Recent Developments in Legal Malpractice Litigation

By Ross Pulkrabek

Does a guilty plea to securities fraud and theft in a criminal case bar a client from later suing her securities lawyer for legal malpractice based on bad legal advice? According to the Colorado Court of Appeals's June 12, 2008 decision in Allen v. Martin, the answer is "yes."

In Allen, the client was an officer of the Women's International Investment Network ("WIIN"). WIIN hired the defendant lawyers to advise it and Allen on the the securities law implications of certain real estate transactions.

The client later was indicted on multiple counts of conspiracy to commit securities fraud and theft in connection with the same transactions on which the lawyers advised her. She ultimately pled guilty to one count of securities fraud and one count of theft.

The client attempted to sue her former lawyers for legal malpractice, arguing that they had provided negligent legal advice, causing her indictment, and that they breached their fiduciary obligations by not coming to her aid during the ensuing prosecution. The trial court dismissed the client's claims, finding that they were barred by virtue of her guilty plea. Having admitted to securities fraud and theft, the client was in pari delicto (equally at fault) with the lawyer defendants.

The court of appeals affirmed dismissal of the legal malpractice claims, holding that a plea of guilty bars a client from attempting to show that she did not commit a crime in a legal malpractice case. The court found, however, that the client can avoid having her legal malpractice claim barred by pleading nolo contendre (no contest). The court also left open the possibility that the legal malpractice claim will not be barred so long as the client attempted to plead nolo contendre, even if the trial court or prosecution refused to accept such a plea.

Corporate executives and other business persons who find themselves being prosecuted after receiving bad advice from a lawyer would be wise to bear the Allen decision in mind and consult with experienced legal counsel about their professional negligence claims against their former lawyers before entering a plea in a criminal case.