In this Issue:

Welcome to the Hottest Trap for Unwary Real Estate Brokers & Lawyers!

By: Frances M. O'Meara

“Whether it’s a scam or it’s legit, it all starts off the same way.” – Richard Hagar, Seattle-based mortgage fraud expert.

In 2007, roughly 84,000 California homeowners lost their homes due to foreclosure. Through the first three quarters of 2008 alone, that number increased to more than 190,000. During that same period, lenders recorded nearly 330,000 Notices of Default on California home mortgages. In a recent survey conducted by Realty TRAC, it was found that of the 25 metropolitan areas nationwide with the most foreclosures, 13 are in California.

Recent Rulings — Case Summaries and Conclusions

Accountants: Absent special circumstances, a claim for breach of contract or breach of fiduciary duty against an accountant requires expert testimony to establish a prima facie case
Brown-Wilbert, Inc. v. Copeland Buhl & Co., 2008 WL 5396832 (unpublished)

Brown-Wilbert, Inc. (BW) is a Minnesota corporation that originated from Chandler-Wilbert, Inc. (CW), a family business started by appellant Christopher Brown’s maternal grandfather and Brown Inc., a company started by appellant and his father Jerry Brown.

Lawyers: Plaintiff in legal malpractice suit required to provide expert testimony to prove that law firm’s negligence caused plaintiff to receive reduced amount of settlement
Estate of Sicotte v. Lubin & Meyer, P.C. (157 N.H. 670; 959 A.2d 236; 2008 WL 4181111)

Plaintiff, Estate of Marcus R. Sicotte (Estate), retained defendant law firm, Lubin & Meyer, P.C. (L&M), to represent Marcus R. Sicotte, in a medial malpractice suit resulting from birth injuries. Marcus’ parents signed a fee agreement which provided that L&M would be paid a 40 percent contingency fee of the gross amount collected. The medical malpractice suit settled for $2,250,000. The court approved a contingency fee of one third of the settlement amount, which totaled $750,000. Two years later the guardians of the Estate moved for the return of the attorney’s fees, alleging legal malpractice. The Estate claimed that L&M failed to inform Marcus’ parents that the court did not ordinarily allow attorney’s fees which exceeded 25 percent of a minor’s settlement and that L&M also failed to give Marcus’ parents the option of paying an hourly rate for L&M’s services.

Insurance Agents & Brokers: Insurance agent owes no duty to insurer that accepted a premium for uninsured motorist coverage
Hanover Ins. Co. v. Yu Guan, et al (Unpublished decision of the Appellate Division of the Superior Court of New Jersey, March 5, 2009)

The Mulligan Insurance Agency (Mulligan) obtained automobile insurance for SH Restaurant Equipment, Inc. (SH) through National Continental/Progressive Insurance Company (National). National cancelled the policy. Thereafter, Yu Guan, an SH employee, was involved in an automobile accident,causing substantial injury to Jill Sorensen.

Insurance Agents & Brokers: An insurance policy which provided to pay for loss arising out of the conduct of business of the insured agent in rendering professional services for others did not cover liability for the insured’s advertisement of its professional services
Westport Ins. Corp. v Jackson National Life Ins. Co., 2008 WL 5378256

In a class action lawsuit, Stonecrafter's, Inc. sued Handleman Insurance Agency (Handleman) for the transmission of unsolicited faxes to it and other businesses in violation of federal law. The advertisement faxed to the plaintiff class promoted “Group Health Insurance With Affordable Premiums!” It also set forth a table of premiums based on age and gender and invited potential customers to request a quotation.

Architects & Engineers: General contractor can sue architect for negligent misrepresentation despite lapse of statute of limitations time period
Waynesborough v. Diedrich v. Ehret (2008 WL 2856394)

Waynesborough Country Club of Chester County (Waynesborough) entered into architectural contract with the architectural firm of Diedrich Niles Bolton Architects, Inc., (DNB) and aconstruction contract for the construction of a clubhouse with Ehret Construction Company, Inc. (Ehret), a general contractor. The clubhouse experienced structural problems following its completion. Waynesborough consequently sued DNB, which in turn filed a third- party claim against Ehret, seeking indemnity and contribution. Ehret moved to dismiss the third-party claim. After that claim was denied, Ehret filed a counterclaim against DNB for negligent misrepresentation.

Accountants: Communications between an auditor and its client are conditionally privileged and are not intracorporate communications
Saye v. Deloitte & Touche, LLP (295 Ga. App. 128; 670 S.E.2d 818; 2008 WL 4981133)

Catherine C. Saye (Saye) was hired by Wayne Farms, LLC (Wayne), a subsidiary of ContiGroup Companies (ContiGroup), as its corporate controller. ContiGroup employed Deloitte & Touche LLP (Deloitte) for its auditing needs. A Deloitte partner contacted ContiGroup’s chief financial officer and advised him to terminate Saye, based on privileged information. A Deloitte deputy managing partner then sent a letter to the president and CEO of ContiGroup stating that Deloitte was unwilling to rely on the representations of Saye for the purpose of the audits of the financial statements of Wayne and ContiGroup. Further, the partner stated that Deloitte would not be in a position to conduct audits of both Wayne and ContiGroup’s financial statements in accordance with generally accepted auditing standards if Saye was in a financial reporting or accounting role.

This newsletter has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.