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Anti-Assignment Rule Defeats Malpractice Claim

One of the more obscure rules in the world of legal malpractice is that legal malpractice claims cannot be assigned. The lawyer-client relationship is one of “privity.” It is a direct relationship between the client and the lawyer. Sometimes in litigation, one party requests that the other party assign to it a legal malpractice claim against the other party’s lawyer. This is exactly what occurred in Thompson v. Harrie, No. 22-1058 (8th Circuit February 3, 2023). In this case, the claim against the lawyer was assigned by the defendant in the underlying lawsuit. Thompson had no attorney-client relationship with Harrie or the other defendants. Instead, the legal malpractice was assigned to her as part of a settlement. Courts frown on this behavior because it can leave the lawyer vulnerable to a claim from a party the lawyer never represented. In the underlying case Thompson sued Helgeson to recover for damages sustained in an automobile accident. Thompson won a judgment against Helgeson’s estate but decided not to collect. Instead, she obtained an assignment of any claim Helgeson could have made against his own attorney.

The court describes the procedural history of the case in this way:

In January 2018, Thompson sued the law firm and Nodak in South Dakota state court, alleging claims for the unauthorized practice of law, fraud and deceit, civil conspiracy, and barratry/abuse of process. The law firm removed the case to federal court, and the district court dismissed the entire suit for failure to state a claim. Following the dismissal, Thompson agreed with Helgeson’s estate that she would not execute the judgment if Helgeson’s estate assigned its potential claims against the law firm and Nodak to her. This agreement, which was reduced to writing, expressly included claims of malpractice, and directed that Thompson was entitled to all proceeds recovered from the assigned claims.

Following the assignment, Thompson again sued the law firm and Nodak in state court, alleging legal malpractice, breach of contract, bad faith, failure to pay benefits, and punitive damages. After removal to federal court, the law firm moved to dismiss the legal malpractice and punitive damages claims. The district court granted the motion, predicting the South Dakota Supreme Court would likely hold that legal malpractice claims are not assignable. The parties resolved the remaining claims and cross-claims involving Nodak, and the district court dismissed these claims. Thompson appeals.

The Eighth Circuit affirmed the dismissal on the ground that South Dakota would likely prohibit the assignment of a legal malpractice claim. In this case the dismissal makes good sense. The attorney client relationship was between Helgeson and Harrie. Thompson was the adversary. Helgeson could have sued the lawyer for malpractice but chose not to do so. The assignment of the claim inserts an outsider into the attorney-client relationship and puts the law firm (Harrie) in a difficult posture where its communications and strategies are revealed to a hostile third party.

These cases are rare, but lawyers tend to win them when the assignment is just an effort to throw the lawyer under the liability bus.

If you have a question about a legal malpractice claim or potential issue, do not hesitate to contact me. It is often best to contact me sooner rather than later.

Ed Clinton, Jr.

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