By MICHAEL DAYTON, Editor
It's every law firm's nightmare — a $2,000 opinion letter that turns into a multi-million dollar malpractice verdict.
Nexsen Pruet, the state's third-largest law firm, is now facing that very scenario. In March, a Richland County jury reached a $5.5 million verdict in favor of a former client, who alleged the firm's lawyers gave him bad advice about patents on a commercial nutcracking machine.
It remains to be seen what the final judgment will be. Post-verdict motions were heard May 22 and are pending before Circuit Court Judge John L. Breeden. Nexsen Pruet has moved for a new trial and in the alternative to have the verdict thrown out or reduced.
In the meantime, court documents in the case of Robertson v. Nexsen Pruet Jacobs & Pollard, LLP (C.A. No. 2004-CP-40-5531) offer a rare look at the evolution of a malpractice lawsuit.
The plaintiff, Frank Robertson, worked at Machine Design, Inc. for 15 years and helped the company obtain patents for a commercial pecan-cracking machine. As part of his employment, Robertson signed a non-compete and a non-disclosure pact.
According to his amended complaint, Robertson was instrumental in MDI's expansion into Mexico. He said he was to receive 50 percent of the profits on sales in that country but left MDI in the summer of 1998 after a falling-out with the company's owner.
Robertson said he wanted to continue in his field of expertise from his home in Lexington. In July 1998, he hired Nexsen Pruet Jacobs & Pollard patent attorney Michael Mann and asked for legal advice on what restrictions were placed on him by his non-compete and non-disclosure agreements.
The firm is now known as Nexsen Pruet.
According to the complaint, Mann issued an opinion letter on July 22, 1998 that gave Robertson the go-ahead to begin competing against his former employer after October 2000, when three patents were set to expire. A fourth had already expired, Mann wrote.
The problem: the opinion letter was incorrect in part. One of the patents was not set to expire until April 10, 2001, the complaint stated.
Mann's letter also stated: "US patents have no effect outside of the US, so, unless there are foreign patents, you can make, use or sell these machines in foreign countries right now."
Robertson's complaint alleged that advice was inaccurate because "in order to be considered international trade" — and thus, not in violation of an existing U.S. patent — "no part of a business transaction involving the protected right could take place within the United States … including specifically a sale that originated from within the States."
A second Nexsen Pruet attorney, Jones DuBose, advised Robertson that his non-compete was probably not enforceable and that the non-disclosure agreement "would likewise be held invalid," the complaint stated.
Relying on the firm's legal advice, Robertson "began selling parts and equipment from his home in Lexington immediately after the issuance of the opinion letter and memo, and further began competing with MDI in the U.S. after October 2000," the complaint states. In July 2002, he set up Cayvon, Inc. and began operating under that name.
Robertson soon found himself in hot water with MDI, who sued him and his business for patent infringement, violation of the uniform trade secrets act and breach of the non-compete, among other claims.
After the suit was filed, Robertson returned to his Nexsen Pruet attorneys with a copy of the lawsuit, a copy of Mann's opinion letter and a copy of DuBose's memo.
In his complaint, Robertson alleges Nexsen Pruet attorneys should have stepped aside at that point.
Although Nexsen Pruet "knew that their opinions would be an issue in the litigation" and "knew they had an irreconcilable conflict which should have prevented their representation of Robertson (and Cayvon)" they agreed to handle the case, the complaint states.
In its answer, Nexsen Pruet denied it had knowledge of an error in the opinion letter at the time it agreed to handle the patent infringement litigation. The firm also denied that any conflict of interest existed.
Several Nexsen Pruet attorneys, including Mann and William Young "Corky" Klett III, got involved after the firm ran a conflicts check and determined it could handle the patent litigation.
A Sept. 29, 2003 engagement letter indicates the firm charged an upfront $15,000 retainer.
Nexsen Pruet prepared an answer to the MDI complaint, but Robertson alleged it had one major flaw — it "failed to raise the essential defense that Robertson acted in good faith … and upon advice of counsel."
Said Columbia attorney Eric S. Bland, who represented Robertson in the malpractice suit, "In patent law, there is a defense called the good faith reliance on counsel. What that says is, if you have sought an opinion of counsel prior to the time you have engaged in any infringing activity, you are absolved lock, stock and barrel from punitive damages and paying the other sides' attorney's fees. It doesn't absolve you from actual damages.
"My client should have been told that defense was available, and that if we're your attorneys and raise it, then No. 1 we're subject to a motion to be disqualified, and No. 2, we're actually witnesses, and that Michael Mann, who wrote the opinion letter, is going to be called in your case," Bland told Lawyers Weekly.
"More importantly, once you raise the defense of good faith reliance on counsel, the attorney-client privilege is waived," he said. "That means the other side is entitled to explore all the notes from the law firm in giving the opinion. If the same law firm is representing the client when he is sued, that attorney-client privilege continues to be waived in the current litigation. So our expert said even if you want to take on the case, you don't because you want to send the client to another law firm so the attorney-client privilege will be preserved there once you raise the good faith reliance defense."
Nexsen Pruet's answer denied all of the plaintiff's allegations concerning the reliance on counsel defense.
On Nov. 7, 2003, Nexsen Pruet discovered the potential conflict and called Robertson in for a meeting. Robertson's complaint describes a frank discussion between attorney and client.
"Klett told Robertson that the firm was 'embarrassed' and that Robertson should be 'furious' regarding the conflicted representation," the complaint states. "During the meeting, Klett informed Robertson that the firm had a 'potential' conflict which would prevent its further participation in his case and that he would need to seek other legal counsel."
Klett sent a letter three days later that said "there now exists a potential for conflict of interest between you and this firm."
According to Robertson's complaint, "The letter failed to explain that the conflict was not new or emergent, but that it had existed all along, and further to explain that it was not merely 'potential' but rather was real and irreconcilable."
While the firm did not refund Robertson's $15,000 retainer, it offered to pay for a consultation with another patent lawyer, Tim St. Clair, according to the amended complaint. St. Clair advised that he could not take the case because of the conflict he and his firm might face if Nexsen Pruet was ultimately sued.
Robertson eventually lined up lawyers at Leatherwood Walker Todd & Mann in Greenville to handle the MDI lawsuit.
Robertson eventually settled with MDI. The settlement required him to pay $10,000 upfront, and $90,000 from any recovery he might get in a lawsuit against Nexsen Pruet.
The settlement also barred Robertson from working in his field of expertise for one year. That cost Robertson between $1.4 million and $1.9 million in actual damages, Bland said.
Robertson sued Nexsen Pruet in 2004, pressing causes of action for legal malpractice, breach of fiduciary duty, breach of contract, conspiracy, negligent misrepresentation and an unfair trade practice.
The basis for the negligent misrepresentation claim: according to Robertson's amended complaint, when he asked Klett about his trial experience, Klett told him "he had tried several patent infringement cases through verdict." Robertson alleged at the time Klett made that statement he had never tried a jury or non-jury patent infringement case.
The case went to trial in Richland County in March. The jury found in favor of Robertson on most claims. Here's a breakdown of the damages from a March 30 verdict form:
June 5, 2006
