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What Happens if you settle the underlying case?

One of the more vexing issues in the area of legal malpractice is what happens when the plaintiff settles the underlying case. In most states, the plaintiff would have to prove that but for the negligence of the defendant attorney, he would have obtained a better financial result in the underlying case. North Carolina, however, holds that the decision to settle the underlying case gives the negligent lawyer a complete defense to the legal malpractice action. This is an unpublished decision, but it is worth reviewing because it illustrates how the decision to settle the underlying case protects negligent attorneys.

The plaintiff alleged that the lawyers failed to properly serve a breach of contract lawsuit.  The negligence alleged, if true, is fairly shocking:

On 5 May 2006, the Horne defendants filed a complaint against the Hill defendants in Pitt County Superior Court alleging breach of contract. However, the Horne defendants never served the Hill defendants with a summons or a copy of the complaint, the action was discontinued, and plaintiff was never informed about the status of the action. When plaintiff emailed the Horne defendants on 23 October 2006 to inquire about its status, defendant Horne II responded:

As I told [one of plaintiff’s officers] last week, this is a Superior Court case. They can take 1 to 3 years to actually get it heard. There are only about six terms of that court each year and depending upon what gets tried, sometimes only one case gets heard. I have been second on the calendar and not gotten reached. Occasionally, you can be way down the calendar and get it heard. It just is no exact way to tell.Over the next six years, plaintiff periodically inquired about the status of the action. The Horne defendants repeatedly misrepresented that the action was being pursued.

In May 2012, the Horne defendants informed plaintiff that a new lawsuit would need to be filed against the Hill defendants. On 13 June 2012, the Horne defendants filed a second complaint, purportedly seeking “Money Owed.” However, as with the first action, the Hill defendants were never served with a summons or a copy of the complaint. When the second action was discontinued on 12 October 2012, plaintiff was not informed.

On 25 February 2014, plaintiff emailed the Horne defendants requesting another update on the action. In addition, plaintiff requested that the Horne defendants file a lien against another tenant for delinquent common area maintenance (“CAM”) fees. The following day, defendant Horne II replied, “Lien is filed in the amount of [$]5,062.50. That is dues from XX-XX-XXXX through XX-XX-XXXX plus interest at 18%. I have also asked for attorney fees. . . . Still woking [sic] on [mediation] dates with Bill Hill.” According to plaintiff, no lien was ever filed in Pitt County.

Unfortunately for the plaintiff, it ultimately settled the claim against the Hill Defendants. Under North Carolina law, that constituted an election of remedies, which completely absolved the lawyers from liability.

Needless to say, this is an atrocious result and the reasoning behind this doctrine is formalistic. Someone in North Carolina should complain about this rule because it protects lawyers and discourages settlement.

Source: EMERALD PLACE DEV. PROPS., LLC v. Horne, NC: Court of Appeals 2017 – Google Scholar