ABA Journal - December 2009

REAL ESTATE

IN A FLUCTUATING REAL ESTATE MARKET, OUTDATED APPRAISALS ARE WORTHLESS

BY PAMELA A. BRESNAHAN

THE LAWSUIT YOU FILED ALLEGES THAT YOUR CLIENT has a claim to a parcel of real property. Whether the case is a divorce, a contract claim or another type of dispute, the worth of the claim turns largely on the value of the real property.

At the outset, you hire an appraiser to set a value on the property. After 10 months of discovery, opposing counsel comes to you with a settlement offer. You sit down with your client and discuss the offer. Ultimately, your client agrees to drop his claim on the property in return for a cash payment, and the suit is dismissed. But a few months later, the property sells

for 25 percent more than the amount suggested by your appraiser. It doesn’t take long before the client calls claiming that he got a bad deal in the settlement.

It is important to remember that the settlement of a lawsuit does not terminate an attorney’s exposure to professional negligence claims. Attorneys have been sued, for instance, after recommending settlements without adequately investigating the value of personal injury claims—Consolidated American Insurance Co. v. Hinton, 845 F. Supp. 1515 (M.D. Fla. 1994)—or the value of marital property—London v. Weitzman, 884 S.W.2d 674 (Mo. App. 1994). So it is not an unreasonable extrapolation to expect that, in a case involving the value of real property, a client would sue his attorney for recommending settlement without obtaining the most up-to-date appraisal possible.

Certainly, there was a time when the value of real estate fluctuated little more than a couple of percentage points each year. During the past few years,

however, we have witnessed median home prices produce both year-over-year gains and losses exceeding 30 percent.

Accordingly, it may no longer be acceptable for a lawyer to enter into settlement discussions while relying on an appraisal that is a year old or even six months old. Despite factoring market changes into your settlement recommendation, if you only have an old appraisal or outdated sales data or an outdated assessment in your file, you expose yourself to claims of negligence.

Pamela A. Bresnahan is a partner at Vorys, Sater, Seymour and Pease, and heads the litigation practice group at the firm’s office in Washington, D.C. She is a member of the ABA House of Delegates and a past chair of the Standing Committee on Lawyers’ Professional Liability.

TRANSACTIONAL LAW

THE ETHICS RULE AGAINST COMMUNICATING WITH A REPRESENTED PARTY ISN’T JUST FOR LITIGATORS

BY SCOTT E. WAXMAN

THE CLOSING IS DRAWING NEAR. A FEW SIGNATURES, a couple of wires and the conclusion of another successful transaction can be celebrated. Your client— the bank—has calculated the applicable interest rate and asks you to communicate the rate to the borrower, which is represented by another law firm. You pick up the phone and call the borrower’s comptroller. Or maybe the borrower’s comptroller phones you directly to obtain the interest rate.

Each of these scenarios is seemingly benign. But is it ethically permitted for you to speak with the comptroller? The answer is no.

A basic rule of professional responsibility is that a lawyer may not communicate with a party he or she knows to be represented by other counsel about the subject of the representation without the express consent of that party’s counsel. The standard version of this ethics mandate is set forth in Rule 4. 2 of the ABA Model Rules of Professional Conduct, which are generally followed by every state but California.

Most attorneys are very familiar with this rule in the context of litigation, but compliance in transactional practices is very sporadic. Comment [ 1] to Model Rule 4. 2 states that it is designed to protect a represented party “against possible overreaching by other lawyers who are participating in the matter, interference by those lawyers with the client-lawyer relationship and the uncounseled disclosure of information relating to the representation.”