$5 million legal malpractice verdict

When a firm is contacted to vet an acquisition, their client expects them to complete a full review and provide accurate information, especially regarding who would be responsible for any financial liabilities. Unfortunately, that is not always what happens as illustrated by a recent verdict.

Case in point

A federal jury in a Detroit court agreed upon a legal malpractice verdict. The firm was contacted by two owners of a holding company to vet an acquisition of a manufacturing company with pension liability.

The owners claimed that the firm offered legal advice regarding who would be liable for the pension. The claim argued that the firm in question stated neither the owners themselves, nor their holding company, would be liable, so long as neither owned more that 80% of the manufacturing company. The manufacturing company went into receivership and the pension fund declared the owners liable. The owners filed a lawsuit against the firm hired for the vetting process.

In a positive outcome for the owners and the pensioners, the jury awarded damages of $5 million. The funds were divided between the owners and the pension fund.

Negligence

This case depicts what can happen when an attorney is negligent in their legal duties to their client. Negligence can occur when an attorney misunderstands or misapplies a law, or when they fail to know or correctly apply a law.

In this example, the owners were financially liable after being informed that they would not be. The firm contacted to perform the vetting did not carry out their responsibilities and ultimately, they bore the cost of that failure.

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