A federal court of appeals has reaffirmed the general rule that legal malpractice claims cannot be assigned. The Thompson v. Harrie court reiterated that assignment of such claims can damage the attorney-client relationship, which “requires the utmost trust and confidence.” The ruling allowed a law firm to avoid potential liability because it did not have an attorney-client relationship with the putative assignee of the malpractice claim. ABA Litigation Section leaders commend the ruling but also predict that more courts will ultimately allow assignment of malpractice claims.
Following a fatal car crash, the estate of the deceased driver sued the other driver in South Dakota state court. After discovering that the defendant’s lawyer was neither licensed in the state nor admitted pro hac vice, the plaintiff moved to quash the answer signed by the lawyer. Although the lawyer then moved for pro hac vice admission, the court denied the request and entered default judgment.
Later, the plaintiff entered into a settlement agreement with the defendant. The plaintiff agreed that she would not execute on the judgment if the defendant assigned any claims, including malpractice claims, against the lawyer’s firm to her.
Alleging that the lawyer committed malpractice, the plaintiff filed a complaint against the law firm in state court. The defendant removed the case to the U.S. District Court for the District of South Dakota. Arguing that legal malpractice claims are not assignable, the law firm moved to dismiss the malpractice claim.
The district court observed that “the majority of courts have concluded that the assignment of a legal malpractice claim is against public policy.” It acknowledged that this issue was not settled in South Dakota but held that “the South Dakota Supreme Court would follow the majority rule” and dismissed the claim. The plaintiff appealed.
The Court of Appeals for the Eighth Circuit affirmed the dismissal. In doing so, the appellate court predicted that “the South Dakota Supreme Court would prohibit the assignment of legal malpractice claims.”
To prevail on a legal malpractice claim, South Dakota requires strict privity, the federal appellate court noted. Hence, a plaintiff must first prove “the existence of an attorney-client relationship.” This strict privity rule stems from “the confidential nature of the relationship” between the attorney and the client.
Although the South Dakota Supreme Court has yet to decide whether malpractice claims are assignable, it has addressed a parallel issue, the appellate court found. South Dakota prohibits the assignment of personal injury claims. In A.Unruh Chiropractic Clinic, the South Dakota Supreme Court stated that allowing the assignment of such claims “would disturb the peace of society, lead to corrupt practices, and prevent the remedial process of law.”
Assigning legal malpractice claims would involve the same concerns, the Eighth Circuit emphasized. Thus, it held that South Dakota would not permit the assignment of malpractice claims. The Eighth Circuit bolstered its holding by pointing to precedent in other state courts. Courts in Iowa, Minnesota, Missouri, and Nebraska also prohibit the assignment of legal malpractice claims, the appellate court specified.
“There’s a reason that the overwhelming majority of states do not allow assignment of legal malpractice claims,” notes Nicole M. Reid, Mount Dora, FL, cochair of the Section’s Attorneys’ Liability Subcommittee of the Professional Liability Litigation Committee. “The sanctity of the attorney-client relationship as a whole would be at risk if attorneys could be sued by virtually anyone who might conceivably be a beneficiary (intended or not) of the attorney’s services to their client,” Reid explains.
Clients should be the only persons to decide whether a malpractice claim is warranted. “To allow open season on malpractice claims would irreparably erode the attorney-client privilege and could compromise an attorney’s duties to zealously advocate for their clients. It would rob the attorney’s actual client of the decision whether to sue their attorney for malpractice,” Reid cautions.
Thompson is actually “counter to the trend,” notes Alan R. Jampol, Los Angeles, CA, cochair of the Section’s Attorneys’ Liability Subcommittee of the Professional Liability Litigation Committee. “The general rule is that any claim is assignable—it is a piece of property,” he continues. Courts that prohibit the assignment of malpractice claims generally rely on public policy rationales. But issues of “public policy are changing,” Jampol adds, permitting assignment of such claims more often.
“California is really showing the way. Generally, California law permits the assignment of legal malpractice claims in some instances—it depends upon the specific facts,” considers Jampol. Idaho and Georgia also allow assignment of malpractice claims in some cases, he specifies. Still, there are limits to the assignability of malpractice claims. “Claims for emotional or nonpecuniary damages are not assignable,” Jampol states.
Reid also envisions scenarios in which a non-client should be permitted to sue a lawyer for malpractice. But “they absolutely need to be the exception, not the rule,” she emphasizes. For example, there are situations “where an intended beneficiary of a will gets left out due to a lawyer’s negligent mistake,” illustrates Reid. “Although the beneficiary does not have a client-attorney relationship with the drafting lawyer, they are certainly an intended beneficiary of the lawyer’s legal services,” she explains.
“If the mistake is not caught until after the client passes away, that heir’s only recourse is to sue for malpractice as an intended third-party beneficiary of the client’s contract for legal services,” Reid contends. “Florida courts have actually approved third-party exceptions to the privity requirement in these types of limited circumstances.”
