No reasonably prudent attorney would have filed a state antitrust lawsuit premised on the notion that two local wedding photographers controlled the worldwide high-end wedding industry. According to a federal court of appeals, counsel’s decision to do so constituted malpractice and rendered him responsible for a sanctions award against his client. ABA Litigation Section leaders emphasize the importance of ensuring a client’s claims are founded in both law and fact before initiating a lawsuit.
Lowe v. Gammon began with a state court lawsuit filed by Champion, a wedding photography company, challenging the enforceability of an exclusivity clause contained in two other local wedding photographers’ contracts. Champion retained an attorney, Gammon, to file the lawsuit against the photographers, alleging claims of conspiracy to restrain trade and tortious interference with existing and prospective contracts.
After obtaining summary judgment, the photographers filed a motion for sanctions against Champion, one of its employees, and Gammon. The state court awarded sanctions against Champion only, finding that it should have known that it was groundless to assert that two local photographers controlled the worldwide high-end wedding industry The $41,518.75 sanction award was upheld on appeal.
Champion subsequently filed for bankruptcy, and the photographers filed a proof of claim based on the state court sanctions award. In response, the bankruptcy trustee filed a malpractice action against Gammon for initiating the state antitrust lawsuit that led to sanctions. The bankruptcy court refused to adopt the state courts’ holdings that the initial suit was groundless, and instead moved forward with proceedings on the malpractice claim.
Both the trustee and Gammon presented expert testimony. The bankruptcy court held that the trustee’s expert had failed to meet its burden on the standard of care expected of Gammon and that the trustee had not proven its malpractice claim. The district court adopted the bankruptcy court’s findings of fact and conclusions of law, and the trustee appealed.
The Court of Appeals for the Fifth Circuit analyzed whether Gammon or other reasonable attorneys would have filed the state antitrust suit after a reasonable inquiry into the facts and legal requirements of the claim. The court of appeals noted the factual information Gammon had at his disposal to review and that Gammon did not personally conduct any significant research prior to filing suit, although he did have his associate review at least one case. The court of appeals determined that “a reasonable inquiry into the evidence [Gammon] had and the law that governed a state antitrust action would have stopped a reasonably prudent attorney in his tracks before suing.” Therefore, the court determined that Gammon breached his duty of care.
The court also considered whether Gammon’s breach was the proximate cause of damages. The court of appeals determined that expert testimony was not necessary to establish causation because the error was “so obviously tied” to the adverse result of sanctions. In addition, the court of appeals held that Gammon could have foreseen the outcome of the case based on state law that provides for sanctions when an attorney files a frivolous lawsuit. Thus, the court of appeals determined that the trustee had also established proximate cause and reversed the findings of the district court. The case was remanded to the district court to determine damages.
“This case illustrates why it is so important, from the outset of a case, to make sure a client’s claims are founded in both law and fact,” stresses Blakeley E. Griffith, Las Vegas, NV, cochair of the Litigation Section’s Bankruptcy & Insolvency Litigation Committee. “While the fact-analysis can be challenging at times due to an attorney’s reliance on their client to provide accurate information, the legal analysis is really the key to assessing whether or not to file a case,” notes Griffith.
Claims in a lawsuit should comport with the real-world aspects of the involved industries. “This opinion underscores how important it is that the pleadings and allegations of any lawsuit must be grounded in reality,” comments Allison W. Reimann, Madison, WI, cochair of the Section’s Antitrust Litigation Committee who agreed with the court of appeals’ conclusion that there was a lack of investigation into the claims being plead.
When representing clients with a potential antitrust action, “it’s important to have a searching conversation with your clients, who know their industry, and really push them on who their competitors are, what the geographic scope of competition is, and how easy is it to enter the market,” Reimann advises. In addition, Reimann notes that, “in some industries, there can be publicly available information that attorneys may need to look into to assess the strength of a potential claim.”
