22 February 2006

Damage Control and Skating For Attorneys

Losing in the U.S. Supreme Court is never fun. But, in this case, it will no doubt be followed closely by an expensive malpractice settlement. SCOTUS Blog summarizes the case this way:

[T]he Court -- again unanimous -- ruled that the limit of workplace bias law to firms with 15 or more employees does not limit federal court jurisdiction, but only sets a limit on who may qualify for relief. That ruling came in Arbaugh v. Y&H Corp. (04-944). The decision cleared up a prolonged conflict among lower courts, over their power to decide cases when a threshold issue is whether the employer is even covered by federal law. The issue has arisen under a variety of laws -- Title VII, Americans with Disabilities Act, Age Discrimination in Employment Act, Family and Medical Leave Act, and ERISA, laws that also involve definitional terms.

The ruling revived a $40,000 verdict that a waitress at a New Orleans eatery, the Moonlight Cafe, had won under Title VII. The Court said that the employer, Y&H Corp., had failed to raise the number-of-workers limit until after the verdict was in, so could not assert it, since the number was not a jurisdictional factor.

In other words, the defendant's law firm lost a $40,000 case in federal court (plus substantial attorneys' fees and costs since this is under Title VII which are probably even more than the verdict itself, especially now that the case has gone all the way to the U.S. Supreme Court), because they failed to make an argument that they had fewer than fifteen employees until after the jury rendered its verdict. This issue would have been a slam dunk win that could have been made by a motion for summary judgment the day that their answer was filed in the case, so this pretty clearly qualifies as malpractice.

At least, unlike the attorney disqualification case that I discussed yesterday, these attorneys were not stupid to litigate the issue as a form of damage control, as their argument won in both the trial court and on appeal in the 5th Circuit, and the U.S. Supreme Court could easily have declined to take this case.

The plaintiff's side of this case is also interesting. It is a wonderful illustration of something that I call "skating". I strongly suspect that at some point in the case prior to the jury's verdict, someone in the plaintiff's law firm looked at Title VII, bonked their hand on their head, and said "Oh shit! They don't have fifteen employees. We're toast!" As advocates, they had no obligation to mention this to anyone, however, and clearly, they did their job of pretending that the issue didn't exist until the defendant's lawyers finally woke up and had their own "Oh shit!" moment a few days too late. Skating, which means being in a position where someone else can harm your case but has failed to do so, and hoping that everything will work out anyway, is more common that one might expect in legal practice, and attorney-client confidentiality rules are largely designed to prevent lawyers from screwing these opportunities up for their clients.

One final thought. Suppose that you are an attorney now, after the Arbaugh case has been decided and find yourself in the same predicament. Had the defense attorneys in Arbaugh not brought their motion, their fatal error likely would never have been discovered by the client and they would have avoided malpractice liability. And, no reasonable attorney after Arbaugh would bring their motion, even if they discovered their mistake. Is the attorney allowed to skate vis-a-vis his client? This is the subject of Ethics Opinion 113, a non-binding analysis of the issue promulgated by the Colorado Bar Association on November 19, 2005.

The ethics opinion says that "a lawyer has an ethical duty to make prompt and specific disclosure to a client of the lawyer's error if the error is material, meaning that it will likely result in prejudice to a client's right or claim." There is not an exception for cases where the error can't be corrected.

According to the ethics opinion, the lawyer should tell the client to consult independent counsel regarding the error, should put it in writing (which starts a clearly documented statute of limitations on a malpractice claim running), and should notify a malpractice carrier, but doesn't have to tell the client that the client has a malpractice claim against him or admit legal liability (which may hinge on issues such as whether the underlying case was more likely than not to prevail on the merits). Also, while it is unethical not to disclose the error (and hence could be a ground for suspension of a licenses or worse), failure to disclose an error is not necessarily an independent basis for a malpractice claim.

So, a lawyer who has made a mistake can skate after making an error. Indeed, the opinion notes that after a disclosure, "The result may be a surprisingly appreciative and understanding client.", and that a lawyer is entitled to try to get the statute of limitations of a malpractice action running, in the hope that the client will blow that deadline, but the lawyer may skate only after having disclosed the error.

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