Indemnification in Maryland
Frequently, when a party asserts a cross- or third-party claim, at least one count will assert that the cross- or third-party plaintiff is entitled to indemnification. It is almost boilerplate. However, Maryland law is fairly restrictive on the concept of indemnification, and frequently claims for indemnification are vulnerable to dispositive motions.
Maryland recognizes that a right to indemnification may arise under three circumstances (or three “modalities,” the term used by the Court of Appeals). First, indemnification is appropriate where there is express contractual indemnity, which arises where “an indemnitor, by express contract, agrees to reimburse the indemnitee for a liability, loss, or damage that the indemnitee may occur that is within the scope of the indemnity.” Pulte Home Corp. v. Parex, 403 Md. 367, 381 (2007). This is relatively straightforward; Maryland recognizes the viability of a contractual provision requiring indemnification.
The second “modality” is indemnification by fact or law, whereby there are “unique special factors demonstrating that the parties intended that the would-be indemnitor bear the ultimate responsibility . . . or where there is a generally recognized special relationship between the parties.” Pulte Home Corp., 403 Md. at 382. However, the circumstances under which an implied right of indemnification have been recognized are restrictive. Unfortunately, there are no Maryland state or federal decisions addressing what specifically constitutes a “generally recognized special relationship.” The Court of Appeals in Pulte Home Corp. cited to a First Circuit Court of Appeals decision, which in turn cited to § 51 of Prosser on Torts for examples of what might constitute such a “generally recognized special relationship,” which included: where an employer is vicariously liable for the tort of a servant or independent contractor; where an innocent partner is held liable for the acts of another partner; or the owner of an automobile for the conduct of the driver.
Third, Maryland recognizes equitable, also known as tort-based, indemnification. However, for equitable indemnification to apply, both the indemnitor and indemnitee must be liable in tort to the original plaintiff. If the party from whom indemnitee is sought could not be directly liable to the original plaintiff, then this modality is inapplicable. This equitable indemnification is a recognition of differing levels of fault by multiple tortfeasors, whereby the less culpable tortfeasor may be entitled to indemnification from the “more culpable co-defendant, who is primarily or actively negligent.” Max v. Camden Yards, LLC v. A.C. Bev., Inc., 172 Md. App. 139, 148 (2006).
Of course, there are frequently occasions where a cross-claim or third-party claim will contain multiple causes of action. But where the claim seeks only indemnification, it is worth keeping in mind that the law of indemnification in Maryland is far more restrictive than many would believe, and the cross- or third-party claim may be susceptible to summary judgment, if not a motion to dismiss. Additionally, keep in mind that Maryland does not allow for indemnification for one’s own sole negligence in construction contracts. See Md. Code Ann. Cts. & Jud. Proc. § 5-401 (2014); Heat & Power Corp. v. Air Products & Chemicals, Inc., 320 Md. 584, 593 (1990).
Posted by Padraic K. Keane on 08/04/2015 at 05:59 PM
District of Columbia: Duties of Local Counsel
The District of Columbia Court of Appeals has reminded the bar again that when an attorney undertakes to act on behalf of another person, no matter what the circumstances, he invokes upon himself the entire structure of the Code of Professional Responsibility. In re Thomas Fortune Fay, No. 14-BG-7 (D.C. March 19, 2015).
The Code does not and cannot create two tiers of ethical obligations, one for attorneys acting formally and for gain, and another for those who act for other reasons.
In this case, the attorney had agreed as a favor to file a personal injury suit for another attorney, Joel Chasnoff, who was a member of the Maryland bar. Mr. Chasnoff's membership in the D.C. bar had been suspended for his failure to pay dues, and therefor he asked the respondent attorney to sign his name to and file a complaint in the case. The respondent's paralegal and Mr. Chasnoff's secretary filed the complaint in the Superior Court, listing both the respondent and Mr. Chasnoff as attorneys.
Unfortunately, Mr. Chasnoff failed to serve the defendant with the complaint and the case was dismissed about three and a half months later. The respondent attorney received notice of the dismissal, and filed a motion to reinstate the case and for leave to make substituted service, but the motion was denied, and a second motion was also denied.
The client in the civil suit then brought a bar complaint against the respondent attorney. A Hearing Committee concluded that the attorney had entered into an attorney-client relationship with the complainant, and the Board on Professional Responsibility approved the Committee's findings and recommended that the attorney receive an informal admonition.
On review, the Court found that the attorney had entered into an attorney-client relationship with the plaintiff. As a starting point, the Court reviewed the basis upon which an attorney admitted to the District of Columbia is explicitly given the title of "officer of the court" and its accompanying duties.
The Court then noted that "the existence of an attorney-client relationship is not solely dependent on a written agreement, payment of fees, or the rendering of legal advice." The Court reasoned that an attorney's ethical responsibilities exist independently of contractual rights and duties; consequently, the obligations imposed by the Rules arise from the establishment of a fiduciary relationship between attorney and client. The attorney-client relationship is created usually when the client retains the attorney, but the relationship may also be created by court appointment. The attorney-client relationship does not rest on the client's view of the matter. The Court instead considers the totality of the circumstances to determine whether an attorney-client relationship exists.
Here, the attorney had authorized the filing of the complaint with his signature and bar number and later initiated and filed an additional pleading in which he identified himself as the plaintiff's attorney. As an officer and fiduciary, the respondent attorney represented to the court, through his filings, that an attorney-client relationship existed.
Significantly, the Court noted that like local counsel facilitating the practice of an attorney admitted pro hac vice, the respondent attorney was responsible for the case in the event that Mr. Chasnoff failed to adequately pursue it. By asserting his bar membership to aid Mr. Chasnoff in presenting the claim, the respondent attorney, like local counsel, assumed the ethical responsibilities and duties as plaintiff's attorney.
The Court agreed with the Board and the Hearing Committee that the respondent attorney couls not now deny his professional relationship with the plaintiff, which he earlier represented to the court as existing.
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This opinion should give D.C. attorneys reason to pause and think before undertaking to serve as local counsel in a case, or before, as here, agreeing as a favor to file a case for an attorney whose D.C bar membership has temporarily lapsed. A member of the D.C. bar who signs and files a suit in Superior Court under those circumstances is nevertheless responsible for the case in the event the purported lead counsel fails to adequately pursue it.
To discuss the defense of lawyers' professional responsibility matters, legal malpractice defense, and the legal ethics rules in the District of Columbia, contact John Tremain May of Jordan Coyne LLP at 703-246-0900.
Posted by David B. Stratton on 08/02/2015 at 07:05 PM
Virginia Legal Malpractice: The burden of proving non-collectibility is on negligent attorney
In Shevlin Smith v. McLaughlin, the Virginia Supreme Court considered the issues of: (1) whether an attorney breaches the duty to a client by failing to correctly anticipate a judicial ruling on an unsettled legal issue; (2) whether collectibility is relevant to a legal malpractice claim when the alleged injury is the loss of an otherwise viable claim; and (3) whether non-pecuniary damages are recoverable in a legal malpractice claim.
Among other things, the Court held that the burden of proving that a judgment in the underlying case would have been uncollectible is on the negligent attorney.
This case involve an allegation of legal malpractice in an underlying legal malpractice claim, which in turn arose from alleged malpractice in a criminal case.
The alleged malpractice in the original criminal matter was that the criminal defense attorneys negligently failed to obtain the taped interview of the alleged victims and compare those tapes with the inaccurate written transcripts used during the first criminal trial. In that trial, the accused had been represented by two separate law firms.
The first criminal trial resulted in a conviction, and the accused served four years in prison before the conviction was overturned in a habeas proceeding. After that, the accused was found not guilty in a second prosecution.
The accused hired the firm of Shevlin Smith to represent him in a criminal malpractice case. Shevlin Smith negotiated a settlement and release with law firm #1 in order to settle the criminal malpractice claim against it. The release did not discharge the criminal malpractice claim against law firm # 2.
Four months later, a Virginia Supreme Court opinion was issued in an unrelated matter, Cox v. Geary. Based on that decision, law firm # 2 filed a plea in bar, arguing that the criminal malpractice claim against it must be dismissed because under the new decision, the settlement and release of some co-defendants to the legal malpractice claim was a release of all co-defendants. The trial court agreed, and sustained law firm # 2's plea in bar.
The plaintiff then filed a second legal malpractice claim against Shevlin Smith, based on two theories of liability. First that Shevlin Smith breached its duty be failing to foresee how the Court's holding in Cox v. Geary would impact the Release Agreement. Second, that Shevlin Smith breached its duty to the plaintiff by failing to take various actions with respect to law firm # 1, and failing to fully advise the plaintiff about the alternative of refusing the settlement and continuing to proceed against law firm # 1.
Here, the court noted that since the alleged negligence occurred in a criminal proceeding, the legal malpractice plaintiff "must prove post-conviction relief and innocence entitling him to release."
Concerning the issue of judgmental immunity, the Virginia Supreme Court declined to adopt a per se judgmental immunity doctrine. Instead, the Court held that, if an attorney exercises a reasonable degree of care, skill, and dispatch while acting in an unsettled area of the law, which is to be evaluated in the context of the state of the law at the time of the alleged negligence, then the attorney does not breach the duty owed to the client. While this determination is ordinarily a question of fact for a jury, it becomes an issue of law when reasonable minds could not differ on the issue.
Further concerning the issue of whether collectability is relevant to a legal malpractice claim, the court held that collectibility is implicated when the injury claimed by the legal malpractice plaintiff is the loss of an otherwise viable claim. That is, collectibility limits the measure of the legal malpractice plaintiff's damages as to how much the legal malpractice plaintiff could have actually recovered from the defendant in the underlying litigation, absent the attorney's negligence.
The client must prove that the attorney's negligence proximately caused the damages claimed. As to who must prove that a judgment in the underlying case was collectible, the Court said the following:
"Consequently, collectibility is relevant because a legal malpractice plaintiff's damages for a lost claim can only be measured by the amount that could have actually been collected from the defendant in the underlying action in the absence of the attorney's negligence. Entry of judgment against the defendant in the underlying claim does not guarantee collection of the entire award. Instead, successfully prosecuting a claim to judgment is only half of the marathon that is redressing an injury in our judicial system. Once armed with a judgment, a plaintiff then has 20 years to collect that award . . ."
However, while collectibility is relevant, it is not an element of a legal malpractice plaintiff's prima facie case. The Virginia Supreme Court held that "we do not place the burden on a legal malpractice plaintiff to also prove the value of the underlying judgment that he would have been able to collect absent the attorney's negligence."
Instead, Virginia joined the growing trend of jurisdictions that place the burden of pleading and disproving collectibility on the negligent attorney as an affirmative defense.
Finally, the court held that a plaintiff cannot recover non-pecuniary damages in a legal malpractice action. The question of what damages are recoverable in a legal malpractice claim is governed by Virginia law pertaining to what damages are recoverable in a breach of contract claim. Regardless of the foreseeability of non-pecuniary injury incident to a breach of contract, however, "[a]s a general rule, damages for breach of contracts are limited to the pecuniary loss sustained."
The "rule," then, is clear: "tort damages" — including non-pecuniary damages such as mental anguish, emotional distress, and humiliation — "are not recoverable for breach of contract." As this principle holds true for all non-pecuniary, non-economic injury caused by the attorney's malpractice, such loss is not recoverable as damages in a legal malpractice claim.
To discuss these holdings or the defense of a Virginia legal malpractice claim, contact Carol T. Stone of Jordan Coyne LLP at 703-246-0900.
Posted by David B. Stratton on 08/01/2015 at 08:44 PM