The “Settle and Sue” Method

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They say that a truly good settlement is one that leaves everyone unhappy. There is plenty of truth here. But some settling parties take their unhappiness to a new level by filing a malpractice claim. Whether it be buyer’s remorse, doubt, or the opportunity to reconsider the settlement without the distraction of active litigation, some settling parties determine that they took too little or gave too much away. This may be a part of the uncertainty of compromise and often dissipates over time without much fanfare. But sometimes it does not; some settling parties point fingers at their former counsel claiming that bad advice led to an unjust settlement. The result can be the “settle and sue” malpractice claim, which applies differently from jurisdiction to jurisdiction.

The settle and sue method was recently put to the test in California. In Namikas v. Miller, 2014 Cal. App. LEXIS 407 (April 14, 2014) the husband in a divorce proceeding sued his former attorney following a settlement. The husband claimed that his attorney was negligent in advising him to agree to pay $7,000 in monthly spousal support. The husband claimed that the attorney failed to retain a forensic accountant to evaluate his family’s lifestyle which would have proven that the settlement was excessive.

The attorney moved for summary judgment on the basis of causation. The attorney argued that there was no evidence that the wife would have agreed to a lower settlement and therefore the former client couldn’t prove that counsel caused any loss. The trial court agreed and granted the motion.

On appeal, the appellate court affirmed the trial court’s decision finding that the client could not prove causation. Specifically, the court found that there was no evidence that the wife would have accepted a smaller settlement or that the court would have awarded a lower amount. Accordingly, the court found that there was no proof of malpractice.

Despite the difficulties of re-litigating the underlying “case-within-a-case” in the settle and sue scenario, there are plenty of former clients who view their attorneys as an insurance policy and are willing to initiate a malpractice claim. But, there are methods for the professional to reduce this risk. Attorneys should carefully explain the alternatives to settlement, advise of the risks in settling or proceeding with litigation, and ensure that the client fully understands and agreed to the terms of the proposed settlement. Attorneys should give clients ample time to weigh their options and document the client’s ultimate approval of the agreed upon approach. This may not absolve the attorney from all lawsuits but will help to avoid a surprised and unhappy client.