Assignment of Legal Malpractice Claims

/ 16.Dec, 2013
We previously noted the limited case law in Pennsylvania regarding the assignment of legal malpractice actions runs contrary to the national consensus on this subject.  Common law is well established that assignment of legal malpractice claims is disfavored.  A recent California case discusses the narrow exception that may have started Pennsylvania down a path separate from most other states.  The Court of Appeal of California, recently issued an opinion in White Mountains Reinsurance Company of America v. Borton Petrini, LLP, which recognized a “narrow exception” to the general rule banning the assignment of legal malpractice cases.  The court permitted the assignment of a legal malpractice case where:
(1) the assignment of the legal malpractice claim is only a small, incidental part of a larger commercial transfer between insurance companies; (2) the larger transfer is of assets, rights, obligations, and liabilities and does not treat the legal malpractice claim as a distinct commodity; (3) the transfer is not to a former adversary; (4) the legal malpractice claim arose under circumstances where the original client insurance company retained the attorney to represent and defend an insured; and (5) the communications between the attorney and the original client insurance company were conducted via a third party claims administrator.
Although not on point with the entire test set forth by the White Mountains court, the claim in Hedlund Mfg. v. Weiser, Stapler & Spivak, 517 Pa. 522, 539 A.2d 357 (1988), which is the seminal case in Pennsylvania allowing assignment of a legal malpractice claim, involved a commercial transaction in which the legal malpractice claim was just one small part of a larger transaction.  In Hedlund, an inventor sold his invention and the rights that went with it, including the legal malpractice claim, to another business.  In discussing Hedlund, the Supreme Judicial Court of Massachusetts noted: “The courts permitting assignment have typically been presented with legal malpractice claims voluntarily assigned by a corporation to a successor corporation, and have declined to make a blanket rule, choosing to approve assignments on a case-by-case basis.”  New Hampshire Insurance Company, Inc. v. McCann, 429 Mass. 202 (1999). The Court in Ammon v. McCloskey, 440 Pa.Super. 251, 655 A.2d 549 (1995) followed Hedlund and allowed an assignment by the lawyer’s former client to the client’s adversary following a default judgment allegedly due to attorney error.  However, since Ammon, a district court, deciding Pennsylvania law, held the Supreme Court of Pennsylvania would restrict permissible assignments to the circumstances presented in Hedlund, and would not allow assignments between adversaries as was the situation in AmmonAlcman Services Corp. v. Samuel H. Bullock, P.C.,  925 F.Supp. 252, 260 (D.N.J. 1996) (applying Pennsylvania law).  The court in Alcman noted Hedlund involved assignment of a claim to a successor in interest, where the assignee had bought the assignor’s business.  Ammon involved an assignment by a defendant driver to a plaintiff passenger.  The Ammon court accepted the assignment based upon Hedlund without any in-depth analysis.  The court in Alcman specifically rejected the extension of the Hedlund case to the facts in AmmonAlcman, 925 F. Supp. at 260.  At some point, the courts in Pennsylvania have to reconcile the well established common law and their decisions, despite the Ammon decision, there is still an argument to be made that legal malpractice claims in Pennsylvania are only assignable as part of a larger commercial transaction between the owner of the rights and the assignee.

Josh J.T. Byrne, Esquire