Appellate Division held that litigation privilege does not bar client's malpractice claim against his/her attorney.

The issue in this appeal is whether the trial court properly dismissed the plaintiff's, Buchanan, claim for malpractice against the attorneys who represented him in the underlying matter. Buchanan represented the Kerrs in filing for bankruptcy. When he learned that he could not file Chapter 13 due to an unsecured second mortgage on the Kerrs’ property, Buchanan advised them to get counsel who had experience in filing Chapter 11 bankruptcy. The Kerrs declined because they did not want additional expense by retaining new counsel, so Buchanan wrote a letter to the Kerrs detailing that they would indicate in the Bankruptcy 13 filing that the unsecured debt was secured by a $200,000 garage and that, if it was denied, the Kerrs agreed to absorb all penalties. Subsequently, the Kerrs filed a malpractice action against Buchanan alleging he filed legally deficient Chapter 13 bankruptcy pleadings and, as a result, they lost their residence, business and the business property.

Buchanan was defended by his professional liability insurance policy, but the company was declared insolvent; therefore, the New Jersey Property-Liability Insurance Guaranty Association (PLIGA) assumed his professional liability carrier’s obligations to defend Buchanan. The expert retained on Buchanan’s behalf opined that the Kerrs had agreed and were aware that, in order to proceed with the Chapter 13 proceedings, they had to classify the second mortgage as almost entirely secured. The expert also opined that the Kerrs had intended to abandon their residential property, so they were aware that the loss of the property would not affect the taxes they were required to pay. The expert wrote that the loss of the Kerrs’ properties and business was not the result of Buchanan’s conduct but was the result of the Kerrs’ failure to make payments according to plan. Buchanan’s counsel drafted a settlement memo based on the expert’s opinions. On the basis of Buchanan’s information in the settlement memo, PLIGA denied coverage to Buchanan.

Following a bench trial in the declaratory judgment action, it was held that Buchanan was entitled to coverage. Buchanan then filed suit against his attorneys, alleging slander and defamation per se. The trial court granted summary judgment that Buchanan’s claims were barred as a matter of law because his counsel’s statements in the settlement memo were protected by the litigation privilege. The Appellate Division concluded that the trial court erred by determining that the litigation privilege bars Buchanan’s legal malpractice claim because the privilege should not be extended to protect an attorney from civil liability where his or her client claims that the attorney’s representation did not meet the applicable standards for legal practice.

Case Law Alert - 1st Quarter 2013