Tuesday, January 13, 2015

New Jersey Supreme Court Denies Cert in Transactional Malpractice Case | New Jersey Law Journal

One of the most irritating defenses in legal malpractice case is the "scrivener" argument, the usual form is that a "sophisticated businessman" dictated the terms and "I just wrote it up". But we owe a duty  of competence and diligence to make an independent assessment regarding the legal consequences of contract language, including the duty to make sure that the client understands the agreement and how it matches up with his objectives.

In Cottone v, Fox Rothschild the Appellate Division of the Superior Court of New Jersey confronted the question and reversed a grant of summary judgment to defendant law firm Fox Rothschild:
The primary issue before us is whether the trial court correctly determined that an attorney owes no duty, as a matter of law, to explain unambiguous business terms in a written agreement, when the client is a sophisticated businessperson who negotiated the terms of the agreement himself. We determine that defendants owed plaintiff a duty of care, as a matter of law, arising from their attorney-client relationship. Instead, the question before the trial court was whether defendants breached their duty of care when they allegedly failed to explain the terms of the agreement to plaintiff. We hold that, viewing the evidential materials presented by plaintiff in the light most favorable to him as the non-moving party, genuine factual disputes existed that were material to determining whether defendants breached their duty of care. 
In a complex negotiation over the value of plaintiff's warrant to purchase a 2.75% interest in NIA - a large insurance brokerage which was itself in play - language limiting his interest was inserted by the buyer late in the drafting process.  The deal was signed and plaintiff found himself in a worse position than if he had done nothing.  According to plaintiff's deposition testimony, he demanded of his lawyer, "There could be close to a million dollars involved. What the hell happened?" Attorney Michaels pulled the file, reviewed the drafts and Redemption Agreement, and then replied: "[I]n the first draft we can make a case that you should have gotten it.
. . . [In] the final [version], they added language that absolutely kills the bump on the warrants." Michaels then admitted that he had "missed it." For his part, Michaels denied at deposition to having made any such admission.
Plaintiff's expert Gary Falkin opined that the previous drafts were "ambiguous" as to whether NIA-II would be paying additional consideration on the Warrant; the added language removed all doubt, which should have been caught and changed by Michaels.
Finally, Falkin assailed Michaels' contention at deposition that he was a "mere scrivener" throughout the representation, and thus was only responsible for ensuring that the written agreement reflected the terms negotiated by plaintiff.6 To Falkin, this testimony demonstrated that Michaels had abdicated his role as counsel and reinforced his conclusion that Michaels failed to fully address the issues raised by the representation and advise plaintiff accordingly.
The Appellate Division lays out a handy road map for lawyers on the duties owed:
When a malpractice claim is brought against an attorney retained to represent a client in the drafting and review of written agreements, with respect to complex transactional matters, involving, as here, significant financial issues, depending upon the particular facts and the expert testimony presented, we perceive several actions which may be considered by a jury in determining whether the attorney breached the standard of care.
First, did the attorney ascertain the client's business objectives through appropriate consultation. See Restatement of Lawyers, supra, 16 comment c. Was reasonable advice provided to the client "on the various legal and strategic issues" bearing on those identified business objectives. Ziegelheim [v.Apollo], 128 N.J. at 261; see also Conklin [v. Hannoch Weisman], 145 N.J. at 413 ("An attorney in a counseling situation must advise a client of the risks of the transaction in terms sufficiently clear to enable the client to assess the client's risk.").
During the drafting process, did the attorney scrutinize the proposed agreement to ensure that the writing effectuates the business objectives defined by the client.
Did the attorney review the written agreement with the client, to determine that the client understood the material terms that might reasonably affect the client's decision to execute it. See Passanante, supra, 138 N.J. Super. at 238 (attorney is obligated to inform the client "promptly of any known information important to him [or her]"); Michels, [New Jersey Attorney Ethics]supra, at 282 (attorney should "'review all important provisions with the client before proceeding to an agreement'" (quoting Model Rules of Prof'l Conduct 1.4 comment (2000)).
Were the various provisions to accomplish each of the client's stated objectives pointed out or, if they were not, did the attorney ensure that the client assents to the omission of any such objective.
We do not suggest that all of these actions are always required. However, if the scope of representation includes one or more of these activities, failure to perform an included act in a reasonably competent manner may indicate a breach of the standard of care.
Remarkably this substantial deal was undertaken without a written retainer agreement between attorney and client.  A word to the wise is that such engagement letters can clarify the scope of the undertaking and focus each party on what is to be done.

- gwc
Duty to Client in Business Deals Murky, Attorneys Say | New Jersey Law Journal: "A New Jersey appeals court's September 2014 holding that lawyers must thoroughly counsel even sophisticated clients on deal-making will remain the law going forward since the state Supreme Court declined last month to hear the case—and transactional attorneys say they've taken heed. The case is Cottone v. Fox Rothschild, in which the Appellate Division found a duty, as a matter of law, to explain contract terms, even if they're unambiguous and the client personally negotiated them. In the process, the court reinstated a legal malpractice suit against Fox Rothschild, which is now on remand. "It is a concern for transactional attorneys," said Philip Forlenza, a partner in the corporate and business practice at Giordano, Halleran & Ciesla in Red Bank, N.J., and chair of the New Jersey State Bar Association's business law section. "Are they now required to explain even the most fundamental aspect of it? "To me, what this case represents is a possible need to go farther in establishing a record," and it "at least suggests that you may have a greater duty," he added"

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