Co-counsel may not sue each other for lost prospective fees

By Joel E. Wright

No duties exist between co-counsel that would allow recovery for lost prospective fees, the Washington Supreme Court has held in a case of first impression. Rather, “[a]s co-counsel, both attorneys owe an undivided duty of loyalty to the client. The decisions about how to pursue a case must be based on the client’s best interests, not the attorneys’.”

Lee Smart attorney Alison H. Grennan and I defended a legal-malpractice action, Mazon v. Krafchick, no. 77398-0 (Oct. 19, 2006). The plaintiff, attorney Mazon, alleged that Krafchick, his former co-counsel in a personal-injury action, was liable to him for the loss of their client’s personal-injury claim because the statute of limitations had run. The attorneys’ insurance company paid a settlement to the ex-client, who alleged malpractice for the loss of the claim.

Then Mazon sued Krafchick on many theories, including breach of joint-venture agreement, breach of fiduciary duty, professional negligence, indemnity, and contribution. Mazon contended that Krafchick was liable for the amount of his “lost prospective contingency fee,” which he calculated based on the amount of the settlement with the ex-client. Mazon also alleged that the collateral-source rule required Krafchick to reimburse him for the amount that his insurance company paid on Mazon's behalf to settle the clients’ malpractice claim.

At the trial court, we moved for summary judgment and won on the grounds that the attorneys owed duties solely to their client, not to each other, and that a bright-line rule prohibiting claims between co-counsel for lost prospective contingent fees was a better policy choice. Although there were no Washington cases on point, the trial court agreed with us that California authority on this issue was persuasive. The trial court also rejected Mazon’s collateral-source rule argument, ruling that Mazon was not entitled to recover from Krafchick money paid by his insurance company to settle their client’s malpractice claim. We argued that Mazon was attempting to use the collateral-source rule as a sword, whereas that evidentiary rule always was intended as a shield.

Mazon appealed. The Court of Appeals affirmed the trial court’s dismissal of Mazon's claim for recovery of lost prospective contingent fees, but reversed on the collateral-source issue. The court held that “the collateral source rule applies because Mazon’s portion of the [ex-client’s] settlement was an ‘injury’ to him that was in turn covered by his insurance company. As required by the rule, we cannot consider who actually covered the cost of the injury.” Both parties filed petitions to the Washington Supreme Court for review, which the Court accepted.

The Court agreed with us on all points. It held that the sacrosanct duty of loyalty to the client dictated a bright-line rule that no duties exist between co-counsel that would allow recovery for lost or reduced prospective fees. Otherwise, the Court noted, “potential conflicts of interest that harm the client’s interests may arise. Co-counsel may develop an impermissible self-interest in preserving the claim for the prospective fee, even when the client’s interests demand otherwise.”

The Court also agreed with us on the collateral-source rule. It reversed the Court of Appeals’ decision on that point and held that the collateral-source rule is an evidentiary rule that does not create a cause of action to recover money an insurer paid to settle a claim on Mazon's behalf.

Washington's discrimination law now follows ADA definition of 'disability'

By Marc Rosenberg

The definition of “disability” under the federal Americans with Disabilities Act also governs Washington's Law Against Discrimination, the Washington Supreme Court has held.

In McClarty v. Totem Elec., 157 Wn.2d 214, 220, 137 P.3d 844 (2006), the Washington Supreme Court adopted the definition of disability as set forth in the federal Americans with Disabilities Act of 1990, 42 U.S.C.S. §§ 12101-12209, to provide for a single definition of “disability” that can be applied consistently throughout the Washington Law Against Discrimination (WLAD), Chapter 49.60 RCW.

The Washington State Human Rights Commission adopted a regulation, WAC 162-22-020, that defined “disability” as the presence of a sensory, mental, or physical condition that (a) is medically cognizable or diagnosable; (b) exists as a record or history; or (c) is perceived to exist whether or not it exists in fact. For enforcement purposes, a person was considered disabled by a sensory, mental, or physical condition if he or she was discriminated against because of the condition, and if the condition was abnormal. Courts had followed this definition in disability-discrimination claims under the WLAD.

The McClarty Court held that this WAC was flawed and unduly complicated. One reason the Court adopted the ADA definition was that the prior definition was too broad and defined disability to include any medically cognizable abnormality, which “trivialize[d] the discrimination suffered by persons with disabilities.” The Court stated that the WLAD speaks in terms of “disability,” not of “medical condition,” and held that the prior definition was far broader than the plain and ordinary meaning of the term “disability,” and that the text of the statute or the history underlying it could not support that broader definition. This shift in definition has broad implications in disability-discrimination claims under the WLAD.

Relying in large part on McClarty, Michael A. Patterson and I won a seven-day jury trial in Moore v. King County Fire Prot. Dist. No. 26, et al., in the Western District of Washington. Plaintiffs, a firefighter and his wife, alleged disability discrimination against a Fire District that employed him, along with a list of other claims, some of which the court dismissed on summary judgment.

In Moore, plaintiff claimed to have a rare kidney problem that required medical treatment. After using all of the medical leave, vacation time, and holiday time provided under his collective-bargaining agreement, the Fire District granted plaintiff a discretionary six-month leave to obtain an operation to implant a nerve stimulator to reduce pain. Shortly after returning to work, plaintiff damaged his stimulator and requested an additional few months' leave. The Fire District later terminated his employment.

The Fire District contended that Moore was able to work perfectly well after the second operation. On behalf of the Fire District, we submitted Ninth Circuit Jury Instructions on plaintiffs' claims of disability discrimination under the WLAD. We argued that the Washington Pattern Instructions contained the obsolete definition of disability that the McClarty Court had rejected, and that the Ninth Circuit's ADA instructions were more appropriate. The District Court agreed and gave the Ninth Circuit instructions, which included higher standards of disability than those previously used under the WLAD. For example, to qualify as disabled, plaintiff had to have an impairment that, when viewed in its corrected or mitigated state, substantially limited a major life activity.

In Moore, the jury returned a defense verdict for our client. The verdict turned on the jury’s finding that plaintiff had no “disability” as the WLAD now defined the term. Plaintiffs had demanded several million dollars in settlement negotiations and argued to the jury that it should return a multi-million-dollar verdict.

Contractor's indemnity rights apply to both defective-work and tort claims

By Steven G. Wraith

A general contractor's indemnity rights against a subcon-tractor apply to both defective-work and tort claims, the Washington Court of Appeals has held.

In MacLean Townhomes, LLC v. P.J. Interprize, Inc., 133 Wn. App. 828 (2006), MacLean was the developer and general contractor of a condominium project. P.J. Interprize (PJI) was one of the subcontractors. The indemnity clause in the subcontract required PJI to defend and indemnify MacLean for “any and all claims” arising from the subcontract. After completion of the project, water leaks and other construction problems arose. The homeowners alleged breach of warranties by MacLean under the Washington Condominium Act. The homeowners and MacLean entered into a cooperative investigation and repair resolution agreement, and eventually settled.

MacLean sued subcontractors, including PJI, for contractual indemnity and on other grounds. PJI moved for summary judgment, arguing that the indemnity clause applies only to tort-based claims, not to the homeowners’ WCA claims. The trial court agreed and dismissed the indemnity claim. MacLean appealed. The Court of Appeals reversed, holding that “any and all claims” plainly included the homeowners’ defective-work claims. Nothing in the indemnity clause limited PJI’s duty to defend and indemnify MacLean to tort-based claims only.

MacLean is the first reported Washington decision interpreting contractual indemnity clauses in cases involving defective condominium construction and will provide much needed guidance to lower courts in interpreting similar clauses.

Around The Firm

Joel E. Wright, Alison H. Grennan, and William L. Cameron won the appeal of Goldberg v. Wolf, as special administrator for the Estate of Preslzer, an accounting-malpractice action. Plaintiff claimed that his father's estate was harmed when it was ordered, in a separate lawsuit, to re-pay his mother more than $1 million to compensate her for community funds that had been wrongfully converted to the father’s separate property more than 30 years earlier. The plaintiff alleged that the father’s accountant had given the father bad advice that the conversion of funds was proper under community-property laws. The accountant had died, so plaintiff sued the accountant’s estate. Joel, Alison, and Bill had moved for summary judgment and won, and the Court of Appeals affirmed that dismissal. The appellate court held that the husband’s estate could not show damages, since it had been compelled to return money the husband wrongfully acquired in the first place. The Court of Appeals also held that the attorney fees that the husband’s estate incurred were not damages, as the husband’s estate voluntarily chose to defend against the wife's action when the property did not belong to the husband’s estate.

William H. Waechter won a nine-day jury trial in Culley v. Langlow, an auto case. Plaintiff was rear-ended, so that liability was clear. Plaintiff claimed severe brain damage and an inability to work or engage in many of the activities of daily living. Plaintiff claimed millions of dollars in damages. The Lee Smart firm was asked to take over the case from another firm when trial was imminent, because the previous firm had violated several pretrial deadlines and failed to prepare the case for trial. As a result, the defendant’s insurer faced the prospect of paying its $1.5 million policy limit or more. Bill and Sean D. Jackson immediately moved for a continuance. Bill then deposed lay witnesses and the treating physicians, all of whom supported plaintiff’s brain-damage claim, and lined up defense experts. The insurer remained so concerned that it entered into a high-low agreement with the plaintiff that guranteed plaintiff at least a $250,000 payment but limited the award to $1.25 million; plaintiff would receive the amount of the verdict if it was between those two figures. After a hard-fought trial, the jury returned a verdict of $203,000, less 51 percent contributory fault for plaintiff’s failure by not following his doctors’ recommended treatment plans. The net verdict was less than $100,000.

Jeffrey P. Downer and Michael A. Guadagno won summary judgment of dismissal of Sakellis v. Re/Max, a real-estate malpractice action. Jeff and Mike’s clients, the listing real estate agent and broker, were sued for negligent misrepresentation in the sale of a duplex. The agent prepared a flyer that described the property as “two homes” and said that it was zoned duplex. In fact, the second unit was an illegal duplex that the zoning did not allow. However, plaintiff conceded at deposition that he agreed in the purchase and sale agreement that he would not rely on such representations and instead would inspect and investigate the property fully. Jeff and Mike moved for summary judgment on that ground, and because plaintiff’s own real estate agent established that the property was still worth what plaintiff had paid. The court granted the motion and dismissed the action. ... Jeff Downer and Mike Guadagno also obtained a nuisance-value settlement in Lukoff v. MFI, a personal-injury claim arising from a foreign object in food. Plaintiff claimed extensive dental damage and demanded $130,000. His counsel violated several discovery rules and a discovery order. Plaintiff’s counsel then failed to cancel the IME physician’s deposition in a timely manner, so Jeff and Mike asked the court to order him to pay the physician’s $3800 fee, which the court ordered be paid by the start of trial. At the start of trial, Jeff and Mike moved to dismiss because the fee had not been paid, so that plaintiff had violated yet another order. The court held that the fee would be paid within four hours, or the action would be dismissed. The case settled cheaply 30 minutes later.