CARSON CITY, Nev. (Legal Newsline) - It is commonplace for personal-injury plaintiffs to sign over the proceeds of their lawsuits to third parties, but “public policy” prohibits the same practice in legal malpractice suits, the Nevada Supreme Court has ruled.
Tackling a complicated case in which the defendant in the underlying lawsuit tried to assign the proceeds of his malpractice claim to the party suing him, the Nevada court declared the transaction illegal.
Allowing such a thing could turn legal malpractice claims into a “commodity to be exploited,” the court said, “which would encourage unjustified lawsuits against attorneys, increase malpractice litigation, and ultimately debase the legal profession.”
The litigation ensued after Yacov Hefetz loaned $2.2 million to a real estate company with a guarantee secured by the home of Christopher Beavor. After the real estate company went bankrupt, Beavor refused to repay the loan, and Hefitz sued him for breaching the guaranty agreement.
The lawsuit eventually went against Beavor and he sued his former lawyer, Joshua Tomsheck, for malpractice. Then Beavor and Hefetz settled their own case for $300,000, with an agreement to assign the proceeds of the malpractice suit against Tomsheck to Hefetz. Hefetz agreed to pay the legal fees going forward.
A trial judge threw out the malpractice suit, ruling the settlement agreement invalid. The Nevada Supreme Court largely agreed, ruling in a Nov. 10 decision that it is impermissible to assign a malpractice claim or the proceeds of such a suit to an adversary in the underlying litigation. It reversed the dismissal of the malpractice suit itself, saying Beavor could still sue his lawyer as long as he didn’t assign the proceeds.
The Nevada Supreme Court has approved the assignment of personal-injury lawsuit proceeds to third parties, under the theory the plaintiff still controls the litigation. But when it comes to legal malpractice suits, the court said, it would be improper to allow the plaintiff to assign any winnings to his adversary.
Allowing such an assignment could encourage plaintiff and defendant to collude by agreeing to use proceeds from the malpractice lawsuit to fund a settlement of the underlying case, the Supreme Court said. Deep-pocketed adversaries also could “offer financially strapped parties a favorable settlement in exchange for their legal malpractice claims,” the court said.
More generally, the court ruled, assigning legal malpractice claims “embarrasses the attorney-client relationship and imperils the sanctity of the highly confidential and fiduciary relationship” between lawyer and client.