Like many attorneys, I’ve experienced the uncomfortable feeling of being blindsided by a previously unknown fact that a client should have told me being raised in litigation. The recent opinion issued by the Michigan Court of Appeals in Food Solutions Inc v Haggard (docket # 294206 released 11/09/10) demonstrates how unknown facts can also be dangerous to an attorney’s bank account. In that case, the Defendant filed bankruptcy four days prior to his attorney filing an answer to a creditor’s complaint. After the bankruptcy filing was discovered, the defense attorney was sanctioned almost $2,500 pursuant to MCR 2.114(E) for not knowing about the bankruptcy.
Thankfully, the Court of Appeals reversed the sanction by holding that the duty of reasonable inquiry does not extend to a determination of a bankruptcy filing. However, it brings up a good point and one can be addressed in a “client obligations” paragraph within the retainer agreement. Clients need to be advised of their obligation to not hide unfavorable facts from their lawyer. I believe the retainer agreement provides the perfect opportunity to make sure this point is covered and documented.