Georgia Supreme Court holds legal malpractice claims may be assignable

In a unanimous opinion, the Georgia Supreme Court held Monday that legal malpractice claims may be assigned to other parties in some circumstances, the scope of which remains unclear.

Villanueva vs. First American Title Insurance arose out of a highly unusual real estate closing. A senior attorney hired an associate to work on closings but had a non-attorney employee with signature power on the attorney trust account. The younger attorney was designated as a partner, though that was apparently a bit of a fiction, and handled an $800,000 closing. The mortgage company wired funds to the law firm’s trust account. The non-attorney absconded with the money, the older lawyer died, and the younger lawyer was left holding the bag. The mortgage company assigned its malpractice claim to a title insurance company, which sued the younger lawyer, along with the estate of the deceased lawyer and the non-lawyer who disappeared with the money.

The younger lawyer, who may have been duped into the situation, was apparently the only reasonably viable defendant. However, I understand he is now on active military duty in Africa so the case against him may be stayed under the Servicemembers’ Civil Relief Act.

The question arose whether a legal malpractice action could be assigned under Georgia law. I participated in an amicus briefs on behalf of the State Bar, contending that textual analysis of a statute in question and public policy arguments adopted in a majority of states favored holding legal malpractice claims non-assignable.

Our Supreme Court disagreed, holding that “that legal malpractice claims are not per se unassignable.”

With no “bright line” ruling as to what is or is not assignable, this decision leaves much uncertainty. Clearly claims against real estate closing attorneys for mishandling of those transactions may be assigned to title insurance companies.  To what extent, if any, this ruling extends beyond the purely transactional practice context is uncertain.  It may take years for that to shake out.

There are a few “take home points” in this case:

- Every lawyer must take full responsibility for funds in the trust account, and should avoid allowing any non-lawyer signature power over the trust account. More lawyers may have to severely tighten supervision of non-attorney staff members who routinely handle bookkeeping and accounting duties.

- Legal malpractice insurance rates will rise significantly, especially for real estate closing attorneys who are already under severe economic pressure due to changes in the mortgage marketplace. Insurers seldom miss an opportunity to raise premiums and this will present such an opportunity.

- A junior lawyer is not relieved of responsibility just because the senior partner set up a system that is ethically deficient.  In some employment situations, that may create a Catch-22 situation for young lawyers just out of school who have crushing tuition loan indebtedness.

- If you are a young lawyer caught in such a web, you might consider a military career.

I am already hearing speculation about possible legislation in 2014 to bar or limit assignment of claims for professional malpractice, which may encompass legal, medical and other professions. Such legislation could address the public policy concerns which have been persuasive in a majority of states that have addressed the issue.

But that is a subject for another day.

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Ken Shigley is immediate past president of the State Bar of Georgia. His Atlanta-based law practice is focused on serious personal injury and wrongful death cases, mostly arising in the commercial transportation context, e.g., tractor trailers, tour buses, etc.