It is universally recognized that attorneys owe various duties and obligations to their clients during the existence of the attorney-client relationship. While the attorney-client relationship is in place, attorneys must zealously pursue the objectives of their clients and take action to further the clients’ best interests. However, one common misconception is that attorneys are unable to evaluate and protect their own interest while the attorney-client relationship is pending. The following two recent Ohio cases provide insight into those precise situations: when and how attorneys can manage potential legal malpractice risks prior to the termination of the attorney-client relationship.
Trustees of Ohio Carpenters Pension Fund v. U.S. Bank Nat’l Assn.
Last year the Eight District Court of Appeals in Trustees of Ohio Carpenters’ Pension Fund v. U.S. Bank Nat’l Assn. (2010), 189 Ohio App.3d 260, issued a detailed opinion outlining the impact of a continued general attorney-client relationship upon the accrual of the statute of limitations. In Trustees, the Plaintiffs, Trustees of Ohio Carpenters’ Pension Fund (“the Fund”), appealed the trial court’s grant of summary judgment to Defendant, Baker & Hostetler, LLP (“Baker”), on the Fund’s legal malpractice claim and the denial of the Fund’s motion to amend its complaint to assert a claim for fraud.
The Trustees case involved the alleged malpractice of Baker while representing the Fund in connection with a development project called “LaCentre.” During the relevant period, the Fund lent millions of dollars to another of Baker’s clients, Robert Lontkowski (“Lontkowski”), to develop LaCentre in a transaction the Fund claimed caused it significant financial losses. The Fund then sued Baker for legal malpractice, breach of fiduciary duty, negligent misrepresentation, and restitution. In determining first whether the statute of limitations had run on the Fund’s legal malpractice claims, the appellate court analyzed the two prong test for determining when the statute of limitations began to run or “accrued”: (1) When should the client have known that he or she may have an injury caused by his or her attorney? and (2) When did the attorney-client relationship terminate?—the latter of these two dates being that which starts the running of the statute of limitations.
In examining the first branch of the accrual test, the Trustees court determined that several cognizable events occurred prior to January 1, 2006, the start of the one-year limitations period. First, as early as 2000 the Fund was aware that Baker represented both Lontkowski and the Fund, and that Baker had not obtained consent from the Fund, which, according to the court, should have alerted the Fund of possible impropriety. In addition, by January 2002 the Fund’s committee members were dissatisfied with the LaCentre project generally and with Baker’s performance. Finally, as early as October 2004 the Fund hired another law firm, Ulmer & Berne (“Ulmer”), as independent counsel to review the LaCentre project, and LaCentre’s CFO advised Ulmer that Baker had engaged in questionable legal practices. Because these cognizable events occurred prior to January 1, 2006, the court was required to determine when the attorney-client relationship terminated.
The more interesting aspect of Trustees, from the standpoint of the accrual of the statute of limitations, is the fact that Baker continued to represent the fund (presumably on unrelated projects) and bill the Fund for legal services through August of 2006. Therefore, according to the Fund, the attorney-client relationship continued through August of 2006, thereby tolling the accrual of the statute of limitations until the termination of the attorney-client relationship. In rejecting the Fund’s argument, the Trustees court cited the directive from Zimmie that the attorney-client relationship terminates when the relationship for that particular transaction or undertaking terminates. Since the Fund had hired another firm, Ulmer, in October of 2003 with respect to its real estate loan matters, the court determined that the attorney-client relationship with Baker had terminated prior to January of 2006, notwithstanding the fact that Baker continued to bill the Fund through August of 2006.
In yet another interesting twist, the Trustees court declined to find that the trial court abused its discretion in refusing to allow the Fund to amend its complaint to add a fraud claim against Baker. Assertion of a fraud claim would essentially extend the statute of limitations to four years. However, the court found that the fraud claim was virtually identical to the issues contained in the original complaint, and an action against one’s attorney for damages resulting from the manner in which that attorney represented the client constitutes malpractice no matter how the causes of action are garbed. As such, the court held that the Fund could not seek to extend the statute of limitations simply by recasting its malpractice claim as fraud.
TattleTale Alarm Systems, Inc. v. Calfee, Halter & Griswold, LLP
In February of 2011, the U.S. District Court for the Southern District of Ohio in TattleTale Alarm Systems, Inc. v. Calfee, Halter & Griswold, LLP, No. 2:10-cv-226, 2011 U.S. Dist. LEXIS 10412 (S.D.Ohio Feb. 3, 2011), issued a thorough opinion regarding whether a law firm is required to produce internal documents in defending a malpractice action. Bucking the trend, the court ruled that when a client sues a law firm for malpractice, the attorney-client privilege protects the firm’s internal “loss prevention” communications that took place after the possibility of a malpractice claim surfaced—even if those documents were created before the firm withdrew from representation.
In Tattle-Tale, the Plaintiff filed a motion to compel discovery related to documents for which Defendant Calfee, Halter & Griswold, LLP (“Calfee”), claimed a privilege. According to Calfee, most, if not all, of the documents for which it claimed privilege related to its loss prevention efforts after it became aware that TattleTale might assert a malpractice claim. On the other hand, TattleTale argued that any documents which came into existence during the time period when it and Calfee still maintained an attorney-client relationship may not properly be withheld because, at least while the attorney-client relationship still existed, it would be a conflict of interests for the firm to engage in privileged communications about the client which are adverse to the client’s interests. Calfee asserted in response that communications, either with outside counsel or among attorneys within the firm on that subject, are privileged no matter when they occur, and that Ohio courts recognize no such an exception to the attorney-client privilege.
Agreeing with Calfee, the TattleTale court first examined the well-settled rule that under Ohio law, an attorney is prohibited from testifying about a communication made to the attorney by a client in that relation or the attorney’s advice to a client. Because there is nothing exceptional about the proposition that attorneys stand in a “client relationship” when they seek advice from other colleagues within a law firm, the court found that TattleTale was seeking an exception to the general rule for these types of communications based on the fact that they took place at the same time the attorney (or law firm) was representing the client. The court held that no such exception exists in this case.
In reaching this conclusion, the TattleTale court conducted a balancing test, determining that when malpractice is alleged, clients may be entitled to breach the privilege only if they can make an adequate showing of good cause. The court examined various factors to determine whether TattleTale made such a showing including: the extent to which Calfee’s alleged conduct is either criminal or fraudulent; determining whether the discussions between Calfee and outside counsel related to the conduct which had already been completed or was to a future course of action; and whether there are other readily available sources of proof on the same subject.
After analyzing the relevant factors, the TattleTale court determined that none of these factors favor allowing TattleTale to have access to the privileged communications at issue. There were other sources of proof; the discussions involved actions or inactions which took place in the past; and the alleged conduct, while wrongful to the extent it might be characterized as negligent, was not alleged to be criminal, illegal, or fraudulent. Further, the court recognized the axiomatic rule that the privilege promotes the affected attorneys’ ability to promptly seek and obtain advice based on a complete disclosure of the circumstances which led them to believe that some loss prevention communication was warranted. Therefore, under the balancing test, the court held that TattleTale did not establish good cause to obtain the documents.
What Can Lawyers Take Away from Trustees and TattleTale?
Although they examine separate issues, both Trustees and TattleTale provide insight and helpful practice pointers for risk management even while the attorney-client relationship is in tact. In Trustees, the law firm continued to represent and bill the client after the alleged malpractice had occurred. Attorneys and firms must question whether other Ohio Appellate Districts would have reached a similar conclusion as to the accrual of the statute of limitations. In any event, lawyers and firms can take the momentum created by Trustees a step further by providing detail and clarity in billing entries as to the precise claim or transaction for which the client is being billed. In addition, correspondence or communication with the client as to the limited scope of continued representation is also advisable. Regardless of the method adopted, once a prospective malpractice claim surfaces with a current client, attorneys can now take steps to ensure that the statute of limitations is not indefinitely tolled due to the continued general representation of the client.
In terms of internal firm communications, the TattleTale decision provides guidance as to exactly how a firm may internally handle potential malpractice claims even while the attorney-client relationship is intact. The “catch 22” in this situation is that the firm wants to continue to zealously advocate for the client, but at the same time retain the ability to internally control its loss. The TattleTale decision provides lawyers and firms with the ability to internally analyze and communicate with regard to the potential claim, without the contemporaneous fear that such internal (and potentially detrimental) communications will one day be viewed by the client.
If you have further questions relative to risk management issues prior to the termination of the attorney-client relationship, or questions about professional liability matters in general, please contact one of the members of our Professional Liability practice group.
