Settlement to Mitigate Damages Will Not Preclude Legal Malpractice Action
Prospect Rehabilitation Services, Inc. v. Squitieri, 392 N.J. Super. 157 (App. Div. 2007)
NJ Underlying Commercial Action
Student Contributor: Melissa Goldberg
Facts: Plaintiff sued a nursing home for overpayment of rent and construction advances in an underlying action in which Plaintiff’s lawyer had failed to include a Medicare claim. Plaintiff fired its attorney and tried to, unsuccessfully, amend its complaint in the underlying action to include the Medicare claim. Eventually, Plaintiff settled with the nursing home voluntarily in the underlying action and sued its attorney for malpractice. The trial court dismissed Plaintiff’s legal malpractice complaint because it found Plaintiff settled voluntarily with the nursing home, and thus, was precluded from recouping any additional monies from its attorney. The Plaintiff appealed arguing that it only settled as an attempt to mitigate damages, and that it was not necessary to exhaust all appeals before bringing the malpractice action.
Issue: Whether the Plaintiff could successfully assert a cause of action for malpractice after settling in the underlying action without exhausting all appellate remedies?
Ruling: Yes, Plaintiff could assert a cause of action for legal malpractice against the defendant attorney to recoup damages under the Medicare claim, since:
- Plaintiff never represented that the settlement with the nursing home was an acceptable settlement of all of its underlying claims;
- Plaintiff entered into the settlement in an effort to mitigate its damages; and,
- There is no requirement that all appellate remedies available in an underlying action be exhausted prior to asserting a claim for legal malpractice.
Lesson: As long as a litigant enters into a settlement in the underlying action in an effort to mitigate damages, it does not have to exhaust all appellate remedies prior to asserting a cause of action for legal malpractice.
While the Court held, as a matter of law, that settlement of underlying claims does not preclude a subsequent legal malpractice action, the Court's decision was likely influenced by two other considerations;
First, the parties vigorously disputed the point in time at which the former attorney became aware of the potential $400,000 medicare claim (Alleging that the nursing homes had committed errors resulting in the waiver of medicare reimbursement.). The attorney said he first learned of it during arbitration while the client claimed to have mentioned it during their initial interview.
More importantly, the Court held that It was an unresolved issue of fact whether the plaintiff took reasonable steps to remedy the “alleged negligence before pursuing its malpractice action.†id. at 168. This included, among other things, the likelihood of appellate success.