Negligence

Lay people may think of negligence as being a body of law that pertains only to personal injury actions. But torts like negligence figure in business lawsuits as well.

Attorneys, accountants and cpas, auditors, stock brokers, investment advisors, corporate officers and managers, bankers, engineers, contractors, and manufacturers are all the subject of negligence claims. With licensed professionals like lawyers and accountants, the negligence is generally called malpractice. And the negligent conduct need not consist of physical acts. For example, it's possible to be held liable for negligent misrepresentation-- i.e., a careless misstatement of act where there is no intent to deceive.

So what is negligence? It's simply a departure from the standard of care imposed by law. With non-professional people, such as a contractor, it's often the care of a reasonable man. For example, an money manager is expected to exercise the prudence that a reasonable man would exercise in his own affairs. For professionals like lawyers and accountants, the standard of care is what is expected for that group in the community.

A claim against a lawyer for legal malpractice is often based on simple negligence. Failing to file a law suit before the legal deadline, called a statute of limitation, is a classical form of malpractice.

But the lawyer's conduct must be more than simply the selection between two or more reasonable strategies. So if each strategy has advantages and disadvantages, and the lawyer selects one, that's not malpractice.

Similarly, a stock broker has a duty of care to his customer. The Firm litigate a law suit where a stock broker referred conservative investors to an investment advisor who was known to be a risk taker. The investment advisor concentrated the entire portfolio on an insurance company which was a takeover target. The state insurance commissioner voided the company's license, causing the company's shares to lose all their value, and the investor to lose his entire portfolio.

The investment advisor wasn't liable because he was quite open about taking risky strategies. However, the stock broker was liable on a simple negligence theory for making an unsuitable referral.

Corporate officers sometimes engage in negligent conduct which depletes the assets of a company and thereby harm shareholders. For example, an officer may miss a deadline for exercising a stock option or making a mortgage payment. But to hold the officer liable for negligence in the management of the business, it's necessary to show that the conduct wasn't a valid exercise of business judgment.

One of the benefits of being able to allege negligence is that doing so entitles the plaintiff to seek punitive damages. Unlike compensatory damages, which seek to compensate, punitive damages are meant to punish and deter recurrence, and are therefore not limited to the amount of the plaintiff's loss. Thus, a claim of punitive damages enables a plaintiff to increase the size of his claim, and have a significant bargaining chip in dealing with the defendant.