When Winning May Be Malpractice

The Minnesota Supreme Court reversed in part, vacated and remanded in a legal malpractice case where the plaintiff had prevailed in the underlying matter

This case comes to us on an interlocutory appeal of a partial final judgment under Minn. R. Civ. P. 54.02. The parties seek clarification regarding a legal question we have not previously decided: whether a plaintiff may bring a legal malpractice claim to recover attorney fees incurred due to the professional negligence of counsel in prior litigation, despite an ultimately successful outcome in the prior litigation. As a threshold matter, we must also decide whether the court of appeals had jurisdiction to resolve other legal malpractice claims that were not decided by the district court or certified as part of the partial final judgment. We conclude that some of the court of appeals’ legal rulings must be vacated for lack of appellate jurisdiction because the court of appeals purported to resolve issues arising from nonappealable orders under Minn. R. Civ. App. P. 103.03. As to the legal malpractice claim over which we do have jurisdiction, because we conclude that a plaintiff may satisfy the but-for causation element of a professional negligence claim even when the underlying litigation was ultimately successful, we reverse the court of appeals’ decision affirming summary judgment on the professional negligence claim of Reichel Foods, Inc. and remand for further proceedings.

Parties and claims

Appellant Craig Reichel is a Rochester businessperson who owns several companies relevant to this case. The largest of these is appellant Reichel Foods, Inc. He also owns three limited liability companies: appellant Coyote Creek Outdoors, LLC (“Coyote Creek”), appellant Herdbull Holdings, LLC, and appellant Bullets & Broadheads, LLC (collectively, “the LLCs”). Here, appellants advance legal malpractice claims arising from the legal representation provided in a litigation matter by the respondents: the law firm Wendland Utz, LTD, and one of its former lawyers, Jerrie Hayes (collectively, “Wendland Utz”) in a litigation matter. Although the representation yielded an ultimately favorable outcome, Reichel alleges that Wendland Utz failed to provide a competent defense, and as a result, the favorable outcome came only after incurring substantial attorney fees and costs to correct the law firm’s negligence.

Craig and the LLCs were sued by his brother

Craig had a longstanding relationship with the Rochester law firm Wendland Utz, LTD, which assigned one of its litigators, Jerrie Hayes, to defend Craig and the LLCs in connection with Bryan’s lawsuit (Craig had not previously worked with Hayes). But as the district court in the legal malpractice case aptly observed, while discovery proceeded in the case, “the litigation began to unravel.”

When things went south

By December 2013, another Wendland Utz attorney had taken over the case. The new attorney advised Craig to have the LLCs file for bankruptcy under the representation of the Twin Cities law firm Larkin Hoffman Daly & Lindgren Ltd. The new strategy was to litigate the proceedings in a fresh forum because Craig’s new attorney “felt that it was pretty unlikely” that Craig would succeed on any further discretionary rulings and that “bridges had been burned” with the district court judge. Craig took the advice, and the LLCs filed petitions in bankruptcy court, seeking reorganization under Chapter 11. Bryan’s district court lawsuit was stayed pending the approval of the bankruptcy plan.

The bankruptcy court eventually confirmed the bankruptcy plan and found that Craig was the sole owner of the LLCs. Because the bankruptcy court’s findings effectively nullified Bryan’s claim of ownership interest in Coyote Creek, Brya  stipulated to the dismissal of the district court claims against the LLCs, but the claims against Craig himself remained. Craig moved for summary judgment on the remaining claims against him, which the district court granted. The court of appeals upheld the district court’s decision.

Legal malpractice claim

Reichel’s theory of the case was that Wendland Utz was negligent in defending the underlying litigation, and this negligence resulted in Reichel incurring substantial attorney fees and costs to correct the negligence, despite the ultimate success of the case. According to Reichel’s expert affidavit, the additional litigation expenses totaled over $940,000.

Court of Appeals jurisdiction

We conclude that the court of appeals lacked jurisdiction to consider Reichel’s claims for breach of contract and breach of fiduciary duty, as well as the professional negligence claims of appellants other than Reichel Foods. Vacatur is proper when the court of appeals lacked jurisdiction. See Howard v. Svoboda, 890 N.W.2d 111, 116 (Minn. 2017). Accordingly, we vacate the rulings of the court of appeals on all of the legal malpractice claims, with the exception of the professional negligence claim brought by Reichel Foods.

On the issue addressed

we hold that in a professional negligence claim such as that presented here, when the plaintiff alleges some type of harm other than the negligent loss of a claim or defense in litigation, the case-within-a-case methodology is inapplicable, and the plaintiff must rather demonstrate that the alleged harm would not have occurred absent the defendant’s negligence. The manner in which “the fourth element in a legal malpractice action has, in the past, been formulated,” id., is just that—a formulation, which must be adapted to the contours of the particular circumstances necessary to prove but-for causation in any professional negligence claim. The case-within-a-case formulation of but-for causation, which still applies when a legal claim is lost or damaged, is inapplicable here, when the alleged harm occurred despite a legal victory.

...given the weight of our case law and the case law of other jurisdictions, we conclude that the case-within-a-case formulation of the but-for causation element is not a bright-line rule that applies in every instance of alleged negligence in litigation matters.

Floodgates

Lastly, we are unpersuaded by the policy argument, advanced by Wendland Utz and amici Minnesota Firm Counsel Group and Minnesota Defense Lawyers Association, that our holding today will open the floodgates to a wave of unmeritorious professional negligence claims against lawyers. We find unwarranted the assertions of amici that the straightforward application of the but-for causation element for professional negligence claims will hold attorneys ultimately liable merely because their clients’ cases “could have been litigated more cheaply.”

Rather, we observe that in most cases, the most significant bulwark against unmeritorious malpractice claims exists in the plaintiff’s burden to show negligence—a breach of the applicable duty of care. “An attorney who acts in good faith and in an honest belief that his advice and acts are well founded . . . is not answerable for a mere error of judgment.”

Result

Given that the case-within-a case approach is not a hard-and-fast requirement that mandates dismissal when the alleged injury is not loss or damage to a claim or defense, the district court erred by granting summary judgment based upon the inability of Reichel Foods to demonstrate that, but for the law firm’s conduct, Reichel would have been successful in the defense of the action. When, as here, the question is only whether, as a matter of law, a plaintiff can bring a professional negligence claim when the plaintiff was ultimately successful in the underlying litigation matter, we conclude that the ordinary rules of negligence favor the ability to sue (sustaining and actually proving that claim being another matter).

Wendland Utz argues that we should not allow “an open-ended, unlimited theory of recovery of legal fees,” and amicus curiae Minnesota Firm Counsel Group urges us to impose strict limitations on the recovery of corrective attorney fees. Because this case comes to us on an interlocutory appeal of a partial final judgment as to one element of one legal malpractice claim against one defendant, however, it would be premature for us to say more about how the litigation should proceed on remand. This appeal concerns an extremely narrow legal issue—whether the case-within-a-case element is an absolute requirement for a professional negligence claim arising out of a litigation matter. Wendland Utz did not move for summary judgment on the ground that there is no genuine issue of material fact as to its negligence. And the district court ruled that there is a genuine issue of material fact on the element of an attorney-client relationship.

(Mike Frisch)