Archive for October, 2011


Court of Appeals Confirms Assignability of legal malpractice claim — Georgia a minority of states allowing such a claim

In Villanueva v. First American Title Ins. Co., 2011 Ga. App. LEXIS 933 (Oct. 27, 2011), the Georgia Court of Appeals decided a case of first impression and held that a closing attorney could be sued by an assignee of a legal malpractice claim.  Unlike most states which forbid the assignment of a legal malpractice claim on public policy grounds, the Court of Appeals held that legal malpractice claims that arise out of an interest in property may be assigned. 

The opinion relied upon OCGA 44-12-24 in finding that the assignment was proper since the legal malpractice claim was a property interest and not a personal injury, fraud or reputation claim.

In general, under Georgia law, a right of action is assignable “if it involves, directly or indirectly, a right of property,” while “[a] right of action for personal torts or for injuries arising from fraud to the assignor may not be assigned.” OCGA § 44-12-24. “Personal torts” are torts involving an injury to the person, to the reputation, or to feelings, as distinguished from an injury or damage to real or personal property, which is a property tort.  OCGA 44-12-24 “codifies the common law prohibition against assignment of personal injury claims.” 

Legal malpractice claims often involve injury to property in the form of financial loss, rather than personal injury, and therefore may be assignable under OCGA § 44-12-24. And here, the alleged legal malpractice is not based on fraud and does not involve an injury to the person, to the reputation, or to feelings.Instead, the loss is solely a financial loss, it involves a right of property, and it is assignable. “A party may assign a cause of action involving a tortious injury to his property.” 

(Citations omitted.)  Georgia is definitely in a minority of states that permit legal malpractice claims to be assigned.  The reason for not allowing legal malpractice cases is already a part of Georgia law.

Thus, “[c]ertain classes of contracts are inherently non-assignable in their character, such as promises to marry, or engagements for personal services, requiring skill, science, or peculiar qualifications. When rights arising out of contract are coupled with obligations to be performed by the contractor and involve such a relation of personal confidence that it must have been intended that the rights should be exercised and the obligations performed by him alone, the contract, including both his rights and his obligations, can not be assigned without the consent of the other party to such contract. The rule is sometimes stated by saying, ‘Contract rights coupled with liabilities, or involving a relation of personal confidence between the parties, can not be transferred to a third person by one of the parties to the contract without the assent of the other.’ [Cit.]”

Decatur North Assoc. v. Builders Glass, Inc., 180 Ga. App. 862, 350 S.E.2d 795 (1986).  These principles were clearly ignored by the Court of Appeals in its decision.  The opinion greatly expands the potential liability for attorneys and law firms.

Hopefully the Supreme Court will get a chance to review this opinion.


Scary fraud targeting attorneys

Lawyers are being victimized with common schemes that recall the e-mail fraud schemes from years past.  It is very important for attorneys to be aware of this scam.  It often appears to be legitimate and profitable relationship.

Basics of the fraud:

The schemes are relatively simple check frauds.  Typically, the attorney is contacted by someone purportedly acting on behalf of a foreign corporation that is owed money in a relatively simple collection matter by an American debtor.  The attorney is contacted almost always by e-mail.  The attorney is hired, often with the promise of an easy and large contingency fee recovery.  The purported client will execute a retainer agreement if asked.  Either at the beginning of the representation or shortly thereafter, the attorney is told that the debtor will pay the debt and issue a cashier’s check to the attorney.

Variations of the scheme include acting as local counsel in a divorce settlement where the “debtor” is a rich spouse that needs to make certain scheduled debts, or reminiscent of the Nigerian scams of days past, the client claims to be a wealthy dignitary or royalty who needs help getting money out of a foreign country.  In all cases, the attorney must simply receive the funds and then wire them to a designated account. 

In all cases, an attorney will receive a forged cashier’s check purportedly drawn on a familiar bank.  The attorney is instructed to deposit the check in the lawyer’s bank account and wire the funds to the designated account, minus of the course the generous contingency or other fee.   

Typically, the attorney’s bank will make the funds “available” to the attorney prior to the time the Bank confirms that the check is legitimate and the funds collected.  The fact that the Bank makes the funds available is for the depositor’s convenience and consistent with the deposit contract.  Consequently, when the fraud is discovered and the cashier’s check rejected, the Bank is permitted to reverse the transaction and credit given to the law firm.  Confirming the funds are collectible can take a week, whereas the wire from the attorney’s trust account happens nearly immediately.   By the time the fraud is discovered, the money and client are gone.

If a common trust account was used, the Bank will recover the wire transfer from other, innocent client’s funds.  The attorney must make good on the removed money or be in violation of bar rules and face liability to clients.  If a specific account were created, the Bank will demand repayment from the attorney.  The attorney is legally obligated in most cases to repay the overdraft under the depositor agreement.  Most cases involved hundreds of thousands of dollars of exposure.

To add insult to this injury, the claim may not be covered by E&O insurance.  Several opinions throughout the country have litigated the issue of coverage in these cases.  The argument is typically over the issue of whether the check funding process is providing “professional services” and “ministerial duties that occur in all types of business.”  In other words, is the deposit of funds in a trust account and the payment of those funds from a forged check a liability arising out of “professional services.” 

The decisions are now mixed.  A discussion of these important coverage decisions will follow next week.


Professional Liability Section of State Bar Working on Statute of Limitations

Legislation and sausage - just show me the finished product thank you.

The Supreme Court of Georgia’s opinion in Newell Recycling of Atlanta, Inc. v. Jordon Jones & Goulding created some uncertainty as to the statute of limitaions apploicable to certain professional liability claims.  Attorney Defender has discussed the issue here and here

That may soon change.  The Professional Liability Section of the State Bar of Georgia is working on proposed legislation that would specifically deal with the statute of limitations for claims asserted against attorneys and accountants in light of the recent Supreme Court opinion 

A committee that includes the author is working on a draft of the proposed legislation from the defense perspective.  Another committee is working on a claimant’s version to propose.  Thereafter, the two sides will attempt to agree on a joint proposal.  I will keep you updated.

Kim Jackson Cleans Up The Mess

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