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February 25, 2015 Practice Points

Malpractice Action Allows Discovery of Underlying Matter after Suit Settles

New Jersey federal court addresses the “suit within the suit.”

By Mandie E. Landry

The U.S. District Court in New Jersey recently addressed an important question that arises frequently in the legal-malpractice universe: What is discoverable in a malpractice action when the case in which the malpractice allegedly occurred settles before trial? In Smith v. Dezao, No. 2:13-cv-72, 2015 U.S. Dist. LEXIS 8423 (D.N.J. Jan. 26, 2015), the district court explored whether allowing discovery of the underlying matter was necessary to fully evaluate the merits of the “suit within the suit” after the underlying suit had settled.

Dezao involved a tragic accident in Mexico in 2006, where Andrew Smith, the son of Nancy and Harold Smith (plaintiffs in the underlying case), died after falling down an elevator shaft in a Cancun resort. Shawn Smith, Andrew’s brother, observed Andrew in the elevator shaft and heard his cries for help after the fall. Mr. and Mrs. Smith claimed that they informed their attorneys that Shawn had observed Andrew’s fall. However, when the Smiths’ attorneys filed suit against the resort, they did not file any claims on behalf of Shawn Smith.

In 2010, over four years after the accident, the Smiths’ attorneys attempted to add Shawn Smith as a plaintiff to the underlying action. The court in that action denied the motion on futility grounds, reasoning that the two-year statute of limitations from the 2006 accident had run. Mr. and Mrs. Smith fired their attorneys soon after this decision, and their new attorneys settled the wrongful-death case before trial in 2012.

Plaintiff Shawn Smith filed the instant malpractice action against his former attorneys in 2013, for failure to file his claim for negligent infliction of emotional distress within the proper time period. As part of their defense, the defendants asserted the comparative negligence of the decedent, Andrew Smith. They asked the court to allow discovery into the underlying dispute, even though it had settled, to investigate Andrew Smith’s alleged alcohol consumption on the night of the accident.

The plaintiff opposed allowing this discovery pursuant to the “suit within a suit” analysis. In a “suit within a suit” analysis, a party in a legal-malpractice case presents the evidence that would have been submitted at trial if the alleged malpractice had not occurred. See, e.g., Gautam v. De Luca, 215 N.J. Super. 388, 521 A.2d 1343 (1987). Although the issue of Andrew Smith’s alleged alcohol consumption had been raised in the underlying suit, it had not been established as fact in the underlying suit. The plaintiffs argued that the defendants should be barred from further discovery on this issue, arguing that they should not be allowed to “conduct additional discovery in an effort to establish new facts on liability issues or comparative negligence arguments which were not established in the underlying action.”

The district court noted that the plaintiff ignored recent judicial criticism that the “suit within a suit” analysis can be both inaccurate and unfair, as the parties to the later-filed legal-malpractice action often do not have the same access to evidence as in the underlying suit, and the evidence grows stale. See, e.g., Garcia v. Kozlov, Seaton, Romanini & Brooks, P.C., 179 N.J. 343, 845 A.2d 602 (2004). According to the district court, the “suit within a suit” method also raises serious concerns for cases like this one, where the underlying suit settles before trial.

The Dezao court ultimately held that evidence regarding Andrew Smith’s potential intoxication on the night of the accident was discoverable. Because there had been no trial in the underlying suit, it was impossible to know what evidence would have been presented at trial; in any event, the issue of his intoxication was not fully explored in the underlying suit given the settlement. Because there was no trial, the parties could not be “bound by the same evidence that would have been presented in the underlying action . . . because no evidence was presented in the underlying case.” The court held that to “achieve a fair trial, unfettered discovery within the bounds of Federal Rule of Civil Procedure 26 should proceed.”

Further, the court also reasoned that, under New Jersey law, any damages attributable to the defendants could be diminished by Andrew Smith’s comparative negligence on the night of the accident. See, e.g., Portee v. Jaffee, 84 N.J. 88, 417 A.2d 521 (1980). Thus, discovery on this issue was held to be not only relevant but also necessary to the “just outcome of this case given the comparative negligence defense.”

Dezao makes clear that parties to a malpractice action are not barred from obtaining full and complete discovery of the facts concerning the underlying case in circumstances, such as pretrial settlement, where discovery in the underlying case is not completed.

— Mandie E. Landry, Liskow & Lewis, New Orleans, LA

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