Defeating “Settle and Sue” and “Lost Settlement Opportunity” Legal Malpractice Claims as a Matter ofLaw

By Steven S. Fleischman Horvitz &LevyLLP

INTRODUCTION malpractice action than the could should be liable for the difference between have achieved in the underlying action. what was received and what should have A common claim in legal malpractice been received, taking into account the I.actions is the assertion that the The starting place is Viner v. Sweet (2003) expense of going forward with a . underlying matter, if settled through the 30 Cal.4th 1232, 1241 (Vinerl), in which auspices of the attorney, should have been the California Supreme Court held that The California case with the most thorough settled on better terms, or if litigated to a a legal malpractice plaintiff must always analysis of these issues is Barnard v. Langer disappointing conclusion, that it should prove “but for” causation, regardless of (2003) 109 Cal.App.4th 1453 (Barnard). have been settled instead. By definition, the type of claim asserted. In other words, During the underlying action, there were these claims involve 20/20 hindsight and liability exists only if the plaintiffs shows numerous offers and counteroffers between often rank speculation. One court has that, but for the lawyer’s malpractice, a the parties and eventually a settlement summarized the hindsight nature of these different and better outcome would have was reached at a settlement conference. claims, noting that courts are “loathe to been achieved. The “but for” causation During the settlement conference, the allow settling plaintiffs to later second- requirement “is to safeguard against client asked the law firm to reduce its fees guess themselves by suing their attorneys.” speculative and conjectural claims.” (Ibid.) by $100,000; the firm declined. The parties (Blecher & Collins, P.C. v. Northwest After the Supreme Court remanded the then negotiated and signed a settlement Airlines, Inc. (C.D.Cal. 1994) 858 F.Supp. Viner case to the Court of Appeal to agreement. “Before the ink was dry,” the 1442, 1458 (Blecher & Collins).) Recent evaluate the facts in light of the clarified client wrote the firm contesting the firm’s case law confirms the importance of legal standard, the Court of Appeal held fee due to its alleged negligence; the fee was understanding the rules of causation in this that the plaintiffs had failed to come placed in a trust account pending resolution area, and the strategies defense counsel can forward with any evidence at trial proving of the dispute and the remaining sums were use to defeat these claims as a matter of law. that the other side would have agreed to a disbursed to the client. The client sued, The purpose of this article is to explain the more favorable transaction than the one claiming that the firm’s malpractice caused legal basis for these claims and how defense the parties eventually entered (a “better him to settle for “ ‘substantially less than counsel can defeat these claims as a matter deal” scenario) or that the legal malpractice [he was] legally entitled to.’” (Id. at pp. of law on summary . plaintiff would have been better offwithout 1457-1458.) entering into any transaction at all (a “no II. RELEVANT CASE LAW deal” scenario). (Viner v. Sweet (2004) 117 The trial court granted a nonsuit, which was A. “Settle and sue” claims Cal.App.4th 1218, 1227-1229 ( Viner II).) affirmed. The court held that plaintiff had The first (and more common) type of failed to come forward with evidence that “buyers’ remorse” claims discussed here arise The “better deal” scenario in Viner II is the “but for the [’s] negligence,” the when the underlying action was settled and proper analysis in any “settle and sue” claim. underlying action would have “had a better the client then claims that the settlement Legal malpractice plaintiffs must prove that outcome, either by a higher settlement or at would have been better absent the lawyer’s “but for” the alleged malpractice leading up trial.” (Barnard, supra, 109 Cal.App.4th at malpractice. The law in California for to settlement or malpractice in advising p. 1461.) these claims is clear: the legal malpractice the client to agree to settlement, they plaintiff should not be able to obtain a could have obtained a “better deal” in the better result from the attorney in the underlying action and that their attorney continued on page 24

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“It is not enough for [plaintiff] to simply happened, upon which a claim for to recommended settlements often are claim, as he did at the trial of this is predicated, will not support the claim protected as judgment calls.’” (Ibid.) malpractice action, that it was possible to or furnish the foundation of an action for obtain a better settlement or a better result such damages.”’” (Ibid.) Plaintiff’s offer “‘The standard should be whether the at trial. The mere probability that a certain ofproof at trial was “little more than a wish settlement is within the realm ofreasonable event would have happened will not furnish list of damages, unsupported by evidence conclusions, not whether the client could have the foundation for malpractice damages. that the [defendant] would have settled received more orpaid less. No lawyer has ‘Damages to be subject to a proper award for more, or by expert testimony to show the ability to obtain for each client the best must be such as follows the act complained that [plaintflc] amounts could have been possible compromise but only a reasonable of as a legal certainty.’” (Ibid.) recovered had the case been tried.” (Id. at p. one.’” (Ibid., emphasis added.) 1463, emphasis added.) Accordingly, under The plaintiff’s evidence in Barnard Barnard, a legal malpractice plaintiffmust Barnard provides the correct analysis and showed nothing more than “speculative prove either evidence that the case could shows that these claims can be resolved harm” because it did not demonstrate have settled for more than it did or must by short of trial. “‘“The law that but for the attorney’s negligence, the submit expert testimony that the outcome favors settlements.”’” (Village Northridge underlying action would have “settled would have been better had the matter gone Homeowners Assn. v. State Farm Fire for more or gone to trial and resulted in a to trial. & Casualty Co. (2010) 50 Cal.4th 913, larger recovery.” (Barnard, supra, 109 Cal. 930.) Every client who settles a claim App.4th at p. 1461.) The plaintiff failed Barnard further noted the “hindsight could sue their attorney for malpractice, to introduce evidence that the defendant vulnerability of lawyers is particularly acute asserting that the matter should have in the underlying action would have paid when the challenge is to the attorney’s settled on better terms, even $1 better. If more than the settlement amount, leaving competence in settling the underlying the possibility of an additional dollar the alleged harm as” ‘only a subject of case.” (Barnard, supra, 109 Cal.App. 4th at could create a triable issue of material fact, surmise, given the myriad ofvariables’” p. 1462, fn. 13.) The court stated that “the requiring a trial, then the legal malpractice that affect . (Ibid.)”’” [T]he mere speculative nature of hindsight challenges probability that a certain event would have continued on page 25

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plaintiffwould always be able to survive p. 1528.) The court noted that “settle and Plaintiff did not claim that she would have . That is why the issue sue” claims are “likely to be speculative” received a better result at trial than she is not whether the settlement could have and followed Barnard in holding that did in the settlement. Instead, she argued been higher or lower, but instead, whether attorneys are only subject to the “standard that had the negligent tax advice not been the settlement was within the range of ofwhether the settlement was within given, she would not have settled the case reasonableness. (Barnard, supra, 109 Cal. the realm of reasonableness.” (Ibid.) and would have insisted on going to trial App.4th at p. 1462, fn. 13.) Undisputed facts showed that the plaintiff’s even if it meant a lesser result. (Id. at p. underlying claim was time barred, and “to 1774.) The Court of Appeal reversed a Barnard was followed in Slovensky v. recover damages at trial, she would have verdict rendered in plaintiff’s favor. Friedman (2006) 142 Cal.App.4th 1518 had to defeat the statute of limitations The court rejected plaintiff’s contention (Slovensky). Slovensky involved a “settle defense. The undisputed facts reveal she that her claim was for the right to put the and sue” claim brought by the underlying could not have done so.” (Ibid.) That is, underlying defendant through a trial. The plaintiff The client consulted the the attorney were entitled to court held that implicit in that theory was defendant attorneys after the statute of summary judgment because they disproved that the underlying defendant would have limitations had run on the client’s claim. the value of the plaintiff’s underlying case. paid some amount more in order to spare Nonetheless, the defendant attorneys the exposure of a trial and that amount was, filed suit on the client’s behalf and settled Another case demonstrating these by definition, more than the settlement the case for $340,000. (Id. at pp. 1521- principles isJalali v. Root (2003) 109 Cal. figure. (Id. at p. 1778.) However, because 1525.) The trial court granted defendant’s App.4th 1768. In this case, the gravamen of plaintiff “never put on evidence that a a motion for summary judgment on the the plaintiff’s claim was that the defendant recovery larger than $2.75 million was even grounds that the plaintiff’s underlying negligently offered advice regarding the possible, her proof of damages fails.” (Ibid.) claim was barred by the statute of tax consequences of her settlement of limitations. The Court of Appeal affirmed, the underlying action. (Because of the These principles were recently applied by following Barnard and reiterating that a Alternative Minimum Tax, plaintiffwas the Court ofAppeal in Filbin v. Fitzgerald plaintiff must prove damages “to a legal not able to deduct the defendant attorney’s certainty, not to a mere probability.” (Id. at contingent fee for the underlying case.) continued on page 26

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(Nov. 20, 2012, A128544) —— Cal.App.4th summary judgment in “settle and sue” supp.) foil. rule 3.1380, p. 43.) Thus,

— [2012 WL 5857331]. In Filbin, the case].) settlement offers and demands made during underlying action was an eminent domain mandatory settlement conferences, unlike proceeding where the plaintiffwas Another issue that arises in these cases mediations, should be admissible in these represented by the defendant lawyer before is the admissibility of settlement offers cases. hiring another lawyer. After the change of and demands made during a mediation. counsel, the plaintiff settled the underlying In Cassel v. Superior Court (2011) 51 B. “Lost settlement opportunity” claims. case. The plaintiff then brought a “settle Cal.4th 113, the California Supreme In the other “buyers’ remorse” legal and sue” malpractice claim against prior Court emphasized the absolute nature malpractice scenario, the client alleges that counsel. Following a bench trial, the trial of the mediation confidentiality statutes the attorney’s negligence caused the client court ruled that the defendant attorney’s (Evid. Code, § 1119 et seq.) and held that to miss an opportunity to settle for a result alleged failure to properly prepare for trial evidence of communications made during better than the ultimate outcome. Ronald caused the plaintiff to settle the underlying a mediation are inadmissible, even if it Mallen refers to this as a “lost settlement case for $574,000 less than what the case means that a legal malpractice plaintiff is opportunity” scenario. (4 Mallen & Smith, was worth. The Court of Appeal reversed, unable to prove his or her claim. (Cassel, at Legal Malpractice (2012) The Litigation holding that the plaintiff could not, as a pp. 132-134.) Therefore, neither the legal Attorney — Legal Malpractice Claims, § matter of law, prove the causation necessary malpractice plaintifh nor the defendant 33:37, P. 895.) There are not as many for a “settle and sue” claim. The court ruled attorney, can introduce settlement offers reported “lost settlement opportunity” that because the underlying settlement made during a mediation in order to cases under California law. The leading was reached without the assistance of the support their respective positions. In case is Campbell v. Magana (1960) 184 defendant attorney, the plaintiffs could contrast, the mediation confidentiality Cal.App.2d 751 (Campbell). This involved not prove that anything the attorney did statutes do not apply to mandatory a claim brought by the plaintiff in the adversely affected them: settlement conferences. (Evid. Code, § underlying action. Campbell is usually 1117, subd. (b)(2); Advisory Com. corn., “Therefore, when replacement counsel took 23 Pt. lB West’s Ann. Codes, Rules (2012 continued on page 27 over the case on August 3, it was with no lingering impairment at Fitzgerald’s hands. When it came time for the Filbins to consider whether to settle the case some two and a half months later, in Construction Experts mid-October, they were free agents. No past decision by Fitzgerald hobbled them. Founded in 1991, KGA Inc. specializes Nothing prevented their new counsel from in providing expert testimony for giving them impartial advice. No one would stop them from going to trial. Their construction disputes and injuries. decision to settle was theirs and theirs alone, made with the assistance of new counsel, with no input from Fitzgerald. The consequences of that decision are likewise Kurt Grosz Licensed Engineers and Contractors theirs alone.” (Id. at “10.) KGA Inc. Certified Professional Estimators 1409 Glenneyre St. Suite A I.C.C. Certified Building/Special Inspectors Laguna Beach, CA 92651 I.C.C. Plumbing & Mechanical Inspectors These and other cases show that, under I.C.C. Accessibility Inspector/Plans Examiner 949-497-6000 California law, a defendant may be entitled ACI Concrete Field Testing Technicians to summary judgment in “settle and sue” 949-510-6638 (cell) Registered Environmental Assessor (CA EPA) cases. (See Orrick Herrington & Sutclffe 949-494-4893 (fax) AAA & CSLB Arbitrator v. Superior Court (2003) 107 Cal.App.4th [email protected] 1052, 1057-1058 [followingMarshak www.kgainc.com and Thompson]; Marshak v. Ballesteros (1999) 72 Cal.App.4th 1514, 1518-1519 I (Marshak) [same]; Thompson v. Halvonik (1995) 36 Cal.App.4th 657, 661-663 (Thompson) [affirming the granting of summary judgment in “settle and sue” legal malpractice case]; Blecher & Collins, supra, 858 F.Supp. at pp. 1458-1459 [granting

26 verdict Volume 3 • 2012 Legal Malpractice — continued from page 26 cited for the proposition that a legal the client; that there is no damage in the her to settle the underlying action for malpractice plaintiffwho demonstrates absence of these latter elements, and the $25,000, rather than trying the case. The malpractice leading to loss of a viable claim rests upon the plaintiff to underlying judgment against the client was must also prove that, had a judgment in his prove recoverability and collectibility of $600,000. (Id. at pp. 175-177.) The trial or her favor been rendered, it would have a plaintiff’s claim or ability to establish a court sustained the attorney’s , been collectable. (Id. at p. 754.) The case defense for a client who has been sued. holding that the plaintiff could not allege also, however, stands for the proposition a more favorable outcome because such a that a plaintiff may not rest a malpractice (Id. at p. 754, emphases added.) The court claim was speculative under Thompson and action on loss of a “ value” claim also rejected a “lost settlement opportunity” Marshak. The Court of Appeal reversed. regardless of the claim’s merits. (Id. at claim because the evidence showed that The court distinguished Thompson and p. 753.) The court rejected plaintiff’s the best offer ever made to the plaintiffwas Marshak because both of those cases were assertion: $350, while the plaintiff demanded that decided on summary judgment, rather than she would settle” ‘for nothing less than on the . Although the court was This argument cannot prevail for at least $100,000.’” (Id. at p.758.) It is in this skeptical as to whether the plaintiff would two reasons;first, it advances speculative context that the court expressly rejected the be ultimately able to prove damages, the values as a measure ofrecovery; and second, contention, frequently raised by plaintiffs, court held that the sufficiently it violates an established rule of this state that every claim has “settlement or nuisance alleged causation to establish a cause of (and most others) that one who establishes value which cannot be disregarded.” (Id. at action for legal malpractice under Viner I. malpractice on the part of his attorney p. 753.) (Id. at pp. 179-182.) in prosecuting or defending a must also prove that careful management In Charnay v. Cobert (2006) 145 Cal. III. CONCLUSION of it would have resulted in recovery ofa App.4th 170 (Charnay), the defendant Slovensky proves that by attacking the favorablejudgment and collection ofsame in the underlying action brought a “lost merits of the underlying case, the defendant or, in case ofa defense, thatproper handling settlement opportunity” claim, alleging attorney can prevail on summary judgment, would have resulted in ajudgmentfor that her attorneys should have advised and Campbell holds that a plaintiff cannot simply contend that every claim has some value. Even if the defendant attorney cannot prove that the plaintiff’s Facilitating Practical Solutions underlying case was completely devoid of merit, Barnard and Slovensky hold that the attorney need only show that the to the Most Challenging Problems former client’s disappointing settlement is “within the range of reasonableness” in order to be entitled to summary judgment. By attacking the merits of the underlying action, attorney defendants can demonstrate that the settlement was “within the realm of reasonableness” and obtain summary judgment on legal malpractice claims. And, while Charnay cautions against trying to defeat such claims by demurrer, the question whether FieldsAD R the settlement is within the “realm of Communication. Experience. Results. reasonable conclusions” is an issue of law that can be decided on summary judgment. (See Slovensky, supra, 142 Cal.App.4th at p. MEDIATION WITH GARY FIELDS 1533.) business I real estate construction defect and accident professional liability I product liability I Steven Fleischman is an appellate attorney employment I insurance I complex litigation with Horvitz & Levy LLP, and is Chair of ASCDC amicus committee. This article is based on a prior article that Mr. Fleischman To schedule a mediation, contact Mary Anne at 562-432-5111 wrote with Edith Matthai, Robie &Matthai, www.fieldsadr.com which was presented to an ABA Seminar.

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