Recovering Non-Collectible Damages

11/06/2009 | Legal Malpractice

One major issue that arises in many legal malpractice cases is whether the client can recover damages from the lawyer in a legal malpractice case if the damages were not collectible (or questionable) in the underlying case. Here is an example: Mr. Drunk Driver crashes into Mr. Innocent. Mr. Drunk Driver doesn’t have any insurance to pay for Mr. Innocent’s injuries, nor does Mr. Drunk Driver have money or assets. Mr. Innocent finds a TV advertising lawyer that promises to get him a quick settlement and keep him out of court. When Mr. Lawyer learns that Mr. Drunk Driver doesn’t have any insurance, he doesn’t do much to pursue Mr. Innocent’s case. Unfortunately, Mr. Lawyer sits on the case too long and the statute of limitations passes. It’s now too late to file a lawsuit against Mr. Drunk Driver. Mr. Innocent decides to sue Mr. Lawyer for legal malpractice. Mr. Lawyer decides to defend by arguing that Mr. Innocent’s case is worthless because Mr. Drunk Driver was uncollectible. Meaning that if Mr. Innocent couldn’t have collected from Mr. Drunk Driver (because he is poor and uninsured), then Mr. Innocent can’t collect from Mr. Lawyer (because the value of the legal malpractice case is only as good as the underlying case). The Texas Supreme Court recently stirred the pot and weighed in on these issues in AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. v. NATIONAL DEVELOPMENT AND RESEARCH CORPORATION, 2009 WL 3494978, 13 (Tex. 2009). The Texas Court first addresses the issue of recoverability. The specific question in the case was when collectability was to be determined. The malpracticing attorney argues that the determination of whether the damages were collectible should be made at the time the underlying judgment is entered, not at the time the suit is originally filed, as argued by the Plaintiff. The Court agrees with the malpracticing attorney that the determination of whether damages awarded in the underlying suit were actually collectible should be made at the time the judgment is entered. This was a blow to the Plaintiff as the entity from which the fees were to be recovered was in a much worse financial position at the time the judgement was entered than it was when the suit was originally filed. The Court also addresses the issue of the recoverability of attorney’s fees. The Court holds that fees paid to the defendant attorney in the underlying suit are recoverable stating, "We see little difference between damages measured by the amount the malpractice plaintiff would have, but did not, recover and collect in an underlying suit and damages measured by attorney’s fees it paid for representation in the underlying suit, if it was the defendants attorney’s negligence that proximately caused the fees. In both instances, the attorney’s negligence caused identifiable economic harm to the malpractice plaintiff. The better rule, and the rule we adopt, is that a malpractice plaintiff may recover damages for attorney’s fees paid in the underlying case to the extent the fees were proximately caused by the defendant attorney’s negligence." The Akin Court’s ruling on collectability and attorneys fees may have serious implications for Plaintiffs seeking to be made whole. Specifically, the effects of determining the collectability of a judgment at the time the judgment is entered rather than when the suit is filed are case and fact specific but could result in Plaintiffs recovering damages or being left holding the bag. Hans ps. Kentucky, and most other states, have not ruled on the issue of collectibility in the underlying case.