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Louisiana Court of Appeal Rejects Collectability Defense In Legal Malpractice Case

One defense to a legal malpractice case is that the plaintiff could never have collected any money from the defendant in the underlying case. This defense is rarely asserted, but it can be very effective. In a malpractice case, you must prove what the outcome of the underlying case would have been absent negligence. This type of proof is imperfect because some speculation is involved.

For example, client sues an entity that is insolvent. Client’s lawyer makes an error that causes the client to lose the case (such as missing the statute of limitations). Client sues his former lawyer. Under the insolvency defense, client loses the case because he could not have collected anyway and thus the lawyer did not “cause” the loss of his recovery.

In Ewing v. Westport Insurance Company, CA – 19-551, the court rejected the insolvency defense. The opinion explains that the defense of insolvency was not proven:

Prior to trial, the parties stipulated that there was an attorney-client relationship and that Mr. Granger breached the standard of care. Following trial, the trial court found that Ms. Ewing established that she suffered at least $30,000 in damages. The Defendants allege that Ms. Ewing is not entitled to any damages over the $30,000 policy limits even if a judgment was rendered for damages in excess of $30,000 because Mr. Melancon would not have been able to personally pay anything.

In Rodriguez v. Traylor, 468 So.2d 1186 (La.1985), the supreme court overruled long-standing jurisprudence that the inability of a defendant to pay should be considered by the fact finder in determining the amount of compensation that should be awarded to a plaintiff. In overruling the jurisprudence, the supreme court ruled that “the wealth or poverty of a party to a lawsuit is not a proper consideration in the determination of compensatory damages.” Id. at 1188.

The supreme court has also held that “[a] plaintiff can have no greater rights against attorneys for the negligent handling of a claim than are available in the underlying claim.” Costello v. Hardy, 03-1146, pp. 9-10 (La. 1/21/04), 864 So.2d 129, 138.

The Defendants introduced the deposition of Mr. Melancon in support of their motion for summary judgment. Mr. Melancon testified that he is employed at his father’s business, Marc’s Heat & Air, as an air technician. He explained that he gets paid for each job he performs. He earned $17,000 in 2018. He owns a 2007 Ford F150 with 110,000 miles on it which cost $16,000. Mr. Melancon’s father paid the down payment of $10,000, and Mr. Melancon financed the remaining $6,000.

He got married in 2016 and has no other sources of income. His wife owns the house they live in, which she bought a couple of months before they were married. He has a registered boat trailer but does not own a boat. His dad is supposed to give him a boat. He does not file tax returns. Mr. Melancon stated that he would not have been able to pay any judgment above $30,000 and would have considered filing bankruptcy.

In the instant case, there is no question that Ms. Ewing would have recovered on the underlying claim but for Mr. Granger’s negligence. After reviewing Mr. Melancon’s deposition, the trial court determined that Ms. Ewing’s damages are greater than $30,000. However, the trial court agreed with the Defendants that Ms. Ewing would not be able to collect anything over $30,000 from Mr. Melancon and found that she was only entitled to $30,000.

Both parties cite this court’s decision in Fortenberry v. Continental Casualty Co., 15-418 (La.App. 3 Cir. 11/4/15), 179 So.3d 729, which involved a legal malpractice claim in which this court reversed summary judgment granted in favor of the plaintiff because there were questions of material fact as to whether the plaintiff was injured in the underlying accident. Referring to an earlier writ ruling in that case, this court noted that the plaintiff in a malpractice action had the burden of establishing all three prongs of Costello, 864 So.2d 129. However, the writ ruling further stated that it was the defendant attorney who had the burden of establishing that the client could not have recovered on the underlying claim regardless of the attorney’s negligence.

We agree. However, pursuant to our de novo review of the case, we find that the Defendants cannot rely on a hypothetical situation of bankruptcy to limit Ms. Ewing’s recovery. It is just as possible that Mr. Melancon may not file bankruptcy and the judgment may become collectible in the future should Mr. Melancon receive some money from other sources. It is admitted that Ms. Ewing would have been successful in her claim against Mr. Melancon. Ms. Ewing had a right to a judgment for the recovery of the full amount of her damages against Mr. Melancon, without the consideration of his ability to pay the judgment. An inability to pay Ms. Ewing does not relieve Mr. Melancon of the obligation to pay her. Because of Mr. Granger’s negligence, we will never know what Ms. Ewing would have collected from Mr. Melancon. Mr. Granger can have no greater rights in his defense of legal malpractice than Mr. Melancon would have had in the underlying suit. Ms. Ewing is entitled to the same rights against the Defendants as she had against Mr. Melancon, due to the negligence of Mr. Granger in depriving of her the ability to sue Mr. Melancon. Collectability could not be raised in the underlying lawsuit and should not be considered in Ms. Ewing’s malpractice claim against the Defendants either.

The Defendants also argue that even if the collectability rule was not applied, Ms. Ewing’s recovery should not exceed $30,000. At the end of the trial, the trial court specifically stated:

On the record, for purposes of the judgment that I’m rendering, I also want it clear that my finding is not that Ms. Ewing’s damages would not possibly exceed thirty, I’m finding that I find that they’re at least thirty and that finding what they might actually be, I find that to be a moot issue and won’t rule on that because of my ruling on the summary judgment; and only in the event should the Courts above me should overturn that decision, would I then revisit that issue upon remand.The issue of the amount of damages was not addressed by the trial court. An appellate court cannot consider issues raised for the first time on appeal which have not been addressed by the trial court. Johnson v. State, 02-2382 (La. 5/20/03), 851 So.2d 918; Adams v. Lori Heaphy & Assoc., 14-580 (La.App. 3 Cir. 12/17/14), 155 So.3d 170. Accordingly, we will remand this case to the trial court for a consideration of the amount of damages suffered by Ms. Ewing as a result of the accident.

For the reasons set forth in this opinion, the judgment of the trial court granting summary judgment in favor of Chuck Granger and Westport Insurance Corporation is reversed. The case is remanded to the trial court for consideration of the amount of damages. Costs of this appeal are assessed to Chuck Granger and Westport Insurance Corporation.

Comment: some may disagree with this opinion, but I find it well-reasoned and thoughtful. The court of appeal is really saying that insolvency was not proven because the we don’t know if the underlying defendant was insolvent.

Edward X. Clinton, Jr.