Filbin v. Fitzgerald (No. A128544) that is good news regarding "settle and sue" legal malpractice actions. The court hold plaintiffs in such actions to a high standard; they must establish "but for" causation by proving a case-within-a-case. Evidence that the settlement failed to live up to the lawyer's usual standard is not enough.

The underlying case in Filbin involved an eminent domain action against the owners of 13 acres of unimproved land adjacent to the San Luis Obispo Regional Airport. The Filbins' land was widely regarded as a junkyard and an eyesore. Following several years of failed attempts at forcing the Filbins to clear their junk, San Luis Obispo County obtained an order for immediate possession of the property. The County offered the Filbins a $1.25 million purchase price. The following month, the Filbins retained Mr. Fitzgerald, a prominent and highly respected local lawyer with extensive experience in condemnation proceedings. A year later the Filbins disagreed with Mr. Fitzgerald concerning the value of the land. (Mr. Fitzgerald's appraiser valued the property at $4.5 million; his clients believed the property was worth $12 to $15 million.) The Filbins discharged Mr. Fitzgerald three weeks before trial was set to start. They hired another lawyer, obtained higher appraisals, and proceeded to trial. In the midst of trial, they settled with the County for $2.6 million.

The Filbins filed a legal malpractice suit against Mr. Fitzgerald, claiming professional negligence and breach of fiduciary duty, on the grounds that he had: 1) misstated the requirements of the eminent domain mandatory settlement rule (CCCP section 1250.410) in a letter to them, 2) misstated the same rule in court, and 3) unnecessarily met with the judge to discuss his withdrawal from the case. In analyzing causation and damages, the trial court applied the standard of proof set forth in Marshak v Ballesteros (72 Cal.App.4^th 1514) and Slovensky v. Friedman (142 Cal.App.4^th 1518), and explicitly rejected the standard set forth in Viner v. Sweet (30 Cal.4^th 1232.) The plaintiffs presented evidence that "Fitzgerald's cases typically resolved at a level between 75% and 80% of his experts' appraisal." The trial court reduced that percentage due to several factors, applied it, and concluded that, "But for the breaches of the standard of care by Fitzgerald, Plaintiffs would have settled their case for the sum of $3,174,500." Subtracting the $2.6 million settlement, the trial court granted a judgment of $574,000.

The Court of Appeals reversed, concluding that "there was no causal nexus between Fitzgerald's representation and the Filbins' subsequent decision to settle." The higher court agreed with the lower court that Mr. Fitzgerald's misstatement of California Code of Civil Procedure section 1250.410 fell below the standard of care. It also agreed that Mr. Fitzgerald could have submitted a written Substitution of Attorneys form rather than appearing on his Motion to Withdraw. However, it disagreed about the standard of proof for causation and damages, citing Orrick Herrington & Sutcliffe for the proposition that "to prevail in a legal malpractice action, simply showing the attorney erred is not enough." Rather, the plaintiff must also establish that "but for the alleged malpractice... settlement of the underlying lawsuit would have resulted in a better outcome. (Citing Viner, among other cases.)" The Filbins produced no evidence that Fitzgerald's decisions "hobbled" them at settlement. They produced no evidence that Fitzgerald's mistakes caused them to do anything to their detriment. Most importantly, the Filbins introduced no evidence that the County would have agreed to a greater settlement were it not for Fitzgerald's mistakes. "Whatever Fitzgerald may have done or failed to do, the Filbins presented no evidence showing to a legal certainty that those acts or omissions proximately caused any injury. There is certainly no basis for believing that a greater settlement was lost. (Citing Viner at 1244.)"

Many states are wrestling with how to handle "settle and sue" cases. Only one state, Pennsylvania, has adopted a flat prohibition on such suits. The other states that have considered Pennsylvania's stand have rejected it (Connecticut, Maryland, Massachusetts, Missouri, Nebraska, Nevada, and New Jersey.) The California Supreme Court apparently has accepted the existence of settlement liability despite concerns that recognition of such liability could undermine the public policy in favor of settlements.

Nevertheless, Filbin gives lawyers good reason to feel less vulnerable to such suits. Filbin reiterates that although any settlement could theoretically be challenged as inadequate, lawyers are only liable for the seller's remorse of their clients when evidence is produced that "but for" the lawyer's breach of professional duty, the settlement would certainly have been higher. This opinion also points to the possibility that the causal chain may be broken when one attorney is substituted for another. Although California allows "settle and sue" malpractice claims, it holds the plaintiffs making such claims to a high standard of proof.

For additional information, contact Marc at mzimet@jampolzimet.comor (213) 689-8500