Title: Defending the Transactional Legal Malpractice Case: Trends and Considerations for Defense Counsel
Abstract: LEGAL malpractice claims involving underlying business transactions present a unique set of circumstances to both insurers and defense counsel. Transactional claims may involve sophisticated, complex, and high risk agreements that are distinct from typical litigation malpractice cases. Damages are frequently substantial as the transacting parties have high expectations of returns under the agreements. Even though traditional legal malpractice theories still apply to transactional settings, counsel and insurers should recognize that typical standards and defenses, such as the proximate cause requirement of within a have special application in transactional settings. This article provides both an overview of some of the basic legal concepts that surround transactional legal malpractice claims as well as some practical considerations in defending and handling such claims. This first part of the article discusses recent legal authority that applies the within a case standard in transactional settings. The second half of the article provides an overview of what types of practical issues can arise and should be considered in defending and handling these types of claims. I. within a Case Requirement in Transactional Legal Malpractice Cases The elements of a professional negligence cause of action include: 1) the duty of the professional to use such skill, prudence, and diligence as other members of the profession commonly possess and exercise; 2) a breach of that duty; 3) a proximate causal connection between the negligent conduct and the resulting injury; and 4) actual loss or damage resulting from the professional's negligence. (1) In order to establish the proximate cause element in a legal malpractice case, the plaintiff must establish the within a which requires proof that the claim underlying the malpractice action should have been successful if the attorney had acted in accordance with his or her duty. (2) Courts have more recently been asked whether within a case applies to claims involving transactional malpractice; that is, whether a plaintiff must prove that an excluded or unfavorable term in the underlying agreement would have been accepted by the other negotiating party if the attorney had acted in accordance with his or her duty. The majority of courts that have addressed this issue have determined that the within a case standard does apply to transactional malpractice claims. (3) The Viner v. Sweet decision is instructive. (4) The plaintiffs in Viner filed a lawsuit against the attorney who represented them in the sale of their business. The plaintiffs claimed that their attorney had led them to believe that several favorable terms were included in the sales agreement, but these terms were not in fact included. A jury awarded the plaintiffs lost profits of over $13 million. The defendant attorney moved for judgment notwithstanding the verdict and for new trial, arguing that the trial court erred in failing to instruct the jury that the plaintiffs had to prove they would have obtained those favorable terms in the sales agreement but for the defendant's negligence. The trial court denied the motions. The California Court of Appeals affirmed and distinguished the standard for establishing causation in transactional malpractice claims as opposed to traditional litigation malpractice claims. The California Supreme Court rejected the Court of Appeals' rationale, summarizing the Court of Appeals' decision: First, the court [of appeals] asserted that in litigation a gain for one side is always a loss for the other, whereas in transactional work a gain for one side could also be a gain for the other side. Second, the court [of appeals] observed that litigation malpractice involves past historical facts while transactional malpractice involves what parties would have been willing to accept for the future. …
Publication Year: 2006
Publication Date: 2006-10-01
Language: en
Type: article
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