While attorneys offer advice to clients and execute legaldocuments for them, are they liable when the client makes adecision that doesn’t provide the resolution originallyanticipated? In this professional liability claim an attorneycounsels an employee to proceed with caution, but the employee hasother ideas.

The facts

Plaintiff Carol Reynolds was the bookkeeper and legal secretaryfor defendant Lucy Crawford, a patent lawyer. Mrs. Reynolds and herhusband, George, owned a second home that they rented to a tenanton a monthly basis. On two different occasions, Reynolds obtainedadvice from Crawford to serve a “Demand for Possession forNon-Payment of Rent” to secure late rent payments from her tenant,which Crawford prepared. Reynolds again approached Crawford,requesting advice on what to do about the delinquent tenant.Reynolds contended that Crawford then advised her to participate ina mortgage reduction program offered by one of Crawford’s patentclients, WYM (Wipeout Your Mortgage) TechnologySolutions.

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The WYM Tech system was advertised to the public as a superiorinvestment system that was so successful that borrowers wereguaranteed satisfaction of their mortgage within a five- orsix-year period, and the borrower only had to pay half the mortgagepayment with the WYM system paying the other half. Crawford toldReynolds that Ms. Crawford had, in fact, put the mortgage on herown house in the WYM Tech system. Crawford contended that sheadvised Reynolds to wait and see if the system worked for her.

Crawford scheduled a meeting with Mr. and Mrs. Reynolds and WYMTech’s CEO in a conference room at her law firm. Crawford did notactually participate in that meeting. A month later, a closing wasconducted at Crawford’s office in order to place Mr. and Mrs.Reynolds’ mortgage on their second home in the WYM Tech system. Mr.and Mrs. Reynolds also decided to put the mortgage on theirprincipal residence in the WYM Tech system.

The mortgages on both houses were refinanced, and checks werecut for the equity in those homes and delivered to WYM Tech. Mr.and Mrs. Reynolds signed contracts with WYM Tech whereby theReynoldses were to pay half of the monthly mortgage payments andWYM Tech was to pay the other half. WYM Tech made those paymentsfor four months and then ceased making any further payments. Beforethe suit was filed, Mrs. Reynolds stopped working at the law firmand her application for unemployment benefits was denied.

Photo: Gajus/Shutterstock

When Crawford was made aware that WYM Tech had ceased makingpayments, she sent a letter to WYM Tech’s CEO on behalf of theReynoldses, demanding that they catch up on those payments. But WYMTech failed to do so.

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As a result, Mr. and Mrs. Reynolds sued Crawford and her lawfirm for legal malpractice, breach of fiduciary duty and fraudulentmisrepresentation. The Reynoldses claimed that they were requiredto make mortgage payments on both houses that were substantiallyhigher than before they became involved in the WYM Tech system.They also contended that they would lose one or both of thosehouses to foreclosure since they did not have the financialwherewithal to continue making those payments. The Reynoldses alsoclaimed depression, anxiety and humiliation, for which theyunderwent counseling and treatment.

Shortly before trial, the New York Times published afront page article exposing the WYM Tech system as a real estatePonzi scheme.

Plaintiffs’ final settlement demand was $3 million. Defendant’sfinal settlement offer was $60,000 to resolve the case. Atthe end of a six-day jury trial, plaintiffs’ attorney asked thejury to award $1 million in alleged damages.

The result

What was the jury’s finding? It rendered a no cause verdict infavor of the defendant, answering “no” to the initial jury verdictquestions: Was the defendant professionally negligent, and was theconduct of the defendant fraudulent?

Defendant’s theory at trial was that there never was anattorney-client or fiduciary relationship between the plaintiffsand Crawford with regard to plaintiffs’ decision to loan money toWYM Tech. Mrs. Reynolds was merely an employee of the firm. Inaddition, even if an attorney-client or fiduciary relationshipcould be established, Crawford did not cause the plaintiffs to loanmoney to WYM Tech. Mrs. Reynolds chose, on her own, to participatein the WYM Tech system as Crawford cautioned Reynolds to wait tosee whether it worked for Ms. Crawford.

And finally, the lawsuit was filed, not because of any allegedmalpractice by Crawford, but because Mrs. Reynolds’ application foremployment benefits was denied after she quit working for the lawfirm.

David C. Anderson is an attorney/shareholder in the firmof Collins EinhornFarrell PC, a Your House Counselmember firm in the Greater Detroit area. Anderson serves asco-chair of the Professional Liability Practice Group. He can bereached at [email protected].