According to Wikipedia, "It's the economy, stupid" was a phrase made popular by campaign strategist James Carville during Bill Clinton’s bid to become president in 1992. According to Carville, Bill Clinton was the proper presidential choice because the economy was going in the tank. In 2011, the economy is still, stupid. What are lawyers doing to avoid claims created by the failing real estate market and the stupid economy?
On July 5, 2011, The AmLaw Daily reported on a survey by Ames & Gough that legal malpractice claims are rising because of the sputtering economy and sagging real estate market. So, for the lawyer in the private practice, “it’s the economy, stupid”. According to the pundits, the lawyer’s chances of getting sued are increasing.
There is a distinct increase in claims against very good attorneys for work that is fair or good but not great. The rise in claims appears to emanate from legal work that eventually resulted in the client losing money in a failed real estate deal or commercial transaction. In each of several recent matters involving claims by clients against lawyers, the deal would have had a good result in a decent commercial real estate market but the market is sour and there are LPL claims. A recurring theme in several cases is (a) assuming too much about the client's expertise, in the case of a new client, and (b) not spelling out, in writing, possible negative outcomes to a deal or a certain strategy. From the complaints of recently filed lawsuits allegations and expert opinions accuse the good attorney of:
1. The lawyer did not advise his clients of the real likelihood that a good faith dispute could arise over the enforceability of the contract language;
2. The attorney, as a reasonably prudent attorney, should have foreseen that the option, as drafted, was likely to result in litigation and a reasonably prudent attorney, in similar circumstances, would have taken steps to prevent such a result;
3. The attorney is liable because they cannot adequately demonstrate that they told their clients they were signing an agreement that may subject them to litigation the future;
4. The attorney failed to advise the client to postpone certain actions required by statute until “better evidence” could be collected. Had the attorney counseled the clients about the importance of obtaining the “better evidence” the clients made critical decisions without informed consent;
5. The lawyer failed to ensure that the client would not be subjected to further liability after the partnership was dissolved; and
6. In reliance upon the counsel of the managing member, the clients made payments for capital contributions which were not accounted for in the LLC and the lawyer’s failure to draft an “air tight” operating agreementjustifies the lawsuit.
These are just bits of lawsuits recently filed. Some of the accusations sound stupid but, it is the fault of the economy, not sub-standard lawyering.
The practical lawyer should be careful to challenge his client and the client’s understanding about the transaction. Do not assume the client is sophisticated but take the time to advise on the potential issues that could be encountered. If the client is responsible for adhering to future responsibilities provide her with a checklist or a calendaring system. Avoid conflicts, and be careful out there.