Associated counsel/expert gave bad advice: who’s liable to the client?

 In Legal Malpractice

Consider the following scenario. Outside general counsel for a company is asked some complicated tax questions, but lacks tax law expertise. They recommend a tax lawyer acquaintance to the client company, and the client company hires the recommended tax lawyer. Unfortunately, the tax lawyer gives bad advice, which ends up costing the client company a lot of money in penalties, fees, interest, etc. Is the outside general counsel liable to the client company for the bad advice given by the tax lawyer?

Most likely not. Recall that the elements of a legal malpractice claim are, (1) an attorney-client relationship, (2) a breach of a duty owed as a result of that attorney-client relationship, and (3) damages that flow from the breach. But, generally, you can only impute liability from one lawyer to another based on agency principles, such as their being within the same firm, or having some sort of joint relationship with the client. So long as there was no relationship between the tax lawyer and the outside general counsel, there would be no basis upon which to impute liability from the negligent tax lawyer to the outside general counsel. In fact, in this scenario, the client company hired the negligent tax lawyer, so the attorney-client relationship with regard to the negligent advice is solely between the company and the tax lawyer. Could the outside general counsel be liable for a negligent referral? Probably only if there was a fee sharing arrangement, as we discussed in a previous post.

Now, let’s change the facts slightly: outside general counsel receives the same request from client company, but wants to bill the tax lawyer to the client company on their firm’s billing statements. They’ll then mark up from tax lawyer’s rate for the client. Assume that the client company has already agreed to the marked-up rate. Now who has liability if tax lawyer gives bad advice?

Outside general counsel probably has liability for the bad advice in this scenario. First, the attorney-client relationship is still between outside general counsel and the client company. Second, the tax lawyer is being billed through on the firm’s billing statements, and the firm is splitting the fees charged for the tax lawyer’s services with the tax lawyer. So far as the client is concerned, the tax lawyer is a part of outside general counsel’s firm. Under this scenario, there seems to be a strong likelihood that outside general counsel’s firm would be responsible for any alleged negligent advice by the tax lawyer.

The take-away from both of these scenarios is, be careful both who you associate into client matters, and how they are associated. If your intention is that associated counsel be responsible or their own advice—especially if they are giving advice on a specialized topic of law about which you are not experienced—then they need to have their own attorney-client relationship with the client. You also have to be very careful about how any fees are split, and avoid any fee splitting at all if there’s a desire to insulate your firm from potential claims. That may be particularly important where the associated/referred counsel practices in an area that’s not part of your firm’s practice areas as declared to your insurance carrier, which could mean that claims based on those activities or possible negligent advice may not be covered by your firm’s malpractice insurance policy. Check your policy, review Rule 1.5 of the Georgia Rules of Professional Conduct, and memorialize any agreement with the associated attorney in writing. It’s also a good idea to confirm whether the associated lawyer has malpractice insurance—get a current declarations page—and whether they have any disciplinary or legal malpractice claims history.

Of course, this issue comes up all the time. Chandler & Moore Law is happy to discuss any potential arrangements that you’re thinking about entering into, to help you chart a course that protects you, your firm, and your clients, as much as possible.

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