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August 15, 2017

The Settle and Sue Doctrine Revisited

In June 2017, the Pennsylvania Supreme Court granted a petition for allowance of appeal to consider whether it should overturn its decision in Muhammad v. Strassberger, McKenna, Messer, Shilobod & Gutnick, 587 A.2d 1346 (Pa. 1991), which bars legal malpractice suits following the settlement of a lawsuit, absent an allegation of fraud.  See McGuire v. Russo, 2017 Pa. LEXIS 1301 (June 6, 2017).

When originally adopted, the Muhammad doctrine was in line with the strong public policy of the Commonwealth to encourage the amicable resolution of cases.  Muhammad put an end to a client's second-guessing of the settlement amount received following resolution of a case.

In Muhammad, the clients settled a medical malpractice claim following the death of their infant son during surgery.  After the case settled, the clients pursued a legal malpractice action.  The Supreme Court declined to permit such an action to proceed, refusing to endorse a claim that would discourage settlement and increase substantially the number of legal malpractice cases.  The Muhammad Court declared that litigation concerning litigation should be viewed with a "jaundiced eye."

Muhammad provided much needed protection for lawyers so as to prevent second-guessing and speculation by clients as to whether a negotiated settlement, to which they previously agreed, was sufficient.  An attorney was thus insulated from liability for exercising professional judgment.

Muhammad's protection has eroded in the decades since its adoption.  For example, if counsel is discharged and a settlement then occurs without counsel's participation, there may be no protection.  Further, an allegation that a lawyer failed to render accurate advice about well-established principles of law in the context of settling a case may survive a legal challenge to a malpractice case.  Similarly, failure to explain the impact of a legal document may avoid Muhammad's protection.  As a practical matter, in light of these erosions, one might reasonably question what protection remains, as it is easy for a client, with no expertise in the law, to claim that the consequences of a settlement were not explained.  Now, however, it appears the entirety of the Muhammad doctrine is under attack.

In McGuire, the client did not allege that she was fraudulently induced to settle or any of the above noted exceptions to the doctrine.  Instead, in the context of an underlying employment discrimination case, the client claimed that the lawyer failed to exhaust the client's administrative remedies which precluded her from proceeding on an age discrimination claim.  After several attempts to amend the complaint, the client's case was dismissed.  Thereafter, she settled for a nuisance sum.  The Superior Court applied the Muhammad case to bar a subsequent malpractice lawsuit, but not without noting its erosion and heavy criticism in other jurisdictions.

As lawyers, we must wait to see whether Muhammad will be upheld, and if so, to what extent might it be further eroded or clarified in respect to its application.  In the interim, practitioners would be wise to abide by the general teachings of Muhammad and its evolution to date.  Discuss all proposed settlements with clients at each step of the case.  Review the risks and benefits.  Review also the written settlement agreement and release with clients so that the clients cannot as easily claim ignorance.  And document these communications in some manner, whether through an email, letter, note to file or invoice entry.

By taking these steps, no matter the outcome of McGuire, a lawyer can reduce the risk of a malpractice claim by ensuring a client is more informed, a more active participant in the settlement decision and ultimately, less likely to second-guess the lawyer after the fact.