Lawyer Suing Lawyer Becoming Common Corporate Strategy

Lawyer Suing Lawyer Becoming Common Corporate Strategy

Original Article on Chicago Tribune

NEW YORK — Lawyers once sued just about everyone — but other lawyers.

“It just wasn’t done much-but that certainly has changed,” said Ben Hill III, a Tampa-basedattorney who chairs the Amer-ican Bar Association’s commit-tee on legal malpractice.

Now big law firms, which generate huge fees representing large corporations, have be-come prime targets for malpractice claims.

One of the biggest such cases recently involved Chicago law-yer Myron Cherry, representing health-care company VentasInc., taking on the prestigious New York law firm of Sullivan &Cromwell.

In late October, Louisville-based Ventas disclosed that its former counsel, Sullivan &Cromwell, agreed to pay $25.5million to avoid trial in a 3-year-oldmalpractice suit alleging conflict of interest.In an investor conference calla day after the settlement was made public, Debra Cafaro, Ventas’ chairman and chief executive, would only say that the settlement “agreement includes confidentiality provisions, and,therefore, we cannot elaborate on our statement or answer your questions.

“H. Rodgin Cohen, chairman of Sullivan & Cromwell, said he would not comment on the settlement, but contends that law firms are especially vulnerable to malpractice claims because dissatisfied clients take advantage of firms’ eagerness to avoid potential damage to their reputations.

“There is a special vulnerability of having someone stand up in court for weeks or months and saying you are guilty of malpractice,” Cohen said. “I would hope that most clients, the vast majority, would not look to the courts for a remedy for every perceived ill.”While the Ventas-Sullivan & Cromwell malpractice settle-ment was not the largest pay-ment ever received by a lawfirm’s former client, it fell wellatop the highest category of pay-ments cited in an April Ameri-can Bar Association study.That survey of legal malprac-tice cases brought between 2000and 2003 showed that the num-ber of payments for more than$2 million had increased to 19,compared with 10 recorded be-tween 1996 and 1999. Paymentsincluded both out-of-court set-tlements and courtroom ver-dicts.Personal-injurycasescomprised the largest numberof legal malpractice claims, fol-lowed by cases involving familyand estate law, and corporatetransactions such as bankrupt-cy.The fallout from high-profilecorporatecorruptioncases,most notably Enron Corp. andWorldCom Inc., has placedgreater scrutiny on executivesto justify their actions, saidCherry.Five or 10 years ago, Cherrysaid, corporate clients were un-likely to sue a large firm, espe-cially one with which it had along relationship.”Now, shareholders are de-manding that executives servethem,” Cherry said. “Corpora-tions, therefore, have a fiduci-ary responsibility to share-holders, and that could meanevaluating whether they have aclaim against their own lawfirm.11In the Ventas case, the health-care company charged that itran into severe financial prob-lems specifically because of “in-competent and negligent” advice it received from Sullivan &Cromwell stemming from thecompany’s 1998 spinoff of itshospitals and nursing home op-erations.In 2002 Ventas sued Sullivan &Cromwell for $186 million, alleg-ing that it engaged in a conflictof interest by representing bothVentas, which became a real es-tate investment trust, and thespun-off health-care company,Kindred Healthcare.After Sullivan & Cromwell re-peatedly petitioned to have thecase thrown out, a judge lastyear set a trial date. The settle-ment occurred several monthsbefore the trial was to begin.The American Bar Associ-ation also revealed that claimsagainst firms with more than100 attorneys had more than tri-pled between the two time peri-ods it studied.’Quicker to sue lawyers'”People are more cynical,they’re quicker to sue lawyersand they think in larger dollarnumbers than they ever had,”said Thomas Browne, generalcounsel at Hinshaw & Culbert-son, a Chicago firm that oftenrepresents lawyers in malprac-tice suits.Browne, who has representedlawyers for more than 25 years,said that until three years agohe had never been involved in asettlement for more than $1 mil-lion. Since then, he added, fourof his legal malpractice caseshave ended in settlements ex-ceeding $1 million.Browne and others point tocorporate scandals and the 2002Sarbanes-OxleyAct,whichoverhauled corporate govern-ance rules, for making law firmsmore answerable to their cli-ents’ actions.”When a big scandal occurs,the trend now is for board direc-tors to see whether some big lawfirm handling its legal workmay be to blame,” said Stephenvan Wert, an executive at Brown& Brown Inc., a Daytona Beach,Fla.,insurance intermediarythat offers legalmalpracticecoverage. “There’s more scruti-ny being placed on law firms.”`When a big scandaloccurs, the trend now isfor board directors to seewhether some big lawfirm handling its legalwork may be to blame.’-Stephen van Wert, insuranceintermediary Brown & Brown Inc.At the same time, law firmsusually want to minimize thetime and money spent in acourtroom proceeding.For that reason, “95 percent”of claims against law firms aresettled before trial, van Wert es-timated.To lessen the chance ofclaims, Edward Zulkey, generalcounsel of Chicago firm Baker &McKenzie, said he spends moretime speaking and lecturing in-ternally-especially to youngerlawyers-among the firm’s 3,500attorneys.Zulkey said he emphasizeschoosing clients carefully, docu-menting a client’s instructionsand taking care that a case doesnot conflict with the firm’s oth-er responsibilities.Nationally,more law firmsare designating a partner toserve as a general counsel tohandle malpractice issues. AJune 2005 study by Altman WeilInc., a legal consultant based inNewtown Square, Pa., showedthat 69 percent of the country’slargest 200 law firms had desig-nated such a general counsel, upfrom 63 percent in 2004.Susan Paris Koniak, a BostonUniversity School of Law pro-fessor, argues that the threat oflegal malpractice suits is mostlya good thing. She said they forcelaw firms, especially largerfirms, to behave ethically.”When you’re talking aboutthese very large and powerfullaw firms, that’s the only deter-rent there is,” said Koniak. “Toooften,disciplineboards shyaway from really going after thebig firms.”