Avoiding Legal Malpractice Claims Arising from Settlements

Steve Schwartz

By Steven H. Schwartz
As published in the September 2023 edition of Missouri Lawyers Weekly

Usually, clients are happy to have a case settled, or at least relieved to have the case end. However, sometimes clients have second thoughts about the settlement and end up suing their lawyer after the settlement claiming either: (1) the lawyer acted without authority; (2) the lawyer did not provide all the critical information to the client so the client could make an informed decision about the settlement; or (3) the lawyer pressured the client into accepting too little or paying too much to settle.

The Missouri Rules of Professional Responsibility require lawyers to notify clients of all settlement offers and demands from the opposing side. It is best to notify the client of all settlement offers and demands in writing. A short email forwarding the opposing counsel’s communication will suffice.

It is also best to confirm settlement authority from the client in writing, to make sure there is no misunderstanding about the lawyer’s authority. If there is no confirming letter or email about the lawyer’s authority, and the lawyer settles the case, believing they have authority to do so, the Court can enforce the settlement because the lawyer had apparent authority to enter into the agreement on behalf of the client. If the client contends that the lawyer acted beyond their authority, and the client is forced to accept a settlement to which the client claims they did not agree, the client can sue the lawyer for acting without authority. The best way to avoid this situation is to communicate with the client in writing, stating the settlement authority. That one letter or email can avoid an entire lawsuit.

In some cases, clients have sued their lawyer after a settlement, claiming that they agreed to settle but the lawyer did not provide sufficient information for the client to make an informed decision. For example, a spouse in a divorce may claim that they would not have agreed to the divorce settlement if they realized that the other spouse had more assets than had been discovered at the time of the settlement. A defendant in a personal injury case may claim that they would not have settled if they knew that the plaintiff had had several prior injuries to the same parts of the body that the plaintiff claimed were injured in the accident that was the subject of the claim that was settled.

Because of the above circumstances, it is important to inform the client of what the lawyer knows, and what the lawyer does not know, at the time of the settlement. In other words, in the divorce case, it would be important for the lawyer to inform the client in writing that the lawyer has not completed a full investigation of the other spouse’s finances, but the client may wish to settle anyway to avoid the cost of that investigation and get the divorce behind them. In the personal injury situation, the client-plaintiff should be told in writing about the possibly of liens, or the liens should be determined in advance of the settlement, if possible. Similarly, the client-defendant in the personal injury case should be told in writing that a full investigation of the plaintiff’s prior accident history has not been completed but the client may want to settle anyway to avoid the cost of that investigation and other costs of litigation.

There are also rare situations when a client will claim that they were bullied or pressured into settling by the lawyer. This is rare because it usually involves an unscrupulous client to make this claim. If you suspect that your client may make that claim, the best way to avoid it is to write a letter or email to the client before the client agrees to settle summarizing your discussions, the reasons the client may agree to settle, and the reasons the settlement was fair in your view. If the settlement occurred at a mediation, there may be witnesses that can help you, but the mediator probably will not be able to help you if the mediation took place in Missouri because everything said in a mediation is confidential under a Missouri statute, and the mediator cannot be called to testify. R.S.Mo. § 435.014. That is why it is important to summarize the events of the mediation in a letter or an email to the client.

The best way to protect yourself from being sued regarding a settlement is to document your communications with your client.

Steven Schwartz is a principal at Brown & James in St. Louis who has defended lawyers in legal malpractice cases, malicious prosecution cases and ethics complaints for over 35 years. He can be reached at sschwartz@bjpc.com.