Alitigant with an incompetent lawyer may end up better off than one with able and energetic counsel. That's the odd result of a ruling last month from the New York Court of Appeals, that state's highest tribunal.
The underlying controversy began when a woman was seriously injured in an automobile accident. The driver who caused the accident was insured for only $10,000, and the woman's lawyers advised her to settle for that amount, even though her damages were much higher.
In fact, the woman could have collected an additional $100,000 from her own insurance policy. But the lawyers misread her policy and didn't realize that.
And once the victim had settled with the other driver without first consulting her own insurance company, she lost her right to collect the $100,000.
At that point, she sued her lawyers for malpractice. The issue at the Court of Appeals was not whether the lawyers were negligent, but how much the woman should collect if negligence were proved.
The lawyer-defendants pointed to their contract with the woman, calling for their fee to be one-third of the money they collected for her. She isn't out $100,000, they reasoned, but only the $66,666 she would have had left after paying their fee. So the damages they might have to pay should be no more than that.
In ordinary contract damages litigation, defendants would get a credit for any fees due under the contract, even if the fees were not earned. But the New York court refused to apply that principle to legal malpractice cases.
Attorneys have a unique obligation of fidelity to their clients, the May 8 ruling in Campagnola v. Mulholland, Minion says. Therefore it would be inappropriate to let them earn the equivalent of a fee -- which the reduction in damages would be -- for incompetent performance.
However, the client isn't necessarily enriched: She still has to pay the lawyers who handled the malpractice action for her.
In other cases, courts ruled that:
Membership in a trade association can make a company vulnerable to suits in states where it has no business contacts at all. Generally a company cannot be hauled into court in a state unless it has done some significant amount of business there.
But the U.S. Court of Appeals in St. Louis, in its first ruling on the issue, approved a North Dakota suit by asbestos victims there against a Canadian asbestos mining company that sold nothing in North Dakota. The reasoning: The producer was a member of the Asbestos Textile Institute; other members of the trade group did business in North Dakota; the members of the industry are accused of acting together to suppress information on the health dangers of asbestos.
(In re North Dakota Personal Injury, May 17)
Oil companies cannot enforce in the District their contractual rights to buy service stations when the owners want to sell. It is common for gasoline franchise agreements to include a right of first refusal, allowing the supplier to match any offer the owner gets and to transfer that right to the operator the oil company prefers. Such a provision violates a 1976 D.C. statute meant to alter the balance of power between oil companies and station operators, the D.C. Court of Appeals ruled.
Judge John Steadman explained that the oil company can veto a potential buyer who lacks know-how or financial integrity, but that it cannot dictate who the new franchisee shall be.
(Dege v. Milford, May 10)
Daniel B. Moskowitz is a Washington editor for Business Week newsletters.