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By Bainbridge D. Testa
A lawyer who negotiated a $412,600 settlement of a husband's legal malpractice lawsuit against two lawyers — his former divorce attorney and his ex-wife's — said that the case illustrates how important it is to identify all major marital assets in a separation agreement.
The case also stands as a reminder that a client who may have been "complicit" in failing to report all of his assets may still bring a legal malpractice claim against his divorce attorney.
Jessica Block of Boston, the husband's attorney, said that failing to heed these warnings can result in a lawyer being sued by a former client, which is exactly what happened to the couple's estate planning lawyer and the husband's divorce lawyer.
The divorce lawyer had prepared a financial statement that failed to specifically mention a business that the husband owned. When the value of the business skyrocketed following the divorce, the wife sued to recover a share of the business.
"In separation agreements you have to highlight the assets that are being divided, particularly major assets like a business," Block said.
Block's opposing counsel argued that the husband should be barred from suing his own attorney for malpractice since he was aware of the omission.
While this "in pari delicto" defense is apparently an issue of first impression in Massachusetts, Block argued that it requires a finding of intentionality that was lacking in this case because the husband relied on the attorney's advice.
The Divorce
In 1991, the husband and wife retained the estate planning lawyer. The wife had stock options in a jewelry manufacturing company and the husband was a majority shareholder in his family's electrical contracting business.
Two years later, the couple asked the estate planning lawyer if he would draw up the documents needed for them to get divorced. They had agreed in principle on the terms of the divorce, which included an understanding that neither would receive an interest in the other's business.
The estate planning lawyer told the couple that due to certain conflicts of interest he could not represent either one of them in the divorce. He suggested that the husband consult his former law partner who continued to practice divorce law in the same office suite.
Ultimately, the estate planning lawyer represented the wife in the divorce, and his former law partner (the divorce lawyer) represented the husband.
In 1993, the parties were divorced.
Thereafter, market conditions caused the value of the husband's electrical contracting business to soar. Two lawsuits followed.
In 1997, the wife sued her ex-husband in the Probate & Family Court in equity and for equitable distribution of property.
In the lawsuit, the wife sought to have the court void the 1993 separation agreement in which she had waived any right to alimony and any interest in her ex-husband's electrical contracting business.
In 1999, the husband sued his former divorce lawyer and the couple's former estate planning lawyer (who represented the wife in the divorce) for malpractice.
In December 1999, the ex-spouses settled the equity case. The husband paid $815,000 to his ex-wife as a division of property and $700,000 in alimony.
"One of the interesting things about this [malpractice] case was that I had to argue the exact opposite of what the lawyer who defended my client in the equity lawsuit [that the wife brought] argued," said Block.
"She had to argue that the separation agreement was valid and did what it was supposed to by allowing each spouse to keep their respective business interests. I argued that the divorce lawyer negligently drafted the agreement and financial statements by not listing the parties' business interests," Block explained.
Husband's Malpractice Case
Block said that the crux of her argument in the malpractice lawsuit she brought on the husband's behalf was that "at the very least, the divorce lawyer should have provided the court with the financial information given to him by the parties."
The husband and wife had submitted hand-written financial statements to the divorce lawyer, Block said.
In the statements, the wife identified her substantial interest in the jewelry manufacturing business and the husband noted his role as a majority shareholder in his family's electrical contracting business, noted Block.
But when the divorce lawyer asked the spouses to review and sign a typewritten copy of the financial statements finalized by his office, the businesses were not specifically mentioned.
The husband asked his lawyer about the omission and was told that because he and his wife were "high earners" the information was not necessary, said Block.
According to Block, the divorce lawyer later argued in the malpractice lawsuit that the business interests were not disclosed to the court because the parties told him they were unable to provide a complete itemization, a fact which the husband disputed because he had itemized his assets every year in financial statements.
Alternatively, the divorce lawyer argued that company stock is personal property, and therefore it was sufficient that the separation agreement said each party would retain all of his/her own personal property, said Block.
"I argued that for tax purposes stock could be considered personal property, but in separation agreements you have to highlight the assets that are being divided, particularly major assets like a business," she said.
"Also, in the context of an uncontested divorce, even though the parties agree on asset division, the court still has a duty to determine whether the division is fair and reasonable," she said.
"It can't make that decision without knowing about all the assets," she noted.
"So, the divorce lawyer acted negligently by failing to put this information before the court," Block argued.
The malpractice case settled for $412,600.
The policy limit was $500,000, but it was a "wasting" malpractice policy that covered both lawyers; it was reduced by the amount spent on their defense.
"The nature of the policy provided an incentive to settle. There was also the risk that the case might go on forever ..., costing the parties as much in legal fees as was available under the malpractice policy," she said.
Another factor to consider was the risk that opposing counsel would win at trial with their in pari delicto defense, Block said.
'In Pari Delicto'
In the malpractice action, Block's opposing counsel argued that the husband perjured himself by not disclosing to the court his interest in the family business.
He raised a "very interesting" affirmative defense by arguing the in pari delicto doctrine, Block said.
The doctrine bars a party from recovering against another where both participated equally in an immoral or illegal act.
She said that the in pari delicto defense was an issue of first impression in Massachusetts.
Block explained that "there is an older Massachusetts case that defines the doctrine, but no prior case dealing with the issue of what happens when a client signs a financial statement under oath where the lawyer told him the information should be left out."
The opposing lawyer argued that in other states, a client who lies under oath based on an attorney's advice cannot win a legal malpractice action against the attorney, according to documents filed with the court.
But Block countered by arguing that "the in pari delicto defense requires a finding of intentionality that was lacking in this case because the husband relied on the attorney's advice ... and the husband did not intend to induce anyone to rely on the financial statement."
She also noted that the divorce lawyer himself testified that "he did not think his client was committing perjury when [the client] signed the financial statement."
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January 27, 2003
