NJ: "Settle and Sue": One Lawyer Watches and Waits for the Supreme Court to Rule
On January 20, 2010, I argued amicus curiae in the New Jersey Supreme Court on behalf of Trial Attorneys of New Jersey (“TANJ”) in the matter of Guido v. Duane Morris, A-31-09. The central issue is this: Under what circumstances should clients be permitted to “settle and sue” their lawyer for legal malpractice after voluntarily entering into the settlement. As a decision has not yet been rendered, this post is limited to some of the issues raised by the Court at argument. It seems clear though from the Justices’ questions that a clarification of the relevant principals of law may soon be coming. Puder v. Buechel, 183 N.J. 428 (2005) would seem to have largely foreclosed many such suits. But subsequent Appellate Division decisions suggest that Puder's scope is not so sweeping.
At the outset, the Court pressed counsel for the law firm--Duane Morris, to define the relief being sought for attorneys who find themselves defending malpractice claims arising out of advice they gave in connection with a settlement. More than one Justice asked if the law firm was urging the Court to find that an attorney can never be sued for malpractice if his or her client knowingly and voluntarily enters into a settlement agreement. Counsel responded no, but argued that if a settlement was placed on the record, before a legal malpractice claim is brought, the prospective plaintiff should have to return to the trial court to seek to vacate the settlement.
Questions from the Court suggested concern about the impact on the other party to a settlement. Counsel appearing amicus curiae was asked directly what impact a pre-condition requiring litigants to challenge the underlying settlement would have on the other party to the settlement. Several Justices questioned whether such a requirement would be futile in most instances.
One Justice suggested that the decision in Puder which dismissed a legal malpractice claim arising out of a settlement, could be an exception to the holding of Ziegelheim v. Apollo, 128 N.J. 250 (1992), allowing such a legal malpractice to go forward.
Since the Puder decision, there has been much debate about the effect of a settlement on a subsequent legal malpractice claim. Given the questions from the Court though, it seems that clarification will be forthcoming.
As one of the lawyers who had the privilege to argue before the Court, I now watch and wait for the decision. What effect that decision will have on “settle and sue” legal malpractice cases will most certainly be a topic for a separate post. Stay tuned.
If the central issue of the case is "under what circumstances should clients be permitted to 'settle and sue' their lawyer for legal malpractice after voluntarily entering into the settlement,then you must agree that the starting point in the analysis is whether or not the client "voluntarily enter[ed] into the settlement," right?
I understand that in this case it's alleged that:
1. The proposed settlement had aspects of it that a layperson would not be expected to understand.
2. The attorneys did not explain the proposed settlement or its consequences adequately to the client, in violation of their duty of care.
3. When asked if he understood the settlement and agreed to it, the client reasonably and justifiably based his "understanding" and "agreement" upon what his attorneys explained to him.
4. The client later found out that the settlement has extreme consequences that he, as a layperson, could not have been expected to recognize, but that his lawyers should have recognized and explained to him, but failed to.
5. If the lawyers had properly explained the settlement and its consequences to him, the client would have truly understood it, and would not have agreed to it.
How, under these circumstances, can you conclude that the client "voluntarily entered into the settlement"?
As for requiring the client first to try to overturn the settlement before being permitted to sue the attorney for malpractice, I watched the webcast of the oral argument before the Supreme Court. Don't you agree with Justice Albin's observation that the only possible argument that could have been presented to the court would have been "I didn't understand the settlement because my attorneys did not explain it to me"? Don't you agree with Justice Albin's and Justice Long's observation that the trial court's only reasonable response to that argument would have been "Your attorneys' malpractice is no ground to set aside a settlement. You have your remedy: Sue your lawyer"?
According to the court papers, the client went in as the majority shareholder of a public company, seeking simply to expand the size of the board of directors from four to seven, and to appoint three persons to the newly-created seats. But (say the court papers) he left as a party to a settlement that required him to fill the newly-created seats with judicially-appointed members, deprived him of the ability to ever change the composition of the board, deprived him of the ability to amend the certificate of incorporation or the bylaws, and imposed restrictions on the voting of and transfer of his stock that effectively rendered that stock worthless and unsalable. From the allegations of the complaint, it appears that the client was reduced from someone who wielded the right to vote the majority of the corporation's shares and govern the corporation to someone with the right to only one vote on a board of seven--because his lawyers did not adequately explain to him the consequences of the settlement agreement.
I don't know what actually happened between client and attorney, and base my observations only upon what can be gleaned from the papers filed in the present case. If my reading of the allegations is in any way mistaken, please let me know. But if TANJ is, as its website says, "dedicated to promoting the interests of the public at large [and] of the litigants involved in civil and criminal cases, did TANJ choose the right side in this particular case?