Negligent Referrals ABK pub

Document Sample
Negligent Referrals ABK pub Powered By Docstoc
					     In this age of specialists, many lawyers   knowledge of the referred attorney's                      Department of Labor's recommen-
refer clients and potential clients to          incompetence, a cause of action for negligent        dation of prospective employees for the
other lawyers more experienced in a             referral may be recognized in Pennsylvania.          claimant's business. 15 The Department
given area of law. Similarly, professionals     In Tormo v. Yormark,5 the U.S. District Court        of Labor advised claimant that prospec-
in different fields refer to other profes-      for New Jersey addressed whether a referring         tive employees would be recruited,
sionals. Indeed, the referral process is a      attorney was negligent in transferring his           screened and interviewed by the
productive source of new business.              client's case to a criminally indicted               Department.16 The court held that the
However, under recent case law, referring       attorney who subsequently embezzled                  Department's screening process was
without exercising due diligence may be         the client's funds.6 The court recognized a          voluntarily undertaken and must be
actionable.                                     claim for negligent referral involving the           performed with due care.17 It held that
                                                lawyers, by denying the attorney defen-              such duty was performed negligently,
     Recently, New York's Appellate             dant's summary judgment motion. By                   resulting in a theft at claimant's business
Divisions in the First, Second and Third        denying summary judgment, the court                  by an employee recommended by the
Departments, and a number of other state        implicitly recognized a claim for negligent          Department who was previously involved
courts, implicitly recognized negligent         referral among lawyers. The court went               in thefts, and thus warranted plaintiff's
recommendation/referral as a potential          on to state that a jury could find that the          recovery of damages.18
cause of action. While New York does            referring attorney had a responsibility to
not yet expressly recognize "negligent          check the referred attorney's qualifications.7            Of even more concern to referring
referral" or "negligent recommendation"                                                              parties is the First Department's decision
as a cause of action, such a claim may be            The court stated that the referring             in Friedman v. Anderson,19 denying an
supported by applying the tort of negligent     attorney's responsibility arose from his             accountant's motion to dismiss based
misrepresentation. A claim for negligent        "duties as an agent toward his [clients] and         upon the recommendation of a financial
recommendation/referral may also be             from his affirmative conduct in bringing             manager. In Friedman, the court referred
supported by the scope of duty voluntarily      his clients into contact with a person of            to Rule 201 of the American Institute of
taken as part of a professional's responsi-     previously unknown character under                   Certified Public Accountants (AICPA),
bility under the rules governing profes-        circumstances affording the opportunity              which states that accountants "shall
sional ethics, conduct and responsibility.      for crime."8                                         obtain sufficient relevant data to afford
                                                                                                     a reasonable basis for... Recommenda-
     Historically, most jurisdictions have           It noted that the referring attorney,           tions in relation to any professional
only recognized claims for negligent            who was from New York, might not be                  services performed."20 The court found
referral in the area of medical malpractice.    required to know of the other attorney's             that the AICPA promulgated ethical
In New York, "[i]t is generally true that       indictment in New Jersey,9 but that a jury           and practical rules and measures profes-
the mere referral of a patient by one           could conclude that the referring attorney           sional standards requiring accountants to
physician to another, without more," is         was negligent because he should have been            "obtain sufficient data to afford a rea-
insufficient to "render the referring           suspicious of the other attorney's solicita-         sonable basis for conclusions or recom-
doctor vicariously liable" for the negligent    tion of clients in violation of the Code of          mendations in relation to any profes-
treatment of the patient by the referred        Professional Responsibility.10                       sional services performed."21 The court
doctor.1                                                                                             further held that by recommending the
                                                     The court found that the alleged neg-
      A Pennsylvania federal district           ligence selecting the attorney could be a            money manager to plaintiff, defendant
court held that "negligent referral to a        proximate cause of plaintiff's damages               accountants were required to perform
specialist, i.e. when the referring physician   and allowed the negligent referral claim             professional services with due care.
knows or has reason to know the specialist      to proceed.11                                            The potential breach of that duty
is incompetent, may be a basis for liability                                                         and damages resulting might form a
under general negligence principles."2               Recent New York appellate cases
                                                have questioned what was previously                  "proper basis for claims of negligence
However, the following year, a Pennsyl-                                                              and negligent representation."22
vania state court refused to apply the          considered settled law that "[t]he mere
same standards to the legal profession,         recommendation of a person for potential                  Notably, ethical violations by
ruling that Pennsylvania did not recognize      employment is not a proper basis for                 attorneys have not yet been conclusive
a cause of action for negligent referral.3      asserting a claim of negligence where                grounds for civil liability. Under prior
                                                another party is responsible for the actual          rules, the New York Court of Appeals
     Nevertheless, in the same opinion,         hiring."12                                           held that, even if an attorney's conduct
the court distinguished Tranor, stating that                                                         was contrary to the standards set forth
"appellant did not allege in her complaint           In Bryant v. New York,13 the Second
                                                Department held that where an individual             in DR 9-102 (also known as, section
that Appellees knew [the referred to]                                                                1200.46 of the New York Code of
Attorney to be incompetent."'                   voluntarily provides a recommendation or
                                                referral, that individual must perform the           Professional Responsibility), "an ethical
     The court considered the possibility       duty with due care.14 Bryant involved                violation will not, in and of itself, create
that where an attorney has actual               defendant.                                           a duty that gives rise to a cause of

NYSBA     N.Y. Real Property Law Journal   |  Summer 2010  |   Vol. 38  |   No. 3                                                            1 
action that would otherwise not exist at            Despite settled law that insurance              ery are permitted only when there is an
law."23                                        companies are not responsible for acts of            "intimate nexus... by contractual privity
                                               independent contractors they recommend,              or its equivalent."36
     Nevertheless, as demonstrated in          a claims adjuster's exaggerated recom-
Bryant and Friedman, the First and Second      mendation can open the door to a negli-                   Lastly, the Weisblatt court considered
Departments now recognize such inde-           gent recommendation or negligent mis-                but denied liability under a negligent
pendent causes of action. In making re-        representation claim. Analogous to New               misrepresentation theory. Plaintiff failing
ferrals, an attorney must act with due         York's Bryant case, affirmative referrals or         to assert a statement of false information,
care, such as has been found for account-      recommendations can lead to liability. An            and the single occurrence of her recom-
ants. 24 At the very least, an attorney        Arkansas court examined whether an                   mended attorney's mishandling of her
should advise clients in writing that the      insurance agent who provides a list of               case, does "not establish a lack of expertise
referral is not an express endorsement or      "competent" building contractors                     or experience" so as to make the CBA's
representation of actual services to be                                                             representations false.37 Apparently, if
rendered and that the client must make         to an insured can charge the insurer with            plaintiff actually alleged that the CBA told
that decision independently.                   the duty to determine the competency                 her the attorney recommended actually
                                               and qualifications of such contractors.29            lacked expertise" (contrary to CBA's
     On April 1, 2009, New York joined         The court held that the "gratuitous                  representations) or was deemed incom-
47 other states by adopting ABA's              undertaking to represent the competence,             petent on other legal malpractice
"Model Rules." The new rules thor-             insured, and bonded status of contractors            matters, her cause of action for negligent
oughly regulate fee splitting. Rule 1.5(g)     created a duty exercise ordinary care          misrepresentation might have been
governs fee splitting between attorneys.       to ensure that the information it commu-             recognized.
An attorney must advise his/her client         nicated was true."30 The court remanded
that fees will be split, including the         the case to determine whether the evidence                The case of Aiello v. Adar38 suggests
share each lawyer will receive. The fee        yielded proof of a causal connection be-             that a cause of action for 22 NYSBA N.Y.
cannot be excessive and must bear a            tween the alleged negligent recommenda-              Real Property Law Journal I Summer 2010 1 Vol.
relationship to services rendered and the                                                           38 1 No. 3 "negligent referral" exists in a
                                               tion and the plaintiff's injury.31
client must give written consent and,                                                               feesharing agreement. In Aiello, plaintiffs
significantly, both attorneys are jointly           The Illinois courts have also exam-             retained the services of attorney Issler
responsible for the work.                      ined possible liability for negligent refer-         to assert medical malpractice claims.39
                                               ral. An appellate court held that the Chi-           After preparing the claims, Issler referred
     More jurisdictions are expanding          cago Bar Association (CBA) was not li-               the case to attorney Starr, pursuant to a
the duties of other professions involving      able for negligent referral, but presciently         written fee sharing agreement.40 The
referrals and recommendations. Courts          detailed the potential loopholes wherein             attorneys agreed to share 50% of the
in Connecticut and Ohio have recog-            an individual attorney could be impliedly            contingency fee.41 Starr was to have
nized causes of action against real estate     liable for negligent referral.32 Plaintiff           "primary responsibility," but Issler
agents for "negligently" recommending          argued that defendant (CBA) lawyer re-               agreed to remain the attorney on record.42
home inspection companies.                     ferral service acted as a "referring lawyer"         A fee dispute arose between Issler and
     The New London Superior Court in          under the Illinois Rules of Professional             Starr when Starr filed a petition to
Connecticut denied a motion to strike          Conduct and owed plaintiff the same                  prevent Issler from recovering the
negligent referral as a cause of action.25     duty for the performance of services as              agreed 50%. Starr argued that he
It held that plaintiff purchasers and de-      the referred attorney.33                             performed 96% of the work and
fendant real estate agent entered into an                                                           accordingly Issler should only receive
                                                     Rejecting this argument, the Court
agreement creating a relationship, obli-                                                            his quantum meruit share.43
                                               found that the CBA was not a "lawyer"
gating defendant to exercise reasonable        subject to the provisions of the Illinois                  The court found the lawyers'
care in its recommendations.26 The             Code of Professional Responsibility and              agreement valid because it confirmed
court held that where a real estate agent      stated, "[o]nly where the referring entity           Issler would assume responsibility of
recommends a home inspector, "it is not        is a lawyer can such a responsibility and            the action and in no way limited the
an unfair burden to place on the party         is such a responsibility imposed."34 Thus,           client's rights against Issler only.44 A
making the recommendation to do an
                                               the Weisblatt court, like Friedman and Tormo,        recent case in the New York Appellate
appropriate investigation of the person
                                               did not shut the door to using ethical               Division Third Department suggests
recommended before the party makes
                                               violations as a basis for civil liability when       that a cause of action for "negligent
the recommendation."
                                               one attorney negligently refers another.             referral" for failure to supervise applies
     27 The court also noted that,             Furthermore, in response to plaintiff's              to a law firm recommending or referring
although the Restatement of Torts § 323        argument that she had pled a cause of                its client to another attorney to perform a
concerning the failure to exercise             action for negligent performance of a vol-           portion of legal services for the client.45
reasonable care only allows recovery for       untary undertaking, the court was con-               Plaintiff initially retained defendant to
physical harm, the cause of action is not      strained to limit recovery under such cir-           recover her interest in a partnership
defeated because defendant caused              cumstances, based on case precedent and              against Julius Gerzof, which defendant
plaintiff's emotional and physical             general tort recovery, to non-economic               successfully accomplished.46 However,
distress.28                                    damages. 35 It stated that the exceptions to         Gerzof died a resident of Florida before
                                               the general rule for economic loss recov-            judgment was satisfied.41 Defendants,

NYSBA     N.Y. Real Property Law Journal   |  Summer 2010  |   Vol. 38  |   No. 3                                                               2 
attempting to recover from the estate,           to brokers, engineers or mortgage compa-               22. Id.
sought the assistance of Florida counsel,        nies. Courts may hold the referring attor-             23. Shapiro v. McNeill, 92 N.Y.2d 91, 97
Scott Cagan, and the law firm of Bailey.         ney liable under tort theories of negligent            (1998).
Bailey did not file a notice of claim with       misrepresentation or where a duty is                   24. See Friedman.
                                                                                                        25. Marx v. McLaughlin, 2001 WL 837921
the Gerzof estate during the required            voluntarily undertaken, giving rise to an              (Conn. Super. Ct. 2001).
time period and thus plaintiff was unable        obligation to undertake such duty with                 26. Id. at *4.
to recover from the estate. Plaintiff            due care. Caveat advocatus.                            27. Id.
claimed, and the court agreed, that                                                                     28. Id. at *5.
"defendant (the referring law firm) is                                                                  29. Capel v. Allstate Insurance Co., 77
liable for damages resulting from Bailey's       1. Datiz v. Shoob, 71 N.Y.2d 867, 868 (1988).          S.W.3d 533 (Ark. Ct. App. 2002).
failure to file the notice of claim either       2. Estate of Tranor v. Bloomsburg Hosp., 60 F.         30. Id. at 543.
on the basis that defendant had a non-                                                                  31. Id. at 542.
                                                 Supp.2d. 412, 416 (M.D. Pa. 1999).
delegable duty to file such notice of            3. Bourke v. Kazaras, 746 A.2d 642 (Pa. Super          32. Weisblatt v. Chicago Bar Assoc., 684
                                                 Ct. 2000).                                             N.E.2d 984 (Ill. Ct. Cl. 1997).
claim or based upon defendant's negligent                                                               33. Id. at 989.
supervision of Bailey."48                        4. Id. at 644.
                                                 5. 398 F. Supp. 1159 (D.N.J. 1975).                    34. Id.
     The court explained that: [The]             6. Id. at 1170.                                        35. Id. at 988.
                                                 7. Id.                                                 36. Id. (citing Chew v. Paul D. Meyer M.D.,
general rule is that "[a] firm is not ordi-                                                             P.A., 527 A.2d 828, 832 (Md. Ct. Spec. App.
narily liable.. .for the acts or omissions of    8. Id.
                                                 9. Id. at 1170-71.                                     1987).
a lawyer outside the firm who is working                                                                37. Id. at 990-91 (Plaintiffs alleged that the
with the firm lawyers as co-counsel or in        10. Id. at 1171.
                                                 11. Id. at 1172-73.                                    CBA “provid[ed] an attorney referral service
a similar arrangement" (Restatement              12. Cohen v. Wales, 133 A.D.2d 94, 95, 518
                                                                                                        by which members of the public may obtain
Third of Law Governing Lawyers § 58,             N.Y.S.2d 633 (2d Dep’t 1987)(In Cohen, plain-          from this service the names of attorneys
Comment e), as such a lawyer is usually          tiff alleged that the board of education was           with purported expertise in specified areas
an independent agent of the client. Here,                                                               of law.”)
                                                 negligent for recommending a former em-
however, defendant solicited Cagan and           ployee for a position as a grammar school              38. 750. N.Y.S.2d 457 (N.Y. Sup. Ct. 2002).
                                                 teacher without disclosing that the former             39. Id. at 459.
Bailey and obtained their assistance                                                                    40. Id.
without plaintiff's knowledge. Although          employee had been charged with sexual mis-
                                                 conduct. Id. The plaintiff was injured by the          41. Id.
plaintiff was later advised that Bailey                                                                 42. Id.
                                                 teacher. Id. at 643. The court held that the
had been retained by defendant, she had                                                                 43. Id. at 460.
                                                 common law imposes no duty to control the
no contact with Bailey and did not enter         conduct of another or to warn those endan-             44. Id. at 465-66.
into a retainer agreement with that firm.        gered by such conduct in the absence of a              45. Whalen v. DeGraff, Foy, Conway, Holt-
Defendant concedes that plaintiff completely     special relationship between either the person         Harris & Mealey, 863 N.Y.S.2d 100 (3rd
relied on defendant to take the necessary        who threatens harmful conduct or the foresee-          Dep’t 2008).
                                                                                                        46. Id. at 101.
steps to satisfy her judgment against            able victim. Id. The court concluded that no
                                                 special relationship existed; rather a cause of        47. Id.
Gerzof. Under these circumstances,                                                                      48. Id.
defendant assumed responsibility to              action lies with the school district which had
                                                                                                        49. Id. at 102 (internal citations in the original).
plaintiff for the filing of the Florida estate   custody over plaintiff and hired the wrong-
                                                 doer. Id. See also Bell v. Perrino, 490 N.Y.S.2d
claim and Bailey became defendant's
                                                 821 (N.Y. App. Div. 2d Dept. 1985), where
subagent (see Restatement Third of Law           plaintiff was injured by a taxicab driver and
Governing Lawyers § 58, Comment e).              sued the company that had dispatched the
                                                 driver alleging the company was negligent in
    Therefore, defendant had a duty to
                                                 failing to supply, dispatch, and/or hire compe-
supervise Bailey's actions (see Restate-         tent, skilled, and licensed drivers and knew or
ment Third Agency § 3.15; Restatement            should have known that the driver was prone
Second Agency §§ 5, 406).49                      to violence and the use of firearms. The court
                                                 held that since the company was an independ-
     The Whalen decision supports the            ent entity providing dispatching services to
principle that law firms can be liable for       more than 20 cab companies in the area, it was
failure to supervise and/or for the negli-       not responsible for hiring the driver. Merely
gence of a referred attorney.                    recommending the driver was insufficient to
                                                 hold the company accountable for the driver's
     Conclusion                                  actions. Id. at 822).
                                                 13. 805 N.Y.S.2d 634 (2d Dep’t 2005).
Although New York courts remain generally        14. Id. at 636.
unsympathetic to causes of action for            15. Id. at 635.
negligent referral or recommendation,            16. Id.
given recent Appellate Division decisions,       17. Id. at 636.
practitioners should be cautious and             18. Id.
diligent with referrals and affirmative          19. 803 N.Y.S.2d 514 (1st Dep’t 2005).
                                                 20. Id. at 516.                                        Abraham B. Krieger is a member of the firm’s
recommendations. Real estate attorneys                                                                  Real Estate law practice at Meyer, Suozzi,
may be responsible for referring clients         21. Id.
                                                                                                        English & Klein, P.C.’s Garden City office.

NYSBA     N.Y. Real Property Law Journal   |  Summer 2010  |   Vol. 38  |   No. 3                                                                       3 

Shared By: