Christopher R. O'Hara and Ian J. Pinta successfully defended an attorney and a law firm in litigation brought by the party adverse to the law firm’s client. Todd & Weld's clients – an attorney and a law firm – represented a pizza chain and related parties that mediated a lawsuit filed against the pizza chain by a contractor to collect payment for construction work.
The pizza chain filed bankruptcy after the mediated settlement, and the contractor then sued the pizza chain's attorney and law firm personally for payment of the amount that their client had agreed to pay in the settlement agreement. When the adverse party did not receive the settlement funds they had expected to receive from the settlement, the adverse party claimed that alleged representations were made by the lawyer during the mediation, and then sued the lawyer and law firm personally for their client’s alleged breach of a settlement agreement.
The Massachusetts Appeals Court affirmed the Superior Court Business Litigation Session's grant of summary judgment that the law firm did not commit fraud or convert the funds that were held in the law firm's client IOLTA account where the client directed that a portion of the funds be paid to the law firm for its outstanding monthly bill, and where there was nothing in the mediated settlement agreement, such as an escrow provision, that imposed any obligation on the law firm to pay the plaintiff.
The Appeals Court decision is significant for three reasons.
First, it held that Massachusetts does not recognize a fraud exception to the confidentiality provisions provided by the mediation statute, G.L. c. 233, § 23C, or a mediation agreement negotiated between sophisticated business people with the assistance of counsel. This is consistent with at least twelve other jurisdictions that have adopted the Uniform Mediation Act that does not include a fraud exception. The Appeals Court noted that it was not aware of any case where a court has created a fraud exception to a mediation confidentiality statute or mediation confidentiality agreement.
Second, the Appeals Court rejected the plaintiff's argument that even if the plaintiff could procure one or more jointly represented clients to waive the attorney-client privilege, it cannot do so as to the corporate debtor entity where, as here, the bankruptcy trustee then in charge of the law firm's bankrupt client repeatedly refused to waive the corporate privilege.
Third, the Appeals Court reaffirmed, consistent with Mass. Rule of Professional Conduct, that monies held in a client IOLTA account belongs to the client, and that where sophisticated parties are represented by counsel and enter a settlement agreement without an escrow provision and without the lawyers signing onto the settlement agreement with some obligation agreeing to be personally responsible to the adverse party, the law firm and lawyer could not be liable for conversion where the client directed funds to be paid, in part, to the law firm for its professional services.
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