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Stacey Smith Claims Manager : Oct 15, 2020 12:00:00 AM
Does this article’s title make you nervous? It should. With the unfortunate failures of many businesses due to the pandemic, we suspect claims of this nature will increase. It seems many clients believe that when they hire a transactional attorney, the attorney will prevent all possible adverse consequences. These same clients also seem to believe that if anything goes wrong in the transaction or the business, the attorney necessarily has committed malpractice.
When we say “transactional attorneys”, we mean attorneys who handle business transactions including corporate or business formations, sales or joining of businesses, businesses in bankruptcy, and businesses involved in litigation. Are you a transactional attorney? Do you think you are insulated from a claim? The following examples are fictitious claims that are based upon facts found in a variety of ALPS claims.
Arnold represented BCD Corporation in its formation and capitalization. The BCD investors eventually bought the stock from the original founder, and Arnold continued in his capacity as corporate counsel. The BCD founder sued Arnold, alleging that he was the founder’s personal attorney, and had helped the BCD investors “steal” the corporation from its founder.
Baker represented successful business owners in selling their business. The clients received a very large cash payment up front and agreed to accept the rest of the money over time, with payments based upon the business’s profits from year to year. Under the new owners, the business went bankrupt. Baker’s clients repurchased the business and continued to operate it at a profit. They then sued Baker, alleging that he failed to properly advise them of the risk inherent in accepting a payment plan depending on the business success.
Carter advised Gamma Corporation on many items, and Gamma did not always follow Carter’s advice. On one particular real-estate transaction Gamma did not follow Carter’s advice. When it was forced to pay a judgment arising from that transaction, Gamma still sued Carter — even though it had disregarded Carter’s advice.
What can we learn from the above fact-based hypotheticals? We have offered guidance on these issues before, but they are worth repeating.
Hopefully, this article gives notice that transactional attorneys are at greater risk than ever before. We also hope that you will take the time to review your policy and your practices and better insulate yourself against possible malpractice claims.
Stacey K. Smith received her B.A. from Montana State University and her J.D. from Willamette University College of Law. She is a member of the Washington State Bar Association. Prior to joining ALPS in October 1999, Stacey spent over five years litigating major damage cases in both state and federal court. She served on the Washington State Bar Professionalism Committee, the Washington State Bar Court Rules and Procedures Committee and the Washington State Bar Ad Hoc Committee on Civility.
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