filed. Fee agreements and OCGs can
ensure that outside counsel are covered
by a sufficient level of professional li-
ability insurance for the matter at hand
and provide an additional contractual
based claim in the event that a lawsuit
is required. Although this may not help
avoid the legal malpractice lawsuit in
the first place, it certainly is worthwhile
to verify sufficient insurance coverage
and provide additional protection. Even
worse than being forced to file a legal
malpractice lawsuit against the compa-
ny's former outside counsel is finding out
that the attorney or firm's insurance will
only cover a portion of the loss or that the
company's sole claim is barred.
ments and funds.
pany retains outside counsel, whether
for litigation or transaction purposes,
that company will entrust funds and/or
documents with the attorney or firm that
it selects. More often than not, the docu-
ments that are given to the attorney are
confidential in nature and the funds that
are entrusted are substantial. Conse-
quently, it is imperative that companies
investigate and verify the security proto-
cols that outside counsel have in place
for documents and funds.
In the electronic age it is important to
verify that outside counsel have policies
in place regarding electronic document
storage. The recent security problem
that Dropbox had in June 2011, where a
lapse in password protection briefly ex-
posed any stored information, is just one
example of how the new age of "cloud"
computing can leave sensitive documents
exposed if proper security measures are
security problems, a company should de-
mand that outside counsel have a secure
server and proper policies in place.
Additionally, potential outside coun-
sel's policies regarding proper account-
ing and access to funds are important for
companies to verify prior to retaining the
attorney or firm. In a recent legal mal-
practice case, a real estate development
company sued an international law firm
for "improperly diverted" escrow funds
in excess of $5 million that were alleg-
edly taken by an associate attorney from
the law firm's trust account. The company
alleged that the law firm engaged in pro-
fessional negligence and breached ethi-
cal and contractual duties when it failed
to monitor the funds and failed to prevent
its employees from improperly diverting
such funds.
policies can force companies into filing a
legal malpractice lawsuit.
malpractice lawsuits. In many of these
cases the attorney attempts to represent
multiple clients in a transaction or dis-
pute and is accused of failing to properly
advocate for one client's interests over
those of the other client. In Reserve
Management Company, Inc. (RMCI) v.
Willkie Farr & Gallagher LLP and Rose
F. DiMartino, a mutual fund management
company, RMCI, brought legal malprac-
tice claims against its former outside
counsel. RMCI was the investment man-
ager of a mutual fund, and the law firm
represented both RMCI and the Fund.
RMCI contends that, because the law
firm was also representing the Fund at
the time, the law firm failed to properly
advise RMCI in negotiating its manage-
ment agreement, which caused RMCI
liabilities RMCI is now facing. Compa-
nies should identify such conflicts prior
to the beginning of representation and
either retain conflict-free outside counsel
or demand that proper conflict walls be
erected, to avoid being forced into legal
malpractice litigation.
practice claims arise when the attorney
missed an important date or deadline,
effectively barring recovery or a benefi-
cial result. Whether engaged in litigation
or transactions, companies should always
be fully informed of any applicable
statutes of limitations, statutes of repose,
deadlines or other critical timing issues.
At the outset of any representation a
company should require that outside
counsel provide a memorandum on the
critical dates and deadlines for the mat-
ter. Moreover, outside counsel should be
required to provide periodic updates on
how these deadlines have been met and
how they have changed. By doing this,
companies can monitor the progress of
the matter and outside counsel is kept
constantly aware of the dates and dead-
lines that it must abide by. Adopting this
practice into OCGs can help to reduce
the risk that a company will be forced to
file a legal malpractice lawsuit.
tions on legal malpractice prevention in the drafting of
this article.