How to Protect Yourself From A “Settle and Sue” Claim

It’s said that a good settlement is one that leaves everyone unhappy – and like all clichés, this one contains a grain of truth.

But it also carries an unstated warning: be careful that your client is not too unhappy post-settlement. Otherwise, you might find yourself on the receiving end of a malpractice claim.

Settle, Sign, Sue

Usually we breathe a sigh of relief when a case settles. Another file closed. One less problem to worry about.

And when the deal is sealed with the client’s written consent, that erases any future risk of  liability, right?

Actually, no.

A recent post in Professional Liability Matters addressed the issue of “settle and sue” malpractice claims.

“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,” wrote PLM. “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.”

A case in point: a California man sued his former divorce attorney after signing an agreement to pay $7,000 in monthly spousal support. The client said bad advice and lazy lawyering led him to accept a lousy settlement. One alleged lawyer boo-boo: not hiring a forensic accountant to evaluate the family’s financial circumstances, which would have made it plain that the settlement was excessive.

The good news is that the lawyer eventually won on appeal (Namikas v. Miller, 2014 Cal. App. LEXIS 407, April 14, 2014). The bad news is the case dragged on and on, as these things tend to do, causing stress, distraction and expense that perhaps could have been easily avoided.

Family Law and PI Are “Settle and Sue” Traps

Most “settle and sue” claims arise in family law matters. This is perfectly understandable. Domestic cases are complex and emotionally charged. They also contain an element of subjectivity (what exactly is a “fair” amount of child visitation?). This can open the door to Monday morning quarterbacking.

The second most common type of “settle and sue” case is personal injury.

Risk management lawyer Bruce Stanger says he gets calls from clients wanting to reopen cases they previously agreed to settle.

“Each time the caller says they would not have agreed to the settlement if their lawyer had only explained the ramifications or given them the time to think it through,” Stanger writes. “The callers, especially in the tort cases, often suggest the lawyer was just looking for the quick fee, was clearly tired of the case or was somehow distracted and simply not interested in going ahead with the trial.”

Stanger says he hears some of the same client beefs over and over: I should have gotten more money. I didn’t understand what I was agreeing to. Why didn’t my lawyer do this (or that)? Why didn’t my lawyer tell me about the tax (or other) ramifications?

“[H]aving agreed to a settlement, the client now has second thoughts and wishes they had never listened to their lawyer’s recommendation,” Stanger says.

Malpractice Liability Rising From the Ashes of Settlement

Of course, sometimes the lawyer does make a mistake or give bad advice. In such cases, a settling client might have a valid malpractice claim.

“[W]hen a settlement is compelled by the mistakes of the plaintiff's attorney, the attorney may be held liable for causing the client to settle for less than a properly represented client would have accepted,” according to Espinoza v. Thomas, 189 Mich App 110, 472 NW 2d 16 (Michigan, 1991).

And in another Michigan case (Lowman v Karp, 190 Mich App 453; 476 NW2d 428, 1991), the court upheld a malpractice claim where an attorney “refused to try the underlying case after [his client] informed him that she did not want to settle at a point in the proceedings where she would be unable to obtain new counsel.”

Tips For “Settle and Sue” Protection

• Communicate, communicate, communicate. Keep your clients well-informed at all stages of the case. Go over the terms of any proposed settlement carefully. Go over them again. Make sure your clients understand exactly what they are agreeing to.

• Put it in writing. In some circumstances, you should send the client a letter that spells out the details of the proposed settlement. Or prepare a memo to the file.

• Explain the alternatives to settlement. Lay out the pros and cons of each option. In particular, go over the good and bad points of proceeding with litigation.

• Give your client time. Avoid last-minute settlements – especially in complicated cases – whenever possible. Try to give clients plenty of time to coolly consider all angles. This also gives you an opportunity to  document your client’s approval.

• Know what you’re doing. The ethics rules require adequate  knowledge, skill, thoroughness and diligence for the job. Go even further. Bring your “A” game to every case – even those you know will settle.

Everybody has their “morning after” regrets. Make sure you’re not the one who wakes up with the headache.

Jay Reeves a/k/a The Risk Man is an attorney licensed in North Carolina and South Carolina. Formerly he was Legal Editor at Lawyers Weekly and Risk Manager at Lawyers Mutual. Contact jay.reeves@ymail.com.

Sources

• Legal Malpractice Illinois http://www.legalmalpracticeillinois.com/2012/03/michigan-court-upholds-divorce.html
• Bruce Stanger http://www.stangerlaw.com/Articles/Legal-Malpractice-Regrets-the-morning-after-settlement.shtml
  • Professional Liability Matters http://professionalliabilitymatters.com/2014/05/14/the-settle-and-sue-method/