Defense Digest

Florida - Professional Liability
Florida Appeals Court Finds Assignment Of Legal Malpractice Claim Permissible In Commercial Setting

The majority view in this country (including Florida) is that legal malpractice actions are not assignable. See Cowan Liebowitz & Latman, P.C. v. Kaplan, 902 So. 2d 755 (Fla. 2005)(noting that 18 states adhere to the majority view and seven the minority view). However, there has been a recent trend in Florida which appears to be carving out exceptions to this general bar to assignment based on various "distinguishing" factors as long as they do not conflict with the public policy reasons (discussed in detail infra) for the general rule. For instance, in Kaplan the Florida Supreme Court held that, "because lawyers preparing private placement memoranda, like independent auditors, owe a duty to those who rely on statements contained in their published documents, parties may assign claims for legal malpractice committed to preparing them." While taking this position, the Court also stated that "[n]evertheless, the vast majority of legal malpractice claims remain unassignable because in most cases the lawyer's duty is to the client."

With this backdrop, in Security National Servicing Corp. v. Law Offices of David J. Stern, P.A., 916 So.2d 934 (Fla. 4th DCA 2005), the Fourth District Court of Appeal recently addressed the issue of the assignability of a legal malpractice claim in a commercial setting. The 4th DCA hears appeals from cases emanating from Broward, Palm Beach, St. Lucie, Martin, Indian River, and Okeechobee Counties. Security National concerns a note and mortgage in the face amount of $108,000. Specifically, in 1997, the holder of the note and mortgage, UMLIC-SIX CORP., timely filed a mortgage foreclosure action. While that action was pending, UMLIC-SIX assigned the loan to EMC Mortgage. EMC hired the Law Offices of David J. Stern, P.A. (Stern) to foreclose the loan. Stern filed a second mortgage foreclosure action on the same note and mortgage in December 1998. By this time, the statute of limitations had already expired, and, therefore, the 1998 foreclosure action was untimely. In February 1999, Stern substituted as counsel in the 1997 foreclosure suit, then within five days inexplicably dismissed the 1997 action, leaving only the untimely foreclosure action intact. Stern essentially admits that he committed malpractice by dismissing the 1997 action.

Thereafter, in August 1999, EMC assigned the loan to Universal Portfolio Buyers, Inc. (Universal). Stern continued on as Universal's counsel in the untimely 1998 action. In October 1999, Universal assigned the loan to North American Mortgage Co. (North American), and Stern remained as North American's counsel in the untimely 1998 action. In July 2000, the owner of the encumbered property moved for summary judgment on statute of limitations grounds. In November 2000, the trial court entered summary judgment for the property owner, and North American appealed. In April 2001, while the appeal was pending, North American assigned the loan to Security National. The record before the 4th DCA did not reflect whether there was any consideration for the transfer or whether Security National had knowledge of the status of the foreclosure. Thereafter, Stern remained as counsel representing Security National but only for a month or two. In December 2001, the Second District Court of Appeal (which hears appeals from 14 counties in Florida, including Hillsborough County (Tampa)) affirmed the final judgment in favor of the property owner. Security National then brought its legal malpractice action against Stern in Broward County. The Complaint alleges that Stern was negligent in dismissing the timely 1997 action (at the time EMC owned the loan) and in failing to timely move to reinstate the 1997 action until after the motion for summary judgment was filed.

The trial court entered summary judgment on Stern's behalf because there was no attorney-client relationship between Stern and Security National "at the time the cause of action accrued." This appeal ensued. Security National argued that, because it owned the loan by the time the appeal was completed and the cause of action accrued, the law regarding assignment of legal malpractice claims is irrelevant, i.e., Security National was the owner of the loan at the critical point in time. In contrast, Stern argued that in Kates v. Robinson, 786 So.2d 61, 64 (Fla. 4th DCA 2001), the 4th DCA held that "[i]n stating a claim for legal malpractice, it is not sufficient merely to assert an attorney-client relationship. The plaintiff must also allege that a relationship existed between the parties with respect to the acts or omissions upon which the malpractice claim is based." The court agreed with Stern's argument, concluding that the time of the alleged negligent act or omission is the critical point of testing the scope and existence of the attorney-client relationship and, therefore, focused on the law of assignment of legal malpractice actions because "it appears that it is only by assignment of the immature claim that Security National's rights arose." Security National, 916 So.2d at 937.

The court cited extensively to the Florida Supreme Court's opinion in Kaplan (issued in March 2005), which explained that the main concern with permitting assignment is that a "market for legal malpractice claims" might be created. This concern was articulated in the seminal California case in this area as follows:

Godley v. Wank & Wank, Inc. , 62 Cal. App. 3d 389, 133 Cal.Rptr. 83, 87 (1976).

The above language from Godley (cited extensively by the Florida Supreme Court in Kaplan) provided the Court with ammunition to find that the instant case did not warrant application of the general rule against assignments. Specifically, the Court noted that, because bringing a malpractice action necessarily works a limited waiver of the attorney-client privilege to allow defending the claim, an assignment causes the client to lose control over that waiver. In Kaplan the Florida Supreme Court focused almost exclusively on the absence of that underlying policy concern. That is, in Kaplan there was no attorney-client privilege because the attorney's employment was for the purpose of creating private placement memoranda that involved public information not covered by the privilege. Thus, the Court concluded that, because the "privilege" policy rationale did not apply to Kaplan, in itself it was enough to allow the assigned claim to go forward. However, the Florida Supreme Court also noted that Kaplan did not involve "personal services." In any event, in Security National the 4th DCA reaffirmed that protecting the attorney-client privilege is not the main policy ground underlying the general anti-assignment rule. The main concern is the creation of a market for legal malpractice claims.

Based on the above, the Court held that the absence of the main policy concern underlying the general rule distinguishes this case from those involving "most" assignments. Thus, the Court concluded that this assignment was permissible under Kaplan and reversed the summary judgment in favor of Stern with instructions to reinstate Security National's legal malpractice claims against Stern.

In the wake of Kaplan, the Security National opinion appears to continue the trend toward finding exceptions to the general rule against assignment of legal malpractice claims. While both opinions seem logical on their face, there may be unintended consequences down the road in this area. As always, the fear is that the "exceptions" to the general rule will eventually erode the general rule to nothing as has been the case with Florida's Economic Loss Rule. Legal malpractice insurers and their underwriters should certainly keep an eye on this trend so that the risk of insuring attorneys in a chosen specialty can be properly evaluated, adjusted and priced accordingly. With the significant rise in legal malpractice actions in Florida over the past five years, this certainly bears watching for all involved in this arena.

*Andrew is an associate in our Fort Lauderdale, FL office. He can be reached at (954) 745-4934 or ajmarchese@mdwcg.com.