Legal malpractice: Show me the damage!

On Jan. 24, our year-end recap of notable 2013 decisions affecting lawyers discussed Wise v. DLA Piper, 220 Cal. App. 4th 1180 (2013). Wise involved the reversal of a judgment in a legal malpractice case because the plaintiff had not demonstrated that the underlying judgment, purportedly lost due to attorney malpractice, was collectible. This is a prima facie element of a legal malpractice claim asserting negligence in the prosecution of a claim for damages. See Garretson v. Miller, 99 Cal. App. 4th 563 (2002).

The concept of "collectibility" applies to cases where the plaintiff contends that but for his former attorney's negligence, he would have obtained a judgment in an underlying action. An interesting question, though, is whether a converse rule should exist, i.e., should a plaintiff, formerly an underlying defendant, be required to demonstrate actual payment of some or all of an adverse judgment allegedly resulting from a former attorney's negligence. The same question could arise if an underlying plaintiff has costs or attorney fees imposed against it, but the underlying defendant never seeks to collect.

An attorney-defendant should be able to successfully argue that actual payment of an adverse judgment is a prerequisite because, without prior payment, a plaintiff could potentially recover for a judgment which has not - and perhaps never will - be paid. For instance, a defendant may be hit with a $1,000,000 judgment in an automobile accident case. Assume this defendant has no insurance and no other collectible assets. The defendant in the underlying case should not reap a windfall in a legal malpractice case by seeking to collect based on a judgment which he never will pay. See Loube v. Loube, 64 Cal. App. 4th 421 (1998) (legal malpractice plaintiff entitled only to damages necessary to make it "whole"); Filbin v. Fitzgerald, 211 Cal. App. 4th 154, 165 (2012) ("The mere breach of a professional duty, causing only nominal damages, speculative harm, or the threat of future harm - not yet realized - does not suffice to create a cause of action for negligence") (quoting Budd v. Nixen, 6 Cal. 3d 195 (1971)). Note, however, that a malpractice plaintiff may nevertheless be able to obtain other cognizable, quantifiable damages stemming from the judgment, such as damage to the plaintiff's credit, so long as such damages are not deemed to be speculative.

Although no published decision has addressed this issue, a few opinions provide some guidance on the issue. For instance, in Wolkowitz v. Redland Ins. Co., 112 Cal. App. 4th 154 (2003) (a case which Mr. Feldman handled for the defendant-attorney), the Court of Appeal held that, as a matter of law, an attorney's alleged negligence in failing to settle an underlying action could not have damaged his client, an insolvent corporation, because the corporation did not have sufficient assets to pay any judgment in excess of its insurance policy limits. Further, in Kirtland & Packard v. Superior Court, 59 Cal. App. 3d 140 (1976), the Court of Appeal held that the plaintiff could not establish compensable harm stemming from a judgment entered against him in an underlying action because the plaintiff's insurance carrier ultimately paid the entire judgment. See also Miller v. Ellis, 103 Cal. App. 4th 373 (2002) (attorney seeking indemnification for defense and settlement of legal malpractice judgment settled by his malpractice carrier could only recover amount actually expended, i.e., the attorney's deductible); Blain v. Doctor's Co., 222 Cal. App. 3d 1048 (1990) (holding that a legal malpractice plaintiff's claim that his attorney's error "exposed him to greater liability" was untenable where the plaintiff's insurer paid the entirety of a settlement in the underlying action because "[t]here is no cognizable harm attributable to the mere exposure to liability").

Neither Wolkowitz nor Kirtland & Packard are directly on point. The key in Wolkowitz was that the legal malpractice plaintiff was already insolvent and, as such, suffered no real injury from the addition of another obligation it would not be able to pay. Further, the judgment in Kirtland & Packard had been satisfied, and therefore the plaintiff faced no theoretical future collection effort. Thus, a defendant attorney may wish to analogize to an indemnity action (see Christian v. County of Los Angeles, 176 Cal. App. 3d 466 (1986) ("[A] fundamental prerequisite to an action for partial or total indemnity is an actual monetary loss through payment of a judgment or settlement")), on the basis that the malpractice claim is essentially a request for indemnification against the adverse judgment.

In conclusion, it is a cardinal principle in legal malpractices cases that damages cannot be speculative and are only meant to compensate the plaintiff for his or her actual losses. Requiring the payment, in whole or in part, of an underlying judgment as a prerequisite to the recovery of damages due to the imposition of such a judgment is consistent with this principle.