The effect of prior settlements on “Buyer’s Remorse” Malpractice Cases:

Submitted by: Professional License Defense Attorney, Jeffrey Hark.

Under New Jersey law, the existence of a settlement does not preclude a defendant from seeking malpractice damages against negligent attorneys involved in or prior to the negations of that settlement. Ziegelheim v. Apollo, 128 N.J. 250, 265 (1992). Indeed, plaintiff need not make efforts to repudiate the settlement in order to prevail on such a malpractice claim, especially when the chances of success of that repudiation are slim. Guido v. Duane Morris, LLP, 202 N.J. 79, 96 (2010). A settlement will only preclude a malpractice action in those rare exceptions wherein the plaintiff recognizes that the settlement was fair and adequate and the settlement effectively “cured” the alleged malpractice of the defendant. Puder v. Buechel, 183 N.J. 428, 445 (2005); Gere v. Louis, 209 N.J. 486, 504-05 (2012); Guido, 202 N.J. at 93.

The first major case to deal with the question of whether a settlement barred later legal malpractice actions in New Jersey was Ziegelheim v. Apollo, 128 N.J. 250 (1992). In Ziegelheim, the Court recognized

that a party received a settlement that was “fair and equitable” does not mean necessarily that the party’s attorney was competent or that the party would not have received a more favorable settlement had the party’s incompetent attorney been competent.

Id. at 265. In Ziegelheim, the plaintiff argued that her divorce attorney had, in the course of pursuing her divorce, failed both to discover substantial hidden marital assets and by delaying in finalizing the divorce agreement. Id. at 266. Plaintiff in that case also argued that the settlement that she had approved differed considerably from the version read to the trial court and that her lawyer had failed to present to her the settlement in writing in advance so that she could properly review it. Id. The Court therefore held that Ziegelheim was not precluded from pursuing her malpractice claim simply because a “fair and equitable” settlement had been reached. Id. at 267. In so doing, however, the Court noted that their intent was not to open wide the door to malpractice suits to all parties dissatisfied with their settlements, holding that in any future buyer’s remorse cases the plaintiff must “allege particular facts in support of their claims of attorney incompetence and may not litigate complaints containing mere generalized assertions of malpractice.” Id.

The Court clearly established the boundaries of the Ziebling holding in Puder v. Buechel, 183 N.J. 428 (2005). In Puder, the plaintiff, Buechel, was the wife of a wealthy doctor holding several patents. Id. at 431. After her original attorney, Puder, negotiated a settlement but before the settlement was finalized in writing, Buechel approached another attorney who informed her that the settlement was “ridiculously inadequate.” Id. at 432. As such, Buechel then fired Puder and hired other counsel to pursue her divorce claims. While the trial court was in the process of determining whether the oral settlement agreement was binding, Puder sued Buechel for back fees while Buechel countersued Puder alleging malpractice in the production of the original settlement. Id. Buechel moved to have the claims against Puder stayed until the outcome of the divorce action as Buechel’s success in the marital action would “render moot” her claims against Puder (as the original settlement would not be binding). Id. at 433.

Before the trial court reached its ruling on the settlement issue, however, Buechel entered into a second settlement, only slightly more favorable to her than the first, with her husband. During the colloquy surrounding this settlement, Buechel made clear that she was only accepting this settlement based on the perceived fear that if the trial court found her first settlement binding she would receive less than the newly settled amount and on the understanding that the new settlement would not preclude her malpractice claim. Id. at 434-35. The trial court in the malpractice action, however, granted Puder summary judgment on the malpractice claim.

In considering these facts, the Court held that Buechel’s malpractice claim was barred by the new settlement. The Court noted that in her appellate brief, Buechel had acknowledged that the new settlement was acceptable and a fair compromise into which she entered voluntarilly. Id. at 439. Effectively, the Court held that Buechel’s testimony at trial that she had received a fair settlement amounted to the second settlement making whole any deficiency that existed in the original decision. Id. at 445. Indeed, the Court argued that it would be unfair to Puder to allow the malpractice action after Buechel’s recognition that she had received a fair settlement and her prior recognition that a victory in the divorce action would “render moot” her malpractice action. Id.

The Court further refined the doctrine in Guido v. Duane Morris LLP, 202 N.J. 79 (2010). In Guido, plaintiff was the majority shareholder and chairman of a cargo company who had sued the corporation over concerns he had with corporate governance. Id. at 83. On two separate, successive occasions, the matter was referred to mediation and eventually settled in a manner that placed constraints on the voting rights of Guido’s stock. Id. at 84. Plaintiff had earlier been warned by counsel that such a settlement could be disastrous for the value of his stock. Id. at 83. During the colloquy surrounding the settlement, Guido and his wife admitted to understanding the settlement and agreed to be bound by it. Two years afterwards, Guido then sued Duane Morris for failure to properly advice him of the effects that the settlement would have on the share price of his stock, which equated to malpractice. Id. at 86. Guido made no attempts prior to the malpractice suit to repudiate the settlement (which the plaintiff’s in Puder and Ziegelheim had done). Id.

In considering the case, the Court clearly held that Ziegelheim represents the standards under which malpractice claims against attorneys who counseled a settlement. Id. at 93. Puder, the Court held, instead represents “a limited exception to the Ziegelheim standard” based on fairness and public policy concerns based upon that plaintiff’s statements regarding the acceptability and fairness of her settlement. Id. As Guido had not made any statements to the trial court that he was satisfied with the settlement that had been negotiated, nor that the settlement was fair or adequate, Puder did not preclude Guido’s claims against Duane Morris regardless of his “failure” to repudiate the settlement. Id. at 95. “Although whether a malpractice plaintiff in fact has sought to vacate a prior settlement may be a relevant factor, the failure to do so cannot be, in and of itself, dispositive.” Id. at 96 (internal citations omitted). In fact, the Court recognized that as there was no reasonable expectation of success on a motion to set aside the settlement, Guido was not required to perform the useless act of attempted repudiation. Id. Ultimately, the Court held that neither the existence of a settlement nor that plaintiff had not attempted repudiation would serve as a bar to a well founded malpractice suit. Id.

In Gere v. Louis, the Court’s most recent clarification of the case law regarding “buyer’s remorse” malpractice cases, the existence of a settlement did not preclude a malpractice action against plaintiff’s original, negligent counsel. 209 N.J. 486 (2012). Even though the plaintiff in that case recognized that the settlement she received was “fair,” “reasonable,” and “the best she could do,” the Court recognized that those statements had to be tempered by the plaintiff’s assertion, during the settlement and beyond, that her original counsel’s failure to conduct discovery had hampered her successor attorney’s ability to establish her claims. Id. at 496, 505. Unlike the defendant in Puder, Gere’s final settlement did not cure the deficiencies created by the actions of her prior counsel. Id. at 504-05. Because Gere’s original attorney’s actions had left her in a situation that could not be cured by later counsel’s efforts, the Court held that the existence of a settlement, absent clear evidence that the settlement had cured the ills of the first attorney’s failings, did not preclude a suit for legal malpractice. Id. at 505.