Battle Brewing Over New Jersey’s Harsh Legal Malpractice Climate

By:  Matthew S. Marrone

           
  In 1996 the Supreme Court of New Jersey rendered its opinion in the case of Saffer v. Willoughby, 670 A.2d 527 (N.J. 1996).  This landmark fee-shifting decision dramatically changed the legal malpractice climate in New Jersey, and over the ensuing twelve years the Garden State has become arguably the most difficult in the nation for attorneys and their insurers to defend malpractice claims.  At long last, however, a movement to reverse this onerous rule is gaining widespread momentum.

            By way of background, in Saffer the court was initially asked to consider whether a negligent lawyer may deduct a reasonable quantum meruit fee from a wronged client’s recovery against him.  The court recognized that while some jurisdictions permit such a deduction, the majority do not, reasoning that the additional legal fees a client incurs in pursuing the malpractice action “cancel out” any fee the plaintiff would have owed the negligent attorney had competent services been provided.  The Saffer court – in a unanimous decision – chose to take this a step further and blaze its own new trail.  Not only is the negligent attorney not permitted to deduct a reasonable fee from a plaintiff’s recovery, the court ruled, he is additionally liable to the client for reimbursement of fees and costs of pursuing the malpractice action. 

            The Saffer “double recovery” rule broke ranks with every other jurisdiction in the country and paved the way for a very plaintiff-friendly legal malpractice environment which ensued.  Perhaps most disturbingly from lawyers’ and their insurers’ perspectives, the Saffer rule was later interpreted to allow huge fee awards in legal malpractice cases where the clients prevailed on liability but received no compensatory damages.  Thus, if the lawyer is proven negligent but the negligence caused the client no harm, the client (and her malpractice attorney) is still entitled to reimbursement of fees and costs for pursuing the negligent lawyer – talk about incentivizing the legal malpractice plaintiffs’ bar.

            The Saffer rule is now being challenged on two fronts – in the courts and in the legislature.  In Middlebrooks & Shapiro v. Bonanno (Docket No.: ESX-L-9493-02), the plaintiff law firm sued a transactional client for nonpayment of a $120,000 fee and was countersued for malpractice.  The counterclaim was dismissed before trial, but the jury found the firm handled the case improperly so it was not entitled to its fee.  While common sense would seem to rule this a tie, the judge ordered the firm to pay the client a $52,000 fee award under the Saffer rule outlined above.  This issue, along with several others in the case, is now on appeal to the intermediate appellate court, which has been reluctant to tamper with the Saffer rule.

            However, this time the appellant – along with the New Jersey State Bar Association – is hoping the legislature will intervene.  The Bar Association has drafted a bill long in the making that would prohibit fee awards to successful legal malpractice plaintiffs.  The bill also seeks to cut the statute of limitations for professional malpractice suits from six years to two years, thereby putting New Jersey in sync with Pennsylvania. (New York, Delaware and Connecticut have three-year statutes.)  The Bar Association is in the process of seeking a legislative sponsor and support from other professional societies.  (Ironically, the group for which this bill poses the greatest dilemma is the New Jersey chapter of the American Association for Justice (nee Association of Trial Lawyers of America (ATLA)) – a group dominated by plaintiffs’ lawyers, who are most commonly defendants in legal malpractice lawsuits and would benefit from the bill, but who champion the largest possible remedies for plaintiffs.  This group has not yet taken a position on the draft.)

            Although this movement has been a long time coming, and still faces a long road ahead, many observers believe its prospects are good, given the general climate of business-friendly legislation.  Of course, we will continue to monitor these important issues and will keep our readers abreast of all developments.