Student Contributor: Cheryl Neuman
NJ Underlying real estate transaction
Facts: Plaintiff was involved in a real estate transaction wherein the Defendant and his real estate agent failed to disclose evidence revealing that the real estate was situated above wetlands, which would result in building and construction limitations. Plaintiff’s attorney similarly failed to bring this critical information to light. Upon learning of these constraints, Plaintiff sued the Defendant for common law fraud, the Defendant’s real estate agent for violation of the Consumer Fraud Act ("CFA"), and his own lawyer for legal malpractice. The jury awarded the plaintiff $75,650 in compensatory damages for common law fraud, consumer fraud, and legal malpractice and allocated 60% of the liability for compensatory damages to the broker, 30% to vendors, and 10% to plaintiff’s counsel. The trial court increased the damages under the CFA to $226,950. The plaintiff settled with the defendant for $20,000 and with the real estate agent for $500,000. The malpractice claim, however, did not settle, and plaintiff subsequently sued the allegedly negligent attorney for reimbursement of attorney’s fees incurred in the malpractice action.
Issue: Will a negligent attorney sued for malpractice be liable for the legal fees incurred by his former client in the malpractice action?
Ruling: As a general rule, New Jersey Courts ascribe to the American Rule: there is no fee shifting between parties irrespective of who prevails. Legal malpractice cases, however, are an exception. Legal fees incurred by a former client in a legal malpractice action are considered additional compensatory damages in instances where the client prevails. The Grubbs Court found that the negligent attorney was liable for one-third of the attorney’s fees and costs incurred by his former client in the malpractice action.
Lesson: A negligent attorney is responsible for the reasonable legal expenses, costs, and attorney’s fees incurred by a former client in prosecuting the legal malpractice action against the negligent attorney.