Update: the “American Rule” and legal malpractice

In a prior post, I briefly talked about what is known as the “American Rule.”

That “rule” applies in litigation and basically means that unless there is a specific law in your state, or you have a contractual agreement, each party to litigation pays its own legal fees and expenses, whether you win or lose.

It is called the “American Rule” because America is one of the only countries in the world to use it. Virtually every place else uses what is known as the “English Rule”, where the losing party pays the litigation expenses of the party that prevailed.

One of the interesting historical footnotes about the “American Rule” is that the rule developed early on in America because of the hostility that the colonists had towards attorneys.  Apparently at one point there were even “attempts to ban lawyers entirely.”

The fact is that despite whatever problems there may be with the legal profession, the rule of law is ultimately what distinguishes civilization from anarchy, and it was probably a wise decision not to outlaw lawyers.

In any case, perhaps thinking that it would dissuade litigation,  Americans decided to require each litigant bear their own litigation costs.  However, the good news for legal malpractice plaintiffs suing their attorneys is that a majority of state courts have either decided the American Rule does not apply to legal malpractice cases, or else these courts have simply carved out an exception. (As of this writing, only one state in the union follows at least a modified version of the “English Rule” and that state is Alaska.)

Part of the reason for this exception is the unique nature of a legal malpractice case. It involves how lawyers discharge their duties to their clients. Moreover, a plaintiff in a legal malpractice action has a unique responsibility not found any other type of case– proving a “case with a case.” That is, in “virtually every case, the injured plaintiff will be required to hire a second attorney to prosecute the malpractice action against the negligent attorney and will be required to pay that second attorney.” Shoemake v. Ferrer, 182 P.3d 992, 996-97 (Wash. Ct. App. 2008), aff’d, 225 P.3d 990.

The Shoemake case actually understates the problem because, in reality, virtually all legal malpractice litigants must also hire at least one at least one additional attorney, the legal malpractice expert who will testify about the standard of care. See Grimm v. Fox, 33 A.3d 205, 303 Conn. 322 (2012) (holding that a pro se plaintiff could not use negative comments regarding the plaintiff’s former attorney by the Connecticut Supreme Court in lieu of an actual expert).

Legal malpractice cases generally require the plaintiff to prove that the outcome of their legal matter would have been different if they are original attorney had not committed legal malpractice.

If the underlying case involved litigation, this could mean, for example deposing witnesses who were not originally deposed, and conducting discovery related to the original case that the original attorney failed to do. If the legal malpractice was transactional (such as a real estate deal, or purchasing a business), it likely requires re-doing the original attorney’s work (such as completing any due diligence required, analyzing sales documents and transactional facts to prove, for example, how the transactional document should have been drafted).

One of the first state courts to allow recovery of legal malpractice expenses was in California in the 1960s. Since then, the majority of states allow such recovery in some form or another. For example, in a case decided just a few weeks ago at the time this blog was written, the Iowa Supreme Court joined the majority of states that rejects the application of the almost universally accepted “American Rule” in legal malpractice cases: “We adopt the majority and better-reasoned rule … that legal fees incurred by a malpractice plaintiff are recoverable.” Hook v. Trevino, No. 12-0283 (Nov. 8, 2013).

Some courts do not even analyze the issue as an exception to the American Rule. For example, in Post v. St. Paul Travelers Ins. Co., 691 F.3d 520 (3rd Cir., 2012), the Third Circuit Court of Appeals made no mention of the American Rule and held that “attorneys’ fees—both amounts paid by the client to the negligent attorney as well as expenses incurred by the client to prosecute its malpractice claim against the attorney—are an item of damages in a legal malpractice claim.”

Legal  malpractice is one of the more complex areas of law. Fortunately, more and more courts have begun to recognize this, and have recognized that it is not fair for a client who has been poorly represented either in litigation or in some other area of law, to then have to pay more attorneys to recover damages due to the first attorneys mistake.

Fairness is more difficult to achieve, if the plaintiff cannot recover some or all of the legal malpractice expenses. Of course, it is important that you check with an attorney in your state to find out the current status of the law on this issue.

Author: Howard Altschuler

(Click here for a brief summary of my other blog posts on various legal malpractice related issues)

(Disclaimer: Please note that nothing in this blog or website is legal advice, and this post does not create an attorney-client relationship. You should always consult with an attorney for any legal malpractice issues, fee dispute, or ethical concerns that you may have. Thanks!)

Copyright (c) 2013 by Howard Altschuler, All Rights Reserved