Lowe brough a class action, alleging that company management breached its fiduciary duties to the employee pension plan, and that KPMG aided those breaches by ignoring the underfunding of the plan. KPMG contended that these claims necessarily implicated its engagement agreement with the company, which contained an arbitration clause, and thus required arbitration under the “direct-benefit estoppel” doctrine. Here, “Lowe did not know about the Engagement Letters, and has disclaimed any reliance on the Letters, and her claims rely on common law tort theories, not on the Letters.” The Court concluded that “[i]f that choice makes it harder for [Lowe] to prove her case, so be it,” but her claims as currently stated did not depend on KPMG’s engagment agreement and thus did not have to be arbitrated.” Lowe v. KPMG, No. 16-60263 (Jan. 5, 2017, unpublished).
OneBeacon Ins. Co. v. Welch & Assocs. involved insurance coverage for an attorney malpractice claim, arising for an exclusion for knowledge about “any actual or alleged act, error, omission or breach of duty arising out of the rendering or the failure to render professional legal services.” Since even the carrier agreed that “[o]n its face, this covers every single thing an attorney does or does not do, wrongful or not,” the Fifth Circuit found that the exclusion could not be applied literally without making the contract illusory. Focusing on the alleged “wrongful act,” the Court found that the relevant lawyer’s awareness of a discovery order and potential dispute was not equivalent to knowledge that a rare death-penalty sanction award would result. The Court also sustained an award of additional violations for an intentional violation of the Insurance Code with respect to the handling of the claim. No. 15-20402 (Nov. 14, 2016).
Cal Dive International sued Schmidt (a commercial diver), and Edwards (Schmidt’s attorney in a previous personal injury suit against Cal Dive), alleging that Schmidt had misrepresented his injuries, and seeking restitution of contingent fees paid to Edwards. Cal Dive specifically alleged that it did not believe Edwards knew of the purported fraud. Edwards sought coverage for defense costs, and the Fifth Circuit reversed a judgment in his favor: “Cal Dive’s complaint, for which Edwards seeks defense from Continental, contains no allegations against Edwards, save for his receipt of settlement funds in the nature of attorney’s fees as a result of his client’s alleged fraud. Acts or omissions in the rendering of legal services by Edwards to his client, Schmidt, are simply not at issue.” Edwards v. Continental Casualty Co., No. 15-30827 (Nov. 2, 2016).
Continuing a theme in cases involving attorney liability (most notably the recent Stanford-related opinion in Troice v. Proskauer Rose, 816 F.3d 341 (5th Cir. 2015)), the Fifth Circuit affirmed summary judgment for the law firm involved in a disputed foreclosure: “Under Texas law, the doctrine of qualified immunity has ‘long authorized attorneys to practice their profession, to advise their clients and interpose any defense or supposed defense, without making themselves liable for damages.” Lassberg v. Bank of America, No. 15-40196 (Aug. 23, 2016, unpublished).
Last Friday, I spoke about recent federal cases on sanctions and professional responsibility issues; for some ethics CLE self-study, here is the handout that I used.
A class sought damages from attorneys involved in Allen Stanford’s business affairs. The Fifth Circuit, reversing the district court, found the claims barred by attorney immunity under Cantey Hanger LLP v. Byrd, 467 S.W.3d 484 (Tex. 2015): “Plaintiffs alleged that, in representing Stanford Financial in the SEC’s investigation, [Attorney] Sjoblom: sent a letter arguing, using legal authorities, that the SEC did not have jurisdiction; communicated with the SEC about its document requests and about Stanford Financial’s credibility and legitimacy; stated that certain Stanford Financial executives would be more informative deponents than others; and represented a Stanford Financial executive during a deposition. These are classic examples of an attorney’s conduct in representing his client.” The Court rejected the “fraud exception” relied upon by the district court, and among arguments for other exceptions, rejected the argument that immunity only extended to litigation as not having been raised below. Troice v. Proskauer Rose LLP, No. 15-00500 (March 10, 2016).
The Eastern District of Texas suspended attorney Robert Booker for three years. While a magistrate issued a report, which was reviewed and adopted unanimously by the Eastern District Judges, the Fifth Circuit held: “[W]e cannot discern from the record whether the district court specifically found that Booker acted in bad faith under the clear and convincing evidence standard.” Accordingly, the Court remanded for the district court to “specify whether it finds that Booker has committed any ethics violation based on clear and convincing evidence and whether Booker acted in bad faith in committing any such violations.” In re: Booker, No. 14-41194 (Aug. 3, 2015, unpublished). (Subsequently, the Fifth Circuit affirmed on the merits.)
The Fifth Circuit remanded to calculate an attorney fee award when: “At nearly every turn, this Department of Labor investigation and prosecution violated the department’s internal procedures and ethical litigation practices. Even after the DOL discovered that its lead investigator conducted an investigation for which he was not trained, concluded Gate Guard was violating the Fair Labor Standards Act based on just three interviews, destroyed evidence, ambushed a low-level employee for an interview without counsel, and demanded a grossly inflated multi-million dollar penalty, the government pressed on. In litigation, the government opposed routine case administration motions, refused to produce relevant information, and stone-walled the deposition of its lead investigator.” Gate Guard Services v. Perez (Secretary, Department of Labor), No. 14-40585 (July 2, 2015, unpublished).
In Zente v. Credit Management, L.P., an attorney sought to appeal the district court’s referral of a Rule 11 matter to the Western District of Texas disciplinary committee. The Fifth Circuit found that he had no standing: “In accordance with the cases from our sister circuits, we conclude that a referral of attorney conduct to a disciplinary committee, absent a specific finding of misconduct, is not a sanction that confers standing to appeal. Thus, [Attorney] has standing to appeal in the instant case only if the district court’s referral to the Admissions Committee was accompanied by a specific finding of misconduct. In the circumstances of this case, we conclude that the court made no finding of misconduct. The district court made no findings like those that courts have found conferred standing to appeal. It made no factual findings or legal conclusions regarding the alleged misconduct, and made no implied or explicit finding that [Attorney] violated any ethical rule or canon. No. 14-50910 (June 15, 2015).
The Cantus filed for Chapter 11 bankruptcy, and after their case was converted to Chapter 7, sued their bankruptcy attorney for malpractice. That suit settled for roughly $300,000, leading to a dispute between the Cantus and the Chapter 7 Trustee as to who should receive the proceeds. The Fifth Circuit found that the estate suffered pre-conversion injury as a result of the alleged misconduct, including diversion of assets, time wasted with an unconfirmable Chapter 11 plan, and additional attorneys fees. Therefore, the causes of action against the attorney “accrued prior to conversion and belong to the estate.” Cantu v. Schmidt, No. 14-40597 (April 17, 2015).
The City of Alexandria settled a lawsuit with an electricity supplier for a $50 million recovery. A sordid dispute then broke out among the City and various lawyers who worked on the case and asserted a contingency interest in the recovery. City of Alexandria v. Brown, No. 12-30823 (Jan. 15, 2014). The opinion, which affirms the district court’s resolution of the dispute, provides an overview of when “quantum meruit” principles control over the terms of a contingent fee agreement. As to one lawyer, relevant factors included the end of her involvement relatively early in the matter, and seemingly unreliable time records during that involvement. As to another, the court noted that the contract created a “joint obligation” between him and another lawyer that became impossible of performance after he was disbarred, requiring a quantum meruit analysis. (A related appeal was disposed of later in the year in deference to this panel opinion.)