Legal Mal Damages: It is only about the Benjamins

In the context of a legal malpractice claim, damages are an essential element the plaintiff-client must establish to prevail. To recover damages, the plaintiff must generally demonstrate that, but for the attorney’s negligence, they would have achieved a better result in their underlying matter/deal.

For better or worse, not all injury is recoverable - some is, some isn't, and some might be.

1. Recoverable Damages in a Legal Malpractice

• Direct Financial Losses: These are the monetary losses directly attributable to the attorney’s negligence. For example, if an attorney’s failure to file a claim within the statute of limitations results in a lost cause of action, the plaintiff may recover the value of the judgment or settlement they would have achieved.
• Out-of-Pocket Costs: The plaintiff often can recover expenses incurred as a result of the attorney's negligence. This might include additional filing fees, other legal fees for remedial work to fix the attorney’s error, or costs associated with seeking alternative counsel.
• Interest: Some jurisdictions allow for the recovery of interest that would have accrued on the judgment, settlement, or deal the plaintiff lost due to the attorney’s negligence.
• Consequential Damages: In certain cases, a plaintiff may recover damages that indirectly resulted from the attorney’s malpractice, such as lost business opportunities. However, these damages must be shown to be proximately caused by the attorney’s conduct and foreseeable.

2. Non-Recoverable Damages

• Emotional Distress Damages: Courts generally do not allow recovery for emotional distress caused by legal malpractice. Legal malpractice claims are typically grounded in economic harm rather than emotional harm, and most courts view emotional damages as too speculative.
• Loss of Liberty: In most jurisdictions a loss of liberty - going to jail - cannot be used to establish damages in a legal malpractice action.
• Punitive Damages: In most cases, punitive damages are not recoverable in legal malpractice claims. Legal malpractice is generally viewed as a tort (or maybe contract) rather than intentional misconduct, and punitive damages typically require a showing of intentional or malicious conduct. However, if the attorney’s conduct rises to a level of fraud or other intentional wrongdoing, some courts might consider awarding punitive damages.
• Refunded Legal Fees: Typically, prior fees paid to the attorney-defendant, even for negligent work, are not recoverable in legal malpractice but instead must be sought in contract or equity. Many jurisdictions use fee dispute arbitration programs which can complicate matters.

3. Questionable Damages

• Lost Chance or “Loss of Bargain”: Courts differ on awarding damages for the “loss of a chance” in litigation, where it’s challenging to quantify what the plaintiff might have won. Some jurisdictions allow for these damages if the plaintiff can show the likelihood of a favorable outcome but for the attorney’s negligence. However, proving this causation element can be complex.
• Attorney Fees: If the malpractice claim includes costs of hiring new counsel to correct or mitigate the attorney’s errors, courts may allow recovery for those additional fees. However, whether these fees are recoverable depends on jurisdictional rules and can vary widely.
• Reputational Damages: In some unique cases, if an attorney’s malpractice damages a plaintiff's reputation, courts may consider awarding damages if the loss is measurable and directly attributable to the attorney’s actions. These claims are difficult to prove and may not be recoverable in all jurisdictions.
• Tax Liability: Often, taxes, even increased taxes, are not recoverable damages although the nature of the legal services (such as tax advice) could push those boundaries.

When establishing law firm risk management systems, obtaining insurance, and considering your rates and retainer fees, understanding the potential damages are absolutely key.

The attorney-client relationship is essentially a risk transfer from the client to the lawyer in exchange for money. Recognizing this reality will allow your law firm to create defensive systems to protect your lawyers and, by extension, your clients.

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