Dorsey sued over dual representation
Posted: 10:38 am Fri, January 4, 2013
By Barbara L. Jones
Disputed real estate deal; Robins represents plaintiffs
A heavyweight match over attorney malpractice arrived late last month when Dorsey & Whitney got hit with a complaint from plaintiffs represented by Robins, Kaplan, Miller & Ciresi.
The plaintiffs, Andrew Czajkowski and David Perbix, allege that former Dorsey attorney Regan Waller jointly represented the buyers and the sellers in a real estate purchase and allowed plaintiffs to purchase property encumbered by a $700,000 mortgage of which they were unaware.
Plaintiffs also claim that Waller communicated exclusively with the sellers and that they were not informed of the substance of the communications.
The suit claims legal malpractice, breach of fiduciary duty, breach of contract and negligence.
Dorsey spokesperson Bob Kleiber said only that the firm believes that the lawsuit is without merit and intends to defend it vigorously.
Plaintiff’s attorney Michael Ciresi could not be reached for comment.
Mortgage not disclosed
The plaintiffs had known the sellers since the 1990s and had stayed at their Madeline Island, Wisc. bed-and-breakfast called Woods Manor, which is the real estate at issue in the underlying transaction. The sellers had encumbered the property Aug. 23, 2002, with a $700,000 mortgage from Mid-Wisconsin Bank and in 2003 first spoke to the plaintiffs about buying the property, according to the complaint. They did not disclose the mortgage to the plaintiffs.
In 2005 the plaintiffs decided to purchase a partial interest in the property, and in 2006 one of the sellers suggested that both parties retain Waller to jointly represent them in a real estate transaction, the complaint states. The joint engagement letter was executed by attorney Robert J. Olson, a Dorsey partner.
The complaint continues by charging that although Waller was to consult with both clients equally, she never communicated with the plaintiffs and did not inform them of the mortgage. They also did no title work and did not recommend that plaintiffs have a title search done.
“… all of the substantive communications and advice from Dorsey & Whitney and Ms. Waller concerning the Woods Manor real estate transaction were directed exclusively to the sellers,” the complaint states.
The plaintiffs paid $530,000 to the sellers, and the sellers recorded a quit claim deed granting them a 40 percent interest in the property. Waller drafted a tenancy-in-common agreement for the parties.
But in 2010 and 2011 the sellers further encumbered the property with two loans from Mid-Wisconsin bank without the plaintiffs’ knowledge, according to the complaint.
Mid-Wisconsin foreclosed in 2011 and asserted that the plaintiffs’ interest was subordinate to the bank’s. A circuit court judge in Wisconsin entered summary judgment against the plaintiffs on their numerous defenses and counterclaims including breach of contract, novation, breach of the covenant of good faith and fair dealing, estoppel, tortious interference with contract, and unjust enrichment. The Wisconsin Court of Appeals affirmed, saying there was no factual basis for their claims because they did not have a contract with the bank.
But for the defendants’ malpractice the plaintiffs would have protected their interests by refusing to go forward with the sale, the malpractice complaint says. Furthermore, but for the malpractice, they would have received a more favorable result in the Wisconsin litigation.
Thus far, the plaintiffs have lost their entire investment in the property and incurred $200,000 in attorney fees litigating in Wisconsin, the complaint states.
Scrivener situations rare
At the heart of the lawsuit is the attorney’s dual representation, which many lawyers would decline to do. It is not unethical per se, but it is unethical to represent clients when you have a conflict of interest. “It can be done, but I would prefer not to do it,” said Minneapolis attorney Kevin Dunlevy. “If I’ve done it, I’ve learned my lesson.”
The seller has a duty to disclose all encumbrances on the property, Dunlevy said. “One of the problems with dual representation is that the seller can’t disclose,” he said.
Attorney Kent Gernander, formerly head of the Lawyers Professional Responsibility Board, said dual representation is generally inadvisable and improper. The rules state that a lawyer should not undertake an engagement if he or she would have to be adverse to a client or would be materially limited in represented the client. “The buyer and the seller may think they are looking for a scrivener, but those situations are rare,” he said.
Minneapolis litigator and blogger Seth Leventhal, who reported on the case on his Minnesota Litigator blog, said there were four take-aways from the case:
• Anyone, lawyer or not, should check for mortgages. Buyers know that mortgages exist.
• It is not a good idea for the seller to recommend an attorney to the buyer and vice versa. If there is a problem down the road, the attorney is likely to be blamed.
• Joint representation is fraught with risk.
• When the scope of an engagement letter is vague or ambiguous, in the context of a real property transaction, what actions by legal counsel are implicitly required by the standard of care?