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N.J. An "Unpublished" Primer on Damages and Attorney Fees in Legal Malpractice Actions

Nix v. Verp, NJ App Div 2-18-2011 (Not approved for Publication).

Underlying matter:  NJ Real estate closing; inappropriate title search resulting in legal malpractice action

Ed. Note: We tend to diminish the value of unpublished decisions because of their limited precedential value. But make no mistake. As a means of getting a quick primer on almost any legal subject, they can be invaluable. That is so in this case.

FACTS: Client was offered a chance to buy the property on which his business had been situated for many years. His landlord defaulted on his mortgage and the bank got a foreclosure judgment against him. The Bank then offered to assign its foreclosure judgment to Client  (the tenant) for $5,000, which would enable him to be the sole bidder at the Sheriff’s foreclosure sale. Client hires Lawyer to do the necessary for him to get title. Lawyer fails to do an appropriate title search, attends the Foreclosure sale and secures title in the name of the Client. After closing of title, Client is advised by Tax Collector that there was a $176,000 lien for unpaid back taxes. Had Client known that, he would never have proceeded to purchase the property. To prevent loss of his just acquired title by a pending tax certificate sale, Client had to pay off the lien.  Lawyer had failed to do an appropriate title search before the Foreclosure sale, which would have revealed the unpaid tax lien certificate of $176, 000.

Client then sues the Lawyer for legal malpractice. On motions for summary judgment, the trial court finds Lawyer liable, but limits Clients damages to what he paid for the property plus reasonable fees and costs. Client appealed claiming that Lawyer is liable for the “full amount of the tardily discovered lien.”

On proximate cause the Court ruled that   the closing date was the critical key. The Lawyer should have discovered the lien before the closing and  once the deed was conveyed into the Client’s name, he was not required to “walk away from the transaction”. “[A]bandoning title might have been too much to ask in light of the tangible benefits of ownership.”

ISSUE: How do we calculate the Client’s damages for the Lawyer’s failure to discover the “stealth” tax lien? How does the Court calculate compensatory damages under Saffer v. Willoughby 143 N.J. 256 (1996)?


A. As to the Measure of the Client’s Damages:

1. Client’s damages are not limited to the purchase price plus counsel fees. Client is entitled to have the benefit of his bargain.
2. Client’s getting the benefit of his bargain, no matter how good a bargain it was, does not amount to a “windfall”, as urged by defendant Lawyer.

The measure of…loss or the amount of damages recoverable against an attorney for…malpractice necessarily depends upon the nature of [the attorney’s] undertaking for the client…In fixing damages in actions based on professional negligence, the measure is the amount that will put the ‘plaintiff in as good a position as he or she would have been had the professional not breached. The value the client lost or the amount the client had to pay is an acceptable measure of damages for professional negligence

In addition…another measure of damages is acceptable: an amount that would place [the Client] in the position he would have occupied but fro the negligence. That measure is the cost of replacing what was expected to be received when the reliance was had on [the Lawyer’s] incomplete advice. The damages are the difference between the result sought and the actual result…(“[T]he measure of damages is ordinarily the amount that the client would have received but for attorney’s negligence.”)]

B. As to the Client’s Duty to Mitigate  Damges, the court ruled:

[The Client] was not required to give up the property he desired and paid for “in order to absolve defendant from damages.” 

C. As to Calculation of Attorney’s Fees as Damages Under Saffer v. Willoughby: 

1. The contingent fee agreement between the malpractice plaintiff and his malpractice attorney does not apply to applications for attorneys fees under Saffer. “The reasonable counsel fees payable to the prevailing party under fee-shifting statute is determined independently of the provisions of the fee agreement between the party and his or her counsel.”

2. Trial Courts may employ the lodestar method in calculating counsel fee awards in legal malpractice actions. Packard-Bamberger, supra 167 N.J. at 444-446. “The lodestar calculation is defined as the nuber of hours reasonably expended by the attorney, multiplied by a reasonable hourly rate… Determining the lodestar is not a mechanical function. A trial court must “evaluate carefully and critically the aggregate hours and specific hourly rates advanced by counsel for the prevailing party to support the fee application.”

3. No compensation is due for non-productive time…A trial court ‘should exclude hours that are not reasonably expended. Hours are not reasonably expended if they are excessive, redundant, or otherwise unnecessary. Further, the court can reduce the hours claimed by the number of hours spent litigating claims on which the party did not succeed. Moreover, the court ‘can deduct hours when the fee petition inadequately documents the hours claimed. While the use of contemporaneously recorded time records is the preferred practice to verify hours expended by counsel in connection with a counsel-fee application, ’a court may award counsel fees based on reconstructed records. However where the record consists of reconstructed records, the trial court must scrutinize the records with ‘meticulous care.’

4. As to the reasonableness of hourly rates, the determination ‘need not be unnecessarily complex or protracted, but the trial court should satisfy itself that the assigned hourly rates are fair, realistic, and accurate, or should make appropriate adjustments.’ Moreover, ‘[t]o take into account delay in payment, the hourly rate at which compensation is to be awarded should be based on current rates rather than those in effect when services were performed. 

LESSONS: Save this decision as a handy guide for future reference. One comment we would offer, however, refers to  the Court’s  erroneous assumption that Saffer v. Willoughby is a "fee shifting" scheme. It is not. It is a method by which the NJ Supreme Court permits an award of  compensatory damages to the injured victim of legal malpractice. If the damages, in the form of attorneys fees and costs,  that the client is required to pay the malpractice attorney are calculated, indeed defined, by the contingent fee rule, and the client actually has to pay that amount, we are at a loss to understand why the trial court must go through a "lodestar" analysis which typically is applied to hourly fee cases and quantum meruit considerations.  What if a "lodestar" analysis would award more than the contingent fee? Would the Court rule otherwise? Would the Court rule that the lawyer can collect only the amount of the contingent fee?  This dilemma can be resolved if the Court had  not mixed apples and oranges by confusing fee-shifting modalities as provided in various statutes and rules with an award of compensatory damages. Saffer v. Willoughby is NOT a fee shifting modality. 

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Posted in: Attorneys Fees, Damages, New Jersey, Real Estate