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Sep 2015

In a recent unpublished decision, the Massachusetts Appeals Court held that a legal malpractice claim failed because the harm/losses claimed by the plaintiffs against the defendant lawyers was outside the foreseeable chain of causation. In HMA Administrators, LLC v. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., 2015 Mass. App. Unpub. LEXIS 662 (2015), the plaintiffs brought claims for negligence and breach of fiduciary duty, and sought to recover losses caused by theft of corporate funds and usurpation of corporate opportunities by the former president and CEO of one of the plaintiff organizations. 

 

The plaintiffs retained the defendants to represent them in connection with a Massachusetts Division of Insurance “show cause” order issued because the president and CEO falsely denied having a criminal record in certain licensing applications. The defendants received correspondence from the United States Department of Labor notifying them that as a result of his prior criminal conviction, the president and CEO was prohibited by ERISA from serving in any capacity with respect to the plaintiffs’ employee benefits business, and that the plaintiffs’ knowing retention of him as an employee was a felony. One of the defendant attorneys forwarded the letter to the president and CEO. The attorney did not send a copy of the DOL letter to the other managing members of the plaintiffs because the president and CEO said he would do so (although he did not).

 

The plaintiffs eventually learned about the letter from the Department of Labor, but between the time the defendant attorneys received the letter and the time the plaintiffs learned about the letter, the president and CEO secretly incorporated a competing business and stole nearly two million dollars from the plaintiffs and their subsidiaries. The plaintiffs allege that had the defendants directly informed the plaintiffs of the Department of Labor letter, then the plaintiffs would have terminated the president and CEO at that time and thus prevented the losses from occurring.

 

The Superior Court allowed the defendants’ motion for summary judgment, and the Massachusetts Appeals Court affirmed it, holding that the defendants’ alleged inaction was not the proximate cause of harm suffered by the plaintiffs. The Appeals Court reasoned that the defendants may be held liable only for the reasonably foreseeable harm to which the plaintiffs were exposed as a result of the defendants’ actions taken (or not taken) in connection with the Department of Insurance and Department of Labor matters. Nothing in the complaint plausibly suggested, according to the Appeals Court, that the plaintiffs’ damages stemmed from the defendants’ failure to exercise reasonable care and skill in the handling of the matter for which they were retained. The Appeals Court found that although the events at issue in the complaint coincided with defendants’ legal representation, the defendants’ actions did not contribute to causing those events to occur.

 

The case is unpublished, which means that although it is not precedential, it can be cited for its persuasive effect. The case highlights the importance of the element of causation in legal malpractice actions. The plaintiff has the burden of proving that the loss at issue was caused by the attorney’s negligence, and that the loss was a foreseeable consequence of attorney negligence in the particular case for which the attorney was retained. If the evidence of causation is too tenuous (or non-existent), the causation element is not sustained and the legal malpractice claim is subject to dismissal.


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