chevron-down Created with Sketch Beta.

Litigation News

Litigation News | 2023

Bad Settlement Advice Triggers Malpractice Claim

Mariah Sukalski

Bad Settlement Advice Triggers Malpractice Claim Andrews

Jump to:

Sometimes even the end of litigation can be a risky proposition. The Pennsylvania Supreme Court revived a legal malpractice claim based on the plaintiff’s dissatisfaction with her counsel’s advice about how a settlement and release in one case would affect the claims in another. In light of the decision, ABA Litigation Section leaders emphasize the importance of careful drafting and clear communication with clients about both the risks and rewards of a settlement.

 Disputed Effect of a Settlement Agreement

The litigation underlying Khalil v. Williams arose when a water leak flooded the plaintiff’s luxury condominium. In the first suit, given the sustained water damage, the plaintiff moved out of the damaged condominium and sued her homeowner’s insurance company, her upstairs neighbors, and her personal property insurance carrier. Because the plaintiff had stopped paying her condominium fees after she moved out, the condominium association sued her a year later for the arrears. The plaintiff asserted counterclaims and brought a joinder complaint against her former neighbors and the building’s property management company.

Upon reaching a negotiated settlement of her claim for water damage in the first case, she sought the advice of her defense counsel in the delinquent fees case regarding the impact of the release terms on the counterclaims she had raised in the fees case. Her defense counsel advised her that the release executed in the water damage case did not dispose of her counterclaims in the fees case.

This advice, it turns out, was incorrect. The release agreement she ultimately executed was fashioned as a general release. When the fees case came up on appeal, the court held that the release had—contrary to her attorneys’ advice—released her counterclaims.

A Flood of Malpractice Claims

Finding herself again as a plaintiff, she sued her defense counsel in the fees case, asserting claims of legal malpractice based upon counsels’ representations to her regarding the impact of the release. Her causes of action were based upon breach of the representation agreement, negligent misrepresentation, and fraudulent misrepresentation.

The defendant attorneys moved for summary judgment, arguing that all of the plaintiff’s claims were barred by the Muhammad doctrine, a Pennsylvania-specific line of cases holding that clients may not sue their own attorneys regarding a settlement to which the client agreed absent fraud upon the client. Essentially, a client unhappy with the amount of a settlement agreement has no recourse to seek more money by pursuing a separate lawsuit against her counsel. Finding no fraud in the plaintiff’s execution of her settlement agreement in the water damage case, the trial court granted summary judgment in favor of her attorneys.

The plaintiff appealed to the Superior Court of Pennsylvania. She sought to distinguish Muhammad because her non-fraud claims did not challenge the reasonableness of the amount of the settlement in the water damage case. Rather, her claims were that the defendants had given her erroneous advice about the effect of the settlement’s terms on her counterclaims in the fees case. While the Superior Court agreed that Muhammad did not establish a blanket bar to non-fraud claims against a former attorney where the prior matter led to settlement, it nonetheless affirmed summary judgment.

The plaintiff again appealed to the Supreme Court of Pennsylvania which reversed and held that the lower courts had erred in barring the plaintiff’s negligence and breach of contract claims. The plaintiff was not “merely challenging the amount of her settlement” but had alleged that the defendants had provided incorrect legal advice regarding the scope and effect the release. The lower courts had mistakenly ignored these allegations. The court declined to further consider the “wisdom of Muhammad,” despite calls to revisit the doctrine.

Malpractice Claims Are Avoidable

Section leaders note that, regardless of any conflict between this case and Muhammad, the court’s decision here demonstrates the importance of clear communication between attorneys and their clients about settlement. “The outcome [of a malpractice suit] was avoidable if the correct words had been used,” opines John M. Barkett, Miami, FL, cochair of the Litigation Section’s Ethics & Professionalism Committee. Even if imprecise language was used in the release agreement, counsel should make sure that their clients understand the potential risks, including the result here, where the advice was later determined to be incorrect.

The communications between lawyer and client should include all aspects of a proposed settlement. “Attorneys should have frank and honest discussions about the implications of signing a settlement agreement,” advises Tiffany Rowe, Washington, DC, cochair of the Section’s Professional Liability Litigation Committee. She suggests that attorneys must manage client expectations, even when that means providing news that clients may not want to hear.

Malpractice situations like this are avoidable. “Read this case and make sure it never happens to you,” Barkett counsels. The takeaway is that lawyers must make sure that the communication gets through to their clients. “Emphasize to clients that legal advice is just that…advice. The client’s signature effectively ‘confirms’ that they are satisfied with their legal counsel,” Rowe concludes.