Calculating Damages

How are damages calculated in a New Jersey legal malpractice action? This is a difficult question and a court must determine how many damages are proximately caused by the defendant's behavior. In a legal malpractice situation, the damages may be ... 

How are damages calculated in a New Jersey legal malpractice action? This is a difficult question and a court must determine how many damages are proximately caused by the defendant's behavior. In a legal malpractice situation, the damages may be limited by actions taken or not taken by the aggrieved client. In Nix v. Verp, A-3179-09T2, 2011 WL 557947 (N.J. Super. App. 2011), the attorney did not contest the existence of a duty, or a breach of the duty, but rather contested the amount of damages.

Donald Nix had been a commercial tenant in Patterson, NJ. After occupying the same building for 10 years, Nix was approached by a bank he believed to be selling the property for $5000. Nix believed the deal to be good, and hired Verp to represent him in acquiring the property. After a preliminary meeting with the bank, Verp explained to Nix that the purchase price was for the mortgage note, and that Nix would still have to bid at a sheriff's sale. When the relationship began, Verp promised to check to make sure the title was clear so that Nix would have no problem in obtaining clear title. In 2003, the mortgage was assigned to Nix, and a year later, the sheriff's sale proceeded. At the auction, Nix was the only bidder, and won it for $100.

After completing the Sherriff's sale, Verp was made aware of a tax lien for $8974, based on unpaid taxes in 2004. Verp then sent Nix a letter detailing the tax lien situation. In response, Nix went to pay the tax lien, and was told by officials there was a $176,000 tax lien as well. The municipality filed a tax sale certificate in response to the lien, and Verp filed a motion to postpone the sale. It was denied, and in 2005, tax sale proceedings began, culminating in a sale in 2006 for $214,977. This was not the price Nix believed he would pay at the time.

The trial court issued a decision for summary judgment in favor of Nix for $13, 885 and requested submission of documents for attorney's fees and costs. As a result, Nix was awarded $44,685 in counsel fees and $5548 in costs. Nix appealed because he believed more damages were owed.

Because attorneys owe a duty to their clients to provide their services with reasonable knowledge, skill, and diligence; and as part of that duty an attorney is obligated to communicate to his client all information necessary for a client to make an informed decision. In this case, Nix retained Verp to represent him in the context of a real estate transaction, meaning he should have conducted a proper record search. Without the record search, Nix was forced to rely on the inaccurate word of mouth from municipality employees. Based on the lack of contest to liability determination, the court determined informal communication deviated from the accepted standard of care. The court then needed to determine what damages were caused by the breach.

The measure of loss or amount of damages recoverable against an attorney for malpractice necessarily depends upon the nature of the attorney's undertaking for the client. Proper measure of the amount of damages should be the amount that will put a plaintiff in as good a position as if the professional had not committed the breach. The court stated that in addition to the above two propositions, damages were those which would have placed Nix in a position he would have occupied but for the negligence. The measure was thus the cost of what was expected versus the cost received when he relied on Verp's incomplete advice. The damages are equal to the difference between the result sought and the actual result.

Based on the above damage formulae, the court was required to consider the critical date from which the damages should be decided. In this case, the critical date was December 2004, when the title was transferred by delivery of Sherriff's deed. At that time, none of the parties was aware of the $176,000 municipal tax lien. Verp was required to be aware of this lien. Nix took title to the property believing the property to be encumbered by $8984 in outstanding taxes, as opposed to the far greater municipal tax lien. The motion court which first decided damages incorrectly believed that Nix learned of the additional encumbrance prior to closing title, but he did not learn until the title had closed.

In New Jersey, attorneys are liable for paying the amounts of liens which would have been discovered had the attorney conducted a proper title search. In this case, the result of failing to discover the lien cost Nix at least $176,000 regardless of the property value of the property. Nix did not receive what he retained Verp to protect. An attorney is not liable for "sky-in-the-pie expectations" but rather, he is responsible for returning the client to the anticipated economic position. The court ultimately remanded the case to be decided with these principles in mind for damages.

The court also spoke briefly about the duty of mitigation in this case, and merely noted that this is a subjective standard. Where a person suffers damages, they must take reasonable actions to restrict damages. The court did not pass opinion on whether there was mitigation in this case.

Finally, the court undertook a Saffer analysis of attorney's fees which has been discussed in this blog previously. The awarding of counsel fees in this analysis is governed by what fee is reasonable, taking into account the hours expended, the lawyer's customary hourly rate, the success achieved, the risk of nonpayment and other nonmaterial factors. As this is an independent court-performed accounting, Verp could not challenge the form of agreement with Nix and his litigation counsel in the malpractice case.

One of the ways courts award fees in using the lodestar calculation. This calculation is defined as hours reasonably expended by the attorney, multiplied by a reasonably hourly rate. A court must engage in this expedition carefully. A trial court should exclude hours for non-productive time, and should be based on the records kept by the attorneys. The court must be reasonable above all else in carrying out the tenets of Saffer.

The crux of this case is that a plaintiff who has sustained a loss due to legal malpractice, damages are limited to a degree. Most importantly, damages are limited to what is realistically calculable. There must be some way to figure out how to best put the plaintiff in as good a position as before the negligence.

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