The Sixth Circuit Court of Appeals issued a decision recently that should have ERISA attorneys thinking twice before they agree to do work for a client. In Cohen v. Jaffe Raitt Heuer And Weiss, P.C., No. 1395, __F.App’x__, 2019 WL 1504393 (6th Cir. Apr. 5, 2019) (BEFORE: BATCHELDER, ROGERS, and THAPAR, Circuit Judges), Plaintiffs Cohen and Chaffee sued their attorneys for legal malpractice for giving them bad advice regarding how to structure a deal to avoid millions in legal liability. Cohen and Chaffee are in the business of buying and selling distressed businesses. They looked into purchasing LSI Corporation of America (“LSI”) but were concerned about LSI’s underfunded pension plan and that liability spreading to other companies they owned.
Chaffee emailed a partner at Jaffe, Raitt, Heuer and Weiss, P.C. (“Jaffe”) informing him that one of the big issues in the LSI deal was its multi-employer pension plan. Chaffee explained that they want to make sure he and Cohen are not personally liable or put their other assets or companies at risk. One of their companies (also a plaintiff in this lawsuit), was SSL Assets, Inc. (“SSL”), though Cohen did not specifically identify this company to Jaffe. The partner at Jaffe got to work but there was no written engagement letter in place setting out who the law firm was representing. The law firm came up with a corporate structure that they claimed would save Cohen and Chaffee from pension liability. After the deal closed, LSI’s pension liability spread to SSL. And you can guess what happened next.
Plaintiffs sued for malpractice — and won — but the jury awarded them only $1.7 million of the $6.3 million sought in damages. Both sides appealed. The Sixth Circuit affirmed. Jaffe did not dispute the jury’s malpractice decision. Rather, the law firm argued that it should have been granted judgment as a matter of law or a new trial because there was insufficient evidence proving that it had an attorney-client relationship with SSL. The Sixth Circuit found that there was enough evidence that supported the jury’s verdict that an attorney-client relationship existed between the law firm and SSL. There was the email from Chaffee mentioning “other assets/companies;” Plaintiff’s ERISA expert testified that if he had received the same email he would have believed that his client is the group of companies; the partner at Jaffe admitted that he owed a duty of care to Cohen, Chaffee, and their other assets and companies; and Jaffe actually provided Plaintiffs with advice on avoiding liability for their companies.
On Plaintiffs’ appeal on the issue of damages, court concluded that the district court did not abuse its discretion by admitting into evidence information about a lawsuit against Cohen and Chaffee involving LSI which the jury used to find that they failed to mitigate damages and awarded them less as a result.
Let this be a reminder of the importance of identifying the client at the front end and having a written retainer agreement defining the client and the scope of work.