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Not Worth the Paper It’s Written On: Pennsylvania Superior Court Imposes Duty to Consider Collectability on Pennsylvania Attorneys

December 4, 2017

Defense Digest, Vol. 23, No. 4, December 2017

By Timothy R. Stienstraw, Esq.

Key Points:

  • A recent opinion holds that attorneys are obligated to take collectability of a potential judgment into account when pursuing litigation in Pennsylvania.
  • The longstanding affirmative defense to legal malpractice actions based upon non-collectability of a potential underlying judgment may be significantly weakened.
  • While some other jurisdictions have addressed claims against attorneys based upon non-collectability of a judgment, none appears to have explicitly imposed a similar duty to consider collectability.

 

In an opinion published late last year, the Superior Court of Pennsylvania decided that an attorney, or law firm, could be held liable to his client in a legal malpractice suit if he sues the wrong party. Of course, it is common sense that an attorney can be held liable if he mistakenly files suit against a party who is not at fault and that mistake ultimately results in the dismissal of the case. However, the attorney before the court in Heldring v. Lundy, Beldecos & Milby, P.C., 151 A.3d 634 (Pa.Super. 2016) successfully tried the underlying action and obtained a verdict for his client in excess of $100,000. The problem arose only after the verdict. The attorney entered judgment on the verdict on behalf of his client against the underlying defendant, Grasso Holdings, before realizing that it was merely a trade name. The court refused an untimely attempt to amend the judgment to target the corporation acting under the trade name. Accordingly, the judgment was worthless because it was against an entity that did not really exist and possessed no assets. The client filed suit against his attorney for legal malpractice.

Aligning the law in Pennsylvania with that of the courts in other jurisdictions that have considered this issue, the Superior Court held that suing the wrong party is a valid basis for a legal malpractice claim. However, the court did not stop there. It went on to address the non-collectability of a judgment as the basis for a legal malpractice claim, concluding that “collectability is an important consideration in pursuing litigation—one that lawyers are obligated to take into account.” This sweeping imposition of duty did not seem necessary in light of the facts of the case. Rather than simply ruling that filing suit against a trade name rather than a legally recognized entity constitutes malpractice, the Superior Court may have imposed a broader duty to consider the potential collectability upon attorneys contemplating filing suit in Pennsylvania.

This holding is also noteworthy given the minimal amount of previous case law supporting the existence such a duty. The court principally relied upon the Pennsylvania Supreme Court’s decision in Kituskie v. Corbman, 714 A.2d 1027 (Pa. 1998), which addressed collectability as a defense in legal malpractice claims. It is commonly noted that a legal malpractice plaintiff must prove the “case within a case” by showing that he would have actually recovered a judgment in the underlying litigation but for the attorney’s conduct. Such proof is necessary to show that the alleged damages were caused by the attorney’s negligence. However, in Kituskie, the Supreme Court held that an attorney could assert the non-collectability of that judgment as an affirmative defense in legal malpractice claims. Where the attorney can prove that an underlying judgment, though obtainable, would not have been collectable, such proof allows the attorney to mitigate or avoid liability as the client would have been unable to actually realize any gain in the underlying action.

The ruling in Heldring has the potential to turn this non-collectability defense on its head. Based upon the Superior Court’s ruling, a client who anticipates that an attorney-defendant will raise a non-collectability defense may now claim that suing an insolvent defendant was negligence in and of itself. This tactic would introduce additional issues of fact and law into a case that might otherwise be meritless. Moreover, given Pennsylvania’s liberal amendment standards for pleadings, a plaintiff presented with a case where the defense has already been invoked in a responsive pleading could seek to add this additional allegation. Of course, not every underlying case has a multitude of potential defendants. However, just as a defendant can point the finger at a non-party in an attempt to escape liability, a plaintiff may only need to identify some plausible third party not joined in the underlying action to support a legal malpractice claim.

The only other case cited by the Superior Court in Heldring on the subject of collectability was a 1933 decision of the Supreme Court of Arkansas, where the court found there could be liability for an attorney who delayed an action to collect a prior judgment until it became uncollectable. It is not surprising that the Superior Court relied on a rather stale case from a foreign jurisdiction, as it appears that no other state has placed an affirmative duty on attorneys to consider collectability. However, a handful of states have considered cases where non-collectability was alleged as the basis for liability.

One notable example comes from the Federal District Court for the Southern District of New York. Ayala v. Fishman, 1998 U.S. Dist. LEXIS 16094 (S.D.N.Y. Oct. 14, 1998) arose in the context of underlying automobile accident litigation in which claims were filed against both the other driver and the City of New York, the latter on the theory that it failed to repair an inoperative traffic signal. During trial, the City made significant settlement offers, but the plaintiff, after consultation with his attorney, decided to proceed to a verdict rather than settle. The resulting judgment was not only less than the settlement offer, it was against only the other driver, who did not have the means to pay. The City escaped liability. In the subsequent legal malpractice suit, the district court denied the attorney-defendant’s motion for summary judgment based, in part, on the allegations that the attorney should have advised his client about the difficulties of proving the case against the City, the only party who could pay a judgment.

While the Ayala case was later dismissed on other grounds (based upon a second motion for summary judgment), it may serve as an example of the type of lawsuit that may be recognized in Pennsylvania under the Superior Court’s decision in Heldring. On the other hand, attorneys and insurers attending mediations or considering offers of settlement should consider whether the affirmative duty to consider collectability could be used to their advantage.

*Tim is an associate in our Pittsburgh, Pennsylvania office. He can be reached at 412.803.3473 or trstienstraw@mdwcg.com.

 

Defense Digest, Vol. 23, No. 4, December 2017. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2017 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.

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