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Medical Malpractice / Personal Injury /
Appellate Practice / Insurance Bad Faith
more nuanced facts and a focus on civil
claims rather than regulatory discipline.
The potential claims asserted against
a law firm will turn on the facts of the particular case involved. Securities claims
against law firms, for example, often
depend on whether the law firm participated in the sale of securities to the
investors (see generally Hines v. Data
Line Systems, Inc., 114 Wn.2d 127, 147-51,
787 P.2d 8 (1990)). Aiding and abetting
claims are more common and were discussed extensively in the Ponzi scheme
context, albeit as it related to a bank, not
a law firm, in In re Consolidated Meridian
Funds, (485 B.R. 604 (Bankr. W.D. Wash.
2013)). Ironically, traditional legal malpractice claims — at least by defrauded
investors — have less traction because,
under Hizey v. Carpenter (119 Wn.2d 251,
260-61, 830 P.2d 646 (1992)), a plaintiff
generally must have been the client of
the lawyer to have the requisite standing.
In the Norton case noted earlier, for example, summary judgment was entered
on a legal malpractice claim because the
defrauded investors where not clients of
the law firm.
When a law firm has represented a client who turned out to be the mastermind
of a Ponzi scheme, there is probably no
practical way to avoid the fallout entirely.
Firms can, however, take three proactive
steps that will lessen their risk.
FIRST, define the client at the outset in
a written engagement agreement. A relatively common scenario after a Ponzi
scheme unravels is for the mastermind
of a corporate client to argue that he or
she was also an individual client of the
firm to disqualify the firm from assisting
the corporation or to assert privilege over
conversations with firm lawyers. Both
state (Bohn v. Cody, 119 Wn.2d 357, 363,
832 P.2d 71 (1992)) and federal (United
States v. Graf, 610 F.3d 1148, 1159-61 (9th
Cir. 2010)) law will give great weight to
written engagement agreements in determining whether an attorney-client relationship exists.
SECOND, define the scope of the repre-
sentation in a written engagement agree-
ment. If, for example, you have been hired
to handle a very discrete matter, make
that plain in your engagement agreement.
Assuming you acted consistent with that
agreement, it will be more difficult for a
third party — such as a defrauded investor
— to argue later that you were privy to the
client’s inner workings in other areas.
THIRD, be wary about making statements
on your website about being a client’s gen-
eral counsel. As the Consolidated Meridi-
an Funds case explains, theories of aiding
and abetting fraud or breaches of fidu-
ciary duty are predicated on knowledge
of the fraud or breach. Firms that openly
advertise that they are a client’s general
counsel will have a much more difficult
time explaining why their lawyers weren’t
aware of incendiary facts. NWL
MARK J. FUCILE of
Fucile & Reising LLP
can be reached at