Malpractice Case Analysis

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The court’s discussion of issue preclusion is indisputably correct, and should be equally applicable, even if a case goes to trial, rather than being resolved by a guilty plea.

Ultimately, even if a client is guilty of fraud, that does not mean the attorney who advised her to act in a certain way was not negligent.

The alleged negligence has not been previously litigated, an essential for issue preclusion to apply. Furthermore, even if the defendant made the advice of counsel the center of the defense in the criminal prosecution, a jury verdict of guilty still doesn’t necessarily negate negligence on the attorney’s part.

A jury’s finding that the defendant acted with criminal intent does not foreclose the possibility that the jury also believed her attorney gave her bad advice.

Thus, even though the court’s decision can be read to suggest that issue preclusion would bar a malpractice claim, if the client went to trial and lost, the suggestion should be dismissed as dicta, because a jury’s finding that the client did or did not receive bad advice from counsel will rarely, if ever, be an essential finding to the verdict.

The decision on judicial estoppel is also the correct one. It would be absurd for a criminal defendant to try to “play fast and loose” with the judicial system by pleading guilty to a felony in order to sue his attorney.

Furthermore, for judicial estoppel to apply, the party against whom it is invoked must have prevailed on an issue in the earlier court proceeding. No matter how favorable a defendant’s plea agreement may be from an objective standpoint, pleading guilty to a felony can not be considered “prevailing.”

The court’s extremely cursory discussion of public policy grounds and the doctrine of in pari delicto is more troublesome, and may be difficult to apply in future cases.

The court distinguished its holding in Evans v. Cameron, 121 Wis.2d 421, 360 N.W.2d 25 (1985), in which it upheld the dismissal of a complaint for legal malpractice, where the plaintiff committed perjury at a bankruptcy hearing, allegedly upon receiving advice from her attorney to do so.

Distinguishing Evans, the court wrote, “In Evans, the act of perjury was so clearly wrongful that even without the advice of attorneys, Evans would have understood her actions were illegal.”

The question is whether Evans is limited to advice to commit perjury, or whether the holding in Evans could be applied to fraud, notwithstanding the court’s holding that Mrozek’s fraud convictions did not bar her malpractice claim. In most cases, Evans would apply, and the case at bar would be distinguished.

Suppose, for example, that an arsonist is convicted of insurance fraud, and claims that she burned down the building herself and submitted a claim for insurance based on the advice of counsel.

The conviction is fraud, as in the case at bar. Nevertheless, Evans would be far more analogous. With or without the advice of counsel, anyone should know it is clearly wrongful to submit a claim for insurance based on one’s own arson.

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In most cases where the underlying conviction is for fraud, it will be easily to paraphrase and tailor the court’s “clearly wrongful” statement to whatever the crime is at issue.

In the case at bar, it appears that Mrozek intended to build the motel, but was unsuccessful. Suppose the intent from the beginning was to raise money by selling securities, and then skip town with the money. Mrozek’s case would again be the distinguishable one, even though convictions are the same — theft by fraud and securities fraud.

In practice, therefore, it is likely that, in most cases, the case at bar will be the one distinguished, rather than Evans, and public policy will bar a legal malpractice claim if the plaintiff has pleaded guilty to a fraud offense. Most fraud convictions should involve conduct that is “clearly wrong.”

– David Ziemer

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David Ziemer can be reached by email.