DOVER, Del. (Legal Newsline) - A law firm that was fired midway through litigation over an insurance broker’s non-compete agreement must defend itself against claims the case could have been won absent the malpractice of the attorneys, the Delaware Supreme Court ruled.
A trial court erred by dismissing the malpractice lawsuit, the Supreme Court said, since there are “disputes of material fact” over whether lawyers at Margolis Edelstein mishandled discovery and shouldn’t have represented an insurance agency and the broker simultaneously. The underlying case settled for $1.2 million after the broker switched his story on the eve of trial, negating some of the insurance agency’s defenses.
Howard Wilson switched among insurance agencies, leaving a trail of litigation over accusations he violated noncompete agreements by soliciting former clients. He switched from Lyons Insurance Agency to GMG Insurance Agency in 2016, shortly after litigation between two of his former employers was settled, allegedly because he had tried and failed to shift a major GMG customer from Lyons to GMG.
Lyons sued Wilson and GMG for tortious interference in 2017 and Margolis Edelstein agreed to represent both. After mediation failed, GMG fired Margolis Edelstein in 2019. Soon thereafter, GMG’s new lawyers turned over documents showing GMG partners had discussed the legal implications of hiring Wilson despite his non-compete agreements, potentially establishing a key argument for Lyons that GMG had engaged in tortious interference.
GMG narrowly avoided sanctions, although the judge said at a hearing “this information should have been produced. It clearly should have been.” The judge then dismissed all but the tortious-interference claims.
On the eve of trial, Wilson submitted a new affidavit recanting previous testimony and stating he had begun discussing a job with GMG in 2015 with an agreement he would service the major client he had been unable to move to Lyons. GMG moved to delay the trial but the judge refused and GMG settled for $1.2 million.
The insurance agency then sued Margolis Edelstein, claiming it lost the case because of attorney malpractice. Discovery turned up embarrassing evidence, including an email between Margolis Edelstein lawyers in which one stated the firm, based in Philadelphia with an office in Delaware, was using obsolete technology for discovery.
“In truth, we are ill-equipped to engage in this sort of litigation,” the lawyer said in the email. “I have been smoke and mirroring it in our D&O cases to date.”
The trial judge dismissed the malpractice suit, ruling Wilson’s late-breaking affidavit was a “superseding cause that broke the causal chain” leading to GMG’s losses.
The Delaware Supreme Court reversed that decision, in an April 19 opinion by Justice N. Christopher Griffiths. The trial court erred, the high court ruled, not only by granting summary judgment in the face of unresolved material facts, but by failing to address GMG’s argument it would have won the underlying case absent legal malpractice. If GMG had won summary judgment against all of the claims, the court said, evidence that emerged later including Wilson’s revised affidavit, “would have been academic.”
Margolis Edelstein also must defend itself against the claim dual representation discouraged Margolis from giving GMG effective legal advice on questions such as whether it would have been advantageous to fire Wilson, the court said.