 If we could foresee the outcome of any case, we would all be
psychics (with successful infomercials and 900 numbers, of course). Since we are not
fortune tellers, we all need clauses in our fee agreements unequivocally notifying our
clients that we cannot predict the outcome of a given matter. In our adversarial system,
possibly 50 percent of the time, our clients may be disappointed with the outcome.
Therefore, if the theories involving legal malpractice did not afford lawyers special
protections, we could all be sued ad infinitum.
One historic requirement in professional negligence cases is that
disgruntled clients replicate the original case to prove that the damages are not
speculative. This is known as the “case
within the case” doctrine. These cases are unattractive be-cause a plaintiffs’
lawyer must prove two cases, the underlying matter and the subsequent professional
negligence case. Other procedural protections include the venerable judgmental immunity
rule (i.e., where an issue is unclear or debatable), and the inherent reluctance of the
courts to interfere with settled matters (recognizing the prevalence of settlers’
remorse). Justifications for these factors, which balance the uneven litigation playing
field for attorneys, include the public’s perception of our profession, that we are
affluent defendants (forget the reality).
A new case has potentially increased the liability of all
transactional lawyers by questioning the almost universal applicability of the “case
within the case” doctrine. In California State Automobile Associa-tion v. Parichan
(Oct. 31, 2000) Calif. Ct. App., 1st Dist., No. A081931, a carrier was successful in
pursuing insurance defense counsel for failure to forward a report, which caused them to
lose an opportunity to settle a case (a 998 offer). Because of the possible bad faith
exposure (at least according to their retained expert), this caused them to settle for
substantially more.
The court maintained that a less structured view of causation and
damages is appropriate for malpractice involving business transactions, seriously implying
that lawyers are, in a sense, strictly liable for their performance. Arguably, the
requirement of replicating the underlying case may not be appropriate for transactional
activities, i.e., it is not a “rule for all seasons.” But implying that lawyers
guarantee results in all transactional business advice cases involves conjecture or
forecasting the future.
It would seem that failure to transmit information relevant to a
settlement offer would be construed as an issue involving “settlement in a classic
litigation context,” as opposed to the vast uncharted realm of “business
planning or advice.” The court maintains that being exposed to litigation (which the
client hired the lawyer to avoid) constitutes sufficient injury to sustain the necessary
damage element of the claim, since litigation is more onerous, expensive, and
unpredictable. Still, the client clearly had some expectation of litigation.
Who knows? Maybe the answers are in the unpublished portion of this
unusual, troubling and chilling (for transactional lawyers) case.
 Los Angeles attorney Diane
Karpman can be reached at 310/887-3900 or karpethics@aol.com.
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