Avoiding transactional legal malpractice claims

Steve Schwartz

By Steven H. Schwartz and Brian Sableman

Brian Sableman

As published in the September 2024 edition of Missouri Lawyers Weekly

Transactional legal work can result in legal malpractice claims when a lawyer fails to memorialize the client’s intent in a written document, whether it be a business contract, a trust, a will, or a pre-nuptial agreement. We have represented lawyers who were sued regarding their preparation of trust documents, pre-nuptial agreements, asset protection documents, stock transfer documents and other transactional documents.

To establish that the lawyer was negligent in preparing a transactional document, the client must prove, among other things, that (1) the lawyer was negligent in failing to carry out the client’s intent when preparing the document; (2) clients would be better off if their intent had been properly memorialized in the document; and (3) the other parties to the transaction would have agreed to the document if the clauses the client intended were included. SKMDV Holdings, Inc. v. Green Jacobson, P.C., 494 S.W.3d 537, 547-48 (Mo. App. 2016).

A transactional legal malpractice claim cannot always be avoided, even if the lawyer diligently tried to comply with the client’s wishes. There may always be a misunderstanding or miscommunication between the lawyer and the client, or between the drafting lawyer the other parties to the transaction. However, the risk of a claim can be reduced by enforcing some discipline in your interactions with the client and the other parties to the transaction. Here are some suggestions for avoiding malpractice claims arising out of a transaction legal work:

Document, memorialize and write it down! When preparing a legal document, the lawyer’s job is to document the client’s intent. But it is also very important to document the lawyer’s communications with the client and with the other parties to the transaction. This will help prevent misunderstandings and miscommunications. The lawyer and the client may think they have been clear in their oral communications, but sometimes things get “lost in translation.” If the client’s expression of intent to the lawyer is documented, there is less chance that the client will later claim that the lawyer failed to comply with the client’s intent. Also, if the lawyer’s communications with the other parties to the transaction are documented, there will be fewer arguments down the road regarding what the other parties were willing to agree upon.

Discuss the final version of the document with the client, in detail. Depending on the sophistication of the client, it is best to sit down, in person, with the client and thoroughly go over the document, explaining in lay terms what each provision of the agreement means. A lawyer should not assume the lay client understands the agreement, even if they claim they understand it. A face-to-face discussion of each section of the document is preferable.

Identify and limit the scope of the representation. It is paramount that the lawyer clearly defines the scope of the representation in an engagement agreement. For example, if the lawyer is preparing a conveyance document in a real estate transaction, the lawyer should specify whether they will also be providing tax advice and preparing loan documents and seller disclosures necessary to effectuate the sale. The lawyer must also clearly identify who they represent. This is especially important when the other parties to the transaction are not represented. Those other parties may believe, inaccurately, that the lawyer is representing everyone in the transaction.

Identify the amount in controversy or the stakes of the transaction. A mistake in drafting a payment term or a default notice could have extreme consequences. Before undertaking a transactional representation involving high stakes, lawyers should anticipate the worst-case scenarios and ensure they have the requisite experience and knowledge to carry out the task, and sufficient malpractice insurance. A high-stakes matter may justify having more lawyers involved to check each other for mistakes, and to make sure that all bases have been covered.

Pay attention to details. Small changes can have big ramifications in preparation of a transactional document. The client and attorney may think they have a “bulletproof” agreement until the opposing party begins making their redlines. Therefore, the lawyer must identify and explain, preferably in writing, all changes or redlines to the client throughout the negotiation. There are usually multiple ways to word a clause. If the opposing party’s proposed language creates confusion, suggest an alternative that everyone understands. It is best not to leave anything for interpretation down the road.

As always, the devil is in the details. A lawyer can avoid a big headache down the road by paying attention to details and memorializing their communications with clients and other parties to an agreement.

Steven Schwartz is a principal at Brown & James in St. Louis who has defended lawyers in legal malpractice cases, malicious prosecution cases and ethics complaints for over 35 years. He can be reached at sschwartz@bjpc.com. Brian Sableman, a senior associate at Brown & James, contributed to this column. He can be reached at bsableman@bjpc.com.