N.Y. firm liable for Fla. firm's failure to file claim

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Just the other day I came across a case from New York, which should scare the bejesus out of every attorney practicing whether in this state or any other state.

An Appellate Court in New York held that a New York law firm could be liable to a client for the failure of a Florida firm that the New York law firm had retained to file a claim for more than $1.2 million in a Florida estate. The New York firm assisted one of its clients in obtaining the large judgment against an individual. Prior to the judgment being collected from the Mr. Soon-to-Be $1.2 million dollars poorer debtor, he upped and died in his home state of Florida.

The now deceased Florida debtor was believed to have a rather large estate, so the New York firm hired a law firm in Florida to file a claim against the debtor’s estate once it opened about a year later because it was believed that the debt would have been satisfied.

Nothing in Writing

Although the client was told that the firm in Florida was being hired, she did not sign an engagement or retainer agreement with it. And that is where things got interesting. The Florida firm screwed up and failed to file a claim in the estate, which the opinion described as simple and routine, and something that a paralegal likely could have done.

After the screw up, but unbeknownst to the creditor and the New York firm, negotiations were still going on between the New York lawyers and lawyers for the estate to reach a settlement. However, after several years of “duck, duck, goose,” the estate finally told the creditor to go pound sand because the claim had not been filed in a timely fashion (i.e. 90 days after the estate opened).

Of course, the creditor/client decided to sue her lawyers. The lawyers in turn claimed that they did not owe the client a duty to supervise and monitor the Florida attorneys because any duty they owed to their client was discharged when they hired the folks in Florida. The New York Appellate Court upheld summary judgment for the client and ruled that the client could pursue a claim against her former lawyers in New York for failing to supervise the Florida firm.

What is not clear in the opinion is what duties the New York firm had agreed to take on in its engagement agreement with its client — whether the New York firm took on additional duties in assisting the client to collect the judgment through the hiring of the Florida firm and the supposed filing of a claim in the Florida estate. If the New York firm, as part of its engagement, had agreed that it would use every effort to pursue post-judgment collection efforts, it arguably took on a contractual duty that to the extent it hired any additional professionals to assist with the collection and it would bear responsibility and a duty to supervise. But the opinion is silent on the issue.

Lessons Learned

However, aside from the loud “gulp” noise you can hear those partners make when they learn that earnings season might be a little lighter this year, this case does hold a number of important lessons for Wisconsin lawyers.

The first lesson is always put in writing exactly what you will do for the client when you take on the representation. Under Supreme Court Rule 20:1.2, Scope of Representation, it is incumbent upon a lawyer at the outset to define with the client what the representation is, will be, and when it is determined that the representation will end.

Here, the agreement between the New York firm and its client should have defined whose responsibility it was to hire and supervise the Florida firm. Did it belong to the New York firm or did it belong to the client?

If it belonged to the New York firm, as is believed to be the case from the opinion since the client never signed an engagement letter with the folks in Florida, then contractually the New Yorkers agreed to make sure the Florida firm follows the strict time limits for the filing of a claim, and should have hounded that firm from here until eternity to get the claim filed. If one expects a client to bear some responsibility for post-judgment satisfaction or engagement of other professionals, you need to spell it out in the beginning, especially when everyone is in a good mood.

The second lesson pertains to fees. It is not clear whether the New York firm paid the fees for the Florida lawyers and simply placed the fees as a separate line item on the bill, if a separate bill was generated, whether the New Yorkers were handling collection on a contingency, etc. However, this is fertile ground for a potential attack from the client and OLR.

Under Supreme Court Rule 20:1.5(e), “A division of fee between lawyers who are not in the same firm may be made only if: (1) the division is in proportion to the services performed by each lawyer or, by written agreement with the client, each lawyer assumes joint responsibility for the representation; (2) the client is advised and does not object to the participation of all the lawyers involved and is informed if the fee will increase as a result of their involvement; and (3) the total fee is reasonable.” Thus, depending on the financial arrangements, the client arguably may have a right to know how everyone is getting paid (but not necessarily the amount) and have a right to consent.

In fact, the comments to Rule 1.5 say as much, and implicate the final lesson, which is contained in Supreme Court Rule 20:5.1, Responsibilities of a Partner or Supervisory Lawyer. In particular, Supreme Court Rule 20:5.1(c)(2) provides: “A lawyer shall be responsible for another lawyer’s violation of the Rules of Professional Conduct if: (2) the lawyer is a partner in the law firm in which the other lawyer practices, or has direct supervisory authority over the other lawyer, and knows of the conduct at a time when its consequences can be avoided or mitigated but failed to take reasonable, remedial action.”

Brother’s Keeper

In fact, the comments to 20:5.1(c)(2) provide, among other things, “[w]hether a lawyer has such supervisory authority in particular circumstances is a question of fact.” Then it concludes, “whether a lawyer may be held civilly or criminally for another lawyers’ conduct is a question of law beyond the scope of these rules.” In essence, you are your brother’s keeper, but we cannot help.

Here, the New York firm should have determined that the time limits for filing a claim was 90 days. It then should have had a tickler system to remind themselves to remind the Florida firm to file a claim, and if work was not done in a timely manner or close to the deadline, terminated the relationship with the Florida firm and hired another firm to handle the filing.

While this may sound like easy stuff, do you really want to become an expert on Florida probate law? Or Ohio Tort law? The point of hiring another professional is for that person to be a professional and do their job so you can do yours.

The result here may be harsh (that the New York firm could be sued for breach of a fiduciary duty), but if you have learned nothing else, make sure the client hires the professional.