(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued October 24, 1995 -- Decided February 5, 1996
COLEMAN, J., writing for a unanimous Court.
William Willoughby, Jr. played professional basketball from 1975 through 1984. During that time,
Willoughby retained the services of All-Pro Reps, Inc. (All-Pro), and its principals, Jerry Davis and Lewis
Scheffel, as agent and business manager, respectively. Willoughby arranged for All-Pro to receive a portion
of his earnings to invest on his behalf. Davis and Scheffel diverted most of the money, without Willoughby's
authorization, into tax shelters. Approximately $1 million of Willoughby's money was lost.
Davis brought an action against Willoughby, claiming that Willoughby owed $129,000 in fees.
Willoughby retained Michael A. Saffer, Esq., to represent him. Saffer asserted counterclaims against Davis,
alleging breach of fiduciary duty and misappropriation of funds. Willoughby asked that Saffer bring in
Scheffel as a third-party defendant on the counterclaim. Saffer refused, telling Willoughby that there was no
evidence to support Scheffel's involvement in the scheme to mishandle Willoughby's money.
A jury awarded Willoughby significant monetary damages on the counterclaim, totalling over
$750,000. Shortly after the verdict was rendered, Davis filed for bankruptcy. Willoughby was able to collect
only $150,000 of the total judgment and has little hope of collecting the remainder of that judgment.
Shortly after Davis filed his petition in bankruptcy, Saffer withdrew his representation of Willoughby
because Willoughby failed to pay Saffer's legal fee. Willoughby claimed that Saffer breached their original
fee agreement and over-billed him. Willoughby retained new counsel who filed a request for arbitration of
Saffer's fee with the District XI Fee Arbitration Committee (Fee Committee) for Passaic County. During
the course of that arbitration, Willoughby and his new attorney discovered in Saffer's Davis-Willoughby
litigation file a copy of a promissory note signed by Scheffel that allegedly tied Scheffel to the
misappropriation of Willoughby's earnings. Willoughby claims that: 1) Saffer intentionally or negligently
withheld this evidence; and 2) had Scheffel been held jointly liable for the judgment, Willoughby would have
been able to collect the full amount of his damages from Scheffel.
Willoughby's attorney presented evidence of the alleged legal malpractice at the Fee Committee
hearing, arguing that an attorney who commits malpractice is not entitled to a fee. On May 17, 1993,
Willoughby filed a malpractice complaint against Saffer claiming as damages the difference between the full
amount of the judgment against Davis and the amount Willoughby actually collected.
On August 11, 1993, the Fee Committee found that Saffer met his burden of proving the
reasonableness of his fee based on the criteria set forth in the Rules of Professional Conduct (RPC) 1.5, and
awarded Saffer a fee of $120,000, of which $103,510 remains unpaid. When Saffer sought confirmation of the
award and entry of judgment, Willoughby filed a motion for a stay pending disposition of the legal
malpractice complaint. On December 20, 1993, the Law Division denied Willoughby's application for a stay,
confirmed the award, and entered final judgment for Saffer in the amount of $103,510 with interest. On
appeal, the Appellate Division affirmed, holding that the pending malpractice action did not satisfy any of the
statutory grounds to vacate an arbitration award.
The Supreme Court granted certification.
HELD: Under the unique circumstances of this case and the controlling rules in effect during the arbitration, the District XI Fee Arbitration Committee should have granted the client a thirty-day window of opportunity after discovery of the alleged malpractice to withdraw the request for arbitration. In the
absence of the opportunity for Willoughby to withdraw the request for arbitration, the Appellate
Division should have stayed the fee award pending the disposition of the legal malpractice complaint.
1. In a fee arbitration, the determination of a Fee Committee is binding and not appealable unless a
committee member: failed to disqualify himself or herself; failed to follow the rules; or committed fraud.
The amended rules, effective after this arbitration, provide an additional ground for appeal: a palpable
mistake of law by the Fee Committee that on its face was gross, unmistakable or in manifest disregard of the
applicable law and has led to a unjust result. Withdrawal from arbitration by a client is only permitted
within thirty days after the request for arbitration is docketed by the secretary of the Fee Committee.
(pp. 5-8)
2. A Fee Committee has jurisdiction only to arbitrate fee disputes between clients and attorneys. Pursuant
to Court Rules, the Fee Committee does not have jurisdiction to decide claims for monetary damages
resulting from legal malpractice. However, the filing of a malpractice claim does not deprive the Fee
Committee of jurisdiction to decide the fee dispute. In the course of deciding the reasonableness of a fee, a
Fee Committee may consider evidence of malpractice for the limited purpose of affecting the quality of
services rendered in assessing the reasonableness of the fee pursuant to RPC 1.5. Neither the evidence
submitted to a Fee Committee, nor the decision or settlement made in connection with a fee arbitration
proceeding, is admissible evidence in a legal malpractice action in the Superior Court. (pp. 8-10)
3. Although Willoughby elected arbitration and continued to arbitrate even after the malpractice complaint
was filed should not have prejudiced his application for a stay because the provisions of Rule 1:20A, in
existence in 1993, did not preclude processing both claims simultaneously. Moreover, unless a client is
permitted to withdraw from arbitration or the arbitration award is stayed, the client can be compelled to pay
the lawyer's fee while contending in a legitimate malpractice case that the lawyer's malpractice bars
collection of the entire fee awarded. (pp. 10-12)
4. The Court adopts the following procedure for this type of case when, during the pendency of a fee
arbitration and after the thirty-day period for withdraw has elapsed, a client discovers a substantial
malpractice claim against the former lawyer, the Fee Committee is directed, pursuant to Rule 1:1-2, to relax
Rule 1:20A-3(b)(1) to permit the client to have a new thirty-day window of opportunity to withdraw the
request for arbitration. The window of opportunity begins the day the client discovers the substantial
malpractice claim within the meaning of Grunwald v. Bronkesh. Rule 1:20A-3(b)(1) will not be relaxed if
the basis for a substantial malpractice claim is known to the client before the thirty-day withdraw period
expires. If the substantial basis for a malpractice claim is discovered after a Fee Committee has awarded a
fee, the client may seek a stay of the award from the Superior Court either before or after the award has
been confirmed. The trial court shall first determine whether a substantial claim of malpractice exists, and if
so, grant a stay of the arbitration award on terms and conditions fixed by the court pursuant to Rule 2:9-5.
Here, the arbitration award should be stayed pending disposition of Willoughby's legal malpractice action.
(pp. 12-13)
5. Ordinarily, an attorney may not collect attorney's fees for services negligently performed. In addition, a
negligent attorney is responsible for the reasonable legal expenses and attorney's fees incurred by a former
client in prosecuting the legal malpractice action because these expenses are consequential damages that are
proximately related to the malpractice. (pp. 14-17)
6. The present case is exceptional, nonetheless, Willoughby is entitled to reasonable expenses and attorney's
fees, as consequential damages, incurred in a successful malpractice prosecution. In addition, if the
consequential damages that are proximately related to the malpractice claim and the balance of the
uncollectible judgment against Davis are awarded to and collected by Willoughby in the malpractice action,
Saffer would be entitled to collect his fee. (p. 17)
Judgment of the Appellate Division is REVERSED and the judgment entered pursuant to the Fee
Committee's award is stayed pending disposition of the malpractice claim.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI and
STEIN join in JUSTICE COLEMAN's opinion.
SUPREME COURT OF NEW JERSEY
A-
40 September Term 1995
MICHAEL A. SAFFER, as a
Former Member of Klein Chapman,
a Partnership,
Plaintiff-Respondent,
v.
WILLIAM W. WILLOUGHBY, JR.,
Defendant-Appellant.
Argued October 24, 1995 -- Decided February 5, 1996
On certification to the Superior Court,
Appellate Division.
Jeffrey A. Donner argued the cause for
appellant (Shain, Schaffer & Rafanello,
attorneys).
Leonard A. Peduto, Jr., argued the cause for
respondent (Chapman, Henkoff, Kessler, Peduto
& Saffer, attorneys; Mr. Peduto and Patricia
A. Cauldwell, on the brief).
The opinion of the Court was delivered by
COLEMAN, J.
This case involves a fee dispute between an attorney and a former client. The former client filed a request for fee arbitration with the District XI Fee Arbitration Committee (Fee Committee). Six months after filing the request, and before a decision was reached, the client discovered evidence that convinced him to file a legal malpractice action in the Law
Division against his former attorney. The client, represented by
new counsel, presented evidence of the alleged malpractice to the
Fee Committee. He argued that a negligent attorney was not
entitled to collect a fee.
The case requires us to determine the appropriate procedure
a Fee Committee should follow when the basis for a legal
malpractice claim is discovered after the time permitted for
withdrawing an arbitration request has expired. The Appellate
Division declined to grant any relief. We granted certification,
140 N.J. 326 (1995), and stayed the judgment.
We hold that under the unique circumstances of this case and
the controlling rules in effect during the arbitration, the Fee
Committee should have granted the client a thirty-day window of
opportunity after discovery of the alleged malpractice to
withdraw the request for arbitration. In the absence of that
opportunity for Willoughby to withdraw the request for
arbitration, the Appellate Division should have stayed the fee
award pending disposition of the legal malpractice complaint.
Defendant William W. Willoughby, Jr., is a former
professional basketball player who played for various teams in
the National Basketball Association from 1975 through 1984.
During that time, Willoughby retained the services of All-Pro
Reps, Inc. (All-Pro), and its principals, Jerry Davis and Lewis
Scheffel, as agent and business manager, respectively.
For most of his career, Willoughby arranged for All-Pro to
receive a portion of his earnings with the expectation that the
funds would be invested on his behalf. Davis and Scheffel,
however, diverted most of the money, without Willoughby's
authorization, into tax shelters. Approximately $1 million of
Willoughby's money was lost.
Davis brought an action against Willoughby, alleging that he
was owed $129,000 in fees. Willoughby retained Michael A.
Saffer, Esq. to represent him in the litigation. Saffer asserted
counterclaims against Davis, alleging breach of fiduciary duty
and misappropriation of funds. When Willoughby requested Saffer
to implead Scheffel as a third-party defendant with respect to
the counterclaims, Saffer refused. Saffer stated there was no
evidence to support Scheffel's involvement in the scheme to
mishandle Willoughby's money.
A jury awarded Willoughby $768,047.84 in compensatory
damages and $100,000 in punitive damages on the counterclaim.
The Appellate Division affirmed but reduced the award to
$750,957.78. Less than one month after the verdict against him
was rendered, Davis filed a petition under Chapter 11 of the
Bankruptcy Code. Consequently, Willoughby was able to collect
only $150,000 of the total judgment and has little hope of
collecting any more.
After Davis filed his petition in bankruptcy, Saffer
withdrew his representation of Willoughby due to Willoughby's
failure to pay Saffer's legal fee. Willoughby alleged that
Saffer breached their original fee agreement and billed at
excessive rates and for duplicative work. Willoughby retained
new counsel who filed a request for arbitration of Saffer's fee
with the Fee Committee for Passaic County.
During the course of the arbitration, Willoughby and his new
lawyer reviewed Saffer's file on the Davis-Willoughby litigation.
The file contained a copy of a promissory note signed by Scheffel
that allegedly tied Scheffel to the misappropriation of
Willoughby's earnings. Willoughby alleges that Saffer
intentionally or negligently withheld this evidence when he
advised Willoughby that there was no legal basis for impleading
Scheffel. Willoughby further alleges that had Scheffel been held
jointly liable for the judgment, Willoughby would have been able
to collect the full amount of his damages from Scheffel.
Willoughby's new lawyer presented evidence of the alleged
malpractice to the Fee Committee at its next scheduled hearing,
arguing that an attorney who commits malpractice is not entitled
to a fee. Additionally, the lawyer filed, on Willoughby's
behalf, a malpractice complaint in the Law Division on May 17,
1993, claiming as damages the difference between the full amount
of the judgment against Davis and the amount he had been unable
to collect.
The Fee Committee rendered its decision on August 11, 1993.
It found that Saffer met his burden of proving the reasonableness
of his fee based on the criteria set forth in the Rules of
Professional Conduct (RPC) 1.5. It is unclear, however, whether,
or to what extent, the Fee Committee considered Willoughby's
malpractice claim against Saffer when rendering its award.
Saffer and his firm were awarded a total fee of $120,000, of
which $103,510 remains unpaid.
When Saffer sought confirmation of the award and entry of a
judgment, Willoughby filed a motion for a stay pending
disposition of the legal malpractice complaint. The Law Division
on December 20, 1993, denied Willoughby's application for a stay,
confirmed the award, and entered final judgment for Saffer in the
sum of $103,510 with interest. The Appellate Division affirmed,
holding that the pending malpractice action did not satisfy any
of the statutory grounds to vacate an arbitration award under
N.J.S.A. 2A:24-8.
The procedure for arbitration of attorney's fees has been in
place in New Jersey since 1978. The policy underlying the fee
arbitration system is the promotion of public confidence in the
bar and the judicial system.
If it is true _ and we believe it is _ that public
confidence in the judicial system is as important as
the excellence of the system itself, and if it is also
true _ as we believe it is _ that a substantial factor
that erodes public confidence is fee disputes, then any
equitable method of resolving those in a way that is
clearly fair to the client should be adopted. . . .
The least we owe to the public is a swift, fair and
inexpensive method of resolving fee disputes.
[In re LiVolsi,
85 N.J. 576, 601-02 (1981).]
Rules 1:20A-1 to -6 govern the fee arbitration process.
Substantial revisions to those rules were adopted on January 31,
1995, and became effective on March 1, 1995. Although the old
rules were in effect for the Willoughby-Saffer arbitration, the
new rules are relevant to the question of what impact, if any,
this appeal will have on the fee arbitration process.
The State is divided into districts, each of which has its
own Fee Committee. A request for arbitration is handled by the
district in which the attorney practices. When a client requests
fee arbitration, participation by the attorney is mandatory. R.
1:20A-3. Before an attorney can file suit against a client to
recover a fee, the attorney must notify the client of the
availability of fee arbitration. R. 1:20A-6; Chalom v. Benesh,
234 N.J. Super. 248, 257-58 (App. Div. 1989).
The District Fee Arbitration Committees have limited
jurisdiction. "Each fee committee shall, pursuant to these
rules, have jurisdiction to arbitrate fee disputes between
clients and attorneys." R. 1:20A-2(a). The attorney has the
burden of proving the reasonableness of the attorney's fee by a
preponderance of the evidence. R. 1:20A-3(b)(1). The
determination of reasonableness is based on the factors set forth
in RPC 1.5. Ibid. Those factors include:
(1) the time and labor required, the novelty and
difficulty of the questions involved, and the
skill requisite to perform the legal service
properly;
(2) the likelihood, if apparent to the client, that
the acceptance of the particular employment will
preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for
similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by
the circumstances;
(6) the nature and length of the professional
relationship with the client;
(7) the experience, reputation, and ability of the
lawyer or lawyers performing the services;
(8) whether the fee is fixed or contingent.
[RPC 1.5.]
Rule 1:20A-1(e) provides, "[a] Fee Committee shall not
render advisory opinions." The determination of the committee is
binding and generally cannot be appealed on the merits. Rule
1:20A-3(c) states that a determination by the committee is not
appealable absent failure of a committee member to be
disqualified, failure of the committee to follow the rules, or
actual fraud by a committee member. The new rules, however, add
an additional ground for appeal: "a palpable mistake of law by
the fee committee which on its face was gross, unmistakable, or
in manifest disregard of the applicable law, which mistake has
led to an unjust result." R. 1:20A-3(c)(4).
The policy reasons for restricting the grounds for appealing
the determination of a Fee Committee are the same as those
underlying the creation of the procedure in the first place: to
provide a "swift, fair and inexpensive method of resolving fee
disputes" and "protect clients who can ill afford the time and
expense of defending a Committee judgment on appeal." In re
Livolsi, supra, 85 N.J. at 602.
Withdrawal from arbitration by the client is only permitted
within thirty days after the request for arbitration is docketed
by the secretary of the Fee Committee. R. 1:20A-3(b)(1). Prior
to the 1990 amendments to the rules, however, a client could
withdraw from arbitration at any time up to the commencement of
the hearing. The thirty-day provision was added to protect both
the members of a Fee Committee and the attorneys. The prior
situation was considered to be unfair to Fee Committee members
who volunteer their time. Last minute withdrawals waste their
time and money. Last minute withdrawals were also unfair to the
attorney. A client could delay paying a bill, file a request for
arbitration after the attorney served the client with notice of
intent to sue for the fee, and then withdraw from the arbitration
at the last minute. Commentary to Rule 1:20A-3;
125 N.J.L.J. 730
(1990). The purpose of the thirty-day rule is to minimize such
dilatory tactics.
The facts of this case require us to focus on whether the
rules permit a Fee Committee to arbitrate the merits of a
malpractice claim when evidence of malpractice is presented to a
Fee Committee.
A Fee Committee has jurisdiction only "to arbitrate fee
disputes between clients and attorneys." R. 1:20A-2(a). The
rules specifically provide that the "fee committee shall not have
jurisdiction to decide . . . claims for monetary damages
resulting from legal malpractice, although a fee committee may
consider the quality of services rendered in assessing the
reasonableness of the fee pursuant to RPC 1.5." R. 1:20A-2(c)(2)
(emphasis added).
A Fee Committee is expected to decline to hear any matter
"in which the primary issues in dispute raise substantial legal
questions in addition to the basic fee dispute. . . ." R. 1:20A-2(b)(3). The manual provided by the Office of Attorney Ethics to
Fee Committee members states that attorney malpractice presents
such a question. It provides:
Fee Committees generally should not pass on
constitutional or other substantial legal issues
because their decisions are, practically speaking,
unappealable. Moreover, Fee Committees are primarily
created to render fair and fast decisions. They are
not designed to hear two-week long cases where the
client's defense to a $40,000 fee is that the lawyer is
guilty of malpractice, a substantial legal issue.
[Office of Attorney Ethics of the Supreme Court of New
Jersey, District Fee Arbitration Committee Manual for
Committees Appointed by the Supreme Court of New Jersey
26 (1993).]
In addition, a pamphlet provided to clients inquiring about fee arbitration states, "when the primary issues in dispute raise substantial legal questions in addition to the basic fee dispute, such as a claim of legal malpractice, the fee committee may decline to hear the case." Office of Attorney Ethics of the Supreme Court of New Jersey, Information About the Supreme Court
of New Jersey's Attorney Fee Arbitration System (1993), reprinted
in District Fee Arbitration Manual, supra, at 56-57.
We interpret the rules to mean that a Fee Committee lacks
jurisdiction to decide legal malpractice claims. But the filing
of a malpractice claim does not, however, deprive the Fee
Committee of jurisdiction to decide the fee dispute. In the
course of deciding the reasonableness of a fee, a Fee Committee
may consider evidence of malpractice for the limited purpose of
affecting "the quality of services rendered in assessing the
reasonableness of the fee pursuant to RPC 1.5." R. 1:20A-2(c)(2).
The rules contemplate that malpractice claims are to be
filed in and adjudicated by the Superior Court. Even when
malpractice evidence is considered by a Fee Committee for the
limited purpose of affecting the quality of the services
rendered, neither the evidence submitted to a Fee Committee nor
the "decision or settlement made in connection with a fee
arbitration proceeding shall be admissible evidence in a legal
malpractice action" in the Superior Court. R. 1:20A-2(c)(2)(B).
Although the Fee Committee continued to have jurisdiction to decide the fee dispute after the malpractice claim was raised before the Fee Committee, as well as after the malpractice complaint was filed with the Superior Court, Willoughby asserts that he would not have requested arbitration in the first
instance had he known about the malpractice at that time. When
the alleged malpractice was discovered, the thirty-day deadline
for withdrawal of the request had already expired. See R. 1:20A-3(b)(1). The essence of his objection to proceeding with
arbitration after discovery of a basis to allege malpractice was
that unless the arbitration award was stayed, he would be
compelled to pay a fee for services that involved malpractice.
In denying his request for a stay, the Appellate Division
observed that Willoughby "elected the arbitration forum and
continued in that forum even after the malpractice complaint was
filed." Those facts should not have prejudiced the application
for a stay because the provisions of Rule 1:20A, in existence in
1993, did not preclude processing both claims simultaneously.
The 1995 version expressly permits simultaneous processing of a
malpractice claim in the Superior Court while proceeding with fee
arbitration. R. 1:20A-2(c)(2)(A).
Beyond that, Willoughby was not allowed to withdraw his
request for arbitration when he discovered the basis for a
malpractice claim because the thirty-day period in which he could
have withdrawn his request for arbitration had expired. Unless
the client is permitted to withdraw from arbitration or the
arbitration award stayed, the client can be compelled to pay the
lawyer's fee while contending in a legitimate malpractice case
that the lawyer's malpractice bars collection of the entire fee
awarded. That is precisely Willoughby's claim since he was
unable to withdraw from arbitration or obtain a stay of the fee
award. Willoughby does not wish to pay even a reasonable fee to
Saffer unless the malpractice claim has been concluded in a
manner that does not extinguish the fee award.
We establish the following procedure to resolve the dilemma
in which Willoughby finds himself. When during the pendency of a
fee arbitration and after the thirty-day period for withdrawal
has elapsed, a client discovers a substantial malpractice claim
against the former lawyer, we direct the Fee Committee, pursuant
to Rule 1:1-2, to relax Rule 1:20A-3(b)(1) to permit the client
to have a new thirty-day window of opportunity to withdraw the
request for arbitration. The window of opportunity commences the
day the client discovers the substantial malpractice claim within
the meaning of Grunwald v. Bronkesh,
131 N.J. 483, 494 (1993).
Rule 1:20A-3(b)(1) will not be relaxed, however, if the basis for
a substantial malpractice claim is known to the client before the
thirty-day withdrawal period expires.
If the substantial basis for a malpractice claim is
discovered after a Fee Committee has awarded a fee, a client may
seek a stay of the award from the Superior Court either before or
after the award has been confirmed. The trial court shall first
determine whether a substantial claim of malpractice exists, and
if so, then grant a stay of the arbitration award on terms and
conditions fixed by the court pursuant to Rule 2:9-5. Because
the fee awarded is often tightly intertwined with the legal
malpractice claim, posting of a bond or cash as a condition of
the stay should not ordinarily be required. In the present case,
the fee awarded was deposited with the Superior Court Clerk.
Also, if Willoughby prevails, his recovery may be substantially
greater than the fee awarded.
We direct that the arbitration award be stayed pending
disposition of the already filed malpractice complaint.
Ordinarily, filing of the malpractice complaint should be a
precondition to granting a stay of a fee award.
Next we examine the impact the fee awarded will have on any
malpractice verdict. Willoughby stipulated during oral argument
that if a jury exonerates Saffer, he agrees that the arbitration
award is fair and reasonable. He contends that if a jury finds
malpractice, however, Saffer should be precluded from recovering
any fee proximately related to his negligence. Another aspect of
that issue is whether the legal fees and expenses expended to
recover a favorable verdict against Saffer should be deemed
consequential damages. Stated another way, if Saffer committed
malpractice, should he be permitted to recover any of the
arbitration award?
The general rule in some jurisdictions permits a lawyer who
rendered negligent services to collect his or her reasonable fee
less damages sustained by the client.
A client may recover the actual damages sustained by
an attorney's malpractice, negligence, or wrongful act.
In the case of malpractice or negligence the liability
of the attorney is limited to the damages directly and
proximately caused by his [or her] conduct.
[7A C.J.S. § 273a.]
One commentator has observed:
There has been much debate as to whether the damages
are reduced by what the attorneys' fees would have been
in the underlying action. The earlier cases hold that
such fees are to be deducted since the plaintiff was
neither entitled to nor anticipating such recovery
without a deduction for the attorneys' fees. However,
the recent cases holding otherwise have clearly
indicated that the potential fee that the attorney
would have recovered is not deductible. Thus, the
client receives, at least in the eyes of some, a
windfall benefit which the courts may feel is deserved
by the client having to endure two lawsuits.
[David J. Meiselman, Attorney Malpractice: Law and
Procedure § 4:3 (1980).]
In the few reported fee cases, courts have held that a
client's recovery in a malpractice action should be reduced by
the fee to which the attorney would have been entitled had the
matter been handled competently. Those courts did not apply the
doctrine of quantum meruit, but instead reasoned that any
recovery gained "would have been subject to the contingent fee
basis" anyway. E.g., McGlone v. Lacey,
288 F. Supp. 662, 665
(S.D. 1968); Sitton v. Clements,
257 F. Supp. 63, 65 (E.D. Tenn.
1966), aff'd,
385 F.2d 869, 870 (6th Cir. 1967).
The majority of courts addressing the issue recently have
held otherwise. Those courts found that an attorney is not
entitled to deduct from the amount due the client a sum
representing the legal fee to which the attorney would have been
entitled had the matter been competently handled. Those courts
reasoned that the additional legal fees that a client typically
incurs in pursuing the malpractice action cancel out any fee that
the plaintiff would have owed the negligent attorney had that
attorney provided competent services. Kane, Kane & Kritzer, Inc.
v. Altagen,
165 Cal. Rptr. 534, 538 (Ct. App. 1980); Winter v.
Brown,
365 A.2d 381, 386 (D.C. Ct. App. 1976); Christy v.
Saliterman,
179 N.W.2d 288, 307 (Minn. 1970); Campagnola v.
Mullholland, Minion & Roe,
555 N.E.2d 611, 614-15 (N.Y. 1990);
Foster v. Duggin,
695 S.W.2d 526, 527 (Tenn. 1985).
Two of those courts that adopted the majority rule further
held that an injured client may recover the additional attorney's
fees incurred in the malpractice action as consequential damages.
Winter, supra, 365 A.
2d at 386; Foster, supra, 695 S.W.
2d at 527.
More recently, some courts have applied the doctrine of
quantum meruit to determine a negligent attorney's fee. Johns v.
Klecan,
556 N.E.2d 689, 694 (Ill. App. Ct. 1990); Forrester v.
Dawalt,
562 N.E.2d 1315, 1317-18 (Ind. Ct. App. 1990); Rocha v.
Ahmad,
676 S.W.2d 149, 156 (Tex. Ct. App. 1984). Additionally,
the Supreme Court of Tennessee applied the doctrine of quantum
meruit in determining whether the conduct of an attorney that
amounted to a violation of a disciplinary rule warranted a
forfeiture of the attorney's fee. Crawford v. Logan,
656 S.W.2d 360, 364-65 (Tenn. 1983).
Following Foster, supra, the First Circuit Court of Appeals
rejected the majority rule. Moores v. Greenberg,
834 F.2d 1105,
1109-13 (1st Cir. 1987). That court held that "where counsel's
efforts produced an offer which he then wrongfully failed to
relay to the client, the settlement sum should be reduced by the
amount of the lawyer's pre-agreed contingent fee (if readily
ascertainable) in calculating damages for legal malpractice."
Id. at 1113.
One commentator supports the application of the quantum
meruit doctrine to cases involving attorney malpractice, and
characterizes Foster, supra, and Moores, supra, as espousing "the
new rule." Samuel J. Cohen, The Deduction of Contingent
Attorneys' Fees Owed to the Negligent Attorney from Legal
Malpractice Damage Awards: The New Modern Rule, 24 Torts & Ins.
L.J. 751, passim (1989); see David A. Barry, Legal Malpractice in
Massachusetts: Recent Developments,
78 Mass. L. Rev. 74, 78
(1993) (advocating a deduction of a lawyer's legal fees and
expenses from a malpractice award).
This Court has previously identified the broad standard to
be applied. A client "may recover for losses which are
proximately caused by the attorney's negligence or malpractice."
Lieberman v. Employers Ins.,
84 N.J. 325, 341 (1980) (citations
omitted). The purpose of a legal malpractice claim is "to put a
plaintiff in as good a position as he [or she] would have been
had the [attorney] kept his [or her] contract." Ibid.
Applying the principles articulated in Lieberman, supra, and
following the majority rule in other jurisdictions, the Appellate
Division in Strauss v. Fost,
213 N.J. Super. 239, 242 (1986),
held that "a negligent attorney in the appropriate case is not
entitled to recover his [or her] legal fees." The court
refrained from establishing a hard and fast rule, but concluded
that the "general rule should be that the negligent attorney is
to be considered precluded from recovering his attorney's fee
and, therefore, the total amount of the initial recovery [in the
legal malpractice action] would be awardable [to the plaintiff]."
Id. at 243.
We adopt the reasoning and result reached in Strauss.
Ordinarily, an attorney may not collect attorney fees for
services negligently performed. In addition, a negligent
attorney is responsible for the reasonable legal expenses and
attorney fees incurred by a former client in prosecuting the
legal malpractice action. Those are consequential damages that
are proximately related to the malpractice. In the typical case,
unless the negligent attorney's fee is determined to be part of
the damages recoverable by a plaintiff, the plaintiff would incur
the legal fees and expenses associated with prosecuting the legal
malpractice suit.
Although the present case is exceptional, in that the
alleged malpractice does not affect the judgment obtained by the
attorney alleged to have committed malpractice, Willoughby is
nonetheless entitled to reasonable expenses and attorney fees, as
consequential damages, incurred in a successful malpractice
prosecution. Because this is an exceptional case, if the
consequential damages that are proximately related to the
malpractice claim and the balance of the uncollectible judgment
against Davis are awarded to and collected by Willoughby in the
malpractice action, Saffer would be entitled to collect his fee.
Willoughby concedes that the amount of Saffer's fee award is
reasonable and should be paid under those circumstances.
Saffer also argues that the malpractice claim is without
merit because the fee arbitration award conclusively means that
there was no malpractice. In support of this proposition he
cites Altamore v. Friedman,
602 N.Y.S.2d 894 (App. Div. 1993).
In New York, however, unlike New Jersey, a final determination of
an attorney's fee by an arbitration panel bars a client from
bringing a subsequent malpractice action based on the reasoning
that the fee award "necessarily included the finding of no
malpractice." Id. at 898-99. Such a conclusion is not warranted
in New Jersey because a Fee Committee is without jurisdiction to
decide a malpractice claim. R. 1:20A-2(c)(2).
The judgment of the Appellate Division is reversed. The
judgment entered pursuant to the Fee Committee's award is stayed
pending disposition of the malpractice claim.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN,
GARIBALDI, and STEIN join in JUSTICE COLEMAN'S opinion.
NO. A-40 SEPTEMBER TERM 1995
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
MICHAEL A. SAFFER, as a
Former Member of Klein Chapman,
a Partnership,
Plaintiff-Respondent,
v.
WILLIAM W. WILLOUGHBY, JR.,
Defendant-Appellant.
DECIDED February 5, 1996
Chief Justice Wilentz PRESIDING
OPINION BY Justice Coleman
CONCURRING OPINION BY
DISSENTING OPINION BY