Legal Developments and Risk Management Tips Impacting the Professional Liability Community.
Professional have become increasingly reliant on digital technology to run their practices. This digital revolution has reshaped the way that many professionals operate and has allowed professionals to better service their clients. At the same time, reliance on technology has created new areas of exposure for professionals.
For the second time in a few weeks, the Second Circuit dismissed a securities fraud claim targeting an independent auditor. In Special Situations Fund III QP, L.P.,, the Court was tasked with reviewing the trial court’s dismissal of plaintiff’s second amended complaint. The underlying allegations were that the company disclosed that its former CEO and other executives had committed fraud for years by misstating its financials and embezzling funds. Plaintiff alleged that the company’s independent auditor committed securities fraud by issuing a “clean audit opinion” of the company. Ultimately, the Appellate Court upheld the dismissal on the grounds that the plaintiff failed to properly plead the requisite element of scienter.
It’s not uncommon for small or solo attorneys to join together with others to share in operating and overhead costs of running a law firm. Attorneys can sometimes share office space, personnel and equipment yet run completely different practices independent of each other. However, what happens when one attorney is sued? Can any of the other attorneys also be held liable? Of course not, right? Well, according to a decision out of Tennessee it’s not entirely out of the question.
Professionals love to advertise success stories. We want would-be clients to know the results we achieved for current clients. However, publicizing specific results could lead to the disclosure of confidential information. Professionals therefore must be cognizant of whether advertising a particular case or representation is likely to cause embarrassment or harm to the client, and ensure client confidentiality.
Many professionals are driven, competitive, proud and devoted to their craft. Professionals want to achieve success for their clients, they want to win. But what defines success? Professionals must stay within the rules of the road at all times or the result will most certainly be a total failure. Take for example the attorney accused of conspiring to setup his adversary on a DUI charge. You can’t make this stuff up.
Unlike most malpractice scenarios, alleged negligence is not enough to sustain a claim in the context of securities fraud against an independent auditor. Rather, in most jurisdictions the plaintiff must establish that the audit was of such little value that it was a “pretend” audit which provided no benefit. Alleging that the auditor could have done more is insufficient absent properly pled allegations that the auditor maintained an evil intent or acted with reckless conduct. This standard is fairly well-developed. Yet, the exposure is often considerable and “victims” of alleged fraud committed by public companies continue to target the independent auditors engaged to audit those companies. A recent decision out of the SDNY highlights another victory for the defense community in securities fraud cases targeting an auditor.
Professionals must play the hand they’re dealt. Good, bad or ugly, a professional assesses the situation and provides a recommendation as to how to overcome certain obstacles and achieve the client’s objectives. However, professionals do not have unfettered authority. Rather, all classes of professionals are bound by certain guidelines which delineate how a professional must behave on behalf of the client. Professionals that stay the course will not be held accountable for the client’s indiscretions, mistakes or even intentional wrongdoing. But, in the rare scenario when a professional is complicit with the client, both may be held liable.
Hired for A but sued for Z? It may be a more common problem than you think. In overturning a lower court’s decision granting summary judgment, the Appellate Division of the New Jersey Superior Court has added yet more fuel to the fire in the ever-evolving debate as to the scope of representation. In a recent decision, an appellate court held that an attorney tasked with a seemingly simple and defined engagement, may actually be on the hook for much more. This serves as an important reminder to effectively communicate with the client to ensure there is a consensus as to the scope and limits of the engagement.
In many states a litigant cannot proceed with a professional liability lawsuit without an appropriate affidavit of merit. As our handy table shows, each state has its own rules as to AOM requirements and other details regarding substance and form. Simply filing an AOM though is not always enough. Ensuring that the AOM has been prepared by the appropriate professional and addresses the issues of the particular case is critical to surviving a potential motion to dismiss. Take for example two recent cases out of New Jersey.
Had a great vacation? Post it on Facebook. Fun surfing? Post that too. Swam some laps while on FMLA leave due to a shoulder injury? You should probably keep that one to yourself. Employers continue to struggle with balancing their own marketing interests with the interests of employees in maintaining a social media presence. Of course, an employee’s use of social media may not always comport with an employer’s interests as identified in its social medial protocols or otherwise conflict with accepted practices. Take for example the recent decision from the Middle District of Florida.