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McClung V. Smith – A Legal Malpractice Nightmare!

McClung v. Smith – A Legal Malpractice Nightmare!

David DuffBy David L. Duff of Duff & Kronfeld, P.C. posted in Legal Malpractice on Monday, June 18, 2018.

In late-1994, Judge Robert Payne of the U.S. District Court for the Eastern District of Virginia (Richmond Division) published his decision, sitting as the tier-of-fact, in the legal malpractice case styled Constance McClung v. William Smith, Jr., et al. 870 F. Supp. 1384. The legal malpractice action arose from a botched divorce case; and, involves a veritable cornucopia of examples of what NOT to do when handling a divorce case. For some reason, perhaps because it came from the Federal Court system, this decision received little-to-no fanfare; and, among the entire constellation of attorneys in this Commonwealth, only us legal malpractice nerds are even aware of its existence.

Regardless, I have synopsized below the various holdings by Judge Payne that should be of interest to any attorney who accepts representation of an individual involved in a divorce:

Factual Summary:

Constance McClung (“Wife”) married John Lowe (“Husband”) in 1976. The Wife was unemployed throughout their marriage, but was the beneficiary of significant income generated from two (2) separate trusts. The Husband was a practicing attorney. During the course of the marriage, the Wife contributed a great deal of her separate funds towards the purchase of two (2) beachfront properties, and toward the marriage in general. Shortly after their marriage, the Wife gave her Husband a general power of attorney, which he used to manage her, and their, finances.

Marital bliss eventually became eroded by the Wife’s distrust of the Husband, and suspicions over his control and use of her separate monies. In the late-80s, the parties separated, and, the Wife hired attorney William Massie Smith, Jr. (“Smith”), initially to pursue an accounting of the Husband’s use of her separate funds, and later to represent her in the defense of a retaliatory divorce action brought by the Husband. This divorce action was tried on November 16, 1990, and a final divorce order was entered two weeks later.

Obviously dissatisfied with the results of her divorce/equitable distribution trial, the Wife hired counsel to pursue a legal malpractice claim against her divorce attorney, Smith. As a strategical move, the parties agreed to try the malpractice case before Judge Payne, instead of a jury – with disastrous results for attorney Smith!

I. SMITH’S FAILURE TO PURSUE AN ACCOUNTING

Judge Payne determined that the information that had been readily available to Smith clearly showed that the Wife was entitled to an accounting from the Husband, both under common law and pursuant to Code § 8.01-31. Judge Payne found that Smith had an obligation to pursue an accounting, and decided that his failure to do so was a deviation from the required standard of care. The Judge further found that, if Smith had, indeed, pursued an accounting from the Husband, he would have been able to demonstrate a breach of fiduciary duty owed by the Husband to his Wife, with damages calculated to be $211,677.

THE TAKE-AWAY:

Of particular interest to divorce lawyers should be Judge Payne’s utter rejection of Smith’s defense that Virginia’s Equitable Distribution statute somehow pre-empts a separate accounting action. The Judge appeared to base this ruling on a determination that the power of attorney through which the Husband had manipulated the Wife’s separate funds, created a fiduciary relationship separate and distinct from that of husband-wife; and, therefore, could be pursued by the Wife in an independent action, separate from the divorce proceedings.

II. SMITH’S FAILURE TO RESPOND TO REQUESTS FOR ADMISSIONS

In the underlying divorce action, the Husband’s counsel filed two (2) separate Requests for Admissions, seeking to conclusively establish that:

a. The Husband had contributed more than 50% of the funds spent on acquiring and improving the two (2) beachfront properties;

b. The Husband was not guilty of any marital fault; and

c. The Husband had not misappropriated nor misused any of the Wife’s separate funds.

It was a no-brainer that Judge Payne found Smith’s failure to file responses to these Requests for Admissions to constitute “professional defalcation.” Even attorney Smith had to concede that his omission in this regard was a deviation from the required standard of care.

The more interesting aspect of this issue, however, is Judge Payne’s determination as to precisely how such negligence by Smith resulted in any damage to the Wife. Each of the three (3) categories above were the subject of differing, and hotly-contested, positions being maintained by both parties. However, Judge Payne reasoned that, regardless of whether the Wife’s evidence would have disproved the various contentions raised by the Husband in the Requests for Admissions, her attorney’s negligence precluded her from even challenging those contentions. The Judge found that:

. . . “That inability is itself a form of damage because it deprived McClung (Wife) of information that would have been useful in the divorce proceeding and in negotiating a settlement.”

THE TAKE-AWAY:

1. Always consider using Requests for Admissions (Rule 4:11) to establish factual issues that are in dispute. Your opposing counsel just may fall asleep and ignore them!

2. Bells and whistles should sound whenever you receive a Request for Admissions from opposing counsel, as the obligation to respond within 21 days is, generally, strictly enforced by circuit court judges. Do not allow yourself to be lulled into treating such discovery requests the same, as you might treat a set of Interrogatories, or a Request for Production, where the time deadlines tend to be far more flexible, and any resultant sanctions, far less draconian.

III. SMITH’S FAILURE TO CONDUCT DISCOVERY

Attorney Smith did not submit any discovery requests for response by the Husband, until quite late in the game. Indeed, it came so late that the trial court excused the Husband from having to respond. Again, Smith had to concede that such omission was malpractice on his part.

Judge Payne rather indelicately pointed out that this failure by Smith had devastating consequences to the Wife, including:

a. Her attorney’s inability to conduct any meaningful impeachment of the Husband at the equitable distribution trial;

b. Her attorney’s inability to assess the intrinsic value of the Husband’s law practice; and

c. Her attorney’s inability to fully understand and appreciate the significance of the evidence that he did possess.

Of particular note is the fact that Smith tried to excuse his failure to submit discovery requests based upon certain “informal discovery” that he had allegedly received voluntarily by the Husband’s counsel. Judge Payne made short shrift of this suggestion, pointing out that the Husband’s positions taken in the divorce proceedings had been “obstinate, irrational, conflicting and contentious,” which put Smith on notice that any “informal discovery” would, necessarily, be insufficient.

THE TAKE-AWAY:

In any divorce case, the discovery process is far-and-away the most expensive aspect of the case, short of the actual equitable distribution trial itself. DO NOT be tempted to avoid discovery, or give it less than its full due, in an attempt to minimize the amount of fees to be charged to your client. Furthermore, if your client wants you to limit, or restrict in any way, the nature or extent of your discovery efforts, be sure to have your client sign a statement confirming your advice, and the client’s rejection of that advice.

IV. SMITH’S FAILURE TO VALUE LAW PRACTICE

During the divorce proceedings, the Husband claimed that his law practice had a negative value. As discussed in the previous section, Smith conducted no discovery at all; therefore, he had no documentation, one way or the other, to challenge the accuracy of Husband’s contention. Smith simply accepted it as being accurate. Judge Payne agreed with the Wife’s standard-of-care expert, now-Justice Donald Lemons, that this failure by Smith was malpractice.

As part of the legal malpractice trial, the Wife presented a loan application that the Husband had prepared and submitted a year before the parties’ separation, in which he, himself, valued his law practice at $150,000. Of course, during the divorce trial, attorney Smith failed to introduce such loan application as valuation evidence from the owner of an asset, because had no bothered to submit to the Husband the standard request for:

“Complete copies of financial statements, loan applications or other written requests for credit submitted by you to any individual or business entity in the past three (3) years.”

At the malpractice trial, the Wife also presented expert testimony from a business valuator that the “hard assets” alone of the law practice were worth $152,000.

Judge Payne decided that the Wife should have received one-half of the “hard assets” valuation and, thus, awarded Wife another $76,000 in malpractice damages.

THE TAKE-AWAY:

In his decision, Judge Payne commented that attorney Smith did not “seek assistance from an expert business valuator . . .” The clear suggestion is that an experienced business valuator would have told Smith that the law practice did, indeed, have value, in the form of its “hard assets,” as opposed to “business goodwill.” This highlights the need for divorce practitioners to recognize those circumstances that necessitate at least a consultation with an expert, whether a business valuator, a forensic accountant, a real estate appraiser, or the like.

Again, if your client does not want to spend the dollars required for such consultation with an expert, be sure to get it in writing!

V. SMITH’S NEGLIGENT PERFORMANCE BEFORE AND DURING TRIAL

Judge Payne did not mince words in describing Smith’s trial performance as “abysmal.” Initially, the Judge slammed Smith for not ensuring that a court reporter was present at trial. While acknowledging that the standard of care did not demand the presence of a court reporter at all trials, Judge Payne stated that such standard DID require a court reporter at this divorce trial, in view of the fact that the divorce had been “bitterly contest,” and that the Husband had been “contentious” and “asserting irrational positions.”

The Judge found that Smith’s meeting with his client shortly before the divorce hearing was malpractice, as he had not briefed her on what to expect at trial; nor, discussed with her the various topics about which she would be asked to testify.

Finally, Judge Payne noted the deficient representation provided by Smith during trial. In particular, Smith, apparently, was unaware of certain documentary evidence that existed in his file, which would have effectively impeached the Husband’s testimony regarding the beachfront properties. Smith’s trial performance was described by Judge Payne as being “inept” and an “abject failure.”

THE TAKE-AWAY:

A. Always arrange for a court reporter to be present for any hearing where evidence is likely to be presented. The reporter’s appearance fee will be minimal; and, you do not always need to have a transcript produced. Furthermore, most attorneys are perfectly willing to split the appearance fee equally.

B. Always arrange to meet with your clients before they are likely to provide testimony; whether at a deposition, in support of a motion, or at trial. Do this a day or more in advance of the scheduled event – not on that very day! Review with your clients all exhibits that they may be asked to address; and, discuss with your clients the various topics and subject areas to which they will testify. Remember: alert your clients to any sensitive areas of likely cross-examination by opposing counsel.

VI. SMITH’S FAILURE TO SEEK PENDENTE LITE SUPPORT

Notwithstanding the fact that the Wife had told Smith that she needed financial support from her husband during their 14 months of separation, Smith never sought any pendente lite, or interim, support for her. Judge Payne agreed with Wife’s expert, Donald Lemons, that such failure was a deviation from the required standard of care, i.e. malpractice.

Judge Payne’s calculation of the Wife’s damages resulting from such failure seemed to be a bit strained. The Judge noted that during the 14 months of separation, the Wife had to pay $2,000 per month on the mortgage for one of the beach properties; and awarded this full amount ($28,000) as damages. He also noted that the Wife had to borrow $50,000 to stave off foreclosure of the other beach house and was awarded one-half of this amount ($25,000) as additional damages.

Clearly, Judge Payne was intent on finding some way of compensating the Wife for her attorney’s failure to even attempt to get her attorney’s failure to even attempt to get her some interim spousal support.

THE TAKE AWAY:

Divorce practitioners must have an intimate working knowledge of Code 20-103, and how to obtain interim relief for a client during his or her period of separation. When in doubt – FILE THE MOTION. More often than not, the mere act of filing a request for pendente lite relief will result in a settlement of those issues.

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