Legal malpractice in settling cases (us)

Un article de la Grande Bibliothèque du Droit, le droit partagé.
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Auteur : Christopher G. Hoge
Avocat au barreau du District de Columbia, chef du Comité de gestion du D.C. Bar
Publié le 15/10/2012 dans Journal of the Bar Association of the District of Columbia (B.A.D.C.)

In civil litigation, it is a truism that settlements are highly encouraged, so much so that there is a maxim: “a bad settlement is preferable to a good trial result.” That is because of the expense, duration, and stress of litigation; the utter unpredictability of the outcome; and the possibility of an appeal. Courts have designed and required the use of Alternative Dispute Resolution (“ADR”) programs as a critical component of their case management systems.

Any lawyer who has litigated a civil case in the District of Columbia knows that pressure to settle is exerted at various points along the road from initial complaint to trial, and even during the appellate process.[1] Discussions about settlement are encouraged to the point that there is a sacrosanct rule of evidence prohibiting mention at trial of statements made during negotiations.[2] Announcement of a settlement almost always earns praise from the presiding judge, who is happy to close a case on her or his crowded docket without the time and stress of a trial.

A settlement also lessens the likelihood of a legal malpractice claim by a disgruntled litigant. It is far more likely that an unfavorable verdict will lead to such a claim than a settlement that has left a party vaguely dissatisfied but can be justified as a reasonable compromise of a disputed claim. It is one thing to spend a great deal of time, effort, and money to achieve something less than originally envisioned; it is quite another to spend even more time, effort, and money to come away empty-handed.

That does not mean, however, that a lawyer who works out a settlement that the client ultimately accepts is immune from liability. In virtually every jurisdiction, courts have found that lawyers must exercise “reasonable care” in working up a case and recommending a settlement to the client.[3] Failure to achieve an objectively reasonable result under the circumstances of the case can lead to relitigation of the claim as the “case within the case” component of a legal malpractice trial.

This article will address various examples of situations where attorneys have been found liable for malpractice in settling cases, followed by a discussion of how such claims are litigated and practical measures that an attorney can to take to avoid them.

I. Examples of Settlements Gone Wrong

One of the first legal malpractice cases this author handled was Prande v. Bell[4]. As reported by the Maryland Court of Special Appeals, Luisa Prande was injured in two motor vehicle accidents, neither her fault, about six months apart. She retained the same lawyer to handle both claims. Following the second accident, Ms. Prande had significant back injuries requiring multiple surgeries. There was no question that she had been severely injured; the critical issue was which accident was primarily responsible for her injuries.

The same law firm filed two lawsuits on behalf of Ms. Prande, against the drivers responsible for each of the accidents. In each suit, it was alleged that the accident in question was the sole and exclusive cause of the plaintiff’s injuries. Close to the trial date for the case against the driver in the first accident, the attorney advised his client to settle her claim for $7,500. The liability in the first accident was clear, and Ms. Prande’s medical bills were over $20,000 at the time of the settlement. Nevertheless, Ms. Prande’s lawyer advised her that if the case went to trial the medical expert was going to testify that the second accident caused most of her back problems. Ms. Prande accepted the settlement and proceeded toward trial for the second accident. However, shortly before the trial for the second accident the lawyer advised her to settle for $3,500. Her lawyer noted that at her deposition regarding the first accident, she had testified that the second accident had not significantly worsened her symptoms. Ms. Prande reluctantly accepted her attorney’s advice and agreed to settle for the $3500, despite medical bills at the time exceeding $30,000, but she later balked and sued her attorneys for malpractice.

The suit was dismissed at the trial level on the theory of nonmutual collateral estoppel. Ms. Prande had signed releases in settling both cases that effectively stated she was accepting these amounts in full and final settlement of all claims against the named defendants. The trial court ruled that these releases precluded relitigation of the issue of whether the plaintiff had received full compensation for her injuries. In a widely-cited opinion, the Court of Special Appeals disagreed and reversed, finding that the issues in a legal malpractice case are entirely different from those in an accident case.[5]

The more significant aspect of the Prande decision, however, was to confirm for the first time in Maryland that a client who was unhappy with the settlement of her case could subsequently sue his or her lawyer for malpractice. As explained by the Court of Special Appeals, this issue had been debated by courts of other jurisdictions, and at least one jurisdiction, Pennsylvania, had decided that such claims could not be countenanced as violating public policy encouraging settlements.[6] The Court of Special Appeals adopted the majority view, that such claims can be countenanced under appropriate circumstances. However, in order to protect against 20-20 hindsight and revisionist history, the Court adopted a heightened standard of care for attorneys accused of mishandling a settlement. The plaintiff’s burden would be to establish by a preponderance of the evidence that:

The attorney’s recommendation in regard to settlement was one that no reasonable attorney, having undertaken a reasonable investigation into the facts and law as would be appropriate under the circumstances, and with knowledge of the same facts, would have made.[7]

When the Prande case was remanded, this author presented the case to a jury and had an expert in personal injury litigation testify as to the standard of care for personal injury lawyers handling cases similar to Ms. Prande’s. Among other things, the expert testified that each case had a range of values far beyond the settlement amounts.[8] The jury concluded that the settlements had been negligently handled and made an award to Ms. Prande which, unfortunately for Ms. Prande, was small enough that the defense chose not to appeal.

The true significance of Prande, however, is that it led directly to the Maryland Court of Appeals decision in Thomas v. Bethea[9] three years later. In Thomas, the defendant’s lawyer settled a Baltimore lead paint exposure claim against three landlords, one of whom he was having difficulty serving with process, for $2,500. A jury subsequently found that the value of the plaintiff’s claim was $125,000 and found against the attorney in that amount. The plaintiff’s expert testified that the settlement was one that “no reasonable attorney should have entered into,” referring to the heightened standard of care required by Prande. Cross appeals were filed, and the Maryland Court of Appeals granted certiorari to reconsider the Court of Special Appeals holding in Prande. The Maryland Court of Appeals reaffirmed the decision on non-mutual collateral estoppel, but went a step further in deciding that in malpractice actions involving recommendation to settle there was no need for a heightened burden of proof regarding the standard of care. Rather, henceforth the standard applicable to a claim against an attorney for improperly settling a client’s case would be that of ordinary professional negligence. The Court quoted with approval from a New Jersey case: “[A]fter all, the negotiation of settlements is one of the most basic and most frequently undertaken tasks that lawyers perform.”[10]

In order to establish negligence, expert testimony as to the standard of care, and the breach thereof, is necessary. However, the Maryland Court recognized, as have the courts of virtually every jurisdiction, that attorneys are allowed a broad measure of latitude in evaluating cases and recommending settlements; otherwise, chaos would reign as disgruntled clients would inundate the courts with malpractice claims.[11]

According to Thomas, the proper measure of damages, assuming liability, is established via the “trial within a trial” methodology. The majority found that proving a case may have had a higher settlement value is very difficult, given the difficulty of predicting what the adverse party might have offered under different circumstances. The most reliable indicator of the value of a case is what a jury decides it is worth upon hearing the “trial within the trial.”[12] However, in a spirited concurrence and dissent, Judge Chasanow noted how unreliable the “trial within the trial” method could be. The same jury deciding the value of the lead paint exposure claim would also see such things as the ad damnum clause in the complaint and the settlement demand letter drawn up by the defendant’s attorney, things which would never come into evidence in simple injury litigation. Nevertheless, despite these reservations, in Maryland “trial within the trial” is the approved process for determining the value of a negligently settled case.

II. Negligent Settlement Cases in the District of Columbia

The District of Columbia courts have produced no seminal decisions on the subject of legal malpractice in settling cases. There are, however, a few cases which touch upon issues relating to the settlement process. Some of the most frequently cited cases in the legal malpractice area are: Niosi v. Aiello, 69 A.2d 57 (D.C. Oct. 21, 1949); O’Neal v. Bergan, 452 A.2d 337 (D.C. 1982); Waldman v. Levine, 544 A.2d 683 (D.C. 1988); and Smith v. Haden, 868 F. Supp. 1 (D.D.C. 1994).

Niosi stands for the fundamental proposition, discussed extensively in Mallen & Smith, that in order to prevail in a legal malpractice claim, the plaintiff has to prove that he had a meritorious cause of action in the underlying case. Otherwise, the plaintiff “loses nothing by the conduct of his attorney even though the latter [was] guilty of gross negligence.”[13] In O’Neal, the Court of Appeals clarified that it is normally essential for a malpractice plaintiff to support his claim with expert testimony, unless the error is so obvious that it would be apparent to a lay juror, such as a missed statute of limitations. The court in Waldman instructed that evidence of violation of the Code of Professional Responsibility may constitute proof of a violation of the standard of care, but not necessarily. Ethical violations and legal malpractice liability are two different things, and while there may be some overlap, there are also significant distinctions as to the burden of proof.

In Smith v. Haden, United States District Judge Paul Friedman rendered an opinion that touches on several interesting aspects of legal malpractice claims. While not binding, it has been cited widely as persuasive. Plaintiff Smith, the victim of an assault in Alaska, contacted Washington Attorney Haden. Smith asked Haden to help her pursue a claim against the Alaska Victims’ Compensation Fund, which had been established to assist crime victims such as Smith. Haden entered into a written retainer agreement with Smith in which only the claim against the fund was mentioned. Haden successfully collected the maximum amount available from the fund, but she never took steps to help Smith initiate a civil lawsuit against the assaulter in Alaska. Specifically, Smith alleged that Haden had agreed to find her an attorney in Alaska to pursue the claim but failed to do so, and the statute of limitations had passed. Indeed, Haden did contact an acquaintance of hers licensed in Alaska, but Smith ultimately did not retain that attorney.

Prior to trial, Judge Friedman denied a motion by the defense asking that the burden of proof be placed on Plaintiff Smith to establish that, had the lawsuit been timely filed and won, she could have found resources from which to collect against the assaulter. In a widely cited decision Judge Friedman, reviewing cases from other jurisdictions, held that there is a rebuttable presumption that a judgment is collectable, and the burden is on the defendant’s attorney to prove that in this particular case it was not collectable. This is of major significance in legal malpractice cases arising from failed claims against uninsured individuals or small businesses.

At trial, Haden argued that the scope of her representation of Smith had been limited to helping her with the claim against the fund, and she presented expert testimony to that effect. Going further, the expert, a well-known trial lawyer named John Gill, gave his opinion as to the value of the civil claim had it been correctly pursued. Despite a defense challenge to this type of expert testimony, Judge Friedman allowed it. While, ultimately, the value of a case may be the jury’s decision, after hearing the “trial within the trial,” the court did not object to hearing Mr. Gill’s opinion on the subject. Ultimately, Judge Friedman based his ruling on the plain language of the retainer agreement, which clearly limited the scope of Haden’s representation and, in his view, absolved her from liability for the missed statute of limitations deadline.

In Berkeley Ltd. Ptshp. v. Arnold, White & Durkee,[14] a Maryland decision based on District of Columbia law, the court focused on the interplay between the Rules of Professional Conduct and common law professional negligence principles in a legal malpractice context. The defendant’s attorneys had undisclosed conflicts of interest while representing Berkeley in patent infringement litigation against IBM. The conflict was that the same firm was representing two other computer manufacturers which had also infringed on Berkeley’s patent. Berkeley claimed in its malpractice suit that the Arnold firm “should have gotten more out of IBM as a result of their 1988 settlement.”[15] In evaluating this claim, the court found as a matter of law that Arnold had violated District of Columbia Bar Rule 1.7(b)(2) prohibiting undisclosed conflicts of interest.

The court then concluded that whether Berkeley had incurred damages as a result of the conflict was the proper subject of expert testimony.

More recently the District of Columbia Court of Appeals addressed a similar issue in Crawford v. Katz[16]. Crawford, the former Chief Financial Officer (“CFO”) of BET Services, Inc., initially retained Bernabei & Katz, PLLC (“Bernabei firm”) to negotiate a severance agreement with BET. Failing that, Crawford was fired and, using the firm, filed suit against BET for wrongful discharge in violation of public policy, alleging that he had been terminated because he was “blowing a whistle” on unlawful conduct by BET officers and staff. BET’s aggressive law firm, Skadden & Arps, promptly filed a motion for sanctions under Rule 11 of the Civil Rules of the District of Columbia against both Crawford and his counsel, alleging that the allegations were scurrilous and untrue and that counsel had not done due diligence in investigating them prior to filing.

The case proceeded through an initial period of discovery, at the end of which it went to private mediation with retired United States District Judge Stanley Sporkin. The matter was settled for $750,000. Subsequently, Crawford sued the Bernabei firm for legal malpractice, claiming that a significant error had been made during the initial negotiations with BET and that the firm had failed to advise him of the conflict of interest caused by the Rule 11 filing. The alleged conflict was that the firm became more interested in protecting itself against sanctions than vigorously prosecuting Crawford’s claim. As a result, the complaint stated, after enthusiastically supporting the claim and billing Crawford for a lot of work, the Bernabei firm did an about face and strongly recommended settlement for a fraction of the amount of damages calculated by Crawford’s economist experts.

In support of his claim Crawford proffered the opinion of Professor Geoffrey Hazard, Jr., a prominent professor of civil practice and ethics, who reported that the potential conflict of interest created by the Rule 11 motion led to an unsatisfactory compromise of Crawford’s claim. The defense lawyers moved for summary judgment, arguing that Professor Hazard was not a specialist in employment law, that no actual conflict existed, and that Crawford’s settlement was a significant success. The trial judge agreed and granted summary judgment. However, the District of Columbia Court of Appeals did not agree, holding that the stated opinions of Professor Hazard were sufficient to survive summary judgment. The case is now on remand, where three other defense motions for summary judgment are currently pending. One of those motions is based on the so-called “judgmental immunity doctrine”[17] which has been recognized in this jurisdiction and is similar to the rulings in Prande v. Bell and Thomas v. Bethea that matters of attorney judgment, as long as that judgment is reasonably informed, cannot serve as the bases for malpractice liability.[18]

In 1996 the District of Columbia Court of Appeals exonerated a lawyer who had been found liable for malpractice for refusing to name certain real estate brokers as defendants in a case arising from a real estate transaction.[19] Cooter had advised his client that there was not a good faith basis for pursuing a claim against the brokers. However, an expert in real estate law proffered by Mill’s expert Charles Acker, Esq., opined that “Cooter had deviated from accepted legal standards (which standards Acker did not, however, define) in failing to pursue relief.”[20] After the jury returned a verdict of $119,000 for Mills, the trial judge entered a judgment not withstanding the verdict, explaining that the expert had not established an applicable standard of care or that such a standard had been violated by Cooter. The Court of Appeals agreed, finding that Cooter’s only obligation was to advise Mills to seek the advice of another lawyer. In so ruling, the Court also pointed out that “[a]n attorney is not liable for an error of judgment on an unsettled proposition of law.” [21]

In Breezevale, Ltd. v. Dickinson,[22] the court approved use of the “trial within the trial” process to determine whether the firm of Gibson, Dunn & Crutcher LLP (“Gibson firm”) had committed malpractice by effectively abandoning its corporate client after learning that a key employee had forged some of the documents upon which its claim was based. The Gibson firm was pursuing claims against Bridgestone-Firestone, Inc. and Firestone Export Sales Corp. in connection with large contracts for the sale of tires in Iraq and Nigeria, and immediately prior to the deposition of a key employee, that employee advised a Gibson partner that she had forged some of the documents on which the case was based. The Gibson firm went on to settle the claim for a paltry $100,000. Breezevale sued for malpractice, arguing that Gibson could have postponed the deposition, affording Breezevale’s principals an opportunity to investigate the employee’s allegations, which it contended were false. Breezevale’s expert opined that a conflict of interest developed when the Gibson partner learned of the employee’s intention to speak about the forgery, and he should have advised her to seek separate counsel. This was enough to get the case to a jury, which found that Breezevale had forged the critical papers, but that this fact was not significant in the larger scheme of things. The jury awarded Breezevale $3,430,000.

In a stunningly bad turn of events for Breezevale, however, the trial judge entered a judgment not withstanding the verdict on the basis that it had acted in bad faith by instituting a lawsuit premised on forged papers. The court then went further by awarding the Gibson firm sanctions in the amount of $5,300,000. The District of Columbia Court of Appeals reversed, holding that based on the facts of the case the question of whether malpractice cause a low settlement of the suit should have been decided by a jury, the lower courts decision to grant judgment as a matter of law was erroneous. Therefore, the District of Columbia Court of Appeals vacated the awarded sanctions. This reprieve was only temporary, however, because on remand the trial court granted the Gibson firm’s motion to dismiss, based on the forged documents.

In Boynton v. Lopez,[23] the Court of Appeals affirmed a $7,500 verdict against a lawyer for failing to properly advise his client about who would be responsible for payment of a settlement in that amount. The client sued an insurance company for water damage to his residence, and the lawyer advised him that the company had agreed to pay $10,000 in settlement of the claim. The client expected the amount to be paid within a month or two. In actuality, however, the insurer had only agreed to pay $1,500; the balance was to come in the form of a reduction in the lawyer’s fee and a payment from another lawyer who had represented the plaintiff. The other lawyer failed to pay, and the client sued the settling attorney for malpractice. He was awarded $7,500 in compensatory damages and $2,500 in punitive damages. The appellate court affirmed the compensatory award, but reversed the punitive damages award because the defendant’s attorney had not financially benefited from the misrepresentation.

Finally, the case of Mavity v. Fraas,[24] is notable not because it made any law on legal malpractice arising from negligent settlements, but because of a truly memorable quote from the trial judge, Judge Urbina. The suit was filed by a pro se plaintiff against the firm of Hogan & Hartson, alleging various professional transgressions in the way the firm handled her claim for gender bias that was filed against the United States Department of Agriculture. Before granting summary judgment against the plaintiff for failure to designate an expert witness, Judge Urbina decried the massive number of motions papers emanating from the defense, stating that he “notes with displeasure the defendants' practice of bombarding the court with multiple motions (and supplements to motions) requesting essentially the same relief. Though the motions may carry different titles, “at the end of the day, even if you put a calico dress on it and call it Florence, a pig is still a pig.”[25]

III. A Cautionary Word of Advice

The essential ingredient in winning a legal malpractice case based on negligence in settling a case is being able to show that the lawyer made a reasonable, informed judgment in making his or her recommendation. This necessitates establishing that the lawyer did his or her homework, investigating the facts and analyzing the relevant law, before giving advice whether, and for how much, to settle. If the work was done, it will be almost impossible for the client to succeed in bringing a claim. My first legal malpractice case involved a divorce attorney who advised his client to settle with her husband without doing any investigation or discovery into the husband’s complex finances.[26] The wife’s lawyer had worked for the husband’s lawyer as a law clerk and trusted him when he was told that the husband, a lawyer, bank president, and real estate investor, did not have many assets to divide with his wife. In what was probably an honorable attempt to save Mrs. Haislip money associated with discovery, the lawyer dispensed with paper discovery, depositions, and hiring an accountant and simply recommended a settlement based on what his mentor had told him. This turned out to be a bad idea. A jury found the lawyer negligent and the Maryland Court of Special Appeals affirmed in a published decision, causing a blight on the attorney’s otherwise unblemished reputation.

The point is that no settlement recommendation should ever be made without full and reliable knowledge of the facts and law governing the case.

Notes et références

  1. In the District of Columbia, the Multi-Door Dispute Resolution Program (“Multi-Door”) was created by statute and began operating in January 1985
  2. Fed. R. Evidence 408; see also Pyne v. Jamaica Nutrition Holdings Ltd., 497 A.2d 118, 128 (D.C. 1985) (quoting S. Graae, District of Columbia Statutory and Case Law Annotated to the Federal Rules of Evidence 4.37 (1976)).
  3. See, Mallen & Smith, Legal Malpractice (4th Ed., West, 2011), at § 32:41, et seq. for a detailed discussion of malpractice claims centering on settlement issues.
  4. 660 A.2d 1055 (1995)
  5. 660 A.2d at 1063.
  6. Muhammad v. Strassburger, 587 A.2d 1346 (Pa. 1991). The Muhammad ruling, however, was subsequently modified by McMahon v. Shea, 688 A.2d 1179, 1180 (1997).
  7. 660 A.2d at 1065.
  8. The use of expert testimony to establish the value of the “case within the case” is controversial, and no firm rule has yet been established. In the District of Columbia, at least one federal judge has allowed an expert to testify to such matters. Smith v. Haden, 872 F. Supp. 1040, 1047 (D.D.C. 1994). In that case, Judge Friedman noted the conflict in cases from other jurisdictions.
  9. 718 A.2d 1187 (1998).
  10. 718 A.2d at 1193 (quoting Ziegelheim v. Apollo, 607 A.2d 1298 (1992)).
  11. See, Mallen & Smith, supra, at §32:43.
  12. 781 A.2d at 1197.
  13. 69 A.2d at 60.
  14. 118 F. Supp. 2d 668 (D. Md. 2006).
  15. Id. at 671.
  16. 32 A.3d 418 (D.C. 2011).
  17. See D.C. Code § 11-2502.
  18. The author currently represents Crawford in the remand proceedings.
  19. Mills v. Cooter, 647 A.2d 1118 (D.C. 1994).
  20. 647 A.2d at 1121.
  21. Id. at 1122.
  22. 759 A.2d 627 (D.C. 2000) (“Breezevale 1”).
  23. 473 A.2d 375 (D.C. 1984).
  24. 456 F. Supp. 2d 29 (D.D.C. 2006).
  25. Id. at 31 (citation omitted).
  26. Pickett, Houlon & Berman v. Haislip, 533 A.2d 273 (1987).

Voir aussi

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