Potential Liability for Attorneys Engaging Co-Counsel and Referrals

This article originally appeared in the July 2012 Professional Liability Committee Newsletter. Professional liability claims against attorneys using outside counsel are being filed more frequently than ever before. However, there are ways to avoid such The purpose of this article is to provide an overview of the issues surrounding professional liability in legal malpractice claims arising when one lawyer or law firm associates with or refers case to another lawyer or law firm. Joint Ventures and Sub-agency In general, a firm is not liable for the acts or omissions of lawyer outside the firm who is working with firm lawyers as co-counsel or in similar (1) The outside lawyer is usually an independent agent of the client over whom the firm has no control. He is not an agent or contractor of the firm. However, there are primarily two instances when this is not the case: joint venturers and sub-agents. Whether or not joint venture is created by referral is fact-specific question. Two cases can shed some light on when such relationship may be found to exist. In In Re Fox, the South Carolina Supreme Court found that where an attorney retained on contingent fee to prosecute claim engages another lawyer to assist in the litigation, upon an agreement to share the fee in case of success ... [the attorneys] become joint (2) The Court went on to say that relations among joint venturers are governed by partnership law. (3) As such, one partner may be held liable for the misconduct of another depending on the specific fact scenario. In W.B. Duggins, Jr. v. Guardianship of Washington, the Supreme Court of Mississippi rejected attorney Duggins' argument that the associated attorney, Barfield, was an independent contractor because Duggins and Barfield divided the responsibilities for preparing the case and split the fees equally. (4) Accordingly, attorney [had] an equal stake in the outcome of the case and ... joint control of the case. (5) Thus, the Court found that Duggins and Barfield were joint venturers. (6) If Barfield were an independent contractor, he would have been compensated under fixed fee arrangement rather than contingency fee arrangement. The Court further reasoned that fraud committed by partner acting within the scope of his actual or apparent authority could be imputed to the partnership. (7) The ABA Model Code of Professional Conduct requires that the division of fees between lawyers is proper only if the division of fees is proportionate to the services performed and the responsibility by each lawyer and the total fee is reasonable. (8) Additionally, firm can subject itself to vicarious liability if the representation is structured so that the referred-to firm or outside counsel has no direct relationship with the client. This creates sub-agency relationship, making the referred-to firm sub-agent of the law firm that hired it. In that situation, the outside counsel is acting as the firm's sub-agent and, therefore, vicarious liability is transferred to the initial firm or lawyer. In Alice Whalen v. DeGraff, Foy, Conway, HoltHarris & Mealey, the New York Appellate Division found that because the client had no contact with outside counsel, Bailey, and completely relied on her own counsel, DeGraff, to satisfy her judgment, DeGraff assumed the responsibility to [the client] ... and Bailey became [DeGraff's] sub-agent. Therefore [DeGraff] had duty to supervise Bailey's actions. (9) Negligent Referrals Negligent referrals can create another professional liability cause of action. When lawyers arrange for co-counsel to represent client, they are serving as their client's agent and, accordingly, owe the client duty of care in the process. (10) An agent, here the initial law firm or lawyer, who is authorized to employ other agents, here co-counsel, to handle his client's affairs, is under duty to select competent and otherwise proper agents. …