NJ Underlying personal injury action; statute of limitations
Student Contributor: Evan Hess
Facts: Defendants represented Plaintiff in a personal injury action where, Defendants did not pursue the Plaintiff’s claim in a timely matter. As a result, Plaintiff was time barred from filing the matter by the statute of limitations. At the time of appeal, Plaintiff and Defendants had partially settled the malpractice claim for $90,000 in compensatory damages. Defendants claimed they should receive a reduction in the settlement based upon the pre-existing contingency agreement. That terms of the agreement set forth that one-third of the total recovery by the Plaintiff would be paid to the Defendants, thus entitling the Defendants to a $30,000 reduction in total payout based upon the settlement figure of $90,000.
Issue: Can a Plaintiff receive the sum of their settlement without a deduction for contingency fees in a legal malpractice action, and can the Plaintiff recover the amount that would have otherwise been awarded to the Defendants as a fee for damages?
Ruling: Based upon the Supreme Court’s holding in Saffer v. Willoughby, 143 N.J. 256 (1996), the Appellate Division held that:
1) Attorneys cannot recover contingency fees based upon settlements or judgments against them in an action for legal malpractice;
2) The Plaintiff may recover fees based upon the settlement as malpractice damages even though in doing so the Defendant is subjected to duplicate recovery;
3) A Plaintiff may not recover hourly fees under the “lodestar” method that were not contemplated if a contingency fee agreement exists with Plaintiff’s attorney in the malpractice action.
Lesson: A Plaintiff may recover the total sum of the value of the underlying case without offset for the fees the negligent attorney would have received in that case. In addition, under NJ law, the fees and expenses paid to the attorney who prosecuted the malpractice action are recoverable as compensatory damages.