The Journal of The DuPage County Bar Association

Back Issues > Vol. 12 (1999-00)

Legal Malpractice: Liability After Settlement
By Thomas W. Dillon, J.D.

Plaintiffs’ attorneys beware: A client’s voluntary acceptance of a settlement does not insulate a lawyer from an action for legal malpractice. Although a client may be fully informed of the circumstances of the settlement, the consequences and risk shifting that result, and the fact that liability on the part of the paying party is extinguished, the attorney remains subject to an action for malpractice. 

When a lawyer represents an injured plaintiff, he evaluates liability and damages, arrives at a value of the case, negotiates with an adjuster or opposing attorney, and may recommend a settlement. Typically, the lawyer explains to the client that the settlement will extinguish the client’s rights and causes of action against the settling party. Once the plaintiff signs the settlement agreement and release, the plaintiff bears the risk that his injuries may worsen, that his medical bills may rise, and that he may become disabled or die as a result of his injuries. Of course, this shifting of the risk is a major factor leading the defendant to settle.

But the risks the plaintiff assumes do not always remain solely with the plaintiff. They sometimes are shifted to the lawyer who represented the injured party.

In some cases, the client’s condition worsens and the client becomes sufficiently dissatisfied with the settlement that he pursues legal action against his attorney. He decides to sue his attorney for failing to recommend a higher settlement or for failing to handle the case in a way that would maximize the client’s recovery. 

Under the two Illinois decisions on point, the client’s voluntary and informed acceptance of the settlement agreement does not preclude his action against the attorney. Illinois courts have concluded that a trial on the merits is the best way to determine whether the attorney was negligent and whether the client was damaged by the negligence, even where the plaintiff voluntarily accepted a settlement.

In McCarthy v. Pedersen & Houpt, 250 Ill.App.3d 166, 621 N.E.2d 97 (1st Dist. 1993), the plaintiff sued the lawyers who represented him in connection with commercial litigation. While the jury was deliberating, the parties reached a settlement. The client had independent counsel review the settlement agreement.

Thereafter, the client sued his attorneys, claiming that they failed to timely file a claim under the Commodities Exchange Act and that they negligently selected an expert. The defendants argued that the plaintiff’s acceptance of the settlement, which had been reviewed by independent counsel, precluded the malpractice action.

The appellate court reviewed opinions from other jurisdictions and followed the line of cases that allows the plaintiff’s malpractice action despite a voluntarily accepted settlement. McCarthy, 621 N.E.2d at 101. The court determined that a question of fact remained as to whether the attorneys were negligent in their handling of the underlying action, and whether plaintiff was damaged by that negligence. Id.

The McCarthy court also cited an ethical consideration, specifically, the concern that a negligent lawyer might attempt to conceal his mishandling of a case by recommending a settlement. In essence, the negligent lawyer could obtain "safe harbor" under the immunity he would enjoy if settlements shielded lawyers from malpractice claims. Id. Thus, even a voluntarily accepted settlement, reviewed by independent counsel, did not insulate a lawyer from an action for malpractice.

In Brooks v. Brennan, 255 Ill.App.3d 260, 625 N.E.2d 1188 (5th Dist. 1994), the plaintiff alleged that her attorney was negligent in recommending a settlement that required her to resign from her employment with the defendant in the underlying case. The plaintiff assented to the terms of the settlement in court, but later denied that she agreed to resign and further denied that her attorney had ever told her that her resignation was part of the settlement agreement.

After learning that the settlement required her to resign, the plaintiff terminated the lawyer who recommended the settlement (the defendant in the legal malpractice action). Thereafter, the plaintiff hired another lawyer who ultimately negotiated and recommended a new settlement of the underlying action. The terms of the settlement were identical to the terms of the first settlement, including plaintiff’s resignation, with one exception: The second settlement included an additional $1,000 of consideration to the plaintiff.

In her malpractice action, the plaintiff alleged that her attorney failed to properly advise her with respect to the terms of the settlement and took a position that was contrary to hers, thereby weakening her negotiating position with the underlying defendant. The defendant attorney argued that the plaintiff’s decision to hire another lawyer and her subsequent acceptance of the increased settlement warranted summary judgment in his favor. The court agreed.

The Brooks court agreed with the reasoning of McCarthy, stating "that a plaintiff who has settled her case should not be automatically barred from filing a malpractice case against her trial attorney, even if she settled the case." Brooks, 625 N.E.2d at 1195 (emphasis added). However, the court distinguished McCarthy on its facts, concluding that the plaintiff there had presented sufficient evidence as to each element of the legal malpractice claim to create a genuine issue of material fact and to defeat the summary judgment motion.

Brooks, on the other hand, failed to present any evidence that her attorney’s conduct caused her any damages. Brooks at 1194. Without evidence of damages proximately caused by the attorney’s negligent conduct, the plaintiff cannot withstand a motion for summary judgment. Brooks failed to present evidence that she would have recovered greater damages had she presented her case to the jury in the underlying matter (which she was precluded from doing by virtue of the first "settlement"). Alternatively, she failed to show that she settled for a lesser amount of damages than she could have reasonably expected to have recovered without the alleged malpractice. Brooks at 1195.

In so holding, the Fifth District extended the reasoning of McCarthy, stating that a plaintiff who can show that she had to settle for a lesser amount than she could reasonably have expected to recover without her attorney’s mishandling has damages that are recoverable in a malpractice action. The court reasoned that a plaintiff should not be precluded from pursuing a malpractice action because she decided to accept a settlement "in order to salvage some of her claim." Id

The Brooks court’s extension is a significant one that makes a great deal of sense. A plaintiff whose action is weakened by an attorney’s failure to pursue and present relevant evidence on any issue, particularly damages, should not be barred from pursuing a legal malpractice action after accepting a reduced settlement in order to salvage some of her claim. Similarly, a client who accepts a token settlement due to the attorney’s mishandling of the case should not be barred from pursuing a malpractice action against the attorney. For example, a plaintiff whose case is weakened by her lawyer’s failure to disclose witnesses under Rule 213 should not be barred from pursuing a legal malpractice action merely because the plaintiff accepted a drastically reduced settlement, albeit voluntarily.

As a matter of law, a client’s voluntary acceptance of a settlement will not preclude an action for malpractice if the client can present evidence of damages proximately flowing from the attorney’s negligence. Where a plaintiff presents evidence of each element of the cause of action for malpractice, the case will be decided by the trier of fact.

Thomas W. Dillon is a principal of Konicek & Dillon, P.C. in St. Charles and Chicago. The firm concentrates in professional liability, including legal malpractice, personal injury, and insurance defense. Mr. Dillon obtained his Undergraduate Degree in 1986 from Northern Illinois University, and his Law Degree in 1991 from the Northern Illinois University College of Law.

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