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April 11, 2003

Orrick Herrington & Sutcliffe v. Superior Court (Malcolm) (2003) 107 Cal.App.4th 1052

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To establish a claim of “negligent settlement”, plaintiff must prove his opponent in the underlying matter would have settled on more favorable terms or that there would have been a better result at trial.

Michael A. Malcolm hired Orrick Herrington & Sutcliffe to represent him in the dissolution of his marriage.  After Malcolm and his former wife agreed to a settlement, Malcolm’s subsequent counsel advised him that the agreement did not contain all the terms required for a final, binding agreement.  Malcolm’s former wife took the position that the agreement was fully enforceable and the trial court denied Malcolm’s motion to set aside the agreement.

Malcolm sued Orrick alleging professional negligence, breach of contract, and breach of fiduciary duty.  He asserted that Orrick failed to provide competent services, leading him to enter into a defective settlement agreement.  Orrick responded with a cross-complaint alleging Malcolm owed over $400,000 in fees.

Orrick filed a motion for summary judgment asserting that Malcolm could not prove actual damages.  The trial court denied Orrick’s motion, finding that there were triable issues of fact regarding damages created by evidence of attorneys’ fees expended in connection with attempts to correct errors committed in the negotiation, preparation and execution of the settlement agreement.  Orrick filed a petition for peremptory writ of mandate.

The only issue before the Court of Appeals was whether Malcolm submitted any evidence of cognizable damages.  Malcolm argued that the case-within-a-case method did not apply.  He asserted that merely showing that he incurred substantial fees in his attempt to correct his attorneys’ errors by overturning the settlement agreement could prove the element of damages.

The court of appeals disagreed and applied the case-within-a-case methodology for proving damages.  Malcolm was required to prove that but for the negligence of the attorney, a better result could have been obtained in the underlying action.

Malcolm did not produce evidence showing his ex-wife would have settled for less, or that following a trial, he would have obtained a judgment more favorable than the settlement.  Moreover, he did not offer evidence that his ex-wife would have agreed to a settlement that included the terms he claims were negligently omitted by Orrick.  As such, the court found that Malcolm did not produce evidence of cognizable tort damages.

However, Malcolm’s evidence did establish that he may have paid more than the value of the legal services received.  If he can prove he did not receive value for his payment, he may recover damages under his contract claim, limiting his recovery to the amount of fees paid.

Accordingly, the court held that summary judgment was properly denied on the wrong grounds.  The court allowed Malcolm to proceed solely with his contract claim.

Comment: This is another example of the application of the case-within-a-case methodology that applies to all legal malpractice claims.  Claims of “negligent settlement” continue to require the difficult proof that the underlying adversary would have accepted different terms.

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