Now big Chicago law firms, which generate huge fees representing large corporations, have become prime targets for malpractice claims.
One of the biggest such cases recently involved Myron Cherry, representing health-care company Ventas Inc., taking on the prestigious New York law firm of Sullivan & Cromwell.
In late October, Louisville-based Ventas disclosed that its former counsel, Sullivan & Cromwell, agreed to pay $25.5 million to avoid trial in a 3-year-old malpractice suit alleging conflict of interest.
In an investor conference call a day after the settlement was made public, Debra Cafaro, Ventas' chairman and chief executive, would only say that the settlement "agreement includes confidentiality provisions, and, therefore, we cannot elaborate on our statement or answer your questions."
H. Rodgin Cohen, chairman of Sullivan & Cromwell, said he would not comment on the settlement, but contends that law firms are especially vulnerable to malpractice claims because dissatisfied clients take advantage of firms' eagerness to avoid potential damage to their reputations.
"There is a special vulnerability of having someone stand up in court for weeks or months and saying you are guilty of malpractice," Cohen said. "I would hope that most clients, the vast majority, would not look to the courts for a remedy for every perceived ill."
While the Ventas-Sullivan & Cromwell malpractice settlement was not the largest payment ever received by a law firm's former client, it fell well atop the highest category of payments cited in an April American Bar Association study.
That survey of legal malpractice cases showed that the number of payments for more than $2 million had increased to 19, compared with 10 recorded between 1996 and 1999. Payments included both out-of-court settlements and courtroom verdicts. Personal-injury cases comprised the largest number of legal malpractice claims, followed by cases involving family and estate law, and corporate transactions such as bankruptcy.
The fallout from high-profile corporate corruption cases, most notably Enron Corp. and WorldCom Inc., has placed greater scrutiny on executives to justify their actions, said Cherry.
Five or 10 years ago, Cherry said, corporate clients were unlikely to sue a large firm, especially one with which it had a long relationship.
"Now, shareholders are demanding that executives serve them," Cherry said. "Corporations, therefore, have a fiduciary responsibility to shareholders, and that could mean evaluating whether they have a claim against their own law firm."
In the Ventas case, the health-care company charged that it ran into severe financial problems specifically because of "incompetent and negligent" advice it received from Sullivan & Cromwell stemming from the company's 1998 spinoff of its hospitals and nursing home operations.
Ventas sued Sullivan & Cromwell for $186 million, alleging that it engaged in a conflict of interest by representing both Ventas, which became a real estate investment trust, and the spun-off health-care company, Kindred Healthcare.
After Sullivan & Cromwell repeatedly petitioned to have the case thrown out, a judge last year set a trial date. The settlement occurred several months before the trial was to begin.
The American Bar Association also revealed that claims against firms with more than 100 attorneys had more than tripled between the two time periods it studied.
"Quicker to sue lawyers"
"People are more cynical, they're quicker to sue lawyers and they think in larger dollar numbers than they ever had," said Thomas Browne, general counsel at Hinshaw & Culbertson often represents lawyers in malpractice suits.
Browne, who has represented lawyers for more than 25 years, said that until three years ago he had never been involved in a settlement for more than $1 million. Since then, he added, four of his legal malpractice cases have ended in settlements exceeding $1 million.
Browne and others point to corporate scandals and the Sarbanes-Oxley Act, which overhauled corporate governance rules, for making law firms more answerable to their clients' actions.
"When a big scandal occurs, the trend now is for board directors to see whether some big law firm handling its legal work may be to blame," said Stephen van Wert, an executive at Brown & Brown Inc., a Daytona Beach, Fla., insurance intermediary that offers legal malpractice coverage. "There's more scrutiny being placed on law firms."
At the same time, law firms usually want to minimize the time and money spent in a courtroom proceeding.
For that reason, "95 percent" of claims against law firms are settled before trial, van Wert estimated.