Professional Liability Client Alert: Court of Appeal Affirms Protections Afforded Attorneys in “Settle And Sue” Legal Malpractice Cases

In Filbin v. Fitzgerald (No. A128544, 11/20/2012), the California Court of Appeal for the First District reversed the San Mateo Superior Court’s award to former Clients in a “settle and sue” legal malpractice action, where the Attorney’s alleged negligence occurred prior to the eventual settlement negotiated by a successor attorney.

The underlying eminent domain action arose from a property dispute between the Clients and San Luis Obispo County (“County”). The Clients had stockpiled material on the property, rendering it a junkyard. In 2004, the County commenced judicial proceedings to acquire the property and obtained an order for immediate possession. The value of the land was then at issue. The County’s initial offer was for $1.25 million. The Clients retained Attorney, who had substantial experience in condemnation proceedings. He engaged an appraiser, who valued the land at over $4.5 million. The Clients, however, believed the property was worth at least $12-$15 million. They were then facing a mandatory settlement offer required by Code of Civil Procedure section 1250.410, under which, the Attorney advised, they were “required” to make an offer less than the appraisal opinion. The Clients refused to make an offer below that figure, wanted to increase it to $9.1 million, and demanded a new appraisal. In light of this disagreement, less than three weeks before the scheduled trial date, the Attorney was discharged as counsel. Meanwhile, the County made an offer of $1.8 million. The Clients engaged new counsel, who commissioned two new appraisal opinions, at $6.8 million and $7.1 million, respectively The Clients made a final settlement demand of $5.8 million. During subsequent trial, Clients agreed to settle with the County for $2.6 million.

After finalizing the settlement, the Clients then sued Attorney, claiming they would have received a substantially better result but for his negligence. In a bench trial, the trial court found that the Attorney misrepresented the law in advising Clients that section 1250.410 “required” them to present a settlement demand lower than the appraised value. When the Attorney appeared before the lower court judge on a motion to withdraw as counsel, rather than file a substitution of attorney, the Attorney misstated the law again to the judge, who, the trial court found, believed that the Clients sought to deviate from the requirements of the law. The court found this was also below the standard of care. As a result, the trial court held that, but for these two breaches, the Clients would have settled their case for $3,174,000. After reducing this figure by the settlement amount, the court awarded the Clients $574,000 on their Complaint against the Attorney. The Attorney appealed.

In reversing this decision, the Court of Appeal first explained that a plaintiff is required to prove more than that the lawyer erred. Instead, the plaintiff must establish causation by connecting the fault to the fact of injury and damage to “a legal certainty.” The Court acknowledged that this burden of proof is difficult in a “settle and sue” case, as the plaintiff is required to prove that he or she “certainly” would have received more money but for the mistake. Because settlement always involves “uncertainties” and “imponderables,” the determination of whether a better result could have been obtained is inherently speculative. In addition, such challenges often fail because a recommended settlement tends to receive protection as a judgment call, where the lawyer has broad discretion and is not liable for a mere error in judgment.

After expressing an inclination to adopt a flat prohibition against such claims in light of this background, the Court of Appeal backed away from such a rule and concluded that in this case, there was no substantial evidence of causation of damages as a result of the Attorney’s negligence. It agreed that the Attorney’s advice in misstating the law fell below the standard of care, but disagreed with the trial judge’s acceptance and reliance upon the subsequent misstatement by the Attorney, explaining that a lawyer’s breaches are not per se actionable absent a causal link to damages. More importantly, the Court concluded that the Attorney’s misstatements to the Clients did not persuade them to follow his advice. Instead, “their refusal to follow [the Attorney’s] advice was the basis on which the attorney-client relationship foundered.” They “stuck to their guns” and increased, rather than lowered, their demand. Without this causal link, “no part of [the Attorney’s] strategy or tactical decisions prior to his [discharge] can figure in the determination of whether [he] committed malpractice.” The Court also noted that the Clients failed to present any evidence that they could have negotiated a better settlement from the County. Therefore, “whatever [the Attorney] may have done or failed to do, the [Clients] presented no evidence showing to a legal certainty that those acts or omissions proximately caused any injury. There is certainly no basis for believing that a greater settlement was lost.”

This decision is important for three reasons. One, it affirms the protection afforded to attorneys in “settle and sue” malpractice cases by reiterating the high standard of proof required to avoid speculation and acknowledging the deference that an attorney’s recommendation and judgment receives. Two, the opinion serves as a useful precedent for demonstrating that an attorney’s error does not automatically mean that a former client is entitled to recovery. Three, the decision acknowledges the potential for a causal break resulting from a substitution of counsel and subsequent change in strategy. There is no question that attorneys, even including those inclined to file malpractice suits, should feel more secure practicing with the benefit of this published decision in their favor.

This document is intended to provide you with information about professional liability law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.

November 26, 2012