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Dismissal of Legal Malpractice Claim Reversed.

     Where plaintiff alleged that the law firm representing both him and his employer had him sign an engagement letter that waived conflicts of interest, but that the law firm had engaged in behavior before the representation that created a conflict of interest and which the firm did not inform him of when presenting him with the engagement letter, plaintiff had plead sufficient facts to support a legal malpractice claim and judgment on the pleadings for defendant was reversed.

In Culpepper v. Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., No. E2019-01932-COA-R3-CV (Tenn. Ct. App. Oct. 16, 2020), plaintiff filed a legal malpractice claim against defendants, who had represented both plaintiff and the company for which plaintiff worked as interim CEO. In his complaint, plaintiff alleged that defendants “represented him concerning matters before the United States Securities and Exchange Commission (SEC) on August 4, 2016 and August 11, 2016.” He asserted that defendants then “met with an independent forensic accountant and discussed [plaintiff] with respect to the SEC and other attorney-client privileged and confidential matters WITHOUT his knowledge” on August 15, 2016. Plaintiff also alleged that defendants had discussions with the company’s board of directors without his knowledge while representing both plaintiff and the company, that defendants “presented fabricated documentation to support his ultimate termination for cause,” that defendants had represented both him and the company simultaneously “despite an obvious conflict of interest,” and that defendants had continued representing the company after terminating representation of plaintiff in December 2016.

Defendants responded to the complaint with an answer asserting various affirmative defenses and attaching an engagement letter signed by plaintiff on August 31, 2016. Defendants also filed a motion for judgment on the pleadings pursuant to Tennessee Rule of Civil Procedure 12.03 asserting that plaintiff “had waived any conflicts of interest in his August 31, 2016 engagement letter and had consented to Defendants’ continued representation of [the company], even if such representation was ultimately adverse to [plaintiff’s] interests.” Defendants also asserted that the one-year statute of limitations barred plaintiff’s malpractice claim.

The trial court agreed with defendants, granting judgment on the pleadings on the legal malpractice claim based on both the waiver of the conflict of interest and the statute of limitations. On appeal, that ruling was reversed.

When reviewing a grant of judgment on the pleadings, the Court of Appeals must “accept all well-pleaded facts of the non-moving party, and the reasonable inferences that may be drawn therefrom, as true.” (internal citation omitted). In its analysis, the Court quoted extensively from the engagement letter signed by plaintiff on which defendants’ waiver argument relied. The letter was lengthy and purported to waive conflicts of interest, consent to joint representation with the company and waive any conflicts created thereby, agree that defendants would share information obtained from plaintiff with the company but not vice versa, and agree that defendants could continue representing the company even if their representation of plaintiff ceased. The letter also stated that defendants were not currently aware of any conflict of interest created by the joint representation, and that they would inform plaintiff “promptly” if one arose.

In reviewing defendants’ waiver argument, the Court explained the importance of Tennessee’s Rules of Professional Responsibility in legal malpractice actions. While the “Code of Professional Responsibility does not set the standard for determining the civil liability of an attorney…, that fact does not preclude the possibility that violation of the Code is relevant evidence in a subsequent civil case.” (internal citation omitted).  Here, two rules were relevant: Rule 1.7 governing concurrent conflicts of interest and Rule 1.9 related to conflicts of interest and past representations. Both of these rules allow a client to waive conflicts through informed consent. The comments to Rule 1.7 explain that informed consent may be given when “the information provided to the client…include[s] the implications of the common representation, including the possible effects on loyalty, confidentiality and the attorney-client privilege, and the advantages and risks involved.” (internal citation omitted).

Plaintiff argued that “his consent was not ‘informed’ in that he was not afforded sufficient information concerning the nature and extent of the conflict and its effect on his individual representation.” Further, he alleged that two weeks before he signed the engagement letter, defendants “met with a forensic accountant and discussed issues concerning [plaintiff]…without [plaintiff’s] knowledge,” and despite the fact that the engagement letter stated that he would be informed of any conflicts of interest as soon as they arose, he was never told about that meeting. Accepting these allegations as true, as required on a motion for judgment on the pleadings, the Court of Appeals ruled that plaintiff had “properly stated a claim for legal malpractice in his amended complaint.”

In addition, plaintiff asserted that “even if it could be shown that he provided informed consent to the conflict in this matter, not all conflicts are waivable.” The Court of Appeals agreed with this statement and noted that “analysis of this issue require[d] further factual determination that is inappropriate for judgment on the pleadings.”

The Court of Appeals also reversed the trial court’s ruling that the legal malpractice claim was barred by the statute of limitations. Plaintiff alleged that defendants fraudulently concealed their August 2016 meeting with the forensic accountant, and that he did not find out about said meeting until May 2018. Taking the allegations of the complaint as true (which, as stated above, was required under the law at this stage in the proceedings), the Court ruled that the discovery rule could be applied to the alleged facts.

Judgment on the pleadings in favor of defendant on the legal malpractice claim was thus reversed.

NOTE:  this opinion was released just three months after oral argument in the case.

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