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Sufficiency of Proof of Damages Caused by Malpractice Leading to “Forced”/“Reduced” Settlement

When has sufficient evidence been presented of damages caused by alleged legal malpractice in “settle and sue” cases? In a case handled by the authors, the First District Court of Appeal in California recently certified for publication an opinion concerning “settle and sue” legal malpractice cases which should have significant implications for legal malpractice cases in California in which the underlying case resolved through settlement. In Filbin v. Fitzgerald (November 20, 2012) 211 Cal. App. 4th 154, the Court held that a plaintiff who alleged he was compelled to accept a reduced settlement due to his prior counsel’s alleged malpractice could not recover damages for same in the absence of proof to a “legal certainty” that the alleged malpractice proximately caused the alleged damages.

In Filbin, plaintiffs were involved in a condemnation case in San Luis Obispo County. After a disagreement about the value of the condemned property and corresponding obligations of plaintiffs concerning a pre-trial settlement offer, plaintiffs parted ways with their attorney. The plaintiffs then retained new counsel who settled the case for $2.7 million, more than $4 million less than plaintiffs contended the condemned property was worth, but nearly $1.5 million more than the condemnor had previously offered in settlement before the change in counsel. Represented by the same successor counsel who settled the underlying case, and alleging that the settlement could and should have been even higher but for malpractice by the prior attorney, the plaintiffs sued their prior attorney, alleging various breaches of the requisite standard of care and fiduciary duty, which, the plaintiffs claimed, caused them to settle the underlying case for less than they would have absent the alleged breaches of duty. Plaintiffs sought more than $4 million in damages. The lawyer defendant cross-complained for unpaid fees and advanced costs.

After a bench trial, the trial judge rejected each of the claims of malpractice leading up to a pre-trial offer of settlement offer and all claims of breach of fiduciary duty. But he nevertheless found a violation of the standard of care in connection with statements made by the attorney defendant at the time that he withdrew from the case, which, the judge concluded, caused the case to resolve less favorably than it would have otherwise. The trial court calculated that the case would have settled for $574,000 more than it did had the defendant attorney not been negligent, and awarded plaintiffs this sum in damages.

On appeal, the decision was reversed. Though the appellate court declined to adopt “an absolutist solution” precluding settle and sue cases altogether, it found that the trial court’s decision could not be sustained because the presented no evidence showing to a legal certainty that those acts or omissions proximately caused any injury.”

While the appellate court stopped just short of endorsing a blanket prohibition in settle and sue cases (“Fitzgerald goes right to the verge of soliciting a decision flatly prohibiting liability against former counsel for settlements” and “presents a strong argument that the uncertainties and imponderables of settlement preclude a disgruntled former client from establishing causation and damages ‘to a legal certainty’” in such cases), the decision signals that damages claims in such cases are correctly subject to close scrutiny, and absent provision of proof to a legal certainty of proximate cause, subject to dismissal on causation grounds as a matter of law.

Related Practices

• Professional Liability