Superior Court Opens the Door for Plaintiffs To Recover Consequential Damages in Legal Malpractice Actions in Assumpsit

By Nicole M. Ehrhart, Esq.*

Key Points:

• Superior Court expands damages in legal malpractice actions in assumpsit.
• Potential damages now may include actual losses sustained.

Albeit in a non-precedential decision, the Superior Court, in Coleman v. Duane Morris, LLP, 1659 EDA 2011, has considered the issue of damages in an action for legal malpractice and held that consequential damages are recoverable. To put it simply, the Superior Court reasoned that these damages were such as: (1) would naturally and ordinarily result from a breach; (2) were reasonably foreseeable; and (3) were within the contemplation of the parties in the action and capable of being proved with reasonable certainty.

The impact of Coleman is unclear given that the opinion was not published and is, therefore, non-precedential. However, Coleman has opened the door for other courts to consider this issue of expanding damages in legal malpractice actions in assumpsit beyond the amount actually paid for legal services, a restraint identified by the Pennsylvania Supreme Court in Bailey v. Tucker, 621 A.2d 108 (Pa. 1993).

The facts of the Coleman case are straightforward and involve the eventual sale of two corporations, BCA Management, Inc. and BCA Professional Services, Inc. (BCA). The plaintiffs entered into preliminary negotiations with Mirabilis Ventures, Inc. for the sale of BCA. The plaintiffs orally retained Attorney Kathleen Shay to represent them and BCA in the sale of stock to Mirabilis. As per the parties' agreement, Attorney Shay was to bill BCA for her services, and Mirabilis would pay the legal fees after acquiring BCA's stock.

The draft stock purchase agreement provided that the plaintiffs would sell 100 percent of their stock and resign their positions with BCA in exchange for $300,000 and new positions with Mirabilis. Of significant importance was a guaranty from Miabilis that it would pay up to $2.2 million in unpaid taxes. The plaintiffs sought confirmation from Attorney Shay that the sale would terminate their personal liability for unpaid taxes.

Two days prior to the closing, Avant Services was substituted for Mirabilis. The plaintiffs sought confirmation that Avant would be liable for the unpaid taxes and received assurances from Attorney Shay that their liability for the unpaid taxes would be extinguished by the sale to Avant.

Several months after the execution of the stock purchase agreement, the plaintiffs discovered that they were still personally liable for the unpaid taxes. Ultimately, they learned that the assets of BCA had been plundered and that the taxes were eventually paid after the IRS seized a bank account in BCA's name.

The plaintiffs filed this malpractice action in assumpsit alleging breach of contract. In the defendants' Answer with New Matter, they alleged, among other issues, that Attorney Shay's invoices were never paid. The defendants then filed a Motion for Judgment on the Pleadings asserting that, since the plaintiffs had never paid Attorney Shay's legal fees, the plaintiffs had not suffered any recoverable damages.

The lower court granted the defendants' Motion for Judgment on the Pleadings. The sole issue on appeal was whether the lower court erred in granting the defendants' Motion for Judgment on the Pleadings where the plaintiffs' damages were limited to the recovery of legal fees paid, plus interest. The plaintiffs did not pay any legal fees and, according to the Court of Common Pleas, did not suffer any recoverable damages. The Court of Common Pleas relied on the Supreme Court decision in Bailey v. Tucker, 621 A.2d 108 (Pa. 1993) to support its decision that the plaintiffs could only recover legal fees plus interest paid by them. The Court stated that Bailey and its successors limited the recovery in legal malpractice actions in assumpsit to the amount actually paid for legal services.

On appeal, the Superior Court considered the analysis and limitation on damages dictated in Bailey. It went on to make the leap that the Bailey limitation on damages applies to an action in assumpsit based on a claim of legal malpractice, but only in a criminal case. Bailey did not extend to a civil case. The Superior Court, therefore, reversed based on the trial court's application of the Bailey limitation on damages.

The Superior Court held that the plaintiffs were entitled to recover actual losses sustained beyond attorney's fees and those damages must be of the type that naturally and ordinarily result from a breach, as long as those actual damages are foreseeable.

Defense Digest, Vol. 19, No. 1, March 2013