NJ: Restoring "Wholeness" to Victims of Legal Malpractice
Bailey v. Pocaro & Pocaro, 305 N.J.Super. 1, 701 A.2d 916 (App. Div.1997).
Student Contributor: Todd Feinstein
NJ: Underlying Litigation
Facts: This case found its way back to court after it was initially dismissed under the “entire controversy” doctrine which required plaintiffs to "present all claims, even those against different parties, that stem from the same transactionally related facts in one controversy before one court." A later NJ Supreme Court decision, Olds v. Donnelly,150 N.J. 424 (1997) held that the entire controversy doctrine does not compel joinder of legal malpractice claims in underlying actions.
This court was called on to address Plaintiffs argument, that they were entitled to be reimbursed for their legal expenses, which included costs and attorneys' fees incurred in pursuing the legal malpractice action against defendant, and the trial Judge erred by not including these expenses as an element of consequential damages. Plaintiffs also contend that prejudgment interest was not properly calculated.
Issues: (1) In determining damages, is it proper to include legal fees that were incurred in pursuing the legal malpractice action against the defendant?
(2) What is the correct way to peg prejudgment interest in a legal malpractice claim?
Ruling: (1) Under Saffer v. Willoughby, 143 N.J. 256 (1996), a client may recover for all losses which are proximately caused by the attorney's negligence or malpractice, including the legal fees and expenses incurred in successfully prosecuting a legal malpractice action.
The purpose of a legal malpractice claim is 'to put a plaintiff in as good a position as he or she would have been had the attorney kept his or her contract.
(2) In awarding prejudgment interest, such an award, represents payment for use of money, and in another sense is compensatory, to indemnify claimant for loss of what moneys due him would presumably have earned if payment had not been delayed.
The award of prejudgment interest in a legal malpractice action should not be limited to the tort recovery rule, but should be guided by equitable principles with the concept of making the victim whole of paramount significance.
Editor's Note: New Jersey is purported to have been the only state that recognizes the primacy of making the victim whole in legal malpractice cases, by treating legal fees and costs of the legal malpractice action as being consequential damages. The Texas Supreme Court has recently similarly so held. See our blog posts from Paul M.Koning of November 2, 2009 regarding Akin Gump v. NDR.
Texas has certainly not gone as far as New Jersey on this issue. Although a client may now recover (as damages) attorneys' fees that were proximately caused by a lawyer's malpractice, this holding does NOT extend to the recovery of attorneys' fees incurred in the legal malpractice case itself. Texas law is quite clear that a client may not recover attorney's fees incurred in the legal malpractice suit. As the Texas Supreme Court confirmed in the recent Akin Gump decision, "a party may not recover attorney's fees for the litigation in which it is involved unless recovery is authorized by statute or contract."
Before studying legal malpractice cases, I would've assumed that attorney's fees are recoverable in a successful legal malpractice suit based on my knowledge of torts. If the Plaintiff is to be made whole again, the attorney's fees should be included in the restitution. But for the attorney's negligence or breach of duty, a successful Plaintiff never would have had to spend the money in hiring an attorney to prosecute the malpractice claim. Are the courts assuming that the attorney's fees will be included in the amount the Plaintiff recovers on a contingency fee basis? Or is there another rationale in which courts/states are using to justify this denial of recovery for legal fees?
I am not so sure that awarding attorneys’ fees to successful malpractice plaintiffs is a good idea. As Mr. Koning noted, a number of jurisdictions still hold that attorneys’ fees are not recoverable unless authorized by statute or through the parties’ agreement. In fact according to the Tennessee Supreme Court, most jurisdictions adhere to this “well-established American rule.” John Kohl & Co. P.C. v. Dearborn & Ewing, 977 S.W. 2d 528 (Tenn. 1998). That court emphasized the fact that awarding such damages is against public policy. Why should there be an exception for plaintiffs in legal malpractice cases?
On the other hand, perhaps a negligent attorney should be responsible for the malpractice plaintiff’s legal fees, because he failed to live up to the high standard of a fiduciary. The plaintiff had relied on his attorney to faithfully represent him, and instead, the attorney fails his client and causes him to lose what he was entitled to. Is this breach of trust not a reason to hold the attorney accountable for completely restoring the plaintiff to his former position?
I believe that attorney's fees should certainly be recoverable in a legal malpractice action. It seems more than plausible to believe that the best remedy available for a plaintiff in a legal malpractice action would be legal fees as part of damages the plaintiff is normally entitled to. It seems odd to allow an attorney who has lost in a legal malpractice action to keep his legal fees even though the court has held that he breached his duty and was negligent in his responsibilities to his client.
I agree with the New Jersey ruling here. Attorneys fees in the malpractice suit should be recoverable damages in the interest of making the plaintiff whole. Malpractice cases are perhaps the most proper cases for the courts to import the English Rule into American courts.
However, in the interest of full disclosure, I am firm believer in the justness of the English Rule as compared to the American Rule. Consequently, I would not limit the application of the English Rule to where the Plaintiff prevailed, but would also require the Plaintiff to pay the Defendant attorney's fees in the malpractice suit if the Plaintiff lost the suit.
At first glance, allowing clients to recover both attorney's fees on top of other damages seems to be double-dipping. Allowing such recovery under a theory of making a client whole is to allege that a client shouldn't have paid for legal services, and should recover for damages as a result of an attorney's services for which they did not pay. This is illogical.
Why should a client be able to have it both ways? Either the services they received were negligent, or they did not receive services at all. If an attorney is to pay damages for work they performed, then the attorney still would have performed services for which they should be paid.
If the point of a malpractice suit is to put the client in the same place as they would have been if the attorney had satisfied their contract for services, then the attorney would have been paid for the services. It follows that attorney's fees should not be recoverable.
However, the argument for recovery of attorney's fees would have more merit if they were used to offset the cost of retaining an attorney to bring the malpractice suit.
The traditional rule of American law is that attorney’s fees are not recoverable. What are the policy reasons why it should be different for Plaintiffs in New Jersey pursuing a legal malpractice claims? Could it be because of the unique relationship of trust that is shared between attorney and client, an attorney who breaks that trust should be required to pay more and a client that is injured by that attorney entitled to receive more?
On second thought, I agree with Mr. Hess on his second point of "The argument for recovery of attorney's fees would have more merit if they were used to offset the cost of retaining an attorney to bring the malpractice suit." I think it is ridiculous to have a plaintiff in a malpractice action pay for a second attorney just to bring a suit against the first attorney for their error. Not allowing one to recover attorney fees in a legal malpractice action would deter an abundance of clients who do not have the financial means to do so from bringing legal malpractice actions against a negligent attorney due to financial reasons.
I believe that attorney's fees should be recoverable when the fees stemmed from the attorney's negligence. I don't see it as double-dipping. If the attorney's negligence rises to the level of legal malpractice, then I don't have a problem with them not being paid for their work. The client relies on his or her attorney and expects that they will live up to a certain professional standard of conduct. If the the attorney fails to do so and is therefore not compensated for his or her work, I think that is a just result.
While I fully agree with Ms. Shuster's sentiment, under a strict reading of the court's reasoning in the case, the purpose is "to put a plaintiff in as good a position as he or she would have been had the attorney kept his or her contract." Quantum meruit aside, if the attorney had kept his or her contract, then they would have been paid for their services.
In the end, unless the attorney's fees outweigh the damages sustained by the client (which is relatively unlikely), the attorney still ends up losing more than they would otherwise gain. In a purely judicial sense, why would we give the client both the sum they would have obtained but-for the malpractice AND the attorneys fees they paid.
This is a very dangerous precedent for we future attorneys, as this creates quite the incentive for clients who have hefty attorneys fees. If you don't want to pay, and think you can prove negligence, why not file a malpractice suit? Let's face it, incentive to sue in an already litigious society (where malpractice suits are on the rise) is certainly not what justice ordered. This is not to assert that negligent attorneys should be protected, but merely as the other side of the coin.
However, as Ms. Shuster so aptly stated, if you are negligent, perhaps this is a just result.
To clarify the context of the ensuing discussion, I want to point out that the debate regarding the recovery of attorney fees in an underlying case where the attorney malpracticed centers around the holding in Saffer v. Willoughby, 143 N.J. 256 (1996), which was restated in Bailey v. Pocaro & Pocaro.
The Court in Saffer states, "Ordinarily, an attorney may not collect attorney's fees for services negligently performed."
Bailey, using the NJ Supreme Court's holding in Saffer, emphasized in relevant part that, "unless the negligent attorney's fee is determined to be part of the damages recoverable by a plaintiff, the plaintiff would incur the legal fees and expenses associated with prosecuting the legal malpractice suit."
Finally, Bailey also discusses Saffer's relation to another case on the same point, Strauss v. Fost, 213 N.J. Super. 239, 517 A.2d 143 (App.Div.1986). The Court in Bailey reasoned that, "the Court in Saffer went beyond Strauss, stating: 'In addition, a negligent attorney is responsible for the reasonable legal expenses and attorney fees incurred by a former client in prosecuting a legal malpractice action.' Saffer, therefore, added to Strauss by holding the negligent attorney responsible for fees and costs incurred in the malpractice action."
This is the foundation of the debate.
I believe that it would be against public policy to not award legal fees stemming from litigation against an attorney for malpractice. It would force some people to not pursue litigation due to the financial difficulty of having to pay for the litigation themselves. If our goals are to protect people from being harmed by attorneys negligence, then we must assist them in being able to bring a suit if they have a valid claim. On the other hand, this might cause a slippery slope of bringing claims that are not necessarily good claims, under the theory that if the plaintiff wins then their attorney fees will be paid for them.
I agree with Mr. Hess. I think this is opening a "Pandora's box" in the area of damages in legal malpractice. I also feel this may burden the court as after the initial action is completed, a client unsatisfied with his bill may file a suit with the knowledge they may be awarded fees in hope that the attorney/insurer may settle with them by decreasing the bill.
I haven't looked at in the perspective just raised by Mr. Hess and Mr. Lieberman, "A client unsatisfied with his bill may file a suit with the knowledge they may be awarded fees in hope that the attorney/insurer may settle with them by decreasing the bill."
This seems like it would be a bargaining chip for greedy or unhappy clients. As opposed to it being a bargaining chip and point of negotiation for greedy or unhappy clients, it should just be a remedy or form of relief for injured clients. However, this will be a fine line to draw, and creating a bright line rule is not going to promote justice because of this bargaining issue.
I can see the argument for both sides. Instinctively I feel as if a client should be able to recover attorney's fees stemming against the attorney in a legal malpractice action because it just seems like the attorney's negligence caused them to incur these costs. However, I also see the argument that this is completely revolutionary and goes against the American Rule against attorney's fees which has been in place for decades. In class today, the question was raised, isn't NJ just getting rid of the American Rule by allowing clients to recover attorney's fees in a legal malpractice claim? and if so what makes the legal profession different than any other profession, making only an attorney liable for attorney's fees? When it is stated in this light, I can see how the NJ rule seems wrong. In a medical malpractice case where a doctor is negligent, we don't make the doctor pay for legal fees incurred based on his negligence. So what makes the legal profession different?
I totally agree with this. As I said in class, I believe that part of making the client whole is to put them in the position they would have been in if they received compentent representation. That means that they would not have to pay an attorney to sue for malpractice. That being said, the only person it makes sense to receive legal fees from the person who is responsible for the suit - the malpracticing attorney. Especially since the second attorneys' fee could potentially preclude a wronged client from suing his former attorney because the size of a potential judgment could make suing a worthless proposition. Clients should never be without recourse when they sustain damages as a result of relying on attorneys' services.
My feelings on this ruling are torn. On the one end it seems only fair to allow clients to recover legal fees for the malpractice suit. However, on the other, what makes a legal malpractice suit different from any other as it relates to the recovery of legal fees? The established rule does not allow for such recovery so I don't find it fair to make an exception for lawyers. But, I wouldn't disagree with a new rule that allowed for recovery of legal fees in other suits such as medical malpractice claims.
Overall, I don't disagree with the idea of compensating a client for legal fees for a malpractice suit, I simply disagree with the fact that the law seems to make an exception for the legal profession.