Articles Posted in Assignment of Legal Malpractice Claims

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.

One of the longest-running controversies in the legal malpractice cases is whether the owner of a legal malpractice claim may assign it to another party. Once it was black letter law that a legal malpractice claim could not be assigned. In recent years courts have relaxed the rule on the ground that all sorts of other legal claims can be assigned so a legal malpractice claim should be no different.

However, in this case, Nevada held that the assignment was improper and barred the legal malpractice claim.

In this case, an entity, Tower Homes, LLC filed a bankruptcy petition. Among the creditors were prospective condominium purchasers who had paid earnest money to Tower. The bankruptcy court, acting on the recommendation of the Trustee, allowed the creditors to bring the legal malpractice claim against the former attorneys for Tower Homes. The bankruptcy trustee was motivated by the lack of available funds for the trustee to hire a lawyer and prosecute the claim

YCB INTERNATIONAL, INC. v. UCF TRADING CO., LTD., Dist. Court, ND Illinois 2014 – Google Scholar.

This is an opinion by Judge Holderman who held that a judgment creditor cannot force a judgment debtor to assign a potential legal malpractice claim to the creditor. Here, upon obtaining the judgment YCB asked UCF to assign to YCB any legal malpractice claims against UCF’s former counsel, Schopf & Weiss. This is a potentially ugly result for the lawyers, who defended their client before they withdrew, only to risk being thrown to the wolves to fund a settlement. Judge Holderman rejected the proposed assignment.

While Illinois law allows the assignment of a claim held by the debtor, it does not allow the assignment of a potential or unasserted claim. The court explained that under Illinois law permits assignments of claims.