This paper addresses 2011 and 2012 case law developments on three legal malpractice causation issues. First, we discuss the issue of burden of proof (i.e. which party has the burden on causation and how that burden is discharged), then we address the handling of the “case-within-the-case” (i.e., dealing with legal and factual issues in the underlying transaction or litigation) and, finally, we cover a few recent decisions on the role of experts on causation issues.
This review is not exhaustive, as many jurisdictions have addressed these topics in the past few years. We have chosen the following decisions, however, to illustrate how courts are treating these questions and to provide a framework for how they may arise when litigating attorney malpractice cases.
I. Burden of Proof
A. California (Fitzgerald v. Filbin (2012) 211 Cal.App.4th 154)
This recent decision addresses the plaintiff’s causation burden of proof in the “settle and sue” context.
In California, to prevail in a legal malpractice action, simply showing that the attorney erred is not enough. Orrick Herrington & Sutcliff v. Superior Court (2003) 107 Cal.App.4th 1052, 1057. Rather, the plaintiff must show that, but for the alleged malpractice, a trial or settlement of the underlying lawsuit would have resulted in a better outcome. Viner v. Sweet (2003) 30 Cal.4th 1232, 1244; Blanks v. Seyfarth Shaw LLP (2009) 171 Cal.App.4th 336, 357. Where the plaintiff alleges an inadequate settlement was received in the underlying action, she must establish that she certainly would have received more money in settlement or at trial but-for the attorney’s error. Slovensky v. Friedman (2006) 142 Cal.App.4th 1518, 1528.
These principles were recently applied in a case involving underlying eminent domain litigation. Filbin v. Fitzgerald (2012) 211 Cal.App.4th 154.
The Filbins owned a 2,000 acre parcel of property near an airport on California’s Central Coast. After they began stockpiling material on the property, the county initiated eminent domain proceedings. In the eminent domain suit, the county offered to purchase the property for $1,250,000. Believing this offer to be too low, the Filbins retained an attorney, Fitzgerald, who had considerable experience in condemnation proceedings.
Fitzgerald obtained an appraiser who valued the property at approximately $4.5 million. His clients, however, believed that the property was worth between $12 million and $15 million. As the case approached trial, the Filbins were subjected to several unfavorable rulings, including one that rejected a stipulation that the stockpiled materials on the property would be included in its value. The trial court ruled that the clients’ “remarkable history of illegality” concerning the maintenance of the property was sufficiently egregious to exclude such evidence at trial.
Pursuant to California law, the Filbins were required to make a mandatory settlement offer to the county before trial. Fitzgerald advised them, erroneously, that the offer must be less than the appraised value provided by the clients’ expert. The Filbins did not make such an offer, refused to settle for less than $4.5 million and actually wanted to increase their demand to $9.1 million. Ultimately, the attorney-client relationship broke down approximately three weeks before trial. There was a dispute as to whether Fitzgerald was discharged by the Filbins or withdrew as their counsel.
Claiming that Fitzgerald had quit, the Filbins sought a trial continuance. They engaged new counsel who obtained two additional appraisals, one for $6.8 million and the other for $7.1 million. The Filbins then issued a final settlement demand to the county of $5.8 million. However, while trial was underway, the Filbins accepted the county’s offer of $2.6 million including accrued interest. Accounting for amounts already withdrawn by the Filbins and other claims against them, their net recovery was $1.4 million.
The Filbins then sued Fitzgerald for legal malpractice claiming he failed to properly prepare experts, failed to properly represent them and abandoned them as the case approached trial. After six days of court trial, the judge issued a statement of decision finding that the clients had engaged in unreasonable conduct and that they harbored unreasonable opinions regarding the value of the property. Nevertheless, the trial court found that Fitzgerald misrepresented the law to the Filbins concerning the necessity of making a settlement demand below the appraised value of the property. The court also found there was causation between Fitzgerald’s errors and the Filbins’ claimed damages.
The court then accepted the clients’ argument that damages could be calculated based on the value of Fitzgerald’s settlements in other cases (averaging 70% of appraised value). Applying that percentage to the value of the appraisal that Fitzgerald obtained on the Filbins’ behalf, the court concluded that their case should have settled for approximately $3.7 million. Since the settlement amount was $2.6 million, judgment was entered against Fitzgerald for the net recovery gap between the two results.
The Court of Appeal reversed the judgment holding that, as a matter of law, Fitzgerald was not the cause of the Filbins’ damages. It observed that a plaintiff is required to prove damages to a legal certainly, a difficult task in a “settle and sue case.” Filbin, 211 Cal.App.4th at 166-677 (citing Barnard v. Langer (2003) 109 Cal.App.4th 1453, 1461-1462). The Court concluded that nothing Fitzgerald did or failed to do up to the time he departed as the Filbins’ counsel caused them any damages. His misstating of the settlement offer requirement did not persuade the clients to follow his advice about the amount of their demand to the county. To the contrary, they wanted to raise their demand. They also secured new counsel and continued the trial date. Thus, when replacement counsel took over the case, it was with “no lingering impairment” at Fitzgerald’s hands. The Filbin court noted that these acts or omissions, whether individually or collectively, do not establish actionable malpractice that caused the Filbins legal damage let alone to a legal certainty. Instead, they were what Judge Cardozo famously characterized as “negligence in the air.” Id. at 169; citing Palsgraf v. Long Island Railway Co. (1928) 248 N.Y. 339, 341, 162 N.E. 99.
B. Montana (Labair v. Carey (2012) 367 Mont. 453, 291 P.3d 1160)
The Montana Supreme Court addressed burden of proof, as well as expert testimony, issues in its December 27, 2012 decision in Labair v. Carey. Of note, this decision addresses how causation issues are to be handled at the summary judgment stage and concludes that, to raise a triable issue of fact on causation under Montana law, the clients did not need to fully establish the merits of the underlying case, only that the case would have survived summary judgment and therefore had settlement value.
The clients, the Labairs, lost their newborn baby after an October 2, 2003 delivery by caesarian section. They retained an attorney, Carey, to pursue a medical malpractice lawsuit against their obstetrician. Carey and his co-counsel obtained medical records which they provided to an expert. The expert’s report indicated that the obstetrician’s actions fell below the standard for a prudent practitioner in 2003. He also opined that these deficits in care proximately caused the ultimate outcome for the baby. On that basis, Carey filed a complaint against the obstetrician for medical practice alleging negligence and infliction of emotional distress.
However, Carey failed to timely file the required application with the Montana Medical Legal Panel (MMLP) before filing his clients’ district court complaint. Because the MMLP application was not filed within the three years statute of limitations applicable to medical malpractice claims, the district court dismissed the Labairs’ case with prejudice.
The clients then filed a complaint for legal malpractice against Carey and his co-counsel alleging negligence, negligence per se, negligent infliction of emotional distress, breach of contract, punitive damages, tortious breach of statutory duty, fraud, constructive fraud and breach of fiduciary duties.
The clients filed a motion for partial summary judgment arguing they were entitled to judgment as a matter of law on professional negligence because Carey admitted to missing the statute of limitations. In support of their motion, the Labairs offered the opinion of a legal expert who opined that missing the statute damaged the clients by causing the loss of their medical malpractice claims. Carey argued that the motion should be denied because the Labairs failed to produce expert testimony on causation and damages in the underlying medical malpractice case and in the pending legal malpractice action.
Carey also filed a summary judgment motion of his own arguing that although his failure to timely file the MMLP application breached the standard of care, the breach did not cause any injury or damages to the Labairs. His motion was supported by the affidavit of an experienced professional liability and legal malpractice attorney to the effect that the underlying medical malpractice claims could not be established. The expert asserted, for instance, that Carey would have been unable to develop the necessary expert testimony to prove the underlying medical practice claims.
The trial court denied the clients’ motion for partial summary judgment and granted Carey’s motion for summary judgment. It concluded that the Labairs had failed to establish a prima facie case of legal malpractice because they failed to provide admissible expert evidence on medical causation and damages. The judgment was appealed to the Montana Supreme Court.
The Supreme Court reversed the judgment, observing first that only two of the four elements of a legal malpractice claim, causation and damages, were at issue. Labair, 367 Mont. at 460. The Court took the opportunity to clarify its previous legal malpractice jurisprudence and “reconcile” its causation analysis with the court’s recent decision in Busta v. Columbus Hospital (1996) 276 Mont. 342, 916 P.2d 122.
In Busta, the Court held that in cases that do not involve an intervening cause, the causation element is satisfied by proof that a party’s conduct was a “cause-in-fact” of the damage alleged. The conduct of a party is a cause-in-fact of an event if the event would not have occurred but for that conduct. Labair, 367 Mont. at 450; citing Busta, supra, 276 Mont. at 371. The Labair court noted that the vast majority of its post-Busta cases had failed to reconcile the elements of attorney negligence with the Busta causation framework. As a result, “proximate cause” had been wrongly perpetuated as an essential element of a legal malpractice claim “in case after case.” 367 Mont. at 461.
Seeking to clarify the causation standard, the Labair court explained:
An attorney’s negligence is the cause of the plaintiff’s injury if there is an uninterrupted chain of events from the negligent act to the injury. In such cases, proof of causation is satisfied by proof that the attorney’s negligent conduct was a cause-in-fact of the damage alleged, i.e., that the injury would not have occurred “but for” that conduct. Only when the attorney alleges that the chain of causation has been severed by an independent intervening cause should there be any discussion or consideration of whether the attorney’s negligent act was the “proximate cause” of the plaintiff’s injury, i.e., whether the attorney’s breach “foreseeably and substantially” caused the injury.
Id. at 461-462.
Applying this standard to the Labair facts, the Court concluded that there was no issue of proximate cause to be addressed because there was no allegation that some other force combined with Carey’s negligence to cause the clients’ injury. The Court then inquired whether Carey’s negligent conduct was the cause-in-fact of the damage alleged by the Labairs – that is, whether the Labairs’ injury would not have occurred “but for” Carey’s admittedly negligent conduct. Finding that questions of fact existed as to whether Carey was the “but for” cause of the Labairs’ injuries, the Montana Supreme Court reversed the summary judgment.
The Court held that the district court had incorrectly considered the legal opinion of Carey’s expert in determining whether the underlying medical claims would have been successful. Id. at 463. While the Court acknowledged the expert was an experienced medical malpractice attorney he was not a medical doctor. His experience and knowledge could qualify him to offer a legal opinion regarding the standard of care for a legal professional and to discuss whether Carey’s actions conformed to that standard, but it did not qualify him to offer expert medical opinions on the merits of a medical malpractice case. The expert’s opinion was also not “uncontroverted,” as the trial court had concluded because the Labairs had provided the district court with expert medical opinions as to the underlying obstetrician’s departure from the standard of care and the likely injury to the child. Id. at 463-464.
The Court also noted that the Labairs had provided sufficient legal testimony because their legal expert had prepared a report addressing the standard of care and breach issues with respect to the claim of legal malpractice.
The Court further concluded that the Labairs had presented sufficient evidence that their injury was a loss of opportunity to present a claim that was capable of surviving summary judgment. Id. at 465. In contrast, the trial court had focused on whether the clients’ claims would have been successful at trial. While the Court agreed that the loss of a claim that was completely devoid of merit is no a loss of a claim at all, it could not agree with the conclusion that the Labairs’ claims were valueless since there was sufficient evidence they would have survived a motion for summary judgment. In holding otherwise, the trial court had “imposed on the Labairs the burden of establishing the success of their legal malpractice claim at the summary judgment stage.” Thus, the district court required the plaintiffs to establish that they would have won the case before they could even go to trial. Id. at 466-467.
Finally, the Supreme Court’s discussion of the case to be tried upon remand raises some concern. The Labair court observed that different types of legal malpractice cases will require different types of evidence and presentation. The Court commented that, as to the case before it, one reason that a strict “suit-within-a-suit” format might be impractical is that it might not easily accommodate evidence reflecting what the settlement value of the case would have been but for Carey’s negligence. Upon remand, it would therefore be incumbent upon the plaintiffs to show that they more probably than not would have recovered a jury verdict or settlement against the underlying defendants but for the attorney’s negligence. The Court instructed that the testimony and evidence regarding damages occasioned by attorney malpractice was not to be speculative and was to afford a sufficient basis for an award of damages. Id. at 469.
The Labair opinion appears to move away from the prevailing view on causation and damages in litigation malpractice cases. Rather than requiring a plaintiff to prove that “but for” the attorney’s misconduct the plaintiff would have won her underlying case, a malpractice case in Montana may now be proved by showing that “but for” the attorney’s misconduct, the plaintiff would have survived summary judgment and have been in a position to obtain a settlement. Further, the plaintiff need only provide a “sufficient basis” for the value of the lost settlement. This is a far less arduous standard than set forth in the above-discussed California cases (where requiring plaintiff to prove damages to a “legal certainty”).
C. Louisiana (Leonard v. Reeves (La. Ct. App. 2012) 82 So.3d 1250)
The Court of Appeal of Louisiana for the First Circuit took a very different approach in Leonard v. Reeves as to the burden of proving causation, but arrived at a favorable result for the defense due to the absence of proof of negligence. This decision addresses the circumstances under which the burden shifts to the attorney defendant under Louisiana law to establish that the negligence in question did not cause damage to the client.
The clients were divorced and agreed to enter into a consent judgment in the 24th Judicial Court for the Parish of Jefferson. That judgment related to the support of their two minor sons and, pursuant to it, Mr. Leonard was ordered to pay $543 per month to his ex-wife (Ms. Probst). Leonard was also ordered to provide health insurance coverage for the minor children and to pay 75% of extraordinary medical expenses not covered by insurance. After entry of the order, Leonard moved to Mississippi.
Probst thereafter filed to make the consent judgment executory and also filed a motion for contempt against Leonard. Probst sought sole custody of the couples’ children and to increase child support. Her attorney attempted to serve Leonard in Mississippi by certified mail pursuant to Louisiana’s long-arm statute. After the certified mail was returned marked “unclaimed” the attorney did not file an affidavit verifying service. There was therefore no evidence that he had served Leonard with notice of a new August 18, 2003 hearing date.
At the August 18, 2003 hearing, without an appearance by Leonard, the trial court awarded Probst $36,612.83 in past due medical expenses, and increased the monthly child support obligation to $843 retroactive to the filing date of the motion. The judgment also found Leonard in constructive contempt of court and awarded Probst sole custody, terminating Leonard’s visitation privileges.
More than two years later, Leonard retained attorney Reeves to represent him in Mississippi proceedings in which Probst was attempting to enforce the 2004 judgment. The Mississippi court refused to enforce the default judgment, finding that its state procedural due process standards had not been met. The following year, Probst filed a petition in a Louisiana trial court to reaffirm the default judgment along with a motion for contempt alleging that Leonard had failed to pay $20,066.64 in court-ordered child support and the $36,612.83 medical expense award. Reeves was thereafter admitted to practice pro hac vice in the Louisiana child support proceeding. He appeared at the hearing on the motion to reaffirm the default judgment and, in that hearing, the trial court noted there was no legal basis for the petition but continued the contempt motion to August 18, 2008. Reeves advised Leonard of this hearing in a June 22, 2008 letter. Id. at 1254.
Reeves thereafter explored filing a motion to annul judgment. Rather than ruling on the motion for contempt, the trial court urged the parties to resolve the dispute through negotiation and compromise. A stipulated consent judgment was entered providing that Leonard owed Probst the net sum of $36,000 for all claims of back-due child support and for Leonard to pay medical expenses at a rate of no less than $300 per month. The consent judgment also incorporated an income assignment.
The consent judgment was not satisfied and Probst filed a rule against Leonard for contempt. Leonard, represented by new counsel, then filed a petition seeking to annul the 2004 default judgment and the 2008 consent judgment. At a July 2009 hearing, the trial court opined that the 2004 default judgment was likely a nullity but that the 2008 consent judgment was probably valid. The parties then entered into yet another consent judgment whereby, in satisfaction of the $36,000 obligation, Leonard would pay $20,000 within 90 days.
Leonard then sued Reeves, alleging that he was negligent in filing a motion to annul the 2004 default judgment rather than a petition, in agreeing to negotiate Probst’s claims instead of proceeding to the hearing on the motion to annul, and in advising Leonard to enter into the first consent judgment despite having been provided with documentation that all monthly child support due under the 1995 judgment had been paid.
Reeves filed a motion for summary judgment which the trial court granted on February 10, 2011.
On appeal, the Court of Appeal noted that a client can have no greater rights against his attorney for the negligent handling of a claim than were available to the client in the underlying action or dispute. 82 So.3d at 1257. The Court then addressed whether the causation burden of proof had shifted. Leonard argued that Reeves bore the burden of proving that there were unpaid extraordinary medical expenses owed by Leonard justifying the legal advice that Reeves had provided. In other words, Reeves, as the movant bearing the burden of proof of trial on causation, was required to demonstrate the absence of any genuine issue of fact on that issue.
The Leonard court noted that in Jenkins v. St. Paul Fire & Marine Insurance Co. (La. 1982) 422 So.2d 1109, the Louisiana Supreme Court modified the former “case-within-a-case” evidentiary burden in legal malpractice cases. Specifically, the court held that where the plaintiff proves that negligence on the part of his former attorney caused a loss of the opportunity to assert a claim, the court must determine whether the negligent attorney met his burden of producing sufficient proof to overcome plaintiff’s prima facie case. 422 So.2d at 1110.
However, the Leonard court noted that the Jenkins rationale was applicable only to a situation where the complete loss of an opportunity to assert a legal claim exists. Id. at 1259. In Leonard, the plaintiff was not claiming the loss of an opportunity to successfully defend a monetary claim against him. Instead, although the Jenkins’ rule conceivably applies under the Leonard facts, the client was not entitled to the benefit of the presumption of causation in damages because he failed to establish the predicate prima facie case.
First, Leonard alleged that Reeves was negligent based on the filing of a procedurally improper pleading, a motion for nullity, denying Leonard the opportunity to successfully defend all of his ex-wife’s claims and forced him into a disadvantageous compromise under the threat of a potential contempt order. The Court of Appeal observed, however, that this premise was faulty because the use of a motion for nullity was, in fact, a proper method for challenging the 2004 default judgment. Id. at 1259, 1260. Because Reeves’ motion was procedurally proper, it did not constitute malpractice. Leonard therefore failed to meet his initial burden on that issue of establishing a prima facie case of malpractice. 82 So.3d at 1261.
Second, the Court addressed the issue of the alleged “bad advice” given by Reeves. The Court noted that the proper standard for whether an attorney’s malpractice was a cause in fact of damage to his client is to determine whether the performance of that act would have prevented the damage. Thus, simply establishing that an attorney was negligent is not sufficient to state a legal malpractice claim. Id. at 1262.
The Court ultimately concluded that Leonard had failed to demonstrate any valid factual basis upon which to second guess Reeves’ professional advice regarding the compromise and therefore show he had received bad advice. Leonard also had failed to show that the final result of the trial court would more likely than not have been more favorable to him but for the alleged acts of legal malpractice. As a result, the court affirmed the summary judgment in the attorney’s favor. Id. at 1266.
II. The Case-Within-the-Case
A. Oregon (Watson v. Meltzer (2011) 247 Or. App. 558, 270 P.3d 289)
In 2011 and 2012 there were interesting developments on the standard for determining what the outcome would have been in the underlying case or transaction had it been properly handled. One important decision was Watson v. Meltzer (2011) 247 Or.App. 558. In Watson, the Oregon Court of Appeal affirmed that traditional “but-for” causation principles continue to apply when the legal malpractice claim arises from an underlying business transaction.
In Watson, the issue was whether the defendant attorneys were negligent in providing advice during negotiations for the sale of an auto dealership. The jury found that one of the defendants was negligent but that his negligence did not cause plaintiffs any damage. On the appeal the issue was whether the trial court erred in its instructions to the jury on causation. 247 Or.App. at 291.
The clients (the owner and his businesses) argued that the trial court erred in delivering a uniform civil jury instruction related to the “case-within-a-case” doctrine requiring the jury to determine whether the defendants’ negligence caused a less favorable outcome. According to the plaintiffs, although the instruction could be appropriate in cases involving legal malpractice during the course of litigation it was not appropriate when the malpractice occurs during the negotiation of a transaction. The defendant attorneys responded that the Oregon courts have never recognized a distinction between litigation and transactional malpractice. The Oregon Court of Appeal agreed with the defendants and affirmed. The facts of the case and specific holding were as follows.
Watson owned an auto dealership which he decided to sell because it was having serious financial troubles. He contacted Luther, an owner of several other local dealerships, to explore whether Luther had an interest in purchasing the business. Watson and Luther began direct negotiations and, after negotiating the basic terms of the deal, Watson contacted attorney Evans to handle the legal paperwork necessary to complete the transaction. Another attorney in Evans’ firm, Meltzer, eventually took over the primary responsibility for the transaction. 247 Or.App. at 561.
Luther’s attorney drafted an asset purchase agreement. It included a provision that, as to employee benefit plans, Watson acknowledged he had no “withdrawal liability.” This statement was in fact incorrect, as there was a substantial liability that Meltzer had failed to discover and that Watson did not know about before signing the agreement. When Watson then approached Luther seeking to renegotiate the sale in light of the withdrawal liability, Luther refused and Watson became ultimately liable for more than $2.9 million. He thereafter sued Meltzer, Evans and their law firm for legal malpractice.
In the trial court, the parties argued over the element of causation in legal malpractice cases. Watson asserted that he could prove causation by presenting evidence that the attorneys advised him to sign the asset purchase agreement before determining the withdrawal liability, which resulted in his incurring it following the sale. Id. at 562. The attorneys responded that the plaintiff had to demonstrate that but for the alleged negligence he would have had a better financial outcome in the business sale transaction.
The defendants cited a uniform civil jury instruction providing that to determine whether the alleged negligence in fact resulted in a less favorable outcome for the plaintiffs, the jury must first determine what the outcome for the plaintiff would have been had the defendant not been negligent. If that outcome was not more favorable than the outcome that did occur, the defendants could not have caused the plaintiff’s loss or damage. The plaintiff objected to the instruction arguing that it was incorrect because the case-within-a-case formulation applies only to litigation malpractice cases. The trial court gave the instruction over plaintiff’s objection.
The jury determined that Evans and the law firm were not negligent but that the primary transactional attorney, Meltzer, was negligent. However, the jury also concluded that the plaintiffs were not entitled to recover damages because Meltzer did not cause the clients’ alleged injuries.
In its decision, the Court of Appeal first noted that it reviewed jury instructions for errors of law and would reverse only if it could fairly say that, when considering all of the instructions as a whole, they probably created an erroneous impression of the law in the minds of the jurors that affected the outcome of the case. Id. at 564. The Court stated that under Oregon negligence law the element of causation ordinarily refers to “causation in fact” or “but for” causation. Id. at 565. In the legal malpractice context that means that for a plaintiff to prevail she must show not only that the attorney was negligent but also that the result would have been different except for the negligence. Id.
The clients, citing Chocktoot v. Smith (1977) 280 Or. 567, argued that the trial court erroneously required the jury to determine what the outcome would have been but for defendant’s negligence. However, the Court of Appeal observed that Chocktoot addressed whether a judge, as opposed to a jury, must decide whether an attorney’s negligence caused the harm of which the plaintiff complains, 280 Or. at 569, with that court concluding that the answer to this question depends upon the nature of the case. Chocktoot holds thatwhere the outcome of the earlier case hinges on an issue of law, the reviewing court, rather than a jury, must determine the outcome of the earlier case. Id. at 573. In contrast, where the outcome of the underlying case depends on the resolution of factual issues the jury must determine what the outcome for plaintiff would have been if the earlier case had been properly tried. Id. at 570.
The Watson plaintiffs next argued that it was unfair to require them, in a transactional negligence case, to establish the sort of causation that may be required in other contexts because of the “peculiar nature of transactional legal work.” They contended that the “but for” requirement in transactional malpractice cases should be limited to proving the amount of damages, not to proving causation.
The Court of Appeal responded that, while the label “case-within-a-case” may apply only to litigation cases, the underlying requirement in all negligence cases – not just litigation malpractice cases – remains that a plaintiff must prove that, but for the defendant’s negligence, the plaintiff would not have suffered the harm that has been alleged. Thus, there is no special causation requirement that relieves the plaintiff in transactional legal malpractice cases from proving the elements of an ordinary negligence case. Id. at 568.
The plaintiffs then claimed that a transactional legal malpractice case was qualitatively different because requiring proof of what the outcome of a negotiation would have been but for a defendant’s negligence necessitates proof of something that never happened. The Court of Appeal noted that this issue is not specific to transactional legal malpractice cases, because the same could be said of any litigation legal malpractice case. The very nature of the causation requirement requires comparing what actually happened with what, hypothetically, would have happened but for the defendant’s conduct.
The plaintiffs also argued that it was inappropriate to require them to prove that the outcome would have been different but for the defendant’s negligence because that negligence precluded proof of the desired outcome. Thus, because of the defendant’s negligence in failing to ascertain the extent of the withdrawal liability, the plaintiffs were denied the opportunity to negotiate with Luther regarding ways of restructuring the transaction to avoid or mitigate that liability. As an example, when plaintiffs deposed Luther about what might have been the product of such negotiations he did not know their likely outcome. Id. at 569.
The Court of Appeal rejected this argument as well, noting that it pertained to the adequacy of the proof and not to any defect in the instructions. The fact that the plaintiffs found it difficult to obtain evidence of what the outcome of the transaction would have been did not mean that such difficulties will occur in all transactional legal malpractice cases. Thus, the Watson court concluded that the plaintiffs had failed to meet their burden of demonstrating that uniform civil jury instruction No. 45.02 was legally erroneous and the judgment was affirmed.
B. California (Gutierrez v. Girardi (2011) 194 Cal.App.4th 925)
Returning to the issue of legal malpractice cases involving underlying litigation, a California Court of Appeal held that the case-within-the-case rules did not apply in Gutierrez v. Girardi. At the same time, however, the Court also reaffirmed the California standards for proving causation in legal malpractice actions.
The Girardi firm represented Gutierrez in a class action against his employer, Lockheed Corporation. Over a ten year period, Girardi negotiated settlements with most of the Lockheed defendants and Gutierrez received payments representing his share of the settlements. Three of the non-settling defendants then prevailed on a motion for summary judgment based upon the expiration of the statute of limitations.
Thereafter, Gutierrez sued Girardi alleging causes of action for breach of fiduciary duty and money had and received, asserting that Girardi misappropriated part of the settlement proceeds through miscalculating costs and net amounts to be paid to the clients. Girardi prevailed on summary judgment by arguing that Gutierrez could not prove causation or damages because all of his claims — against even the settling defendants in the Lockheed action — would have been barred by the statute of limitations had Gutierrez been required to litigate them.
The Court of Appeal reversed the summary judgment. First, the Court rejected Girardi’s argument that Gutierrez could not prove breach because there was no written fee contract between the parties and therefore no basis for allocating between fees, costs and recovery to the plaintiffs. The Court noted that if there was no written contract, Gutierrez was nonetheless entitled to void the agreement and Girardi could then be entitled to collect only a reasonable fee. As a fiduciary, Girardi could not deduct unwarranted costs from the settlement proceeds and was required to comply with ethical obligations regarding client trust accounts.
As to the causation issue, the Court held that Girardi’s alleged misappropriation caused Gutierrez to incur damages despite the merits of the underlying case. While the trial-within-a-trial method conceivably applied to the case, Gutierrez’s claims were distinguishable because he was not alleging that, but for the breach of fiduciary duty, he objectively would have obtained a better litigation result. The Court observed that, in fact, the alleged breach of fiduciary duty occurred after the resolution of the lawsuit at a time when Gutierrez was already entitled to a share of the settlement proceeds. Thus, the merits of the plaintiff’s claim stood independent of whether the underlying defendants had a valid statute of limitations defense, rendering the trial-within-a-trial analysis unnecessary.
Girardi clearly does not relax the trial-within-a-trial requirement in California. It does, however, highlight that in cases of misappropriation of client funds, a different analysis may apply if the merits of the underlying case are no longer necessarily at issue.
C. District of Columbia (Encyclopedia Britannica, Inc. v. Dickstein Shapiro, LLP (Nov. 26, 2012) 2012 WL 5900992)
In another interesting 2012 decision, a client attempted to shortcut its causation burden in a legal malpractice suit. Encyclopedia Britannica, Inc. v. Dickstein Shapiro, LLP. The plaintiff, Encyclopedia Britannica, Inc. (“Britannica”), sought to invoke judicial estoppel against its former law firm, Dickstein Shapiro, based on statements that the firm made while it served as Britannica’s counsel.
Dickstein represented Britannica in the prosecution of several patents related to a multimedia database search system. While prosecuting the patent applications in 2005, a Dickstein partner, Grossman, filed two petitions for expedited treatment with the United States Patent & Trademark Office (“PTO”) on Britannica’s behalf. In the PTO proceedings, the firm filed a “Petition to Make Special,” seeking expedited treatment, and asserting actual infringement of Britannica’s patents. To obtain such treatment, the petition was required to be accompanied by a statement by the applicant, or its assignee or attorney, that a rigid comparison of the alleged infringing device, product or method with the claims of the application had been made and that, in the declarant’s opinion, some of the claims were unquestionably infringed.
The PTO granted at least one of the applications signed by Grossman. Britannica thereafter filed suit in the Western District of Texas seeking damages for infringement. However, because Britannica had published a substantially similar foreign patent application more than a year before the actual filing date, it did not receive the benefit of the earlier filing. Britannica thereafter filed suit against Dickstein alleging malpractice and breach of fiduciary duty. In the malpractice action, Dickstein argued that it should not be judicially estopped from denying that the invalid patents were infringed, contrary to the statements made by Grossman in the PTO applications. Following discovery, the district court set a briefing schedule on a motion for partial summary judgment as to whether Britannica was entitled to invoke judicial estoppel.
In its opinion, the court observed that, to prevail in its legal malpractice action under District of Columbia law, Britannica ultimately had to show, inter alia, that Dickstein’s actions caused its injuries. This burden included demonstrating that absent Dickstein’s purported malpractice, Britannica would have prevailed in its infringement suit. Britannica contended that because Grossman had stated that some of the claims were unquestionably infringed in filing the petition to make special, Dickstein should be estopped from denying that claim in the malpractice suit.
The district court rejected the client’s argument. The attorneys were not parties in the PTO proceedings, but were counsel to Britannica itself. The court noted that the logic of judicial estoppel – that a party should not be changing its position between proceedings – does not apply to statements made before one is a party at all. It was also “certainly improper” to estop an entity based on statements it made in its prior capacity as the now-opposing party’s lawyer or representative. The court observed that the positions a law firm takes in the two contexts of representing a client and being a defendant in a legal malpractice case result in significant tension. As a lawyer representing a client, a firm defends the strengths of the client’s position while in malpractice litigation it seeks to demonstrate the opposite, i.e., that the client would have lost. The court explained that a lawyer could not be faulted for this inherent inconsistency, and, where a party cannot be faulted, applying judicial estoppel is often inappropriate.
Moreover, applying judicial estoppel would be inconsistent with principles of malpractice litigation – that the plaintiff must prove that the strength of its case and that recovery is appropriate only if the plaintiff would have been actually prevailed. The court noted that judicial estoppel would vitiate the plaintiff’s burden. Allowing Grossman’s prior statement that at least one claim was infringed to be conclusive on that question would be inconsistent with the concept of the trial-within-a-trial to determine whether that belief was actually correct.
III. Experts and Causation
In addition to the expert issues addressed in the Labair decision of the Montana Supreme Court, two interesting cases out of Georgia address the role of expert witnesses in legal malpractice actions.
A. Georgia (Leibel v. Johnson (2012) 291 Ga. 180, 728 S.E.2d 554)
In Leibel v. Johnson, a jury returned a verdict for a physician, Dr. Johnson, on a legal malpractice claim against attorney Leibel. Leibel filed a motion for a judgment notwithstanding the verdict and for new trial. While the court denied the JNOV motion, it granted the motion for new trial.
The Court of Appeal reversed the grant of the motion for new trial and affirmed the denial of the JNOV motion. The Court stated that, although a party cannot generally bolster his case with expert testimony as to the ultimate issue when the jury could reach the same conclusion independent of the opinion of others, such a prohibition does not extend to those cases in which a jury requires expert testimony as the issue of causation. The Supreme Court then granted Leibel’s petition for certiorari to review the Court of Appeal’s ruling, ultimately reversing the intermediate appellate court.
First, the Supreme Court noted that, except in “clear and palpable cases” such as the expiration of the statute of limitations, expert testimony is necessary to establish the parameters of acceptable professional conduct for an attorney. This does not mean, however, that expert testimony would also be appropriate with respect to the third and final element of a legal malpractice claim, causation. 291 Ga. at 181.
Contrary to the Court of Appeal’s reasoning, the second jury in a malpractice case is not deciding what the first jury would have done in the underlying case had the attorney not been negligent, but only what a reasonable jury would have done had the underlying case been tried without the attorney negligence alleged by the plaintiff. The second jury does this by independently evaluating the evidence as it should have been presented to determine whether it believes that the plaintiff has a winning case, not by deciding whether some prior jury may or may not have believed that the plaintiff had a winning case. Thus, the Court of Appeal was incorrect in its conclusion that the jury in the malpractice case was tasked with deciding an issue that could not be resolved by the average lay person. Id. at 182. Accordingly, the Court of Appeal erred in concluding that the testimony of the expert was admissible and the judgment was reversed. Id. at 183.
B. Georgia (Tidwell v. Hinton & Powell (2012) 315 Ga.App. 152, 726 S.E.2d 652)
Finally, in Tidwell v. Hinton & Powell (2012) 315 Ga.App. 152, the Tidwells hired attorney Jack Hinton to represent them in a wrongful death action related to the death of their son on a county school bus. Hinton filed suit against the county school board but later discovered that only the school district had the capacity to be sued. Rather than adding the district as a defendant, Hinton dismissed the suit. By the time he re-filed the action a few months later attempting to add the school district as a party, the statute of limitations had run against the school district and the wrongful death claim was barred.
In the Tidwells’ subsequent malpractice suit, Hinton admitted that he acted negligently in the wrongful death case. However, he challenged the allegation that his negligence proximately caused the Tidwells any damage. To prove causation, the Tidwells planned to offer expert testimony from an experienced attorney that to a reasonable degree of professional certainty a procedurally correct presentation of the facts would have resulted in a plaintiff’s verdict exceeding $500,000. 315 Ga.App. at 152.
Hinton filed a motion in limine to exclude this testimony before trial, arguing that it was unnecessary and went to the ultimate issue in the case. The trial court agreed, concluding that in a legal malpractice action the case-within-a-case mechanism allows jurors to answer questions of whether negligence by an attorney has proximately caused damage to the plaintiff and, if so, how much damage was caused. After the trial court excluded the testimony an interlocutory appeal followed.
The Court of Appeal stated that, while a trial court has broad discretion in deciding the admissibility of expert testimony, the trial court in the Hinton action did not evaluate the merits of the proffered testimony and had simply concluded that, as a matter of law, expert causation testimony is categorically unnecessary and improper in a legal malpractice action. Citing Johnson v. Leibel, the Court of Appeal explained that expert testimony is admissible to prove proximate cause in those legal malpractice cases in which a layperson could not competently determine whether or not the negligence of the attorney proximately caused the plaintiff’s damages, i.e., whether or not the plaintiff would have prevailed in the underlying action.
The Court of Appeal also noted that its holding comported with the pattern jury instruction in legal malpractice cases entitled “Skill Required of Attorney.” This instruction provides that a client suing his or her attorney in a case must prove by expert legal testimony that the claim is valid and would have resulted in a judgment in the client’s favor and that the judgment could have been collected in some amount. The defendant may then present opposing expert legal testimony leaving the jury to evaluate the credibility of the experts and to weigh their testimony accordingly.
Accordingly, the Court of Appeal reversed the trial court’s grant of Hinton’s motion in limine to exclude expert testimony. It remanded for further proceedings in light of the ruling in Johnson v. Leibel.