Malpractice Suit Dismissed due to Speculative Damages

A threshold requirement for any legal malpractice claim is proof of actual harm. A party bringing a legal malpractice action has the burden of proving that but for the alleged negligence, he would have been successful in the underlying matter. Plaintiff’s failure to prove actual harm is often a defense in malpractice cases and in some situations can result in a complete dismissal. Take for example, the following case in which a Pennsylvania federal judge granted defendant attorneys’ motion for judgment on the pleadings where plaintiff’s alleged damages in his legal malpractice claim were “impermissibly speculative.”

The underlying employment lawsuit stemmed from plaintiff’s alleged wrongful termination from his position at United American Indemnity, Ltd. (UAI). Plaintiff subsequently initiated arbitration proceedings against UAI, and retained defendant attorneys to represent him throughout the proceedings. During the course of settlement discussions the parties reached an oral settlement agreement of $1 million. Counsel for UAI was responsible for preparing the written settlement agreement. The proposed written settlement agreement contained additional terms that were not part of the oral settlement agreement. Plaintiff declined to accept the additional terms, and thereafter UAI withdrew the settlement offer.

Plaintiff then filed a motion to enforce the terms of the oral settlement discussions. The arbitrator denied the motion finding that the UAI board had not approved the settlement agreement and therefore there was no meeting of the minds. Plaintiff then subsequently retained new counsel and ultimately settled his claims against UAI for a figure less than $1 million.

Plaintiff’s subsequent malpractice suit alleged that his attorneys were negligent by (1) failing to have the terms of the settlement put on the record despite a court reporter being present; (2) failing to reduce the terms of the settlement to writing; and (3) failing to have the parties sign a writing, acknowledging agreement to the terms, at the conclusion of the settlement discussions. Plaintiff sought $1 million in damages plus counsel fees for the second lawyer he hired.

The district court held that the defendant attorneys’ failure to put the settlement on the record was not the reason the settlement was never executed. The court noted that the settlement still required the approval of the UAI board, and that Plaintiff essentially was asking the court to find that his attorneys committed malpractice for failing “to do the impossible”—namely force UAI to sign the settlement agreement. Significantly, the court also concluded that plaintiff’s theory of recovery was based upon impermissible speculation, stating that “the notion that the $1,000,000 figure would not have changed had negotiations continued and a settlement finalized is based on pure speculation.”

The court’s opinion is useful in its analysis of Pennsylvania courts’ history in refusing to allow speculative settlement negotiations to serve the basis for a malpractice action. Practitioners should keep this in mind when analyzing malpractice claims from a defense perspective and raise the defense whenever possible.