Legal malpractice? What recourse does my friend have?

Lavender Room
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I am relaying some information for a friend of mine. I figured that some of the lawyers here could provide some thoughts as to what recourse my friend has. He is out approximately $70k for a business (worth 5 times that) that was taken from him by his partner. Plus, he paid legal fees for which he did not receive the services that were expected. This happened in Florida.

He is debating on whether or not to hire an attorney to sue his previous attorney, but doesn’t know if he will lose. He is also concerned that too much time has passed to sue his former business partner - because his attorney took too long to take action.

Can anyone here provide some thoughts?

A friend of mine went into a business partnership with another guy to open a liquor store. My friend owned 35% of the shares and his partner owned the rest. They ran it for almost four years and even expanded to a bar. After 4 years, they had about $250k in inventory

One night his partner came in and told him that he was in bad financial trouble and had agreed to sell the business to someone for $70k. At the time, they had $250k in inventory plus a valuable liquor license. My friend said that he did not want to sell the store, and definitely not at that value – but the partner told him he had no choice.

He found out that what had actually happened was that the partner sold ONLY my friend’s shares and had gotten $70k for them, but was only paying my friend $20k. All this happened after they had paid off several SBA loans. They also received a settlement for BP (not sure how much) that my friend should have been entitled to.

My friend then hired an attorney to recover money from the sale of his shares as well as the portion of the BP settlement, but also to protect him from liability/debt incurred from the other owner. He had not cashed the check for $20k, but the lawyer told him to do so since he was under duress.

My friend called the attorney on a regular basis asking about the status and was informed that things were progressing. Fifteen months after hiring the attorney, my friend discovered that a lawsuit had been filed against him by his former landlord because the former business partner had failed to pay rent and my friends name was still on the contract. His attorney assured him he would handle it. The lawsuit was filed in January 2012 and my friend had hired the attorney on Nov, 2010. It took six months to clear up that lawsuit, at which time his attorney told him the retainer fees had been consumed. The lawsuit had a negative impact on a job he was trying to obtain as an insurance adjuster.

In October 2012 he received an e-mail stating that the finishing touches had been put on the case and that it was then on contingency. He was asked to bring in a filing fee, which he did. To this date, no case has ever been filed even though he paid the filing fee.

My friend and his attorney exchanged over 140 text messages (still saved) and phone calls during which the attorney assured him that he would file the case within a day or two and would provide the case number to him. But this never happened.

Finally, the attorney told him that he could no longer represent my friend because there was conflict of interest.

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he needs to get a different business litigation attorney in florida, ASAP.

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A similar situation with my mother:

She fell on some poorly maintained stairs outside a restaurant and broke her hip, necessitating a hip replacement. The restaurant offered her $10K to settle. On my advice she didn’t take it. I told her to ask her attorney who handled her will for a recommendation for a good PI lawyer, and he referred her to one. I kept asking her if she had heard anything, and all she ever could say was that the attorney told her he was working on it. After two years went by, the attorney finally contacted her and asked her to come in. When she got there, the attorney wanted her to sign a statement that she had not been fully in control of her mental faculties at the time of or after her accident. She stated that she was not in any way mentally impaired before or after her accident, and asked the attorney why he wanted her to sign that statement. Well, as it turns out, he had forgotten to file the lawsuit, and the two-year statute of limitations on PI suits had lapsed. So, he was trying to get an extension due to her “mental incapacity” which caused HER to be late in pursuing the case. So, he was asking her to acquiesce to two big lies–(1) That she didn’t pursue the case in a timely manner, which was definitely not true; and, (2) That she was mentally incapacitated, which she definitely is not, to cover HIS ass for failing to file the paperwork.

Long story short–she hired another attorney who sued the first attorney for malpractice. She won and got a $100K settlement.

So–it can happen.

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hehehe. Good luck. My experience is the only lawyers that get in trouble in this state are those are convicted for an unrelated felony, blatantly steal money from their clients (not paying a settlement, or stealing form an escrow), or continue to advertise contrary to how the bar tells them to (not supposed to say they are the best trial lawyer in town, etc.).

Look how long KEL has managed to stay in business despite all the issues they have had. ANd they have some of the most powerful lawyers in the state trying to get them disbarred.

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I’m so very confused.

How did the other owner “Sell” his stock? Unless your friend signed away his stock the other partner can’t sell his stock no matter what the ratio is. If he signed his stock away in an agreement for some price, then I can’t see that he has a suit at all. If he did not sign away the stock then rather then trying to recover what his stock was sold for he should be bringing a criminal.

The idea that one attorney didn’t do anything is moot, get another attorney. If something was paid to that and the attorney did not deliver attorney then that is an entirely different suit.

**but the partner told him he had no choice. **

What matters is what happened after this. “No choice” meaning the other partner sold his stock without him knowing or “No choice” meaning the other partner drew up a buy/sell agreement that your friend signed. IF you’re friend signed a buy sell agreement that said he would sell his stock for 20K then he is FUBAR. The other guy bought it, then sold it to someone else for 70K walking away with 50K profit and you’re friend is SOL. Did he get an attorney for the buy sell assuming one was drawn up?

Edit to add: if the case is that your friend signed a buy sell then I would not pursue the other suit against the other attorney either as in the end the attorney did nothing, but also had nothing to do as there is no suit to be had. Whatever he paid the attorney was “Services rendered” not “I didn’t do what I was supposed to”.

~Matt

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A legal malpractice action is a huge pain in the ass. The friend needs to mitigate his damages by pursuing all of his remedies against the former partner, first. I don’t think he will find many lawyers willing to take a $70,000 legal malpractice case on a contingent fee, so he may be paying an hourly fee.

Is he prepared to throw good money after bad?

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At the time, my friend thought that the partner was selling the entire business for 70k as that is what he was told. In fact, the partner changed the locks so that he could not get into the business. The partner kept telling him that since he (the partner) was the majority stock owner he could sell the business whether my friend wanted him to or not.

I just spoke to him and he said that he did sign an agreement to sell, but only after he had been locked out and told that he wouldn’t get anything if he didn’t sign it. He felt that he had no other option since that was the only money that he had available since he could not continue drawing money from the business.

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A legal malpractice action is a huge pain in the ass. The friend needs to mitigate his damages by pursuing all of his remedies against the former partner, first. I don’t think he will find many lawyers willing to take a $70,000 legal malpractice case on a contingent fee, so he may be paying an hourly fee.

Is he prepared to throw good money after bad?

That is the question and the purpose behind this post. I would think that a successful malpractice suit would pay more than just the original 70k. If nothing else, he suffered mental anguish from being sued by the landlord 15 months later when his lawyer was supposed to protect him from that. I would think that malpractice would pay for more than the original amount, wouldn’t it?

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I just spoke to him and he said that he did sign an agreement to sell, but only after he had been locked out and told that he wouldn’t get anything if he didn’t sign it. He felt that he had no other option since that was the only money that he had available since he could not continue drawing money from the business.

If he signed it the other partner has a contract that was legally signed. All your friend has is a hearsay claim that he was coerced to sign it.** **That may or may not be the case but my guess is that the amount of money spent in an attempt to prove that was the case is going to cost more then what he has to gain.

Look at it this way. At MOST he lost 50K. Whatever legal bills he has to pay will come off the top of that. My guess is that there’s no way he’s getting 50K even if he wins. He might get something but more then likely it will be entirely eaten up by the legal fees.

Again my guess is that his attorney looked at this and said “Not worth it”. What was paid to the attorney was to fund the time spent for the attorney to find out your friend had no case.

Your friends story is a perfect example of why you hire an attorney BEFORE you make any transactions, not after. I’m not an attorney but IMO your friend is SOL and just got legally screwed out of 50K.

~Matt

Edit to add: Had your friend gone to an attorney as soon as the person mentioned selling the attorney would have informed him that he could hold onto his stock no matter what. HE would have also likely informed him that the other partner could likely not lock him out of the premise, depending on the situation. If there was a case of a draw, I’m guessing there was no agreement here but if there was history, he would have a case to make that the other partner could not stop his draw without stopping his own. In short calling an attorney this would have turned into a completely different situation.

To make matters worse he squandered what might have been a good possibility of getting a larger portion of the company. If his partner was in financial trouble he could have convinced him to sell part or all of his stock for a discounted price. Cash has a way of making people do these things. If the company was worth 250K his 35% was worth 87.5K and the partners 162.5K. If your friends partner needed 50K maybe he could have picked up another 35% or more of the stock for that price.

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For the most part I agree with you. Where it bothers me is that his attorney kept telling him he was working on it and that he was filing suit, even having my friend pay the filing fees. My friend has dozens of text messages where the attorney said he was filing a suit. The attorney then drug it out so long, that it may have passed the statute of limitations.

He never told my friend that he didn’t have a case - but always the opposite until he told him that he couldn’t represent him because there was a conflict of interest.

Again, to my untrained eye - my friend has a greater case against his former attorney than he does against his former partner.

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He never told my friend that he didn’t have a case - but always the opposite until he told him that he couldn’t represent him because there was a conflict of interest.

Again, to my untrained eye - my friend has a greater case against his former attorney than he does against his former partner.

That could very well be the case and in fact if there was a conflict of interest, even malicious intent, in the sense that the “Conflict” was that the attorney was protecting the other partner that could actually be evidence that indeed he was coerced to sign. Again however that is next to impossible to prove but the conflict of interest and case against the attorney would be easier.

Again however what’s to be gained? If he had no case against his partner then what did he lose by the case never being filed? The most he would get out of it is whatever he paid the attorney and probably not that.

Again, not an attorney, but best possible outcome is that somehow it all comes together and he wins against the partner and attorney. HE gets his 50K and whatever he paid the attorney, but from that he has to pay another attorney. Probably quite a bit and I think it’s a REAL long shot that he wins either case…which means he pays out of his pocket.

Worst case he doesn’t win and ends up with a 10-50K attorney bill.

~Matt

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he needs to get a different business litigation attorney in florida, ASAP.

Emphasis on the ASAP.

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I would think that malpractice would pay for more than the original amount, wouldn’t it?

Not necessarily. As I stated above what did he lose by the actual malpractice if it existed? If he had no original case then he only lost what he paid the attorney by not getting the services he paid for.

All the other stuff “Pain and anguish” is really a complete toss up and could be worth nothing or millions. If you can find an attorney to take the case for a part of the settlement then go for it. I wouldn’t personally spend a dime on it.

~Matt

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A friend asked the same question recently. She and her husband tried to short sell their home since there was no way they could sell it otherwise. They pre-paid a lawyer, who told them to basically not pay on the mortgage and get rid of all excess cash in order to qualify and negotiate. Long story short, the sale didn’t go through, they want to sue their lawyer. Because I’m not a very warm and fuzzy person, I found it very easy to laugh at their stupidity when they asked if they should sue.

This story plays out daily here, there have been articles about it. It is nearly impossible to sue a lawyer. You actually want to see a case that a judge dismisses sooner than later, sue another lawyer.

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I just spoke to him and he said that he did sign an agreement to sell, but only after he had been locked out and told that he wouldn’t get anything if he didn’t sign it. He felt that he had no other option since that was the only money that he had available since he could not continue drawing money from the business.

Minority shareholder rights is largely dependent on state law. The majority shareholder likely had a fiduciary duty as a board member and officer, but probably not in his capacity as a shareholder.

This is often the problem with closely held corporations, when there’s no shareholder, buy/sell or other agreement, nor by-laws that deal with the issue. Sometime, a minority shareholder doesn’t have much recourse, even from being locked out, so long as the majority shareholder isn’t breaching any fiduciary duty he or she might have as a board member or officer. This can significantly impact the value of the minority shareholder’s shares, especially in cases where the minority shareholder is trying to sell to the majority shareholder. (I recognize that may not have been the case here.) I’ve seen cases where a corporation was run properly, with no dividends paid out, leaving the minority shareholder receiving little to nothing from his investment for years – this might be possible so long as nobody breaches their fiduciary duty.

It’s a different case when the entire corporation is sold. But if he agreed to the sale price, absent fraud or unlawful duress (difficult to prove), it might be difficult to claim he didn’t get what he was entitled to, even though he felt like he had no option.

Obviously, it’s a big no-no for a lawyer to blow a statute of limitation. But even if that happened, he might still be required to prove in a malpractice claim that he had a legitimate case that he would have one or recovered on. In other words, if he would have lost the underlying case, he may not have been harmed by the failure to file. That wouldn’t mean that lawyer couldn’t be reported to the state bar.

It’s all complicated, which is why your friend should see a lawyer asap. And this time, he should get a good one.

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One of the problems is that it sounds there are several legal issues going on and there may be a dispute about whether the attorney was retained to handle all of them. Hopefully, there is a written fee agreement. If the fee agreement says lawyer handles an action against the former partner, lawyer’s insurance company will say that he was never retained to handle the suit by landlord.

Friend will have to prove that he would have won against the landlord suit if not for the lawyer’s negligence. If his name is on the lease, the landlord may have a claim against him anyway.

Even though people hate lawyers I don’t see a jury giving him money for mental anguish for being named in a lawsuit.

Have your friend hire a reputable lawyer to clean up the mess left unfinished by the now conflicted-out lawyer. He can also ask about the feasibility of any malpractice actions. As I mentioned earlier, he can’t determine his damages until he tries to collect from the former partner. If the new lawyer can still collect everything that was available in the first place, his only damages are the fees paid to the first lawyer.

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In the states in which I have practiced, to prevail on a legal malpractice claim, you have to prove a case within a case. In other words, your friend will have to show that had the attorney filed the case against the business partner, your friend would have won. There may be other theories under which some of the fees paid could be recovered, but if limitations has run on the claims against the business partner (I’m assuming that’s where the real money is), he’ll have to prove the case within a case. I don’t know if Florida law is different; it may be.

The conduct of your friend’s attorney is similar to many attorneys who are subject to disciplinary proceedings. Your friend should report the lawyer to the disciplinary committee for your state and also hire counsel to get an opinion on his options. Legal malpractice claims can be complicated and expensive, but lawyers are required to carry insurance, so there is a potential source of recovery.