2012 PROFESSIONAL LIABILITY UPDATE - Eckert Seamans

In Capital Care Corp., the Superior Court was presented with the issue of whether a causeof action for legal malpractice could lie against an attorney who formally withdrew fromrepresentation of a client corporation, but who continued to assist in handling the corporation’slegal affairs. At trial, Plaintiff corporation asserted that Defendant attorney made falserepresentations to the corporation at a shareholders’ meeting prior to its sale, which resulted inthe corporate assets being sold for an inadequate price. The jury found in favor of Plaintiffcorporation and awarded $2.5 million in damages for the claim. Defendant attorney filed forpost-trial relief, requesting judgment notwithstanding the verdict, and the trial court granted therelief.On appeal, Plaintiff corporation asserted that the trial court erred in entering judgmentnotwithstanding the verdict because it had presented sufficient evidence to prove that theattorney provided legal services during the corporate shareholders’ meeting. The Superior Courtagreed, finding that while Defendant attorney had formally withdrawn from representation of thePlaintiff corporation, it continued to provide legal services with respect to matters of corporategovernance, and in representing the corporation in hearings before the United States Securitiesand Exchange Commission. Id. at 83.The court maintained that despite the Defendant attorney’s formal withdrawal fromrepresentation, he continued to assist in corporate legal matters, his area of expertise, and that itwas reasonable for Plaintiff to believe that the attorney was still representing the corporation atthe time of the shareholders’ meeting. Id.In Capitol Surgical Supplies, Inc. v. Casale, 86 Fed. Appx. 506 (3d Cir. 2004) (notprecedential), the United States Court of Appeals for the Third Circuit held that there was noattorney-client relationship when an attorney drafted an exclusive distribution agreementbetween a corporation and a product manufacturer on behalf of the manufacturer, but includedprovisions proposed by the corporation. The Third Circuit reasoned that there was nevercommunication between the corporate representatives and the attorney that indicated an attorneyclientrelationship and that while the attorney added to the agreement the provisions set forth bythe corporate representatives, he had never discussed with them the legal ramifications of thoseprovisions or commented on them. The subjective belief of the corporate representatives that anattorney-client relationship existed was not sufficient to establish privity.In Kirschner v. K & L Gates LLP, 2010 WL 5504811 (C.P. Allegheny Dec. 28, 2010),Gregory Podlucky was the company’s sole shareholder of common stock and its chiefexecutive officer. Three investors owned preferred stock in the company. The defendantlaw firm was hired to provide legal advice to a special committee created in 2003 by Le-Nature’s board of directors to investigate allegations raised by three financial managerswho resigned due to concerns about the accuracy of the company’s sales figures. Thespecial committee and the defendants failed to uncover the fraud being committed byGregory Podlucky. The fraud was not uncovered until 2006.The engagement letter from the defendant to the chair of the special committeestated “[y]ou have asked us to represent the Special Committee . . . of Outside Directors ofLe-Nature’s Beverages, Inc. . . .” The defendant hired an accounting firm to assist in its156