Real estate transactions sometimes go bad. Fortunately, not too often. When they do go bad, legal malpractice claims sometimes follow. Fortunately again, not too often. In the case that follows, pencil maker Dixon Toconderga claims that it was vicitmized by legal malpractice not once, but twice. Though the case concerns the sale of a commercial property, the lessons apply to any client and any lawyer in any kind of real estate transaction. The case was decided by the Third Circuit Court of Appeals sitting in Philadelphia. While laws on these issues vary, the general points have common applicability.

In the early 1980s Dixon sold some of its property to a company named Dixon Venture. Between the time that the contract for sale was entered into and the closing, a new law went into effect which created new, significant environmental obligations on the part of the pencil company. Apparently, Dixon's lawyer failed to mention this before the closing, and that led to the first malpractice claim. Let's call it "Claim 1".

After Claim 1 happended, Dixon had one, single, but most enduring conversation with a second lawyer about the prospect of suing its real estate lawyer for not mentioning the new law. There was only one conversation that ever took place about this subject. The statute of limitations passed for suing that real estate lawyer and the suit was never filed. Dixon claims that the second lawyer also committed malpractice, this time by not filing the malpractice claim on time. Let's call this Claim 2.

The Appeals Court spent considerable time questioning whether a single conversation between Dixon and the second attorney created a sufficient enough attorney-client relationship such as to subject the attorney to a malpractice claim for allowing the statue of limitations to pass without filing suit. The court noted that an attorney-client relationship exists when the following occurs:

1. A person informs a lawyer that he or she wants the lawyer to provide legal services with respect to a given matter.
2. The lawyer does not refuse.
3. The lawyer knows or should know that the person reasonable relies on the lawyer to provide the services.

The Court observed that the first factor was essentially conceded. However, a reasonable dispute existed concerning the second and third issues. That means that a jury will have to evaluate these issues.

The Court further concluded that even if the single conversation created an attorney-client relationship, there is still a genuine issue that needs to be decided as to whether or not the second attorney committed malpractice. The Court held that a lawyer must exercise reasonable and ordinary care concerning matters that are intrusted to him or her. Since the evidence established that the second lawyer did nothing at all between the 1989 conversation and the running of statute of limitations, the Court concluded that there is a genuine issue to whether he breached a professional duty by doing nothing. This would be a fact sensitive inquiry.

The Court also noted that the second attorney expressed a certain amount of reluctance about suing another attorney, stating "he does not like to handle claims against lawyers and he is not sure that this one has any real foundation." He also noted that he would not handle a claim that does not have a foundation. The pencil company conceded that the attorney never said that he would handle a malpractice claim against the other attorney. However, the company alleged that the lawyer never refused to handle the claim as well.

That might be the single most difficult issue for the second attorney to overcome. He did not expressly refuse to handle the claim. Lawyers and clients need to be sure of their mutual expectations and assignments.

There is also some disagreement concerning how the 1989 conversation ended. On the one side, the company believed it did not have to make a decision in 1989 as to whether it was going to file a malpractice claim. It believed it could track some other proceedings and decide afterwards. The attorney on the hot seat stated that he did not handle malpractice claims and that he would check with his firm and that if his firm could handle it that would be fine, otherwise he would find somebody who could do so. Significantly, the attorney conceded that he probably billed the client for the 1989 conversation and that he never did anything else with regards to the malpractice claim.

All of this will be sent back to a trial court so that these issues can be adjudicated. But, there is a lot to learn, even at this stage. Clients and their attorneys need to communicate. What is expected of the client? Is this something the lawyer can or will do? Is the client sure he or she wishes to proceed, or uncertain? By when must a decision be made?

If you are hiring a lawyer to do real estate work for you, make sure you understand what he or she will do. Also, make sure you understand all charges. What if extra negotiations are needed? What if the deal dies -- will the lawyer be paid his entire fee, or something less, or nothing. What if the deal goes bad and litigation is needed?

Almost always, nothing goes wrong and everything is fine. But, it is best to understand your relationship upfront, in case a problem does arise.

The information provided in this column is written by Stuart Lieberman,a practicing environmental attorney, and is for general information purposes only. It is not legal advice and should not be used in place of legal advice.

Stuart Lieberman, Esq., and IRED.Com, Inc., will not accept any responsibilty for any reliance on the information in this column or any damages whatsoever resulting from reading this column.