FKB Client Advisory by Andrew S. Kowlowitz and Bain R. Loucks

12/23/2013

FKB Legal Malpractice Advisory: Settler’s Remorse and Subsequent Claims for Legal Malpractice

Dear Clients and Colleagues:

In the context of civil litigation, it is fairly well known that most cases eventually settle, or otherwise resolve some time prior to trial. When a litigant elects to settle, it is not uncommon for that party to experience “settler’s remorse” afterwards. Indeed, a frequent source of claims against attorneys involves former clients who agree to settle an action, but later allege that the settlement was undervalued, and that the mistakes of counsel compelled the client to accept a deficient settlement. Legal malpractice claims based on purported “deficient settlements” are rarely subject to dismissal on a pre-answer, pre-discovery basis.1 At a minimum, the Courts will often require discovery before ruling that the settlement was not undervalued or that the client’s motive for settling was unrelated to some perceived deficiency in her attorney’s representation.

In this advisory, we examine two legal malpractice cases involving such claims; in one instance the Court granted the defendant lawyer summary judgment, and in the other instance, the Court denied the defendant lawyer summary judgment. In both cases, the Court’s decision ultimately turned on whether the lawyer could establish that the settlement was not undervalued.

Bellinson Law v. Iannucci

In Bellinson Law v. Iannucci, 102 A.D.3d 563, 958 N.Y.S.2d 383 (1st Dept. January 24, 2013), the First Department examined the interplay between an underlying settlement agreement and a subsequent claim for legal malpractice. In Bellinson, the Bellinson law firm commenced an action against the defendant/client to obtain fees owed pursuant to a retainer agreement. The defendant interposed a counter-claim alleging that the law firm was negligent in its representation, and as a result of the negligence, the defendant was compelled to accept a reduced settlement. Following discovery, Bellinson filed a motion for summary judgment on the legal malpractice counter-claim, arguing that no malpractice was committed and that the defendant had not suffered actual and ascertainable damages. The trial court granted the plaintiff/attorney summary judgment and dismissed the Complaint. An appeal ensued, and the Appellate Division, First Department later affirmed the trial court’s decision.

In analyzing the counter-claim, the Appellate Division found that the record did not support Iannucci’s contention that he was forced to settle the underlying action because Bellinson was incompetent and unprepared on the eve of trial. The Court noted that even if Bellinson was, in fact, negligent, there was evidence in the record suggesting that Iannucci had other options besides settling the case.

Most critically, and as explained in the lower court’s decision, Iannucci settled the case for the exact amount he demanded during a settlement conference the day before trial was scheduled to commence. The lower court found, and the Appellate Division later affirmed, that the claimed damages could not be construed as actual and ascertainable, as the bulk of the damages in the underlying action were subject to dismissal at the time the settlement was reached. In other words, both the lower court and Appellate Division examined the merits of the underlying action before making a determination as to whether the defendant/client agreed to accept an undervalued settlement.

Angeles v. Aronsky

More recently, the First Department in Angeles v. Aronsky, 109 A.D.3d 720, 974 N.Y.S.2d 329 (1st Dept. September 24, 2013) reached a different result, finding that questions of fact existed as to whether a defendant attorney’s alleged negligence resulted in a reduced settlement. In Angeles, the plaintiff was assaulted by several unknown assailants after entering his apartment building. Following the attack, Angeles retained Aronsky to represent him in connection with a potential personal injury action.

Angeles advised Aronsky that the front door to the building was locked properly prior to the assault. However, there was another door on the side of the building that allowed access to the building, which was left unlocked. Angeles did not advise Aronsky about the other door, and Aronsky never sent an investigator to the building, never interviewed the building superintendant, and otherwise failed to conduct due diligence. Instead, Aronsky advised Angeles the claim was not particularly strong and recommended settlement on a pre-suit basis for $8,500. Shortly after the settlement was reached, Angeles commenced a legal malpractice action against Aronsky alleging that Aronsky was negligent in his investigation of the claim. Following discovery, Aronsky filed a motion for summary judgment, which was denied by the trial court. In its decision, the trial court noted that that the settlement was inadequate considering plaintiff’s injuries, which consisted of broken arms, broken ribs and a broken jaw.

In affirming the trial court’s decision denying Angeles’ motion for summary judgment, the Appellate Division held that Angeles established questions of fact as to whether his attorney “adequately informed himself about the facts of the case before he conveyed the settlement offer.” Indeed, while Aronsky argued that he advised his client that liability was questionable, the Court rejected the argument and questioned how the attorney could make such an assessment without having conducted an adequate investigation into the circumstances surrounding the assault.

Conclusion

Establishing the fairness of a settlement can be done circumstantially, i.e., comparing similar verdicts/settlements, or by demonstrating that the settlement reached was the product of arms length negotiations and was based on full consideration of the strengths and weaknesses of the underlying claim. Best practice would dictate that practitioners memorialize settlement negotiations and document settlement recommendations, along with a basis for the recommendations. Such documentation may assist in defending any subsequent legal malpractice claim that may arise when a client experiences “settler’s remorse.”

Should you have any questions concerning the above, please feel free to contact Andrew S. Kowlowitz or Bain R. Loucks.

Yours faithfully,
Andrew S. Kowlowitz
Bain R. Loucks

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  1. The courts have made an exception for legal malpractice cases arising from underlying matrimonial actions. See, e.g. Katebi v. Fink, 51 A.D.3d 424, 857 N.Y.S.2d 109 (1st Dept. 2008) (granting a defendant lawyer dismissal of a legal malpractice complaint pursuant to CPLR 3211 on a pre-discovery basis when a former client alleged that her matrimonial settlement was deficient. The Court found that the client’s testimony during her settlement allocution precluded her from advancing a legal malpractice claim since she testified during the allocution that she agreed to settle her matrimonial action voluntarily and was satisfied with her attorney’s services.)

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