Assigning Your Legal Malpractice Claims: "Hidden Treasure" in Tough Times ?
Hedlund Mfg. Co., Inc. v. Weiser, Stapler & Spivak, et ano.
517 Pa. 522, 539 A.2d 357 (1988)
Facts: Martin hired attorney Spivak to apply for a patent for a machine that Martin had invented and manufactured. Spivak prepared the application but he did not timely file it. Hedlund Manufacturing purchased Martin's business, including the rights to all pending patents. When Hedlund learned that Spivak had filed the patent application late, they had Martin assign to them all rights and causes of actions arising out of the lawyer's malpractice. Hedlund then sued Martin's lawyer for legal malpractice alleging negligence and breach of contract.
Issue: Can Hedlund (the assingee) sue the assignor's lawyer based on the assignment of the legal malpractice claim, even though there is no attorney-client relationship between the assignor and the lawyer?
Ruling: The PennsylvaniaSupreme Court said yes, reversing the lower court that had held that lack of privity barred the malpractice suit. The Court held legal malpractice claims can effectively be assigned and that "privity is not an issue involving an assigned claim because the assignee stands in the shoes of the assignor and does not pursue the cause of action in the assignee's own right." Thus, the assignment of a cause of action for legal malpractice is valid and can be used by the assignor to circumvent the privity defense. It might also be viewed as a "hidden" asset in the sale of a business.
New York: Assignment of legal malpractice claims are permitted. See, Tawil v. Finkelstein, et al 646 NYS2d 691 (App Div. 1st Dept, 1996). But they probably have to be explicit and unambiguous CALPERS v. Shearman & Steling, 95 N.Y. 2d 427 (2000).
New Jersey: Assignment of legal malpractice are not permitted for public policy reasons. Alcman Services Corp. v. Bullock 925 F. Supp. 252 (DNJ 1996).
It is interesting that a potential plaintiff in a legal malpractice case can assign his/her right to sue the lawyer, to someone else. I wonder how much money an assignment of this sort costs the person who acquires the right to sue.
Let me propose that the starting place for evaluating the consideration the assignee ought to pay the assignor (former client) for the assignment of the right to sue, would be the value of the damage caused the assignor by his/her former attorney's negligence. Then, a discount off that for the possibility that the claim might not succeed. What do you think?
I think that makes sense because it seems to be fair for both the assigner and the assignee.
Legal malpractice claims are not assignable in Tennessee. Can Do, Inc. Pension v. Manier Herod, 922 S.W.2d 865 (Tenn. 1996).
When reading this case, the first thing that comes to mind is the effect the assignment of claims will have on settlements. It seems like a client who is in financial need, or who may not have a very strong case, may use the assignment of a legal malpractice claim as a bargaining chip in settlements. An adversary who has knowledge of this may offer a better settlement to negotiate for the assignment of the clients legal malpractice claim of his attorney in return.
This strikes me as a major policy concern. The attorney client relationship, something which the justice system holds as very valuable, should not be something which can now be used as a bartering tool. Allowing the assignment of a legal malpractice action allows one to use the attorney client relationship, and negotiate and hand it off to another whenever one wants to make extra money.