What's in a Name? Should Paralegals Be Liable for Legal Malpractice?
| Publication year | 2021 |
| Pages | 86 |
77 CBJ 86. WHAT'S IN A NAME? SHOULD PARALEGALS BE LIABLE FOR LEGAL MALPRACTICE?
What happens if a paralegal researches an issue of law and gives a supervising attorney incorrect advice that leads to a malpractice claim? Assume that a new client wants to sell franchises for a sports clinic in Connecticut and asks if he needs to make a franchise filing in the state. The attorney, unfamiliar with franchising law, asks the paralegal to research the question. The paralegal researches the word "franchise," and fails to find the Connecticut Securities Law and Business Opportunity Investment Act,(fn1) which requires such a business to register with the Connecticut Banking Commissioner. She concludes that no filing is required. She writes a memo to the supervising attorney to this effect. The business is disqualified from doing business in Connecticut and goes bankrupt. The client sues for malpractice, and wins a judgment for $15,000,000%the value of the business.
Can the client sue both the attorney and the paralegal? In this case, the person who researched the law and gave incorrect advice (on a different issue) was actually an associate attorney. She was sued by the client and found liable for malpractice. (fn2) Should the result differ if the person who did the legal research was a paralegal?
The paralegal profession is relatively young; yet it continues to grow at an impressive rate. There are roughly 200,000 paralegals in the United States today.(fn3) Although there have been few malpractice claims against paralegals to date,(fn4) the sheer number of paralegals and the increasing breadth of
their practice indicates that claims will increase as the profession grows.
The states that have addressed malpractice claims against non-attorneys are split. Some of the cases have ruled that a paralegal cannot be sued for malpractice because paralegals are not attorneys. Under this line of reasoning, only the supervising attorney could be sued for malpractice. Although the supervising attorney will be liable for any malpractice of a subordinate,(fn5) this does not mean that the subordinate, by definition, cannot be liable as well.
The other line of cases focuses % not on the name the employee is called % but on the nature of the services. Where "legal services" are performed, whether by an attorney or a layperson, that party can be sued if he or she has been negligent. Such a claim could be raised whether the paralegal was engaged in the unauthorized practice of law (UPL) or simply was negligent although under adequate supervision.(fn6)
The focus on the nature of the services, rather than the name of the provider, comports with the language used in most malpractice policies. The "named insured" under many form policies includes any employee "but only as respects professional services rendered on behalf of the NAMED INSURED" [the person or entity listed on the Declarations page.](fn7)
The definitions of the term "paralegal" or "legal assistant" by The American Bar Association, and the two national paralegal organizations, support the view that paralegals are pro-
fessionals who provide legal services. For example, the American Bar Association definition is:
A legal assistant or paralegal is a person, qualified by education, training or work experience, who is employed or retained by a lawyer, law office, corporation, governmental agency or other entity and who performs specifically delegated substantive legal work for which a lawyer is responsible.(fn8)
This article takes the position that courts in the future are likely to hold that paralegals can be sued for malpractice if they make errors in the practice of law. Part I of this article examines the legal standard for malpractice claims. Part II examines the case law on paralegal malpractice claims. Part III discusses defenses a paralegal may raise to a malpractice suit. Part IV examines the relationship between ethics violations (such as a lack of attorney supervision) and legal malpractice.
Part V examines actions a paralegal should take to avoid malpractice claims, and Part VI predicts future trends in the law given the growth in paralegal practice and paralegals' efforts to obtain a professional status.
Legal malpractice is simply a negligence claim asserted against a lawyer in connection with the provision of legal services.(fn9) As with medical malpractice, accounting malpractice, and other claims against professionals, the only difference is that the "reasonable professional standard of care" is substituted for the "reasonable person standard of care":
[A] cause of action for legal malpractice requires proof that the attorney "failed to exercise that degree of care, skill and diligence commonly possessed and exercised by an ordinary member of the legal community, that such negligence was the proximate cause of the actual damages sustained%and that but for [the attorney's] negligence, [plaintiff] would have been successful in the underlying actions."(fn10)
Although courts typically use the term "lawyer" or "attorney" in defining a malpractice claim, the Ohio court in Palmer v. Westmeyer(fn11) focused on whether there had been a violation of the applicable standard of care. For legal malpractice, this would be the standard of care in providing legal services:
In a malpractice action, a plaintiff must allege and prove%(1) the existence of a relation that implies a right in favor of the plaintiff and a corresponding duty owed by the defendant, (2) a violation of such duty, and (3) facts showing that the plaintiff has suffered injury or financial damage as a proximate result of the violation of duty. (footnotes omitted.)(fn12)
One commentator has concluded that paralegals can be held liable under general theories of tort law:
Legal assistants%are potential defendants in civil legal malpractice suits brought by clients who believe their attorneys have acted negligently. Paralegals are subject to the same general tort principles that apply to lawyers and other professionals. They are liable for negligent or intentional misconduct that injures a client.(fn13)
The cases that have held non-attorneys liable for malpractice involve two situations. First, they have been held liable
in situations where a layperson affirmatively misrepresented to a client that he was an attorney. Second, there are cases where a layperson provided legal services, even though the client was aware that the layperson was not an attorney.
The first set of cases are fairly easy to justify: most courts agree that a malpractice claim lies against a non-attorney who holds himself out as an attorney and therefore deceives his client. In effect, a person cannot escape liability for legal malpractice when he has led a client to believe he is an attorney.
For example, Nevada upheld a malpractice claim against a law clerk,(fn14) who the client believed was a lawyer, in a claim for malpractice involving failure to file a financing statement in connection with the sale of a client's bakery. The court found that the plaintiff, Busch, had made an appointment with Delwin Potter, who was employed by attorney Peter Flangas, to arrange for the sale of her bakery. Busch believed that Potter was a lawyer. Potter failed to file a UCC-1 financing statement to secure the final payment on the deal, the buyers went into bankruptcy and Busch, as an unsecured creditor, lost her interest in the bakery equipment.
Busch sued both Flangas, the attorney, and Potter, alleging that Potter's negligence resulted in her loss of the bakery equipment. The defendants argued that the fact that Flangas supervised Potter's work relieved both of liability. The district court granted summary judgment in favor of the defendants, deciding that a UCC-l filing was not required as a matter of law. The Supreme Court reversed.
The court held there was a triable issue of fact as to whether the sale of the bakery was a sale or a lease, which would not have required a UCC-1 filing. As to whether a nonlawyer could be liable for malpractice, the court said:
"Although Potter is not an attorney, he can be subject to a legal malpractice claim if he attempts to provide legal services."(fn15) An even more egregious case occurred in Pytka v. Hannah,(fn16) where a non-attorney gave tax advice on a com-
plex acquisition deal which resulted in a loss of over $300,000 to his client. The court again held the non-attorney liable for legal malpractice. The defendant Douglas Feinberg was listed as "of counsel" for a law firm and was retained by the majority shareholder of a corporation to structure a sale in order to produce long-term capital tax treatment for the sale of his stock. Feinberg, who was not in fact licensed as an attorney in any state, failed to achieve the required tax treatment and lied to his client about the proposed closing date and other matters, resulting in a loss to plaintiff of...
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