The New York Law Journal has an interesting piece about liability exposures of in-house counsel. All sounds a bit foreign to Australian ears, but maybe it won’t in a few years’ time. Here are two examples:
SHAREHOLDER CLASS ACTIONS
Several shareholder class actions were commenced against a financial institution alleging breach of fiduciary duties, violations of Rule 10b-5 of the Securities Exchange Act of 1934 inclusive of fraud and insider trading, misrepresentation, negligence, and legal malpractice. These actions were ultimately consolidated. The consolidated plaintiff class named all of the board directors and certain senior level officers as defendants, including the general counsel and two associate general counsels.
The plaintiffs claimed that the general counsel and associate general counsels were negligent in their performance of legal research regarding financial reporting. In the factual allegations, the plaintiffs asserted that the general counsel delegated a research assignment to the associate general counsels who completed it incorrectly, but the general counsel did not review their work. Rather, she forwarded their work directly to the board of directors who in part acted on the inaccurate information.
Following the completion of discovery and on the eve of trial, the parties engaged in settlement negotiations and agreed to resolve this matter for $40 million. The insurer for directors and officers liability contributed $25 million to the settlement and the employed lawyers professional liability insurer contributed $2.25 million for the legal malpractice claims. The remainder of the loss was borne by the financial institution.
HOTEL CHAIN
A company affiliated with a hotel chain sought an associate general counsel’s advice regarding development of certain real property. The associate general counsel rendered a written legal opinion upon which the affiliate relied. The legal opinion turned out to be wrong and as a result the affiliate incurred close to $1 million in additional costs for development. The affiliate commenced an action against the associate general counsel alleging breach of fiduciary duty, negligence, legal malpractice, and conflict of interest. The matter settled for $500,000, a portion of which was reimbursed by the employed lawyers professional liability insurer.
