Undelrying: Employment law litigation
FACTS: Lawyer, representing hospital in underlying employment litigation was terminated by Hospital. New counsel was retained. Hospital was then sold in a sale and lease agreement to consolidate with other hospitals into a new medical care system. The sale agreement provided that all property and interests of the hospital were being "leased, sold, assigned…whether known, contingent or otherwise." The new medical center entity was aware of the underlying law suit at the time of the transaction. After the sale, the underlying litigation was continued by the new entity with new counsel and was ultimately settled. The new medical center then sued the prior attorneys for legal malpractice. The action was brought in federal court, which certified the question of whether the assignment of the cause of action for legal malpractice was valid under Idaho law. Usually, it is contrary to public policy.
ISSUE: In the context of a commercial transaction which transfers all of the client’s assets to another entity, is an assignment of a legal malpractice cause of action valid under Idaho law or is it contrary to public policy of prohibiting the assignment of tort causes of action?
RULING: The Idaho Supreme Court acknowledged that in general "free standing" assignments of legal malpractice causes of action are not assignable due to the unique circumstances of an attorney-client and related public policy considerations. But where the assignment is part of a commercial transaction where other assets and liabilities of the entity are transferred, the public policy considerations disfavoring such assignments are not brought into play. Here, the new medical center stepped into the shoes of the predecessor hospital in all respects and there was no reason to deprive the new entity of the former hospital’s remedies against its terminated lawyers.
LESSON: The decision presents yet another step in the trend to permit the assignment of legal malpractice causes of action in the context of commercial transactions. States such as New York and Pennsylvania also permit such assignments.
Posted in: Idaho