Legal Malpractice after the Client “Settles” the Case?

Two parties settle a long running dispute, then one become disenchanted, can that party sue her attorney for negligence in “forcing” a settlement. There are all sorts of ramifications, both for the clients and their attorneys. Here’s one case.

In 2005, Joseph and Teresa Guidos settled a shareholder dispute with Allstates WorldCarger Inc. Two years later, the Guidos filed a malpractice suit against their attorneys from the settlement alleging that Joseph Guido was ‘stripped’ of his majority shareholder as a result of ineffective representation. The New Jersey Supreme Court decided a client can sue for malpractice if ‘particular facts’ serve as evidence of as attorney incompetence even in light of the fact that the client might have originally accepted the settlement. Does that make sense?

Dismissed on summary judgment, but reversed on appeal, the appellate court found that genuine issue of material fact as to whether the clients would have taken the settlement, whether the attorneys reasonably explained the significant details, and whether the clients understood the ramifications of the settlement before it became final. The attorneys argued that the “malpractice claim” was based on ‘hindsight bias’ or ‘buyer’s remorse” because the clients simply wish they had acted differently.

The consequences of the New Jersey ruling are immense for both attorneys and clients because of the potential that making the attorney liable in this type of situation pits the attorney against the client, having an adverse impact on the attorney-client relationship, and militating against the traditionally strong policy of favoring dispute resolutions and settlements.

The fact that clients have survived summary judgment suggests that lawyers will become a more attractive target for malpractice suits if they fail to detail objections or concerns – in writing – regarding a settlement before it becomes final.

Bottom line– there are important issues to consider for both clients and attorneys (and their malpractice insurers).