Allocation of Attorney's Fees in a Legal Malpractice Action

Posted on October 1, 2009 by Krishna Shah

Grubbs v. Knoll,
376 N.J. Super. 420, 870 A.2d 713 (App. Div. 2005)

Student Contributor:  Cheryl Neuman

NJ Underlying real estate transaction

Facts: Plaintiff was involved in a real estate transaction wherein the Defendant and his real estate agent failed to disclose evidence revealing that the real estate was situated above wetlands, which would result in building and construction limitations. Plaintiff's attorney similarly failed to bring this critical information to light.  Upon learning of these constraints, Plaintiff sued the Defendant for common law fraud, the Defendant’s real estate agent for violation of the Consumer Fraud Act ("CFA"), and his own lawyer for legal malpractice. The jury awarded the plaintiff $75,650 in compensatory damages for common law fraud, consumer fraud, and legal malpractice and allocated 60% of the liability for compensatory damages to the broker, 30% to vendors, and 10% to plaintiff’s counsel.  The trial court increased the damages under the CFA to $226,950. The plaintiff settled with the defendant for $20,000 and with the real estate agent for $500,000. The malpractice claim, however, did not settle, and plaintiff subsequently sued the allegedly negligent attorney for reimbursement of attorney's fees incurred in the malpractice action.  

Issue: Will a negligent attorney sued for malpractice be liable for the legal fees incurred by his former client in the malpractice action?  

Ruling: As a general rule, New Jersey Courts ascribe to the American Rule:  there is no fee shifting between parties irrespective of who prevails.  Legal malpractice cases, however, are an exception.  Legal fees incurred by a former client in a legal malpractice action are considered additional compensatory damages in instances where the client prevails.  The Grubbs Court found that the negligent attorney was liable for one-third of the attorney's fees and costs incurred by his former client in the malpractice action. 

Lesson: A negligent attorney is responsible for the reasonable legal expenses, costs, and attorney's fees incurred by a former client in prosecuting the legal malpractice action against the negligent attorney.

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Duties to Non-Clients

Posted on September 29, 2009 by Ben Wasserman

LaBracio Family Partnership v. 1239 Roosevelt Avenue, Inc.,
340 N.J. Super. 155, 773 A.2d 1209 (App. Div. 2001)

Student Contributor:  Cheryl Neuman

N.J. Underlying real estate transaction


Facts:  Sevdalis was represented by his attorney, Kroop in selling his diner. Zervas, the buyer, was represented by his lawyer, Abazia. There were two mortgages involved in this transaction:
1.    Zervas was supposed to assume the first mortgage to a party named LaBracio, and
2.    Sevdalis was going to take the purchase money mortgage which would be secondary to the LaBracio mortgage.
At the closing, Abazia (buyer’s lawyer) took the deed and Sevdalis’s mortgage and said he was going to record them. He didn’t record them. Subsequently, Zervas physically assaulted Abazia, and took his files, the deed, and mortgage. Abazia told Kroop that the mortgage and deed were never recorded, but Abazia was then fired and Zervas hired a new lawyer, Burger.
Burger also did not record the deed or mortgage, and he gave the documents to his client, Zervas. During this time, Zervas granted mortgages on the property to unrelated mortgagees, thereby giving these new liens priority over the Sevdalis mortgage.  Sevdalis then brought a legal malpractice suit against  Kroop (seller's attorney)  Abazia (buyer's attorneys) and Burger (seller's second attorney).


Issue : Whether Burger was negligent and if so, how should responsibility be allocated between the three lawyers?


Ruling: Burger was negligent and is therefore responsible for 25%, Abazia is responsible for 25%, and Kroop is responsible for 50% of the award. The court used the substantial factor test in determining whether Burger would be held responsible. Since his actions were a substantial factor in causing the injuries, he was indeed responsible.


Lesson: N.J. recognizes the existence of duties owed not only to an attorney’s client but also to third parties, such as  opposing counsel:

 attorneys may owe a duty of care to non-clients, when the attorneys know or should know, that non-clients will rely on the attorneys’ representations and the non-clients are not too remote from the attorneys to be entitled to protection.

LaBracio, 340 N.J. Super. 155, 163. 

The court further said that:

a duty to a non-client third party depends on balancing the attorney’s duty to represent clients vigorously, Rule of Professional Conduct, Rule 1.3 (1993) with the duty not to provide misleading information on which third parties foreseeably will rely, Rule of Professional Conduct, Rule 4.1 (1993).
 

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