Opinion ID: 1908036
Heading Depth: 2
Heading Rank: 1

Heading: Attorney's Liability For Negligently Recommending Settlement

Text: Prande v. Bell arose out of the settlement of two motor vehicle tort claims. In April, 1984, Ms. Prande was involved in an accident with Susan Spillman. Claiming that the accident was entirely Spillman's fault and that she sustained permanent injuries as a result, Prande retained Bell and his firm to file a claim against Spillman. [3] Five months later, in September, 1988, Ms. Prande was involved in another accident, this time with Lance Wishart. Contending that the accident was Wishart's fault and that it exacerbated the injuries she had sustained in the Spillman collision, she employed Bell and his firm to file a claim against Wishart. Eventually, suits were filed against Spillman and Wishart. The Spillman case was the first to be scheduled for trial. Prior to the September, 1990 trial date, upon Bell's recommendation, Prande settled that case for $7,500. In March, 1992, again upon Bell's recommendation, Prande agreed to settle the Wishart suit for $3,000. When she later reneged on the Wishart agreement, the settlement was enforced, and Prande then sued Bell for malpractice for having recommended the two settlements. The Circuit Court granted summary judgment to the defendants on the ground of non-mutual collateral estoppelthat, by agreeing to the settlements with the tort defendants, she was precluded from relitigating those claims against her attorneys. The Court of Special Appeals concluded that a release signed in the underlying tort action did not preclude a lawsuit against the attorney for having negligently recommended the settlement if the question of the attorney's negligence was not decided in the tort action. It held that [w]hen a client sues a lawyer for malpractice resulting from the settlement of an earlier claim and the issue of the attorney's negligence was not decided in the earlier adjudication, the party claiming the malpractice has not been given a fair opportunity to be heard on the issue of the attorney's negligence. Prande, 105 Md.App. at 652, 660 A.2d at 1063. As a matter of public policy, the court continued, [i]t would be patently unfair to allow attorneys who may have committed malpractice in handling a case to turn around and rely on a defense that effectively says that, because the client knowingly settled his or her case, the issue of whether the attorney was negligent was also settled. Id. at 654, 660 A.2d at 1064. Mindful, however, of the fact that, unlike other failings that have been held to constitute malpracticemissing a statute of limitations, failure to do adequate research and preparation, missing a deed, mortgage, or judgment in searching a title, for examplerecommendations as to settlement involve judgment calls, for which there are no bright lines, the court concluded that there was a range for honest differences of opinion in making settlement recommendations, and that, accordingly, [a] recommendation to settle or not to settle on particular terms is not malpractice simply because another lawyer, or even many other lawyers, would not have made the same recommendation under the alleged circumstances. Id. at 656, 660 A.2d at 1065. In line with that view, the court adopted the heightened standard for judging malpractice in this context that we previously mentioned: there is no malpractice unless the attorney's recommendation in regard to settlement was one that no reasonable attorney, having undertaken a reasonable investigation into the facts and law as would be appropriate under the circumstances, and with knowledge of the same facts, would have made. Id. Prande v. Bell is not a unique case. More than a dozen States have dealt with the question of whether, and under what circumstances, a client who settles a dispute on terms that the client later determines were unreasonably disadvantageous, may sue his or her lawyer for having negligently recommended the settlement. The great majority of those States have reached conclusions consistent with those reached in Prande v. Bell , except that they have applied general, not heightened, negligence standards in doing so. The cases present a number of issues. One, which predominated the discussion in Prande v. Bell , is whether non-mutual collateral estoppel bars a client who has settled an underlying dispute from later suing his or her attorney for advice given in connection with the settlementwhether the giving of a release and the acceptance of the settlement proceeds precludes the client from later litigating the fairness or value of the settlement in an action against the lawyer. Nearly all courts in which that defense has been raised have rejected it, for much the same reason it was rejected in Prande. The malpractice suit does not constitute a collateral attack on the settlement itself (or any judgment entered pursuant to it), which remain unaffected by a verdict for or against the attorney. The issue in the second case is the attorney's negligence, which, ordinarily, was neither raised nor resolved in the action that was settled. Even courts that disagree sharply on whether, as a matter of public policy, a malpractice suit should lie for negligence in recommending a settlement agree that collateral estoppel is no bar to such an action. See Muhammad v. Strassburger, et al., 526 Pa. 541, 587 A.2d 1346 (1991); Ziegelheim v. Apollo, 128 N.J. 250, 607 A.2d 1298 (1992); Baldridge v. Lacks, 883 S.W.2d 947 (Mo.App.1994); Cook v. Connolly, 366 N.W.2d 287 (Minn.1985). A second, more substantive, issue arises from the premise, recognized in Prande, that a recommendation as to settlement of a dispute in, or susceptible to, litigation is a subjective judgment call and posits whether a lawyer should later be called to account for the exercise of that judgment. This issue embodies the concern that the allowance of such an action for negligently recommending a settlement may have the undesirable effect of chilling settlements, prolonging litigation, and encouraging frivolous malpractice suits by former clients who settle their dispute and later decide that the settlement was, in some way, unfair. Defendants have urged that lawyers will become reluctant to negotiate and recommend settlements, which the law encourages and the judicial system depends upon, if they face the prospect of later being sued for having made the recommendation. As we shall see, the great majority of courts, though acknowledging those concerns, have not allowed them to override the application of well-established principles of tort law. Like the Court of Special Appeals in Prande v. Bell , they have treated the negotiation and recommendation of settlements much the same as other legal work done by an attorney and have concluded that a lawyer may be held liable, at least under some circumstances, if the recommendation is the product of professional negligence and the client can prove harm. These kinds of cases have tended to fall into two categories, although they sometimes contain features of both. One category involves situations in which the client claims that he or she was given little choice but to settle on disadvantageous terms because the lawyer failed in some other respect to prepare or prosecute the case properly, thereby diminishing the prospect of success if the litigation continued. The gravamen of the action in those situations is not so much that the lawyer negligently recommended a settlement that was unreasonably low, but that what otherwise would be an unreasonably low settlement was essentially forced on the client because of other deficiencies by the lawyer. If the client was aware of those deficiencies prior to settling, the settlement itself, given the circumstances then faced by the client, may not have been unreasonable at all, and, indeed, may have been entirely prudent. The question still is raised of whether, by agreeing to the settlement, the client should be barred from litigating its fairness in a suit against the lawyer, and the answer appears to be no. See, for example, Fishman v. Brooks, 396 Mass. 643, 487 N.E.2d 1377 (1986); Cohen v. Lipsig, 92 A.D.2d 536, 459 N.Y.S.2d 98 (1983); Schaefer v. Manfredi, 156 A.D.2d 552, 549 N.Y.S.2d 59 (1989); Lowman v. Karp, 190 Mich.App. 448, 476 N.W.2d 428 (1991); Brooks v. Brennan, 255 Ill.App.3d 260, 193 Ill.Dec. 67, 625 N.E.2d 1188 (1994). See also Central Cab Co. v. Clarke, 259 Md. 542, 270 A.2d 662 (1970), where we held that a malpractice action against an attorney based on neglect was not barred by the fact that the client had settled the underlying case. Cases in the second category focus more on the settlement itself, although they are often grounded, to some extent, on the attorney's failure to know the relevant facts or law or to appreciate the real value of the case. A common complaint in this category is that the lawyer's settlement recommendation was flawed because, as the result of a deficient investigation, the lawyer significantly undervalued the client's case and thus made a settlement recommendation that bore no reasonable relationship to what likely would have resulted had the litigation been pursued. In that setting, it is not that the client was knowingly forced to settle for less than the case was worth, as much as the client having been misinformed as to what the case was, in fact, worth. [4] Occasionally, the complaint is made that the settlement was recommended by the lawyer in order to cover up some other act of malpractice that prejudiced the case and that might have been revealed if the litigation proceeded. In any of these situations, allowance of the lawsuit presents a number of subsidiary issues with which courts have had to wrestle. There may be a question of limitations, although not presented here with respect to Marsharina. There is nearly always a question of the measure of damages, and with it debates over the standards to be applied and the nature of the proof required. Assuming liability, is the measure of damages what the plaintiff likely would have obtained had the case proceeded to trial or other adjudication, or is it what a reasonable settlement would have been (assuming that the case could have been settled on terms other than it was), and, in either event, are such damages reasonably calculable or are they too speculative? If they are calculable, who makes the calculation, and upon what evidence? If the measure is what a reasonable settlement would have been, is expert testimony necessary to establish that amount? If the measure is what a judge or jury would have done had the case proceeded to adjudication, is expert testimony necessary to establish that result or does the trier of fact in the malpractice case make that determination by essentially trying a case within a case? These, and other, questions are daunting, but they have not proved insurmountable. A few courts have declined to permit an action against an attorney based on negligence in recommending a settlement. The case most often cited for that approach is the decision of the Pennsylvania Supreme Court in Muhammad v. Strassburger, et al., supra, 526 Pa. 541, 587 A.2d 1346. The plaintiffs there employed the defendant law firm to represent them in a medical malpractice action against two physicians and a hospital allegedly responsible for the death of their infant son following surgery. Suit was filed against the doctors and the hospital. Following discovery, the defendants offered $23,000 in settlement, which the plaintiffs said they would accept. At a pre-trial conference, that amount was increased to $26,500 at the court's suggestion. Prior to actual payment, the plaintiffs changed their mind, but the court, finding that the $26,500 had been agreed to, upheld the settlement. After an unsuccessful appeal, the plaintiffs sued their lawyers for fraudulent misrepresentation, fraudulent concealment, non-disclosure, breach of contract, negligence, and outrageous conduct. The court's opinion does not reveal the details of any of those counts. The trial court dismissed the action as barred by collateral estoppel. The intermediate appellate court reversed that determination. The Pennsylvania Supreme Court agreed that the action was not barred by collateral estoppel, but refused to countenance it on public policy grounds. Concerned that permitting such an action would violate our strong and historical public policy of encouraging settlements ( id. at 1349), the court declared that a lawyer could not be held liable for simple negligence in recommending a settlement, but that liability could attach only if the settlement was procured by fraud: Simply stated, we will not permit a suit to be filed by a dissatisfied plaintiff against his attorney following a settlement to which that 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. Id. at 1348. The court appeared to limit the right of action, even when based on fraud, to where the lawyer knowingly commits malpractice, but does not disclose the error and convinces the client to settle so as to avoid the discovery of such error.... Id. at 1351 (emphasis added). Although the plaintiffs in Muhammad had, indeed, charged the lawyers with fraudulent concealment, the court held that the allegations were mere suppositions and otherwise insufficient to state a cause of action. The two dissenters complained that the majority had just declared a lawyer's holiday. The Muhammad decision represents a distinct minority view. It is not only inconsistent with most of the cases decided prior to its rendition, none of which are even mentioned in the opinion, but it has been expressly rejected by all of the courts that have had the benefit of considering it. Perhaps the earliest repudiation came from the New Jersey Supreme Court in Ziegelheim v. Apollo, supra, 128 N.J. 250, 607 A.2d 1298. The plaintiff there sued the lawyer who had represented her in her divorce action for advising her to settle for far less than she likely would have obtained from the court. Evidence showed that the lawyer not only failed to discover significant assets of the plaintiff's husband but advised her that she could expect to get only 10% to 20% of the marital estate when, given the state of her health, the gross disparity in earning capacities, and the high standard of living the couple enjoyed during their marriage, she could have expected an award of about 50%. The trial court entered summary judgment for the lawyer, which the New Jersey Supreme Court reversed. Rejecting the Pennsylvania approach, urged by the defendant, the court noted, at 1304: Although we encourage settlements, we recognize that litigants rely heavily on the professional advice of counsel when they decide whether to accept or reject offers of settlement, and we insist that the lawyers of our state advise clients with respect to settlements with the same skill, knowledge, and diligence with which they pursue all other legal tasks. In that regard, the court added that [a]fter all, the negotiation of settlements is one of the most basic and most frequently undertaken tasks that lawyers perform. Id. The court did not expect its decision to open the door to malpractice suits by any and every dissatisfied party to a settlement for plaintiffs must allege particular facts in support of their claims of attorney incompetence and may not litigate complaints containing mere generalized assertions of malpractice. Id. at 1306. It made clear that attorneys will not be held liable simply because they are unable to persuade their adversary to accept particular terms or because their strategies prove unsuccessful. The law, it said, demands only that attorneys handle their cases with knowledge, skill, and diligence, not that they be infallible or always secure optimum results for their clients. In Grayson v. Wofsey, Rosen, Kweskin and Kuriansky, 231 Conn. 168, 646 A.2d 195 (1994), the Connecticut Supreme Court also rejected Muhammad. As in Ziegelheim, the plaintiff in Grayson sued the attorneys who had represented her in her divorce action for failing to prepare her case properly, as a result of which she agreed to a settlement that she claimed was not reflective of her legal entitlement. Evidence was presented that the lawyers had failed to discover and evaluate significant assets and income of the husband and that, based on the true value of the marital estate and the husband's actual income, she could have expected to receive through a court judgment $1,000,000 more in property distribution and $35,000 more in alimony than she was entitled to receive under the settlement recommended by the lawyers. In her subsequent malpractice action, the jury awarded damages of $1,500,000, which the Connecticut Supreme Court affirmed. Though expressing the same preference for settlements as the Pennsylvania court, the Connecticut court declined the defendants' invitation to adopt a rule that promotes the finality of settlements and judgments at the expense of a client who, in reasonable reliance on the advice of his or her attorney, agrees to a settlement only to discover that the attorney had failed to exercise the degree of skill and learning required of attorneys in the circumstances. Id. at 199. Aligning itself with what it regarded as the majority of courts that have addressed this issue, it expressly declined to adopt a rule that insulates attorneys from exposure to malpractice claims arising from their negligence in settled cases if the attorney's conduct has damaged the client. Id. Like the New Jersey court, the Connecticut court did not expect its ruling to impede settlements or increase litigation in general or malpractice cases in particular. Rejection of Muhammad also appears in McWhirt v. Heavey, 250 Neb. 536, 550 N.W.2d 327 (1996); Malfabon v. Garcia, 111 Nev. 793, 898 P.2d 107 (1995); and Baldridge v. Lacks, supra, 883 S.W.2d 947 (Mo.App.1994). The Missouri court was the most explicit: Defendants ask this court to adopt the Pennsylvania view as set forth in Muhammad. The language in that case, however, goes well beyond the proposition that settled cases should not be readily revisited. In essence, defendants ask us to grant attorneys immunity from civil liability in cases where their clients have settled, absent some affirmative misrepresentation or fraud by the attorney. We do not believe it would serve the interests of justice to do so. Accordingly, we refuse to adopt a `bright line' rule that protects attorneys from liability where a plaintiff has made a submissible case of negligence. Baldridge, 883 S.W.2d at 952. The principle that a lawyer may be held liable for negligence in the handling of a case that was ultimately settled by the client, whether based on deficiencies in preparation that prejudiced the case and more or less required a settlement or on a negligent evaluation of the client's case, has been accepted by nearly every court that has faced the issue. In addition to the cases cited above, see Edmondson v. Dressman, 469 So.2d 571 (Ala.1985); Callahan v. Clark, 321 Ark. 376, 901 S.W.2d 842 (1995); Bill Branch Chev. v. Philip L. Burnett, 555 So.2d 455 (Fla.Dist.Ct.App.1990); McCarthy v. Pedersen & Houpt, 250 Ill.App.3d 166, 190 Ill.Dec. 228, 621 N.E.2d 97 (1993); Braud v. New England Ins. Co., 534 So.2d 13 (La.Ct.App.1988); Fishman v. Brooks, supra, 396 Mass. 643, 487 N.E.2d 1377 (1986); Lowman v. Karp, supra, 190 Mich.App. 448, 476 N.W.2d 428; Cook v. Connolly, 366 N.W.2d 287 (Minn.1985); Bruning v. Law Offices of Palagi, P.C., 250 Neb. 677, 551 N.W.2d 266 (1996); Malfabon v. Garcia, supra, 111 Nev. 793, 898 P.2d 107; Rodriguez v. Horton, 95 N.M. 356, 622 P.2d 261 (App.1980); Becker v. Julien, Blitz & Schlesinger, 95 Misc.2d 64, 406 N.Y.S.2d 412 (Sup.1977); [5] DePugh v. Sladoje, 111 Ohio App.3d 675, 676 N.E.2d 1231, 1239 (1996); Crowley v. Harvey & Battey, 327 S.C. 68, 488 S.E.2d 334 (1997); Helmbrecht v. St. Paul Ins. Co., 122 Wis.2d 94, 362 N.W.2d 118 (1985); Hipwell By and Through Jensen v. Sharp, 858 P.2d 987 (Utah 1993). In Flaherty v. Weinberg, 303 Md. 116, 128, 492 A.2d 618, 624 (1985), we confirmed that a former client may have an action against a lawyer if the client can prove (1) the attorney's employment, (2) the attorney's neglect of a reasonable duty, and (3) loss to the client proximately caused by that neglect of duty. There is nothing extraordinary about applying that principle to an attorney's recommendation regarding the settlement of a dispute in, or susceptible to, litigation. Absent an explicit instruction by the client to the contrary, exploring, and, indeed, developing and encouraging settlement opportunities have always been regarded as within the scope of an attorney's representation, and they are especially so today, as the courts struggle to handle efficiently the increasing burdens placed upon them. Statistics show that the vast majorityupwards of 90% or moreof the civil actions filed in Maryland and throughout the country settle without adjudication. Settlement is the most common end and is often the principal objective of litigation. There can be little doubt that clients routinely anticipate that their cases will be settled and that they rely heavily on their lawyer's recommendation regarding settlement, expecting that the lawyer has a sufficient understanding of the relevant facts, law, and prospects to make an intelligent recommendation. We therefore join the chorus of States that have rejected Muhammad. We share the concern expressed by the Court of Special Appeals in Prande v. Bell that lawyers not be regarded as negligent simply because another lawyer, or even most lawyers, with the benefit of hindsight, would not have made the recommendation at issue. We also share that court's observation that the factors that the lawyer must consider in developing a settlement recommendation, as well as the recommendation itself, are mostly subjective in nature, and that there can legitimately exist a range for honest differences of opinion in making settlement recommendations. Id. at 656, 660 A.2d at 1065. Nonetheless, we see no reason to adopt any heightened standard of negligence. Lawyers, like doctors and other professionals, are often called upon to make judgment calls with which their colleagues may disagree. Those calls, if challenged, can be examined in the light of the traditional standard applicable to professional negligence actions. That is the standard applied by courts in other States, and we are aware of no indication that its application has caused any significant problem. The standard in Maryland is that announced in Cochrane v. Little, 71 Md. 323, 332, 18 A. 698, 701 (1889), and confirmed in Kendall v. Rogers, 181 Md. 606, 611, 31 A.2d 312, 314 (1943): [E]very client employing an attorney has a right to the exercise, on the part of the attorney, of ordinary care and diligence in the execution of the business intrusted to him, and to a fair average degree of professional skill and knowledge; and if the attorney has not as much of these qualities as he ought to possess, and which, by holding himself out for employment he impliedly represents himself as possessing, or if, having them, he has neglected to employ them, the law makes him responsible for the loss or damage which has accrued to his client from their deficiency or failure of application.