In September, Bradley Birkenfeld received the largest whistle-blower award ever paid by the IRS, $104 million. however, prior to receiving the award, Mr. Birkenfeld spent 31 months in prison for helping a California developer to evade paying income taxes. While in prison, Mr. Birkenfeld filed a lawsuit in Superior Court in Washington against the lawyers who represented him in the whistle-blower action. Mr. Birkenfeld claimed the firm mishandled negotiations with the Justice Department in his attempt to be granted immunity. Mr. Birkenfeld also filed a federal action in Washington alleging the lawyers violated his constitutional rights to free speech, and his right to due process. The law firm filed a counterclaim seeking 12.5% of the $104 million award. In November 2011, Mr. Birkenfeld’s new lawyers moved to dismiss the actions Mr. Birkenfeld had brought pro se while in prison.
Mr. Birkenfeld is now again suing the lawyers who represented him in filing the whistle-blower complaint. Mr. Birkenfeld has sued the law firm Schertler Onorato, and attorney David Schertler, Danny Ornorato, David Dickieson and Peter Taylor for legal malpractice. Mr. Birkenfeld alleges the lawyers mishandled their representation of him by not filing forms with the IRS, not advising him that he was going to be indicted, and not turning over files to his criminal attorneys. Mr. Birkenfeld alleges his attorneys negligence led to his arrest and conviction, a $30,000 fine, and caused the award from the IRS to be $7.8 million to $15.6 million less than it could have been. Mr. Birkenfeld is seeking $60 million for legal malpractice, breach of fiduciary duty, and unlawful trade. Mr. Birkenfeld is also seeking punitive damages.
The lawsuits by both sides promise years of entertaining litigation ahead. It is difficult at this juncture to say what lessons attorneys may learn from this case, however it is, at the very least, a reminder that up to 70% of all actions against clients for fees result in claims against attorneys for legal malpractice.