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March 27, 2014 Articles

Practice Tips: The "Settle and Sue" Legal-Malpractice Case

When clients are feeling classic buyer's remorse.

By Saleel V. Sabnis

Buyer’s remorse has affected the most judicious of us. It’s that gripping sense of regret over having purchased an item that we only later realize we never really wanted or never should have bought in the first place. Of course, no one forced us to make the problematic purchase. It was entirely our own impulsion and belief that the transaction was the best deal at the time. Buyer’s remorse has a deeper psychological explanation, but it manifests itself because it is easier to imagine a better choice retrospectively than to embrace the choice we have already made.

These are the sentiments exhibited by some disgruntled plaintiffs in a recent trend of legal-malpractice cases that some courts and practitioners have termed the “settle and sue” lawsuit. A plaintiff in this type of legal-malpractice action is unhappy with settling a prior lawsuit even after the plaintiff voluntarily agreed to settle the case. In classic buyer’s remorse mode, disgruntled clients regret the decision to settle and focus their litigation crosshairs on their former attorney who advised the “negligent” settlement. The plaintiff’s sentiment is similar to that associated with buyer’s remorse: I made a mistake! In this case, the blame for that mistake is projected toward the former attorney.

The facts of the “settle and sue” case may mirror the following: A client files suit (or is a defendant); the client settles the case with advice from and consultation with his or her counsel and signs a settlement agreement; and the client then sues his or her attorney for legal malpractice, lamenting the deal. The defendant-attorney may be totally blindsided by the lawsuit. After all, was it not the client who executed a settlement indicating he or she was satisfied with resolving the case? The defendant-attorney is now forced to locate and dust off his or her file from storage (think the government warehouse in the last scene of Raiders of the Lost Ark) to defend the decision to settle a case that he or she believed the client had endorsed.

 “Settle and sue” cases can allege different conceptions of attorney malfeasance. Allegations may vary from 1) the settlement was transparently unfair, e.g., the settlement was worth far more or less than the terms accepted; 2) material facts that would have affected settlement were not timely disclosed and the defendant-attorney would have uncovered these facts had he or she rendered competent representation; 3) the terms of settlement were too complicated for the client to understand and the lawyer did not give a proper explanation; and 4) the client was “strong-armed” to settle by his attorneys and therefore true client consent was never provided in agreeing to settle.

No General Bar of Such Malpractice Actions
Intuitively, one may have assumed that the settlement of an underlying action, i.e., signing on the dotted line, would operate as a waiver of a “settle and sue” malpractice claim. That is not generally the case. Most states do not consider a client’s decision to settle as a bar to legal malpractice cases against his or her former attorney. “Settle and sue” plaintiffs usually must prove that a better outcome could have been obtained at trial or that a better settlement could have been negotiated. In short, the plaintiff must meet his or her burden on causation, showing that there was a valid claim that would have allowed a collectible judgment or settlement in the plaintiff’s favor and in excess of what the underlying settlement yielded. Other jurisdictions equally focus on the lawyer’s supposedly negligent recommendation to settle and mandate that the plaintiff prove it was somehow unreasonable advice given the facts known at the time. Thomas v. Bethea, 718 A.2d 1187 (Md. 1998). This is often a difficult hurdle because it requires credible evidence that the plaintiff’s adversary in the underlying suit would have paid more to settle the case. Some courts employ a “substantial factor” test to determine whether the former client’s motives for settlement stemmed from attorney negligence. Estate of Campbell v. Chaney, 485 N.W.2d 421 (Wis. Ct. App. 1992).

Very few states have embraced an absolute prohibition of “settle and sue” cases, although such lawsuits are likely to fail when the former client’s motives for filing the legal-malpractice action are at issue. See Muhammad v. Strasburger, Mckenna, Messer, Shilobod & Gutnick, 587 A.2d 1346, 1352 (Pa. 1991) (noting “we foreclose the ability of dissatisfied litigants to agree to a settlement and then file suit against their attorneys in the hope that they will recover additional monies. To permit otherwise results in unfairness to the attorneys who relied on their client's assent. . . .”). Other states favor prohibiting such suits if the settlement was clear and unambiguous and it was clear that there was no client confusion leading up to settlement. Avolio v. Hogan, No. 287684, 2009 WL 3757437, at *4 (Mich. Ct. App. Nov. 10, 2009). Courts also are very unlikely to allow these suits to proceed when the plaintiff has made representations to the court on the record that the underlying settlement was fair and reasonable. Guido v. Duane Morris LLP, 995 A.2d 844, 848 (N.J. 2010) (noting that the plaintiff may be estopped from asserting dissatisfaction with settlement when he or she has testified under oath to the contrary before the court). The Guido scenario is most common in malpractice cases arising from underlying divorce proceedings in which a claimant is subject to direct examination or cross-examination about the terms of the settlement and the court ultimately approves the settlement.

Practice Tips to Defend “Settle and Sue”
An attorney may not be able to absolutely insulate himself or herself from a lawsuit raised by a former client post-settlement, but there are tips that one may follow to allow a more favorable opportunity to defend such a claim. Here are some suggestions.

Establish parameters early in the representation. Use an engagement letter to the client to underscore that your objectives are not necessarily to obtain the highest monetary settlement/verdict or to defend the case so that the least amount of money is paid. Rather, the goal of resolving the case is to reach a settlement that the client can understand and accept given the strengths and weaknesses of the case. In short, don’t promise the moon. Merely promise that you will provide the best recommendations you can.

Get client input. Communicate with your client regularly regarding what his or her expectations of the case are and document his or her potentially evolving impression of the case in writing. Clients change their attitudes and goals frequently. An attorney therefore would be prudent to elicit regular input from his or her client to ensure that there is no miscommunication about what constitutes a “fair” settlement.

Fully explain the release. Clients frequently will assert that they could not understand the legalese of litigation and that no one attempted to explain the legal intricacies. Avoid that issue by showing your client a copy of a standard release early in the process and invite a discussion about the ramifications of signing such a release (for example, it may mean there is no admission of liability and one party is releasing all other potential claims). Again, document that this consultation took place.

Describe the mediation process in writing. If a case mediates, ensure that the client understands what the mediation process entails. This will require putting in writing (a) the qualifications and justification for the selection of the mediator, (b) the strengths and weaknesses of the case, (c) the possible settlement range and verdict range of the case, and (d) an acknowledgment that settlement could bypass a better result at trial. Reiterate that the parties are not obligated to settle just because a mediation has been scheduled and will be paid for by the parties. Rather, the client must be told in writing that he or she should ask questions if he or she does not understand any part of the process, and should never feel forced to settle.

Alert the client to post-settlement responsibilities. The client must be made aware of how any potential liens will affect the collectability of settlement, the time frame for payment, and how the attorney fees may be paid from that settlement. The case is not over the moment an agreement to settle is reached, and the client must be kept apprised of what will be done to bring a final resolution to the case.

A purchaser stricken with buyer’s remorse is consumed by the type of regret evidenced by plaintiffs in “settle and sue” lawsuits. Most jurisdictions agree that settlement of an underlying action does not automatically bar malpractice claims. Regardless of a plaintiff’s motive, the defendant-attorney must understand the law of his or her jurisdiction regarding these type of cases and must take comprehensive steps during the underlying litigation to ensure that there are ample grounds to defend the claim if one arises. The execution of a settlement agreement is usually the final chapter of litigation. At other times, it serves as prologue for the “settle and sue” lawsuit.

Keywords: professional liability litigation, legal malpractice, post-settlement, settle and sue

Saleel V. Sabnis is an associate at Goldberg Segalla LLP in Philadelphia, Pennsylvania.

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