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Attorney’s Collection Lawsuit Does Not Bar Later Malpractice Claim

This issue comes up every now and then. An attorney files a collection lawsuit against a client and obtains a judgment against the client. (Here the client did not appear and a default judgment was entered). Later, the client reviews the attorney’s work and files a legal malpractice lawsuit. May the lawyer argue that the legal malpractice case is barred by the doctrine of res judicata? Here the answer is “No.”

The court includes a discussion of res judicata:

The purpose of this common law doctrine is to “relieve the parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by preventing inconsistent decisions, encourage reliance on adjudication.” Allen v McCurry, 449 US 90, 94; 101 S Ct 411; 66 L Ed 2d 308 (1980). “For the sake of repose, res judicata shields the fraud and cheat as well as the honest person. It therefore is to be invoked only after careful inquiry [as to whether foreclosing plaintiff’s case would protect] the interests served by res judicata.” Brown v Felsen, 442 US 127, 132; 99 S Ct 2205; 60 L Ed 2d 767 (1979). “The burden of establishing the applicability of res judicata is on the party asserting the doctrine.” Richards v Tibaldi, 272 Mich App 522, 531; 726 NW2d 770 (2006).

Historically, res judicata has generally been employed to bar a prior plaintiff (or its privy) from filing a second suit against the same defendant (or its privy). E.g. Senior Accountants, Analysts and Appraisers Ass’n v Detroit, 60 Mich App 606; 231 NW2d 479 (1975); 187 Mich App 191; 466 NW2d 357 (1991); Sherrell v Bugaski, 169 Mich App 10; 425 NW2d 707 (1988); Svitojus v Kurant, 293 Mich 291; 292 NW 637 (1940); Northwest Home Owners Ass’n v Detroit, 298 Mich 622; 299 NW 740 (1941). The purposes of res judicata, just reviewed, clearly apply in that setting. A party bringing a lawsuit has the obligation to raise all related claims at that time. To conclude the litigation and then file a new suit based on the same transaction greatly increases the cost to counsel and to the court, and risks the imposition of inconsistent decisions.

In the instant case, defendants do not assert that plaintiff previously filed suit against them. Rather, they assert that by failing to file her malpractice suit as a counterclaim to their district court collection action, she has lost the opportunity to do so. Defendants argue that we should apply the transactional test so broadly as to construe the entire course of an attorney-client relationship to be subsumed in the failure of plaintiff to pay a bill. We decline to do so, and note the long-standing precedent on this question.

Comment: the court reasoned that the issue of legal malpractice was not raised in the collection action and reasoned that it would be unfair to apply the transaction test that broadly. I agree with the result and the reasoning in this case. The client may not realize or understand that legal malpractice was committed until long after the relationship concludes. Sometimes a fee lawsuit filed by a lawyer can be the catalyst to cause the client to review the relationship and attempt to determine if malpractice was committed.

In sum, if you sue your client for legal fees, do not be surprised if the client brings a legal malpractice claim.

Source: Bass v. Peters, Mich: Court of Appeals 2017 – Google Scholar