct” meant wrongful acts in the nature of theft or embezzlement of money, or the wrongful taking or conversion of money, property, or other things of value. The Court found, however, that “knowledge of a conflict of interest is not the equivalent of knowingly dishonest conduct,” and ruled that Wyatt’s actions were not conversion. In so ruling, the Court protected the Fund and made it more difficult to recover against lawyers, but did it open up other questions?
For example, in making the precise distinction it did, the opinion could make for more confusion in coverage questions. When is knowing conduct that involves a conflict going to be covered? Equally important, how will the Attorney Discipline Office apply this standard in future claims of unethical behavior? Only time will tell if the Appeal of Stacy is the last word on Attorney Wyatt’s actions, or the first of many decisions examining the consequences of knowingly operating under a conflict.
For more information on professional liability matters, contact attorney Bill Saturley at 603.410.1500 or a member of Preti Flaherty's Professional Liability Group.
Iowa Attorney Charged with Felonies for Allegedly Over-Billing
Wednesday, October 23, 2013
According to the ABA Journal, an Iowa attorney is charged with felony counts of theft and fraudulent practice for allegedly obtaining nearly $178,000 in overpayments for his work as a contract attorney for the Iowa Public Defender.
An audit concluded that the lawyer claimed to have worked more than 24 hours on 80 different dates between 2007 and 2011. Four other contract lawyers also were identified in the audit as having over-billed and, as a result, were terminated from the program.
According to the ABA Journal, the Iowa State Bar Association President has called the audit findings “an isolated aberration, involving five lawyers,” adding that “a few bad apples do not spoil the barrel.” The Bar President stated that “any abuses of the program… need to be promptly corrected.”
For more information on Professional Liability Matters, contact Attorney Simon Brown at 603.410.1500 or a member of Preti Flaherty's Professional Liability Group.
An audit concluded that the lawyer claimed to have worked more than 24 hours on 80 different dates between 2007 and 2011. Four other contract lawyers also were identified in the audit as having over-billed and, as a result, were terminated from the program.
According to the ABA Journal, the Iowa State Bar Association President has called the audit findings “an isolated aberration, involving five lawyers,” adding that “a few bad apples do not spoil the barrel.” The Bar President stated that “any abuses of the program… need to be promptly corrected.”
For more information on Professional Liability Matters, contact Attorney Simon Brown at 603.410.1500 or a member of Preti Flaherty's Professional Liability Group.
Accounting Firms Shielded from Repeat Lawsuits from Taxpayers
Thursday, October 10, 2013
The Appellate Court of Illinois affirmed the decision to dismiss a taxpayer lawsuit against a school district’s accounting firm based upon a res judicata theory – that is a claim that was once brought or could have been brought between the same parties is barred.
In Lutkauskas v. Ricker, et al., 2013 Il. App. (1st) 121112, a taxpayer sued his school district’s accounting firm alleging that the accounting firm was complicit in violating the school code by allowing the district’s working cash fund to be depleted without a school board resolution. Despite the fact the taxpayers in this matter never brought suit before, the Court nonetheless determined the action was barred against the accounting firm based upon the doctrine of res judicata. In general, res judicata can only apply to bar an action when the same parties or their privies are involved. Here, the taxpayers argued they were not part of the previous action. In rejecting that argument, the Court ruled that a taxpayer action is derivative in that it was being brought on behalf of the school district. The key to the Court’s reasoning was that the claimed injury – the depletion of the working cash fund – was not personal to the taxpayers, but rather impacted the governmental entity.
While it remains to be seen whether courts in other jurisdictions would adopt the reasoning of the Illinois Court, it is a legal theory to be considered in defending a taxpayer action on behalf of a governmental entity or a derivative action brought on behalf of a corporation.
For more information on professional liability matters, contact Attorney Adam Shub at 207-791-3000 or a member of Preti Flaherty's Professional Liability Group.
In Lutkauskas v. Ricker, et al., 2013 Il. App. (1st) 121112, a taxpayer sued his school district’s accounting firm alleging that the accounting firm was complicit in violating the school code by allowing the district’s working cash fund to be depleted without a school board resolution. Despite the fact the taxpayers in this matter never brought suit before, the Court nonetheless determined the action was barred against the accounting firm based upon the doctrine of res judicata. In general, res judicata can only apply to bar an action when the same parties or their privies are involved. Here, the taxpayers argued they were not part of the previous action. In rejecting that argument, the Court ruled that a taxpayer action is derivative in that it was being brought on behalf of the school district. The key to the Court’s reasoning was that the claimed injury – the depletion of the working cash fund – was not personal to the taxpayers, but rather impacted the governmental entity.
While it remains to be seen whether courts in other jurisdictions would adopt the reasoning of the Illinois Court, it is a legal theory to be considered in defending a taxpayer action on behalf of a governmental entity or a derivative action brought on behalf of a corporation.
For more information on professional liability matters, contact Attorney Adam Shub at 207-791-3000 or a member of Preti Flaherty's Professional Liability Group.
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