Plaintiffs in legal malpractice actions premised upon breach of contract may recover all actual damages incurred, including consequential damages.

In this legal malpractice action, the plaintiffs set forth a claim for breach of contract arising from an underlying stock purchase agreement, wherein the plaintiffs erroneously believed, based upon attorney-defendants' advice, that the sale would terminate their liability for unpaid taxes. The trial court held that in Bailey v. Tucker, 621 A.2d 108 (Pa. 1993), the Pennsylvania Supreme Court limited damages in a legal malpractice action to the recovery of legal fees paid to the defendant-attorney. Since the plaintiff never paid the attorney-defendants their legal fees in connection with the stock purchase agreement, the trial court held that the plaintiff suffered no actual loss. The Superior Court reversed, finding that the limitation on contractual damages set forth in Bailey only applied where the underlying action was criminal in nature, as in Bailey. Thus, where the underlying action was civil or transactional, a plaintiff asserting a claim for legal malpractice premised upon breach of contract is entitled to all actual damages incurred, including consequential damages. Thus, the plaintiffs could properly claim damages in the form of the value of their stock, which was bargained away based upon the defendant's advice, and the interest and penalties that accrued on the unpaid taxes.

Case Law Alerts - 2nd Quarter 2013