July 23, 2017

By: Gaetan J. Alfano , McGuire v. Russo and Legal Malpractice Claims: Clarity or Chaos?

The Pennsylvania Supreme Court’s decision to take up McGuire v. Russo has caused consternation among practitioners, as the Court may overturn 26-year-old precedent that limits legal malpractice actions arising from settled cases. Indeed, the Court’s Order permitting the appeal states the issue ominously:

Should this Court overturn its decision in Muhammad v. Strassburger, McKenna, Messer, Shilobod & Gutnick, 587 A.2d 1346 (Pa. 1991), which bars legal malpractice suits following the settlement of a lawsuit absent an allegation of fraud, even in instances where an attorney’s negligence led to a lesser settlement.

To be sure, the Court could overturn Muhammad wholesale. But the final phrase of the issue statement – “even … where an attorney’s negligence led to a lesser settlement” – indicates that it may merely clarify the case’s meaning. And clarity may be needed. Subsequent cases have interpreted Muhammad inconsistently and carved-out various exceptions. Thus, the doctrine has become virtually inscrutable.

Muhammad involved a couple who lost an infant to complications from general anesthesia. Id. at 1347.They sued the hospital and two physicians for medical malpractice and, after discovery, accepted a settlement for $26,500. Id. The Muhammads then sued the attorney who had negotiated the settlement on their behalf for legal malpractice. Id. at 1348.

Muhammad addresses the too-bad contract a scenario where the litigant comes to second-guess the amount of a settlement to which she has agreed. Id. As the Court stated, “sanctioning these ‘Monday-morning-quarterback’ suits would be to permit lawsuits based on speculative harm; something with which we cannot agree.” Id. at 1352 n.13. But the rule that flows from Muhammad is not, on its face, limited to suits based on the amount of the settlement. Instead, it forecloses all malpractice suits seeking to relitigate a settlement, except where a party was fraudulently induced into settling. Id. at 135.

Because of the tension between the narrow factual circumstances addressed in Muhammadand its apparently broader holding, courts have not interpreted the decision consistently. Based on the “unqualified articulation of its ‘simply stated'” rule, one Superior Court panel found that Muhammad “proclaims a clear, bright line rule which, absent fraud, shields attorneys from legal malpractice claims sounding in negligence or contract where they involve cases concluded by completed settlement.” Miller v. Beschler, 621 A.2d 595, 598 (Pa. Super. 1993).

Subsequent decisions, however, have “limited [Muhammad] to the facts of that case.” McMahon v. Shea, 688 A.2d 1179, 1182 (Pa. 1997). Accordingly, courts have green-lighted legal malpractice suits where the litigant alleged that the settlement agreement was legally deficient or that he received improper advice about the effects of settlement. Banks v. Jerome Taylor & Assocs., 700 A.2d 1329, 1332 (Pa. Super. Ct. 1997). Another Superior Court decision found Muhammad inapplicable where a litigant fired her lawyers for an alleged lack of preparation and was then compelled to accept a settlement offer when she could not find subsequent counsel by the trial date. White v. Kreithen, 644 A.2d 1262, 1265 (Pa. Super. 1994).

These exceptions suggest that a litigant can plead around Muhammad by basing the claim not on the amount of the “too-bad contract” but on a predicate act of negligence committed by the lawyer that affected the settlement process. But in the McGuire matter now before the Supreme Court, the Superior Court rejected that notion. Instead, it applied Muhammad’sbroad prohibition despite the litigant’s claim that attorney errors – failing to include a claim for age discrimination and to exhaust administrative remedies before the U.S. Equal Employment Opportunity Commission – had weakened her bargaining position and forced her to accept a $7000 settlement.

The Supreme Court now has the opportunity to clarify Muhammad’s meaning or assess its viability. On the one hand, the Court can simply clarify under what circumstances, if any, a litigant may bring a legal malpractice suit based on a matter that has settled. Thus, even a decision that appears to narrow Muhammad may benefit practitioners simply by lending predictability to the doctrine. Alternatively, a decision overruling Muhammad likely would open the floodgates to legal malpractice claims based on the sort of “Monday morning-quarterbacking” that has been foreclosed for almost three decades.

“Upon Further Review, Copyright 2017, Philadelphia Bar Association, All Rights Reserved.”