The Burden of Proof in Settle-and-Sue Legal Malpractice Cases

When clients are unhappy with a settlement, they often blame their attorneys, claiming that their counsel concealed pertinent facts from them, failed to properly explain settlement terms including tax implications, made an error in the case which forced them to settle, or exerted undue influence that amounted to coercion. All of these scenarios can be found in published decisions.

Is it just a case of "buyer's remorse," where the client believes the case should have settled for more money, or did an error occur entitling the client to recovery of actual damages?

This is the question that arises in a "settle-and-sue" legal malpractice action where the plaintiff settles an underlying action then claims their former attorney's malpractice caused them to settle for less, or to settle when they could have gone to trial and recovered more from a jury.

California caselaw establishes that, even though a settlement of an underlying lawsuit injects some speculation into a claim for attorney malpractice, it does not preclude a plaintiff from proving malpractice so long as the plaintiff can establish a causal link between the alleged negligence and any loss incurred. In the past several years, California Courts of Appeal have decided a number of cases that create two different burden-of-proof standards. In litigated cases, defense counsel argue that a higher standard of "legal certainty" should apply. Plaintiffs' counsel maintain the burden of proof has always been "preponderance of the evidence."

In this article, we explore the split in authority that has emerged and suggest the California Supreme Court should weigh in to resolve the matter.

Settle and Sue: A History

One of the earliest legal malpractice cases to discuss California Evidence Code Section 115 -- which governs the burden of proof -- is Ferguson v. Lieff, Cabraser, Heimann & Bernstein LLP et al., 30 Cal. 4th 1037 (2003). This was not a settle-and-sue case; rather, the California Supreme Court addressed whether lost punitive damages -- which could have been recovered in the underlying case -- were an element of damages in a legal malpractice action. The court noted the standard for recovery of punitive damages is by clear and convincing evidence and to a legal certainty, which differed from the standard for recovery of compensatory damages -- i.e., a preponderance of the evidence. This analysis was seized by some counsel to argue the burden of proof in legal malpractice actions was changed to a legal certainty.

Filbin v. Fitzgerald et al., 211 Cal. App. 4th 154 (2012), was the next case to use the "legal certainty" language in its decision. The Filbin court reversed a $574,000 judgment for the Filbins in a settle-and-sue case and affirmed a judgment for attorney Fitzgerald on his cross-complaint for $242,542. The court stated, "the requirement that a plaintiff need prove damages to 'a legal certainty' is difficult to meet in any case ... particularly so in 'settle and sue' cases." There was no discussion of the California Evidence Code, which establishes the legal standard for the burden of proof. It seemed to rest its decision on many prior cases where the phrase "legal certainty" was used to claim the plaintiff's damages were speculative.

A Hint of Clarity

In Masellis v. Law Office of Leslie F. Jensen, 50 Cal. App. 5th 1077 (2020), the court directly addressed whether a settle-and-sue plaintiff is held to a higher standard of proof of legal certainty rather than preponderance of the evidence standard found in the Evidence Code. In a cogent review of the cases preceding it, the court concluded, "the applicable standard of proof for the elements of causation and damages in a settle and sue legal malpractice action is preponderance of the evidence standard." The court cited to a law review article which Professor Vincent Johnson from St. Mary's University School of Law wrote to support its conclusion. Johnson, "Causation and 'Legal Certainty' in Legal Malpractice Law," 8 St. Mary's J. Legal Malpractice & Ethics 374 (2018). Professor Johnson, a frequent author on the subject of legal malpractice actions, stated that California courts have been expansive in their language, causing confusion among judges and juries by parroting the term "legal certainty" when the court believes the plaintiff's claims are "speculative."

Review Denied

The California Supreme court declined to review the Masellis decision. As a result, the debate continues. Professor Johnson has observed that, "Judges faced with the language of legal certainty are likely to decide trial motions and appeals relating to the sufficiency of the evidence in ways that tend to close the courthouse doors to plaintiffs with otherwise meritorious legal malpractice claims." He also noted that, "if the language of legal certainty is used in jury

instructions, it seems certain to influence, in a manner highly unfavorable to legal malpractice plaintiffs, how lay jurors view the evidence that is presented to them."

Conclusion

It's time for the California Supreme Court to resolve the confusion over the proper burden of proof in settle-and-sue legal malpractice cases. In the meantime, attorneys should head off settle-and-sue cases by: (1) ensuring clients stay well-informed at all stages of litigation; (2) carefully reviewing all terms of any settlement; (3) explaining the alternatives to settlement by sending a written analysis of the pros and cons of proceeding to trial identifying the cost involved; and (4), acting diligently and expeditiously in every case.