Aggressive Advocates For Your Rights

Monthly Column - Does Settlement Preclude Legal Malpractice?

Instinctively, it has generally been wide-felt that settlement of an action cures all.  Certainly, courts promote settlement (especially nowadays, towards the ever-declining percentage of cases tried).  Likewise, case law generally renders settlements - even verbally agreed - as difficult to undo.  In fact, one of the critiques of the American legal system is its insistence on and repercussions of finality (as evident when comparing our appellate process with that of Italy's, as seen in the Amanda Knox trial - e.g., Italy effectively allowing an appellate re-examination of contested evidence with apparently the opportunity to introduce new evidence).

These sentiments were no less concretized then in Muhammad v. Strassburger, et al., 587 A.2d 1346 (Pa. 1991).

On November 7, 1977, Pamela and Abdullah Muhammad had a son, Nazir.  As a result of Nazir's circumcision failing to remove his entire foreskin, a second circumcision was scheduled. During the surgery, Nazir suffered pulmonary edema as a result of the general anesthesia.  He died three (3) days later.

Initially retaining one counsel, they then retained (at the suggestion of their initial attorney) subsequent, unrelated counsel. Subsequent counsel assumed control of the case and filed a medical malpractice lawsuit.

After depositions, a pre-trial conference was held whereat (upon the suggestion of the court) the Muhammads accepted $26,500.00 in settlement.

Thereafter, the Muhammads became dissatisfied with the amount of the settlement prompting there defendants to move to enforce the settlement.  After evidentiary hearing, the court upheld the settlement.  Upon appeal of the settlement enforcement order, the Superior Court affirmed.

The Muhammads then filed against their medical malpractice counsel in legal malpractice.  On preliminary objections, the trial court dismissed that legal malpractice action holding the settlement decision in the medical malpractice case collaterally estopping the legal malpractice case.

On appeal of the preliminary objections, the Superior Court reversed holding that collateral estoppel did not bar the legal malpractice claim.

The Supreme Court held the Superior Court's reasoning as correct: collateral estoppel is not applicable - the issues involving the settlement (i.e., acceptance) are not intertwined with the legal malpractice (i.e., negligence).  However, in an unusual turn, the Supreme Court furthered its inquiry: dismissing the legal malpractice action, holding

...we will not permit a suit to be filed by a dissatisfied plaintiff against his attorney following a settlement to which the plaintiff agreed, unless that plaintiff can show he was fraudulently induced to settle the original action.  An action should not lie against an attorney for malpractice based on negligence and/or contract principles when that client has agreed to a settlement.  Rather, only cases of fraud should be actionable.

The Supreme Court reasoned that to allow the legal malpractice action would "...create chaos in our civil litigation system" and discourage settlements while de facto increasing legal malpractice actions contrary to long-standing principles encouraging settlement.

A fraudulently (as opposed to negligently) induced settlement is an exception to this Muhammad doctrine. When an attorney "knowingly commits malpractice, but does not disclose the error and convinces the client to settle so as to avoid the discovery of such error, then the client's agreement was fraudulently obtained."  Thus, a legal malpractice action would be allowed to proceed only under a theory of fraud.

In dissent, Justice Larsen opined (in which Justice Zappala joined) that "the majority has just declared a 'LAWYER'S HOLIDAY'...it's Christmastime for Pennsylvania lawyers... If a lawyer is negligent in advising his client as to a settlement, the client pays..."

While perhaps not with the same spirit (no pun intended) of the dissent, this author nonetheless agrees.  In fact, every other court considering (including Federal, New Jersey, Maryland, Texas and Illinois), as well as the Superior Court and Supreme Court itself, has either rejected, disagreed, declined to follow, declined to extend, limited, distinguished or otherwise attempted to, but in fact not nullify Muhammad.

In McMahon v. Shea, 688 A.2d 1179 (Pa. 1997), the Supreme Court revisited the Muhammad doctrine.

In 1976, Robert and Janet McMahon were married and later had three (3) children.  In 1986, the couple separated whereat husband retained counsel.  In 1987, the trial court ordered husband to pay $791.00 per week to his wife and children.  Husband appealed, and prior to argument he and wife entered into a written settlement agreement providing that half of the weekly amount was deemed child support (and the other half alimony).  The alimony and child support agreement terminated when "the youngest living child reaches the age of 21, is emancipated or finishes colleges, whichever occurs last."

Wife then filed a Complaint in divorce whereat the parties entered into a stipulation incorporating but not merging the prior agreement into the final divorce decree.  Two (2) months after the divorce decree, wife remarried.  Husband filed a petition to terminate the alimony arguing that such obligation was extinguished by the Divorce Code upon wife's remarriage.  Affirmed by the Superior Court, the trial court denied that petition holding that alimony was required until the youngest child became 21, was emancipated or finished college.

Husband then filed a Complaint against his counsel, arguing that Attorney's conduct in failing to merge the alimony agreement with the final divorce decree was negligent.

Relying on Muhammad, the legal malpractice action was terminated upon preliminary objections.  The Superior Court reversed per Muhammad.

Again, surprisingly, the Supreme Court held Muhammad "is limited to the facts of that case."  Muhammad's reasoning regards speculation as to whether a jury would return a verdict greater than an amount recovered as settlement whereas husband's legal malpractice action would not counter public policy of attempting to preclude valuation second guessing.

The laudable purpose of reducing litigation and encouraging finality would not be served by precluding the instant action.  [Husband] merely seeks redress for his attorneys' alleged negligence in failing to advise him as to the controlling law applicable to contract.

The McMahon concurring opinion explains it's distinction from Muhammad, as between "holding an attorney accountable to inform a client about the ramifications of existing law and allowing the second guessing of an attorney's professional judgment in an attempt to obtain additional monies once a settlement has been reached."

In Banks v. Jerome Taylor & Associates, 700 A.2d 1329 (Pa. Super. 1997), the Superior Court attempted to harmonize Muhammad and McMahon, holding: (1) Muhammad stands for the proposition that speculative second guessing arising from a claim of negligent diminution in value is barred (again, except for fraud); and (2) a legally deficient settlement agreement or the failure to explain the effect of a legal document is McMahon allowed.

In Red Bell Brewing Co., the (recently late) Judge Albert Sheppard (for whom this author was once clerk) reconciled Muhammad, McMahon, and Banks, by holding that the negligent failure to protect a legal malpractice plaintiff's underlying legal rights and to provide accurate material facts of which that plaintiff's decisions were made (such as, a conflict of interest) allows legal malpractice recovery.

Notwithstanding that our courts have limited an underlying action's settlement's legal malpractice effect to preclude only negligent diminution in valuation claims, as the concurring opinion in McMahon implies, Muhammad needs to be revisited by the Supreme Court with it perhaps being overruled in line with almost each and every jurisdiction likewise balancing the needs for finality with the obligation of due care vis-à-vis attorney advice.  As beginning this article, with all things being equal, it seems to this author that the balancing of those needs against clients and in favor of conclusion should tip in favor of the former.

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