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Proximate Causation Requirement Defeats Bankruptcy Malpractice Claim

In any lawsuit, the plaintiff must prove proximate causation, that the actions of the defendant caused him injury. Here, in a bankruptcy malpractice case, the plaintiff was unable to prove proximate causation.

Plaintiff alleged that the bankruptcy lawyers breached the standard of care when the failed to extinguish a liability for $2.1 million from a lawsuit. The law firm obtained summary judgment because plaintiff had never paid one penny of that judgment. Thus, whatever law firm allegedly failed to do, plaintiff suffered no actual damages.

Sam v. Ledbetter Law Firm, PLC, Court of Appeals of Arizona, Division One, August 24, 2021. The explanation:

¶6 Warfield argues that the trial court erred by granting Ledbetter summary judgment. He contends that the Sams suffered $2.1 million in damages because Ledbetter forced the Sams into bankruptcy when the bankruptcies did not extinguish the debt that the Sams owed the Tabahas. “We review de novo a grant of summary judgment, viewing the facts and reasonable inferences in the light most favorable to the non-prevailing party.” BMO Harris Bank, N.A. v. Wildwood Creek Ranch, LLC, 236 Ariz. 363, 365 ¶ 7 (2015). A plaintiff asserting a legal malpractice claim must prove “the existence of a duty, breach of duty, that the defendant’s negligence was the actual and proximate cause of injury, and the `nature and extent’ of damages.” Glaze v. Larsen, 207 Ariz. 26, 29 ¶ 12 (2004). Even when a plaintiff discovers actual negligence, the plaintiff cannot pursue a legal malpractice action if he has sustained no damages. Amfac Distribution Corp. v. Miller, 138 Ariz. 152, 154 (1983).

¶7 The Sams’ legal malpractice claim did not accrue because no final judgment was entered against them. A legal malpractice claim in Arizona accrues only when the appellate process in the underlying litigation is completed by the issuance of a mandate, Joel Erik Thompson, Ltd. v. Holder, 192 Ariz. 348, 349 ¶ 2 (App. 1998),when the parties to the underlying litigation enter into a binding settlement agreement, Althaus v. Cornelio, 203 Ariz. 597, 600, ¶¶ 11-12 (App. 2002), or when the right to appeal is waived, see Amfac Distribution Corp., 138 Ariz. at 154. The Arizona Supreme Court reiterated in Taylor v. State Farm Mut. Auto Ins. Co., that a legal malpractice action “does not accrue until such time as the judgment in the underlying action becomes final.” 185 Ariz. 174, 178-79 (1996).

¶8 The underlying litigation here was not resolved by a final judgment, a settlement agreement, or by a mandate following appeal. Not only was no judgment entered against the Sams for $2.1 million, no trial ever occurred. So even though the Tabahas alleged that they had suffered $2.1 million dollars in damages as a result of the traffic accident, the Sams suffered no damages. As such, no cause of action for legal malpractice accrued and no legal malpractice claim became part of the Sams’ bankruptcy estate.

Comment: this is the correct result. If the lawyer’s alleged breach of the standard of care did not cost anyone any money, it was not legal malpractice.

Ed Clinton, Jr.

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