Monthly Column - Legal Malpractice Damages Analysis

When asked of what area of law this author focuses, "I represent victims of financial injury" is the "elevator speech." The follow-up inquiry (usually from other attorneys), is "but I thought you also represented victims of legal malpractice?" Ay, but are they one and the same?

Before beginning a remedies analysis, a legal malpractice practitioner must first understand the relationship between damages and the cause of action itself.

In Nelson v. Heslin, 806 A.2d 873 (Pa. Super 2002), the Court reiterated that to establish a claim for legal malpractice, a plaintiff must establish: (1) employment of the attorney or other basis for a duty; (2) the failure of the attorney to exercise ordinary skill and knowledge; and (3) that such negligence was the proximate cause of damage to the plaintiff. The Court went on to reiterate that to be successful in a legal malpractice action, a plaintiff must prove that he had a viable cause of action against the party he wished to sue in the underlying case, and that the attorney hired was negligent in prosecuting or defending that underlying case (otherwise known as the "case within the case").

Pertinently, Nelson went on to hold that, "an essential element to this cause of action is proof of actual loss rather than a breach of professional duty causing only nominal damages, speculative harm or threat of future harm."

In Kituskie v. Corbman, 714 A.2d 1027 (Pa. 1998), the Supreme Court (quoting the Superior Court) reasoned that "it would be inequitable for the plaintiff to be able to obtain a judgment against the attorney which is greater than the judgment that the plaintiff would have collected from the third-party; the plaintiff would be receiving a windfall at the attorney's expense." Claimed damages are inadmissible "only if there is uncertainty concerning the identification of the existence of damages rather than the ability to precisely calculate the amount or value of the damages."

Quoting the Superior Court, "...damages are speculative only if the uncertainty concerns the fact of damages rather than the amount."

In Wachovia Bank, N.A. v. Ferretti, 935 A.2d 565 (Pa. Super 2007), the Court, though holding damages an element of the cause of action, seemingly contrarily held damages need only be foreseeable for that element to be satisfied.

In 1989, attorney defendant represented legal malpractice plaintiff's predecessor in interest in connection with a commercial loan to a real estate development partnership for construction of condominiums. Thereafter, one of the real estate development partners agreed to act as a surety with respect to the loans made to the partnership. In 1990, the partnership defaulted on the loans to which plaintiff's predecessor confessed judgment in the amount of $6,327,075.66 against the partnership and the surety, among others. In 1992, the lender and surety entered into a settlement agreement to "forever discharge" the confession against the surety for $160,000. The judgment was docketed in both Bucks and Lehigh Counties.

Subsequently, at the surety's request, lender's counsel (legal malpractice defendant) praeciped to mark the action settled, discontinued and ended in both counties, and also "acknowledged" a satisfaction of the judgment pending in Lehigh County. Defendant attorney failed to also have the Bucks County judgment marked "satisfied."

When surety later discovered that the Bucks County judgment had not been marked satisfied, surety initiated statutory proceedings against lender seeking liquidated damages. At the behest of surety, the Bucks County judgment was then also marked satisfied.

In reversing the Bucks County trial court's denial of surety's petition to assess liquidated damages, the Superior Court found that the underlying release between the lender and surety contained the "forever discharge" language. After a convoluted, collateral appellate history, the trial court ultimately assessed liquidated damages against lender in the amount of $3,163,537.83.

In the legal malpractice action arising from the liquidated damages judgment (for failure to satisfy), the court held that the test of whether damages are remote or speculative has nothing to do with the difficulty in calculating the amount but rather whether there are identifiable damages. Likewise, "...the trigger for accrual of a legal malpractice action, for statute of limitations purposes, is not the realization of actual loss, but the occurrence of a breach of duty." Thus, the statute of limitations for the legal malpractice action did not commence at the time of liquidated damages judgment, but rather when the breach of duty became known.

As the legal malpractice claim was beyond the statute of limitations (e.g., it having commenced on the date the surety initiated the liquidated damages proceeding), legal malpractice plaintiff's claim was barred.

Said differently, unlike in other causes of action, a legal malpractice action's statute of limitations commences when the liability occurs and the potential for damages becomes known - not when the damages accrue. As the judgment was then a known possibility and the damages to then be assessed discernable at the action's commencement, the Ferretti legal malpractice action's statute of limitations was deemed to have occurred prior to the actual harm incurred.

A legal malpractice action arising from a neglected personal injury case within the case clearly enables the legal malpractice plaintiff's recovery of those pain and suffering damages (as well as medical expenses) otherwise recoverable within the underlying case. Unlike in New Jersey, it would seem there likely can be no additional claim for damages that are consequential solely to the legal malpractice action (i.e., legal malpractice attorneys fees). However, what is the measure of damages for negligently lost custody, professional license, or business opportunity, etc.? Because legal malpractice actions are so fact specific, it is important to understand what has and has not been held compensable-unfortunately, there is scant precedent on point:

The Superior Court has held an attorney defendant's negligent representation during a criminal trial alleged causing plaintiff's decedent to commit suicide to be non-compensable-suicide is a supervening cause precluding its compensation because it is so extraordinary as not to be reasonably foreseeable. Similarly, an attorney's negligence in failing to secure a subsequent legal right for which the outcome cannot be legally certain (i.e., counsel's failure in petitioning for allowance of appeal to the Pennsylvania Supreme Court divesting legal malpractice plaintiff's rights to then move for federal habeas relief) are inadmissible damages that "...could not be more speculative." Conversely, negligence leading to incarceration has been held admissible as "actual" and "identifiable." By analogy, in an insurance action arising from a legal malpractice claim, the court held that a "...plaintiff is required only to provide the jury with a reasonable amount of information so as to enable the jury fairly to estimate damages without engaging in speculation. Damages need not be proved with mathematical certainty."

As this author has noted in prior columns, legal malpractice precedential holdings, save very few (which often contain unexpected novelty), are most often either too broad or too narrow to allow one proper claims adjustment at the outset; thus, giving rise to complex motions and trial objections-both necessarily often. As precedent counter-intuitively (and perhaps contrary to public policy) seems to require early, multi-count actions conversely backed by specific factual averments, that same precedent should countervail often retaliatory sanctions motions and "dragonetti" claims. Simply, attorney liability litigation (on either side) is not for counsel who dislike writing, expect early settlements, or are of the faint of heart.

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