Transactional Legal Malpractice: A Difficult Task

Often times, the most difficult legal malpractice cases are those involving transactions. Generally, this is a more difficult case because there is no formal deadline, or process such as in litigation. Jobar Realty Co, Inc. v. Tombalakian et al., No.: A-3660-10T1 (N.J. Super. Ct. App. Div. Mar. 26, 2012) is case where a court took the time to explain legal malpractice elements as it applies to a situation outside the litigation arena.

Jobar was a company which owned a small strip-mall plot, and was looking to conduct a real estate land transfer. One of the conditions of settlement was that a clearance be acquired from the New Jersey Department of Environmental Protection. The attorney first enlisted for the property matter was not specialized in environmental matters, thus, they associated with Tombalkian.

In an effort to bring the property up to environmental code, settlement negotiations opened between the Plaintiff, and one of his former tenants who had previously inhabited and polluted the site. On February 23, 2004, the former tenant's attorney offered a settlement proposal of $14, 510 which included certain terms of non-admission of guilt. Tombalkian forwarded the offer to the Plaintiff, and advised that it was lower than the initial demand. Tombalkian also advised that the choices were to try and get to the demand of $21,000 or to begin a lawsuit. She also advised that a lawsuit would be a costly endeavor.

On May 28, in an e-mail, the Plaintiff was informed that he should begin to get the settlement money as soon as possible to pay off interest accruing debt. He was also advised that the insurance company wanted a settlement agreement to review. At this point, the Plaintiff responded that he was unaware the insurance company would be handling the claim, and believed the individual tenant was paying out of pocket.

The Plaintiff complained about Tombalkian's handling of the case was responded to on June 21. On August 31, the insurance company forwarded settlement documents to be signed. On September 30, the Plaintiff advised that he would not be signing the documents releasing the insurance company from cleaning up their own mess. He then instructed Tombalkian to do all he could to ensure that the insurance company would comply.

On October 1, Tombalkian told the Plaintiff that he was bound to honor the agreement. Furthermore, he stated that he had performed his tasks, and that if it were unacceptable, new counsel should be sought. Plaintiff sent an e-mail October 4, advising why he took so long to object to the agreement, and that his concern was future liability. On October 21, the Department of environmental protection refused to clear the site.

As a result, Plaintiff spent $6300 for an engineer to remedy the site. Additionally, because buyer's lender would wait no longer, $10,000 was lost in escrow. On May 5, 2005, represented by new counsel, the Plaintiff sued the original tenant, and the insurance company. The court found the agreement enforceable. There was no unilateral mistake, or requirement that Plaintiff be informed of insurance coverage. After receiving settlement check in July, 2008, Plaintiff filed suit on January 21, 2009. The allegations were legal malpractice by wrongfully advising that Ryan had no insurance.

To show legal malpractice generally requires evidence of an attorney-client relationship creating a duty, breach of that duty, and proximate causation of harm. An expert's opinion is required to show a breach of duty when it is not the type that a layperson would be aware of. In this case, the critical issue was whether there were damages stemming from the breach. The plaintiff's expert testified to the duty, and breach, but the defendants contended that any breach did not prevent damages.

In order to show proximate causation, a plaintiff must show competent, credible evidence that the defendant's negligent conduct was a substantial factor in bringing about the complained of injury. Damages in legal malpractice are generally considered to be the amount a person would have received absent an attorney's negligence. This is proven by the suit within a suit method whereby a plaintiff generally shows he would have recovered in a suit against the underlying defendant; the amount of that judgment; and the degree of collectability of that judgment.

The difficulty in this method is shown in transactional practice where instead of using the underlying suit as a standard; a plaintiff must show that negligence was a substantial factor in bringing about the loss of a gain or benefit from the transaction at issue. In this case, the plaintiff alleged damages stemming from the subsequent hiring of an attorney, and the fact that he would have recovered damages from an insurer.

The court ultimately rejected these claims as conjecture. There was no proof that an insurance company had agreed to pay more than that settlement already agreed upon. Additionally, the costs of suit were not suitable damages, because Tombalkian advised that a suit might be prohibitive due to the costs, thus there was no remuneration available. The court watered the argument down to the premise that "there would not have been a settlement if the plaintiff was aware of the insurer." The plaintiff failed to produce evidence that knowledge of this fact would have led to a greater settlement, thus damages were not proven.

This case certainly opens a Pandora's Box of "what-if?" There seems to be an imprecise guessing game concerning what damages are allowable in a transactional setting. For example, based on the analysis had the Plaintiff been able to prove that Hartford had a greater settlement amount offered on the basis of acknowledging coverage, then perhaps legal malpractice would have been proven. This case is important not for what it contains as far as malpractice by an attorney, but rather because it is part of the outline of acts not considered to be malpractice.

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