Claimant may not assign proceeds of legal-malpractice claim

By David L. Martin

A legal-malpractice claimant may not assign the proceeds of his claim to an adverse litigant, even if the claimant pursues the claim in his own name, the Washington Court of Appeals has held. The decision prevents parties from evading Washington’s rule against assignment of a legal-malpractice action.

In Kim v. O’Sullivan, no. 56032-2-I (Jun. 19, 2006), Thomas Reina was injured in a bar fight and later sued the bar owner, Dong Wan Kim, for liquor liability. Kim’s liquor-liability insurer, Columbia Casualty Company, assigned attorney Jay O’Sullivan to defend Kim under a reservation of rights. Kim later claimed that O’Sullivan’s defense of him was deficient in several ways and that as a result, Kim and Columbia both underestimated the strength of Reina’s case.

In February 2003, Kim and his personal counsel, Karl Park, entered into a settlement with Reina without consulting O’Sullivan. Kim consented to judgment against them for $3 million. Kim assigned to Reina any insurance proceeds or insurance bad-faith claims under his $1 million Columbia policy and another $1 million general-liability policy with Odyssey Re Limited. Kim also assigned to Reina his legal-malpractice claims against O’Sullivan and promised to cooperate with Reina’s prosecution of the claims against O’Sullivan and the insurers. In return, Reina agreed to hold Kim harmless from the risks and expenses of the litigation against the insurers and O’Sullivan.

Reina later settled with the insurers for $797,500, leaving him to pursue only the legal-malpractice claims.

Shortly thereafter, in May 2003, the Washington Supreme Court in Kommavongsa v. Haskell, 149 Wn.2d 288 (2003) held that assignment of a legal-malpractice claim was void because it violated the public policy of Washington.

Recognizing that Kommavongsa rendered the assignment of the malpractice claim void, in May 2004 Kim and Reina modified their agreement. Kim now promised to pursue the malpractice claim to settlement or judgment, with the assistance of Reina’s lawyer, Komron Allahyari, and give any proceeds to Kim. Kim and Reina entered into a new contingent-fee agreement in which Allahyari represented both of them.

Allahyari then sued O’Sullivan in Kim’s name. O’Sullivan moved for summary judgment because Kommavongsa barred the action. The trial court granted the motion and dismissed the action, and Kim appealed.
Kim argued that because the suit was in his own name, the Kommavongsa rule did not bar it. The Kommavongsa Court did allow for the assignor to be substituted into the action as the real party in interest so that the malpractice claim could “proceed in normal course as between the proper parties thereto.”

The Court of Appeals rejected Kim’s argument. The court noted that the client-claimant must be the real party in interest. Here, Kim was not the real party in interest; Reina was. In substance, the claim was no different than an assigned legal-malpractice claim. The assignment of proceeds was “made merely to circumvent the public policy barring assignments,” according to a Connecticut case that the Kim court cited with approval.

Furthermore, in this case dismissal was warranted because Kim did not present any evidence that O’Sullivan’s conduct caused him any damages, because of Reina’s covenant not to execute on the judgment against Kim’s personal assets.

Criminal client need not show actual innocence to pursue legal-malpractice claim

By Michael A. Guadagno

A client who sues his criminal-defense attorney for negligently representing him in the sentencing phase of his criminal proceedings is not required to prove his actual innocence of the charge, the Washington Court of Appeals has held.

In Powell v. Associated Counsel for the Accused, 131 Wn. App. 810 (2006), Clint Powell was charged with solicitation to deliver a material in lieu of a controlled substance. The charge was a gross misdemeanor, with a maximum sentence of one year of confinement. Associated Counsel for the Accused (ACA), a public-defender agency, represented him.

Powell pleaded guilty and proceeded to the sentencing hearing. There, he was erroneously sentenced for a Class C felony to more than three years of confinement.

Powell discovered the error and filed a personal-restraint petition. The Washington Supreme Court granted the petition because the trial court had exceeded its legal authority in sentencing Powell to more than one year of confinement. The Supreme Court remanded the case for resentencing. But by the time the case returned to the trial court, Powell had served 20 months and had been released from incarceration.

After his release, Powell sued his criminal-defense attorneys at ACA for malpractice. ACA moved to dismiss the malpractice action for failure to state a claim, because Powell had not alleged or shown that he was innocent of the charge to which he had pleaded guilty and for which the erroneous sentence had been imposed. ACA cited Falkner v. Foshaug, 108 Wn. App. 113 (2001), which generally required that a criminal defendant who later sues his criminal-defense attorney for malpractice must prove that he was innocent of the charge that was the subject of the lawyer’s representation. The trial court granted the motion and dismissed the malpractice action.

Powell appealed, arguing that Falkner and related case law were distinguishable. The Court of Appeals agreed and reversed the dismissal. ACA petitioned for Washington Supreme Court review. In the meantime, the Supreme Court decided Ang v. Martin, 143 Wn.2d 477 (2005), a legal-malpractice case in which Lee Smart lawyers Sam B. Franklin and Marc Rosenberg successfully persuaded the Supreme Court to adopt the Falkner rule. In light of Ang, the Supreme Court remanded Powell’s appeal to the Court of Appeals for reconsideration.

On reconsideration, the Court of Appeals declined to change its earlier decision. It concluded that the situation in Falkner and Ang was different from Powell’s. “In those cases, the plaintiffs’ allegations stemmed from the defendants’ representation during the guilt or innocence phase of the plaintiffs’ criminal trials,” the court noted. “In contrast, Powell does not contest his guilt, and the allegations of malpractice stem entirely from his attorneys’ failure to object to the court sentencing him to a much longer sentence than allowed by law. The justifications for requiring proof of actual innocence do not apply to Powell’s case.”

The Powell court noted that in Ang and Falkner, the plaintiff’s proof of innocence was inherent in proof that the lawyer’s conduct proximately caused damage to the client. If the plaintiff could not prove that he was convicted wrongly, he could not show that the criminal-defense lawyer’s conduct made any difference to the outcome of the criminal matter. That rationale did not apply to Powell’s situation, where the harm the plaintiff claimed was an excessive sentence rather than a wrongful conviction.

The Court of Appeals also considered the policy-based reasons for the Ang rule, including prohibiting criminals from benefiting from their own bad acts. That would not occur here, since Powell already had served the maximum prison sentence that the law allowed, and the excessive sentence was not a consequence of his own actions. Nor did this case involve a guilty person capitalizing on his own wrong, since these facts were “more akin to that of an innocent person wrongfully convicted,” the court held.

Around The Firm

August G. Cifelli and William R. Kiendl won an order of dismissal in White v. Northwest Laboratories of Seattle, Inc. Plaintiff sued Northwest Labs for allegedly negligent metallurgical testing performed for a previous federal lawsuit. Gus and Bill successfully argued that the negligence claim was barred by both the economic loss rule (prohibiting tort claims where the action should be resolved on contract principles) and the grant of immunity provided to expert witnesses under Washington law. In granting summary judgment, the court denied plaintiff's motions to amend his complaint and to postpone the summary judgment hearing to allow time for additional discovery.

Philip B. Grennan and Michael A. Guadagno won Watson v. Fairbanks Capital Corp., a one-week real-estate malpractice trial in Grays Harbor County. The mobile home on the property plaintiff purchased encroached on neighboring property. Plaintiff sued the seller for rescission and alleged negligence and sued the real estate agent, Phil and Mike's client, for violation of the Consumer Protection Act. The court found for plaintiff, ordered rescission, awarded plaintiff his attorney fees against the seller, but held that the real estate agent did nothing wrong and dismissed all claims and cross-claims against her.

Jeffrey P. Downer and Mike Guadagno won summary judgment in Hansen v. Gotch Masterson Realty, Inc., a real-estate malpractice case. After buying property, plaintiffs discovered that existing structures encroached on an adjoining lot, and then sued the broker for allegedly failing to discover and disclose this condition. On summary judgment, Jeff and Mike argued that the broker had disclosed all information known about the property and had no duty to discover potential, unknown problems associated therewith. Jeff and Mike also argued that multiple disclaimers contained throughout the purchase and sale agreement established as a matter of law that the plaintiffs were not justified in relying on any alleged misrepresentations. The court agreed with their arguments and dismissed all of the plaintiffs' claims against their clients.

Christina L. Smith won a defense arbitration award in Baker v. Windermere Real Estate, a real-estate malpractice action. Plaintiffs alleged negligence in the preparation of a purchase and sale agreement and in connection with a Section 1031 tax exchange. The arbitrator agreed with the defense that the real estate agent was not liabile for damages when the seller failed to close the sale.

Charles P.E. Leitch and Christina Smith won summary judgment in Benally v. Tacoma School District. A student was sitting on a railing in an outside breezeway during lunch break. He lost his balance, falling approximately 15 feet to a cement landing below, resulting in significant personal injury. The court agreed with the defense that the student's own reckless actions caused his injuries and dismissed the action in its entirety.

Duncan K. Fobes and Jenny M. Downey won summary judgment in Brees v. Beers. The plaintiff sued the defendant, a Guardian Ad Litem coordinator, for denying plaintiff's GAL application. In 2003, plaintiff first sued defendant in federal court for violation of his civil rights. Duncan won summary judgment of dismissal of that action. In 2005, plaintiff sued defendant again in state court, alleging defamation and fraudulent misrepresentation based on defendant's conversations with others concerning plaintiff. At the summary judgment hearing the trial judge dismissed all claims. The court held that plaintiff's claims were barred by collateral estoppel and a qualified privilege, and that plaintiff could not establish a prima facie case to prove his claims of defamation and fraudulent misrepresentation.

Did you know...

... that the Lee Smart firm has a distinguished history of defending legal-malpractice cases?

The firm has several decades of experience in a wide range of professional-liability litigation, including countless legal-malpractice actions. We have won or successfully resolved cases on summary judgment, at trial, and on appeal.

Just a few of Lee Smart's significant reported appellate decisions in the defense of legal-malpractice cases are: Ang v. Martin, 154 Wn.2d 477, 114 P.3d 637 (2005) (malpractice plaintiff who sues criminal-defense lawyer must prove actual innocence of underlying charge); Aubin v. Barton, 123 Wn. App. 592, 98 P.3d 126 (2004) (lawyer’s duty of care in settlement negotiations); Flint v. Hart, 82 Wn. App. 209, 917 P.2d 590 (1996) (lawyer’s duty of care in retaining security interest in sale of business); Harrington v. Pailthorp, 67 Wn. App. 901, 776 P.2d 971 (1992) (scope of duty of lawyers to non-clients); Kelly v. Foster, 62 Wn. App. 150, 813 P.2d 598 (1991) (availability of attorney-fee award in legal-malpractice action); Smith v. Simonarson, 56 Wn. App. 513, 784 P.2d 552 (1990) (failure to record judgment and effect of automatic stay); McKasson v. State, 55 Wn. App. 18, 776 P.2d 971 (1989) (scope of limited right of non-clients to sue); and Olson v. Haas, 43 Wn. App. 484, 718 P.2d 1 (1986) (scope of attorney-client privilege, where one ex-client is not a party to malpractice case).

Lee Smart shareholders who regularly defend lawyer-malpractice cases include David L. Martin, Joel E. Wright, Philip B. Grennan, Jeffrey P. Downer, Sam B. Franklin, and Michelle A. Corsi.