Out on a Limb: Ditching Collectability in Legal Malpractice Actions

by Paul V. Esposito

No one should be surprised to learn that lawyers tend to disagree. Put two or three together, and any hopes of unanimity fade. It doesn’t change when they become judges. But generally, that’s a good thing. Disagreement usually allows for a thorough exposition of the law.

Among the principles judges have agreed on is the collectability doctrine. A plaintiff in a legal malpractice action may only recover what the plaintiff could have recovered in an underlying action. The doctrine makes sense. If an underlying defendant is penniless, why should an attorney pay more than the defendant actually causing the harm? But now not all judges agree. At least they don’t in Louisiana. Ewing v. Westport Ins. Corp., 2020 La. LEXIS 2816.

Facts

Marc Melacon injured Elaine Ewing in a car accident. Elaine hired attorney Chuck Granger to sue for damages. Granger fax-filed a petition for damages in state court but failed to forward it to the court within seven days. He did not file the petition until the prescription period passed. Not surprisingly, the court dismissed it.

Elaine sued Granger and his insurer for malpractice. Based on the collectability doctrine, defendants sought partial summary judgment capping damages at $30,000. The parties agreed that an attorney-client relationship existed, Granger breached his duty, and that Melacon had only $30,000 in insurance. Melacon testified that he would file for bankruptcy if the judgment were higher. The district court granted the motion, otherwise a plaintiff “would be better off if [an] attorney committed malpractice, because the attorney would have more coverage than that underlying coverage.”

The court of appeals reversed, ruling that a party’s financial status is irrelevant to an award of compensatory damages. Noting that plaintiffs’ rights in malpractice actions are no greater than their rights in underlying actions, the court applied the same rule to malpractice defendants. Because Elaine ultimately might collect full damages from Melacon despite his current poverty, she may collect them in full from Granger.

Analysis

A divided Louisiana Supreme Court agreed with the court of appeals. The majority recognized that in most states, as part of proximate cause a plaintiff must prove that an underlying claim is collectible. A number of states have shifted the burden, making non-collectability an affirmative defense to be proved by the attorney. Non-collectability operates as a mitigation-of-damages type of defense.

The Ewing majority went further. It held that collectability plays no role whatsoever in legal malpractice cases.Years earlier, the Court eliminated the requirement that plaintiffs prove collectability. In the Court’s mind, because attorneys usually don’t accept meritless cases, there was an inference of recoverable damages. The Court shifted the burden of proving non-collectability to the malpractice defendants.

In Ewing, the majority further changed the law by holding that non-collectability is not even available as an affirmative defense. The majority reasoned that damages in negligence cases are not limited to what is collectable. The same rule should govern professional negligence cases. The general rule that malpractice plaintiffs have no greater rights against attorneys than against underlying defendants still applies when their claims are unprovable or have been discharged in bankruptcy. But claims resulting in enforceable judgments can be long-lived. If an impoverished defendant’s financial posture improves during a judgment’s life, a plaintiff may be able to fully collect it. Because an underlying defendant might ultimately pay a full judgment, a malpractice defendant should be required to do likewise.

To the dissent, the majority went too far by making collectability irrelevant to legal malpractice actions. Among the 30 states addressing collectability, none has similarly ruled. The dissent found that the majority conflated what is relevant in an underlying action with what is relevant in a malpractice action. The purpose of an underlying action is to value the injuries caused by fault. By contrast, the purpose of a malpractice action is to value the opportunity lost by malpractice. This makes an underlying defendant’s inability to pay irrelevant in the former action but relevant in the latter action, where an attorney’s negligence did not cause the underlying harm. Keeping collectability in a case would leave to the factfinder the job of valuing the lost opportunity.

The dissent found that by giving malpractice plaintiffs greater rights than they possessed in underlying actions, the majority encourages malpractice suits. This “detrimentally alters insurance rates, increases the cost for attorneys to practice law, and creates a windfall for plaintiffs.” The dissent had no problem with dropping a plaintiff’s burden of proving the “case within a case.” But doing so should not eliminate the relevancy of collectability-related evidence. It merely changes who must prove the point.

As for the majority’s claim that an underlying defendant’s current insolvency is just a “snapshot,” the dissent stated that accurately setting future damages is difficult in all cases. An award might be too high or low. But difficulties in accurately predicting the future should not bar factfinders in malpractice cases from valuing lost opportunities.

Learning Point:

There may be a good explanation why Ewing stands alone on the issue of collectability. It might lie in the Court’s unspoken assumption that lawyers are good business people. There is no reason to always assume that a lawyer would have rejected a case if damages were uncollectable. Sometimes lawyers make bad business decisions in accepting cases. But that is different from making professionally negligent decisions in handling them.  Whether a plaintiff or the attorney sued for malpractice should owe the burden on collectability is a fair question. But the issue should remain for proof.

More problematic than the Ewing theory might be in its execution. It exposes attorneys to paying potentially huge damage awards even though they did not cause the underlying damages. Meanwhile, the persons causing them walk away scot-free. Ewing flows from a sense that the collectability doctrine itself is unfair to underlying plaintiffs. But by itself, Ewing is unfair to attorneys. Perhaps the law will ultimately recognize an attorney’s claim for equitable indemnity or contribution against an underlying defendant. Until then, Ewing remains out on a limb.