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Ziegelheim v. Puder: NJ District Court On "Settle and Sue"

Hubert v. Bartels, United States District Court, District of New Jersey, February 4, 2010

Facts:  This legal malpractice action arose from an underlying products liability action by the Huberts for defective breast implants.  At the mediation of the underlying matter, Plaintiffs agreed to settle.  During further negotiations, however, Plaintiffs became dissatisfied with the final form of the agreement and filed a motion to be released from the settlement.  The court held that the settlement was enforceable and the parties had agreed to a form of release.  Plaintiffs assented to the terms of the settlement as modified by the court.

Plaintiffs subsequently brought this action for malpractice alleging that they did not receive an adequate settlement for their claims in the underlying action.

Issue:  Can a Plaintiff bring a malpractice suit against his attorney after entering into a settlement in the underlying matter? 

Ruling:  Yes. 

Decision:  In making its decision, the Court analyzed the New Jersey Supreme Court’s two seemingly contradictory opinions on the issue:  Ziegelheim and Puder

[In Puder], the original attorney had obtained a divorce settlement to which the client originally agreed…The client then consulted another attorney who expressed the opinion that the settlement was "ridiculously inadequate."…The client fired the original attorney and filed a malpractice lawsuit against the original attorney which was stayed pending the outcome of a hearing on the enforceability of the settlement worked out by the original attorney…After six days of testimony in the hearing to enforce the settlement, but prior to any ruling on the enforceability of the settlement, the parties informed the motion judge that a new settlement had been reached…The new settlement was substantially similar to the disputed settlement, and the new settlement was found by the motion judge to be entered into knowingly and voluntarily.

The client in Puder then sought to litigate the stayed malpractice action against the original attorney…Holding that the public policy of New Jersey encouraging settlements was the determinative factor, the Supreme Court of New Jersey held that the second settlement barred the client’s claim against her original attorney.

In doing so, the New Jersey Supreme Court distinguished an earlier case concerning matrimonial legal malpractice…In Ziegelheim, a client entered into a settlement agreement in a divorce action allocating about fourteen percent of the marital assets to the client after the client’s lawyer advised her that she could expect no more than ten to twenty percent of the marital property after a trial…One year later, the client sought to set aside the property settlement and recover from her original attorney in a malpractice case…After the property settlement was found to be enforceable, the malpractice case went forward…The Supreme Court of New Jersey held that the malpractice action against the attorney should have been allowed to go to trial, because there was a genuine dispute concerning the competence of the original attorney, including the attorney’s advice on the likelihood of the client receiving no more than twenty percent of the marital assets after trial.

The Court found that the facts of this case were more in line with Ziegelheim, since Plaintiffs did not enter into a second settlement after obtaining advice from new counsel.  Rather, "a settlement was reached and was found enforceable after the Plaintiffs sought release from the deal they had struck…Having received information about the enforceability hearing in 2000 that there may have been a defect in the professional advice they received from Defendants…they filed the instant suit."  Recognizing the possibility that Plaintiffs may have received a more favorable settlement with different legal representation, the Court allowed Plaintiffs to pursue their malpractice action, despite the settlement in the products liability matter.

Lesson:  The fact that a party entered into a settlement in the underlying matter, does not mean that the party had competent representation.  Accordingly, an underlying settlement will not always bar a subsequent malpractice action.

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Posted in: New Jersey