Justia Professional Malpractice & Ethics Opinion Summaries

In this auditing malpractice case, Thomas L. Wallace and T.L. Wallace Construction, Inc. appealed the Circuit Court's grant of summary judgment to McArthur, Thames, Slay, and Dews, PLLC (“McArthur Thames”) for lack of causation. Wallace filed suit against McArthur Thames, alleging that the accounting firm had negligently audited the financial statements of Wallace Construction and ultimately had caused the destruction of the company by failing to discover hundreds of personal credit card purchases by certain company employees, failing to discover transactions involving hundred of thousands of dollars spent by Wallace Construction to pay for personal home improvements of nonshareholder employees, and by failing to discover inappropriate accounting practices that resulted in an overstatement of income. Wallace sought to recover damages of approximately $14,000,000 allegedly suffered by him as a result of accounting work done by McArthur Thames. The trial court excluded the testimony of Wallace Construction’s sole expert on causation, finding that his opinion was unreliable and insufficient to establish proximate cause. Because the trial court mistakenly believed that expert testimony establishing causation was required in all malpractice cases, and because Wallace Construction presented sufficient lay testimony to overcome summary judgment on the issue of causation, the Mississippi Supreme Court affirmed in part, reversed in part, and remanded the case the trial court for further proceedings. In addition, the Supreme Court found the trial court abused its discretion in disallowing reasonable access to the financial information of Wallace Construction subsequent to June 30, 2012, and in its denial of discovery of the Wallaces’ personal accounts. View "T.L. Wallace Construction, Inc. v. McArthur, Thames, Slay, and Dews, PLLC" on Justia Law

General Motors (GM), represented by the Mayer Brown law firm, entered into secured transactions in which JP Morgan acted as agent for two different groups of lenders. The first loan (structured as a secured lease) was made in 2001 and the second in 2006. In 2008, the 2001 secured lease was paid off, which required the lenders to release their security interests in the collateral securing the transaction. The closing papers for that payoff accidentally also terminated the lenders’ security interests in the collateral securing the 2006 loan. No one noticed—not Mayer Brown and not JP Morgan’s counsel. When GM filed for bankruptcy protection in 2009, GM and JP Morgan noticed the error. Plaintiffs, members of the consortium of lenders on the 2006 loan, were not informed until years later. Plaintiffs sued GM’s law firm, Mayer Brown. The Seventh Circuit affirmed dismissal, holding that Mayer Brown did not owe plaintiffs a duty. The court rejected arguments that JP Morgan was a client of Mayer Brown in unrelated matters and thus not a third‐party non‐client; even if JP Morgan was a third‐party non‐client, Mayer Brown assumed a duty to JP Morgan by drafting the closing documents; and the primary purpose of the GM‐Mayer Brown relationship was to influence JP Morgan. View "Oakland Police & Fire Retirement System v. Mayer Brown, LLP" on Justia Law

After the BP Stock Fund lost significant value, the affected investors filed suit alleging that the plan fiduciaries breached their duties of prudence and loyalty by allowing the Plans to acquire and hold overvalued BP stock; breached their duty to provide adequate investment information to plan participants; and breached their duty to monitor those responsible for managing the BP Stock Fund. The district court held that the stockholders had failed to overcome the Moench v. Robertson presumption and dismissed their claims. The stockholders appealed, and while their appeal was pending in this court, the Supreme Court issued Fifth Third Bancorp v. Dudenhoeffer, holding that there was no such “presumption of prudence” under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001 et seq. On remand, the district court held that the stockholders had plausibly alleged that defendants had inside information; and the stockholders had plausibly alleged two alternative actions that defendants could have taken that met the Fifth Third standard: freezing, limiting, or restricting company stock purchases; and disclosing unfavorable information to the public. The district court granted the motion to amend with respect to pleading these alternative actions. It then certified defendants’ motion for interlocutory appeal. The court concluded, however, that the district court here erred when it altered the language of Fifth Third to reach its holding. Under the Supreme Court’s formulation, the plaintiff bears the significant burden of proposing an alternative course of action so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it. In this case, the stockholders have failed to do so. Because the stockholders' amended complaint is insufficient and the district court erred in granting their motion to amend, the court reversed and remanded. View "Whitley v. BP, P.L.C." on Justia Law

CommScope Credit Union (Plaintiff), a state-chartered credit union, hired Butler & Burke, LLP (Defendant), a certified public accounting firm, to conduct annual independent audits of its financial statements. Plaintiff later filed a complaint alleging breach of contract, negligence, breach of fiduciary duty, and professional malpractice. Defendant pleaded seven affirmative defenses, including contributory negligence and in pari delicto. The trial court subsequently granted Defendant’s motion to dismiss and for judgment on the pleadings. The court of appeals reversed, concluding (1) the specific allegations in Plaintiff’s complaint were sufficient to state a claim for breach of fiduciary duty, and (2) Defendant’s affirmative defenses would not entitle Defendant to dismissal at this stage. The Supreme Court affirmed in part and reversed and remanded in part, holding (1) Plaintiff’s allegations did not establish that Defendant owed it a fiduciary duty in fact, and therefore, the trial court correctly dismissed Plaintiff’s breach of fiduciary duty claim; and (2) the members of the Court are equally divided on whether the facts alleged in the complaint established the defenses of contributory negligence and in pari delicto, and therefore, the court of appeals’ decision on this issue is left undisturbed. View "CommScope Credit Union v. Butler & Burke, LLP" on Justia Law

In this appeal, the issue this case presented for the Supreme Court's review centered on whether a law firm practicing as a limited liability partnership (LLP) failed to maintain professional malpractice insurance to cover claims against it, and, if so, whether that failure should cause the revocation of the firm's LLP status, rendering innocent partners personally liable. In July 2009, Mortgage Grader hired Olivo of Ward & Olivo (W&O) to pursue claims of patent infringement against other entities. Mortgage Grader entered into settlement agreements in those matters. In exchange for one-time settlement payments, Mortgage Grader granted those defendant-entities licenses under the patents, including perpetual rights to any patents Mortgage Grader received or obtained through assignment, regardless of their relationship to the patents at issue in the litigation. It is those provisions of the settlement agreement that allegedly gave rise to legal malpractice. In 2011, W&O dissolved and entered into its windup period. W&O continued to exist as a partnership for the sole purpose of collecting outstanding legal fees and paying taxes. The next day, Ward formed a new LLP and began to practice with a new partner. Mortgage Grader filed a complaint against W&O, Olivo, and Ward in October 2012, alleging legal malpractice by Olivo, and claiming that the settlement agreements resulting from Olivo's representation harmed Mortgage Grader's patent rights. The motion court denied Ward's motion to dismiss, first determining that Mortgage Grader had failed to comply with the statutory requirement to serve an affidavit of merit (AOM) on each defendant named in the complaint, and rejected its substantial compliance argument. However, the court also determined that W&O failed to maintain the requisite insurance, which caused its liability shield to lapse and relegated W&O to a GP. Thus, the motion court concluded that Ward could be held vicariously liable for Olivo's alleged legal malpractice. The Appellate Division reversed. The Supreme Court affirmed, finding that law firms organized as LLPs that malpractice insurance did not extend to the firm's windup period, and tail insurance coverage was not required. View "Mortgage Grader, Inc. v. Ward & Olivo, L.L.P." on Justia Law

Dr. Lozano treated Andrade during her pregnancy and delivered her daughter at Women’s Hospital at Renaissance in Edinburg. The delivery was complicated by the baby’s shoulder dystocia, and Dr. Lozano allegedly engaged in excessive twisting. Andrade sued Lozano, alleging that his negligence caused the child permanent injury, including nerve damage and permanent paralysis of one arm. Andrade later added Renaissance, a limited partnership that owned and operated the Hospital, and RGV, Renaissance’s general partner. Lozano, an independent contractor with admitting privileges at the Hospital, was a limited partner in Renaissance. The Andrades settled with Lozano and nonsuited their claims against Renaissance. RGV moved for summary judgment, arguing that they were not liable for Lozano’s conduct because he was not acting within the scope of the partnership or with partnership authority when providing obstetrical care to Andrade, Tex. Bus. Org. Code 152.303. The trial court denied the motion. The Supreme Court of Texas reversed. The ordinary course of the partnership’s business does not include a doctor’s medical treatment of a patient and that the doctor was not acting with the authority of the partnership in treating the patient; the partnership cannot be liable for the doctor’s medical negligence. View "Doctor Hosp. at Renaissance, Ltd. v. Andrade" on Justia Law

Plaintiffs filed suit alleging claims for breach of fiduciary duty, conspiracy, and legal malpractice, and defendants moved to strike the entire complaint as to the individual plaintiffs Klotz and Spitz because defendants had no independent legal duty to plaintiffs nor did they act for their personal financial gain. Plaintiffs alleged that a former business associate of theirs, Stephen Bruce, who was a client of defendants, conspired with defendants to unlawfully withdraw from plaintiff SageMill and to usurp a nascent business opportunity of SageMill. The trial court denied the motion. The court reversed the trial court‘s order on plaintiffs‘ second cause of action for conspiracy as to the individual plaintiffs Klotz and Spitz, finding that any advice defendants gave Bruce arose from an attempt to contest or compromise a claim or dispute, and thus was within the ambit of section 1714.10. The court affirmed as to the remaining claims. View "Klotz v. Milbank,Tweed, Hadley & McCloy" on Justia Law

Plaintiffs filed suit alleging claims for breach of fiduciary duty, conspiracy, and legal malpractice, and defendants moved to strike the entire complaint as to the individual plaintiffs Klotz and Spitz because defendants had no independent legal duty to plaintiffs nor did they act for their personal financial gain. Plaintiffs alleged that a former business associate of theirs, Stephen Bruce, who was a client of defendants, conspired with defendants to unlawfully withdraw from plaintiff SageMill and to usurp a nascent business opportunity of SageMill. The trial court denied the motion. The court reversed the trial court‘s order on plaintiffs‘ second cause of action for conspiracy as to the individual plaintiffs Klotz and Spitz, finding that any advice defendants gave Bruce arose from an attempt to contest or compromise a claim or dispute, and thus was within the ambit of section 1714.10. The court affirmed as to the remaining claims. View "Klotz v. Milbank,Tweed, Hadley & McCloy" on Justia Law

Sanowicz and Bacal are licensed real estate salespersons. Sanowicz alleges that he and Bacal agreed to share commissions earned by either of them on certain sales of real property, but that Bacal breached that agreement. The two did share some commissions. The trial court dismissed, based on Business and Professions Code section 10137,4 which provides that it is unlawful for a real estate agent to accept compensation from any person other than the real estate broker under whom he or she is licensed. The court of appeal reversed, holding that licensed real estate agents may agree to share commissions earned under certain circumstances. In stating that an agent may pay commission to another licensee, the Legislature did not limit the payee to a licensed broker; instead it required that any such payment be made “through the broker” thus permitting payments to be made to licensed real estate professionals, whether agents or brokers. View "Sanowicz v. Bacal" on Justia Law

Northern Maine Transport, LLC (NMT), a Maine limited liability company with only two members, including Paul Beaudry, was administratively dissolved in 2009. In 2012, Beaudry filed this action, individually and purportedly on behalf of NMT, against Alan Harding and Hardings Law Offices for professional negligence and breach of fiduciary duty in 2010 when Harding represented NMT and possibly Beaudry in facilitating a settlement with a third party. The superior court granted Harding’s motion for summary judgment, concluding (1) Beaudry lacked the legal capacity to bring suit on behalf of the administratively dissolved LLC or derivatively, and (2) Beaudry had no individual claim because he suffered no personal harm. The Supreme Court affirmed, holding that Maine law did not permit Beaudry to proceed on behalf of the administratively dissolved LLC under these circumstances, either through a derivative action or individually. View "Beaudry v. Harding" on Justia Law