Law360, Philadelphia (June 8, 2017, 6:06 PM EDT) -- Attorneys warn that a glut of new legal malpractice suits could be in the offing in Pennsylvania if the commonwealth's Supreme Court, as part of an appeal taken up on Tuesday, jettisons a ruling that has largely barred clients from suing their counsel over cases they agreed to settle.
The court, as part of a dispute over the handling of a former hospital worker's wrongful termination lawsuit, is weighing the continued viability of its 1991 decision in Muhammad v. Strassburger McKenna Messer Shilobod & Gutnick prohibiting legal malpractice suits following a settlement absent a showing of fraud on the part of the attorney.
But the prospect of a decision upending Muhammad has some members of the defense bar worried that attorneys could end up facing a broad new class of malpractice claims from former clients suffering buyers' remorse after agreeing to settle their cases.
"What would happen is you'd see a lot of plaintiffs second-guessing their lawyers' judgment in settlements, and that could open the floodgates in terms of litigation," said Conrad O'Brien PC managing partner Nicholas Centrella.
The case taken up by the justices on Tuesday centers around plaintiff Eileen McGuire's efforts to sue a Carbon County hospital after she was fired in July 2011 in what she says was both an act of age discrimination and retaliation for refusing to engage in illegal or unethical behavior on the job.
After inking a $7,000 settlement with her former employer, however, McGuire filed suit against her attorneys — including Deirdre Kamber Todd, formerly of Fitzpatrick Lentz & Bubba PC, and Donald Russo — of failing to include a claim for age discrimination and for failing to exhaust administrative remedies before the U.S. Equal Employment Opportunity Commission.
The failures, she said, left her in a weakened position that forced her to accept a deficient settlement.
A Lehigh County trial judge threw out McGuire's malpractice case in July 2015, and the Pennsylvania Superior Court issued a 2-1 decision in November upholding the dismissal.
The Superior Court found that negligence allegations against McGuire's attorneys over their handling of her wrongful termination case fell short of the requirement under Muhammad that there be a showing of fraud in order to pursue a settlement-based malpractice claim.
While the Muhammad decision specifically allowed claims after settlement based on instances of fraud, courts over the years have created other carveouts.
Josh Byrne, an attorney with Swartz Campbell LLC's professional liability practice, said that additional exceptions to Muhammad now include cases where there were errors in the creation of a settlement agreement, or improper advice about the effects of a settlement.
McGuire's petition for allowance of appeal to the Supreme Court noted the assorted departures from the Muhammad holding over the years, and suggested that the ruling was not intended to shield attorneys from potential negligent actions in the run up to a settlement.
"Muhammad does not immunize attorneys from legal error upon which a settlement is causally predicated," McGuire said in her petition to the justices. "The Muhammad settle-and-sue prohibition regards merely speculative second-guessing the settlement valuation only. Negligence leading to a diminished settlement precludes that settlement from barring a subsequent legal malpractice action."
Matthew Weisberg, an attorney with Weisberg Law PC representing McGuire, told Law360 on Thursday that Muhammad had allowed negligent attorneys to shield themselves by going on to procure miniscule settlements for clients after botching their cases.
"Muhammad has undermined public confidence in attorneys by leaving even admittedly neglectful attorneys unaccountable to their clients if those attorneys can artfully obtain even a post-neglect de minimis settlement ... [which] no rational client, sophisticated or not, would otherwise refuse merely to take their chances at a successor legal malpractice matter's success," he said.
But defense attorneys expressed shock at the breadth of the Supreme Court's order granting the appeal, which seemed to call into question whether there should be any bar to post-settlement malpractice claims.
"It is surprising to me that they would accept allocatur on such a broad statement regarding reversal of Muhammad, given the court's continued acceptance of Muhammad as the seminal case law regarding the inability of plaintiffs to bring claims against attorneys after settlement," Byrne said.
He said that the impact of a decision overturning Muhammad wouldn't end simply with the creation a new class of malpractice claims, but would also have a chilling effect on attorneys looking to settle cases for their clients.
"If a client could turn around and sue an attorney any time an attorney settles a case, it would make attorneys much more reluctant to settle," Byrne said. "That could have a wide impact on the functioning of the litigation process."
In order to avoid facing potential claims from a client with buyer's remorse following a settlement, Centrella said that attorneys could resort to the troubling practice of having outside counsel review offers.
"It's a possibility also that, if you're a plaintiffs lawyer and you want to settle a case, you might want to get another plaintiffs lawyer to give you a second opinion on whether the settlement is reasonable or not," he said. "Now you're getting multiple people involved to try and protect the interests of the lawyer instead of the client."
Fox Rothschild LLP partner Robert Tintner, however, said he saw reason to think the Supreme Court was interested simply in tweaking its holding in Muhammad rather than rejecting it wholesale.
He pointed to the language of the Supreme Court's order granting an appeal in the case, which said the court would consider whether to overturn Muhammad's prohibition on post-settlement malpractice claims "even in instances where an attorney's negligence led to a lesser settlement."
"My sense is they're looking at a further carveout of Muhammad, and not a complete overturn," he said.
He said that, while it was sound policy to prevent clients from second-guessing reasonable settlements obtained by their attorneys, he believed there was room to allow claims in situations where it could be shown that negligence led to a lesser settlement.
"I would hope that the Supreme Court draws a distinction ... where you have some type of negligence in the course of the case and you had a plaintiff who is, in essence, forced to settle," he said. "Frankly, I don't think that Muhammad should be used to shield negligence."
McGuire is represented by Matthew Weisberg of Weisberg Law PC.
The defendants are represented by Danny Cerrone and Mark Nowak of Clark Hill PLC, Matthew Marrone and Michael Luongo of Goldberg Segalla LLP, and Paul Troy of Kane Pugh Knoell Troy & Kramer LLP.
The case is Eileen McGuire v. Donald Russo et al., case number 26 MAP 2017, before the Pennsylvania Supreme Court.
--Editing by Katherine Rautenberg and Breda Lund.