Viking Corp. v. Van Dyke Gardner (Mich. Ap. Ct. 2011) (VikingMalpracticeOpinion.pdf)
First Lawsuit & Settlement: In 2003, Viking and several other fire sprinkler manufacturers were sued for infringing Central Sprinkler's patent rights. In 2005, the parties settled the case with a non-exclusive license agreement that included the payment of ongoing royalties and $1,000,000 for past damages. Although Central Sprinkler was (and still is) a subsidiary of Tyco International, the agreement did not expressly bind Tyco or its other divisions.
Second Lawsuit & Settlement: In 2007, Tyco sued Viking for infringement of two additional patents and Viking again settled the case by paying additional royalties and damages. One of the patents had already issued by time of the 2005 agreement. The other did not issue until 2007.
Malpractice Allegations: Viking then sued its original litigation counsel for malpractice. Viking's position was that it had understood the 2005 agreement to bind the entire family of Tyco companies and that Viking would have no further liability to Tyco with respect to its large “K factor sprinklers.” The particular alleged acts of malpractice were (1) advising Viking to enter into the 2005 agreement, (2) failing to include the new Tyco patents in the 2005 agreement or to at least advise Viking that they were excluded, and 3) failing to bind Tyco in the 2005 agreement or to at least advise Viking that Tyco was not bound.
On summary judgment, the trial court dismissed the case — holding that Viking was estopped from claiming that it did not understand the 2005 settlement agreement. Critical to this holding were the conclusions that the law firm made no affirmative misrepresentations regarding the agreement and, as a signatory to the agreement, Viking was presumed to have read and understood the terms of the agreement.
On appeal, the Michigan appellate court affirmed — holding that absent fraud, coercion, or mistake, the law generally presumes that a signatory to an agreement knows the nature of the agreement.
Defendants claim, and we agree, that because plaintiff signed the 2005 agreement, it should be presumed to know and understand the nature of the document—especially the fact that Tyco was not a party to the agreement and Tyco would not be bound by it. In addition, plaintiff offers no evidence that defendants advised it otherwise. Plaintiff's executives claim that a release from Tyco was one of the goals of the 2005 settlement negotiations and that they believed Tyco and Central were the same entity. However, Van Dyke testified, and [Viking's Vice President] confirmed, that Van Dyke never told plaintiff that Tyco would be bound by the 2005 agreement. On the contrary, Van Dyke explained that Central flatly rejected a draft including Central and its parents, but plaintiff's executives thereafter continued reviewing and negotiating drafts that excluded Central's parents.
Here, the court went on to hold that there was no malpractice liability even if the firm's actions rose to the level of negligence because the alleged negligence was not the proximate cause of harm.
That’s why I bill monthly.
And as an aside, I can’t imagine outside counsel NOT sufficiently explaining the agreement so I’m assuming this case is without merit, but am concerned the road the court plowed here is overly broad and requires too much from business folk and not enough from outside counsel.
IP Outhouse Counsel: Certainly the litigation firm must advise the client of the risks of choosing not to bind the parent, etc. It is just that In House counsel generally better to know of their client’s long term interests, and can better advise management of the risks.
Cy, good point there about defense counsel. In most cases, they will not have a financial problem with continuing negotiations. But, if the client can no longer afford the burden of litigation? What if there is a high risk of non payment of fees if the case is not settled?
This is a summary judgement issue here. If a fact is contested it’s viewed in favor of the NON-moving party, the company in this case.
I’m wasn’t talking about the whether the SJ decision was correct or not. I was merely asking how much hand holding you wanted the outside counsel to do.
The REAL issue is the that court found that the business folk were responsible for reading and understanding the agreement they were signing and that the attorneys weren’t obligated to make it clear to them.
I think that is how it should be. The business folk are obligated to ask the right questions. If attorneys give you a factually incorrect or misleading or ambiguous answer, then sue them for malpractice. The court will not let the attorneys off the hook that easily.
Imposing an obligation of the type you are suggesting has the same problems the “ignorance of the law” excuse has (as explained by the court in its opinion): “the attorney did not explain it to me” is a ready accusation easily raised and difficult to refute.
OK, so you say to your client: “please retain independent counsel to advise you on the settlement agreement.”
The client says: “Why? What will the independent counsel do that you cannot do? You already know everything about this case, why can’t you do this? Are you advising us to contact independent counsel simply to CYA? We don’t want to spend any more money and we have already spent too much time on this. Just get rid of this nuisance ASAP and let us get on with business. We could have hired another firm that would have taken care of everything. May be we will next time…”
Now what you do you say Ned? I’m guessing you are not a practicing attorney…
This is a summary judgement issue here. If a fact is contested it’s viewed in favor of the NON-moving party, the company in this case.
Therefore your argument is a bit of a red herring.
The REAL issue is the that court found that the business folk were responsible for reading and understanding the agreement they were signing and that the attorneys weren’t obligated to make it clear to them.
Van Dyke testified, and [Viking’s Vice President] confirmed, that Van Dyke never told plaintiff that Tyco would be bound by the 2005 agreement. On the contrary, Van Dyke explained that Central flatly rejected a draft including Central and its parents, but plaintiff’s executives thereafter continued reviewing and negotiating drafts that excluded Central’s parents.
What else do you want the outside counsel to do?
So, in summary, the Michigan Ct. of Appeals finds that it’s not the outside counsel’s responsibility to read and explain the meaning of an agreement to the business folk that hired them to work on the agreement, but the business folk.
Seems like outside counsel are now not really a value-add in Michigan as they have no obligation to really explain an agreement to their clients.
Is this a good thing or bad thing for the Michigan bar? Should drive down malpractice insurance costs but will it also drive down business?
OK, I did that. We are talking about defendant’s counsel, right? So please tell me how the settlement agreement benefits the immediate financial interest of the firm. I’m obviously missing something.
Cy, As stated, the litigation counsel’s goal is to get the settlement agreement. The reason for the goal often is the immediate financial interest of the firm. Now, think just a bit on that for a moment and consider why client’s need in house counsel or separate counsel to review the settlemetn agreement?
Babel Boy, the assumption was that there was no in house counsel.
Um……. true. I’ll go true. Yeah. That was easy. Although I’ll be honest, I might have heard that one before, though. Sort of cheating.
“”Van Dyke explained that Central flatly rejected a draft including Central and its parents, but plaintiff’s executives thereafter continued reviewing and negotiating drafts that excluded Central’s parents.””
Yeah I thought they had a good chance until then. At that point, you may as well be like f it, we lost, sorry for the trouble guys.
The lethal blow?? “Van Dyke explained that Central flatly rejected a draft including Central and its parents, but plaintiff’s executives thereafter continued reviewing and negotiating drafts that excluded Central’s parents.”
I agree with Babel. Where exactly is the “divergence between the incentives of the litigation firm in ending a particular transaction and the long term interests of the client?” Certainly a litigation firm might be tempted to prolong the litigation. That’s a well-known problem that certainly isn’t solved by putting additional attorneys on the case. However, it makes no sense to suggest that that firm has an incentive to cause the client to sign a bad settlement agreement, so that the client will end up in court again. Do you really think the client is going back to the same firm in that event?
I don’t follow. What is in-house counsel getting paid for if not to review the settlement and advise management?
The ABA rule you propose would just be the latest installment of the Lawyers’ Full Employment initiative.
There is a secret to winning these legal malpractice suits: get a judge who has never been a lawyer. Ha, ha, ha.
Judges are to the lawyers as madams are to the whores.
Should outside counsel have a higher standard of care when their client lacks in-house counsel?
Steve, they should advise their client that they need representation of independent counsel to advise them on the settlement agreement. Failure to do so should be per se malpractice.
I too have know of (too many) litigation settlement agreements that go south because of the lack of independent counsel conducting an adequet review. There does appear to be a divergence between the incentives of the litigation firm in ending a particular transaction and the long term interests of the client.
The ABA should look into adopting such a rule, as courts will not, it seems, impose the rule by fiat despite its glaring need.
The class of all classes is itself a class, and so it seems to be in itself. The null or empty class, however, must not be a member of itself. However, suppose that we can form a class of all classes (or sets) that, like the null class, are not included in themselves. The paradox arises from asking the question of whether this class is in itself. It is if and only if it is not.
This reflects several common client experiences. First, defense counsel was “competent” but failed to get the client the right deal. Second, in settlement negotiations litigators frequently focus on ending the dispute at hand but don’t put enough thought into what will happen to their client down the road. Clients have similar experiences with patent prosecution.
In-house counsel usually acts to prevent these problems. In the Viking case it seems that Viking didn’t have in-house counsel, or that in-house counsel did not participate in the settlement.
Should outside counsel have a higher standard of care when their client lacks in-house counsel?
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