PHILADELPHIA – A federal appellate court has ruled that arbitration should govern a dispute resolution between a pair of plaintiffs and their former law firm, which they say committed legal malpractice when it failed to locate a man who had stolen more than $12 million.
According to a Jan. 11 ruling from the U.S. Court of Appeals for the Third Circuit, such arbitration proceedings will follow in the instant case. Third Circuit Judge L. Felipe Restrepo authored the Court’s ruling, on behalf of colleague judges Kent A. Jordan and Cheryl Ann Krause.
Plaintiffs Craig and Mary Jo Sanford hired law firm Bracewell, LLP to recover $12.5 million allegedly stolen from them by a man named Smith. When Bracewell failed to find Smith, the Sanfords hired new counsel. The new attorney successfully located Smith and won judgments against him, but at that point, the supposedly stolen money was gone.
“The Sanfords sued Bracewell for breach of contract and legal malpractice. Based on the parties’ engagement letter, the District Court ordered the parties to arbitrate. Eventually, an arbitration panel ruled for the Sanfords on the breach of contract claim but against them on the legal malpractice claim. The District Court confirmed the panel’s determination, and the Sanfords timely appealed,” Restrepo said.
“To begin, the District Court correctly ordered the parties to arbitrate their dispute. In their engagement letter, the parties agreed to arbitrate ‘any controversy, dispute or claim…arising out of or relating to the engagement,’ and the Sanfords concede here ‘that this dispute would fall within the scope of the arbitration clause.’ We see no reason to disregard the will of the parties.”
The Sanfords insisted that the arbitration clause was unconscionable and unenforceable, but Restrepo replied that it was not.
Restrepo explained that the procedure by which the parties formed their agreement to arbitrate appears more-or-less ordinary, in that both parties were relatively sophisticated, Bracewell did not employ any untoward tactics and the arbitration clause appeared prominently in an otherwise uncomplicated agreement.
“With the arbitration clause enforceable, the Sanfords next attempt to vacate the panel’s award. To do so, they argue that the panel manifestly disregarded the applicable law governing their legal malpractice claim. New York law governed the panel’s determinations,” Restrepo said.
“Under New York law, to recover damages for legal malpractice, the Sanfords had to prove duty, breach, cause, and harm. And to establish causation, they had to show that ‘but for’ Bracewell’s alleged breach, they would not have incurred the damages they claimed.”
Restrepo added that no argument advanced by the Sanfords’ warrants vacating the panel’s conclusion that Bracewell’s alleged breach did not cause them harm – since, while Bracewell allegedly failed to pursue settlement with Smith, the Sanfords introduced no evidence that Smith had the means to satisfy their demands and the panel’s conclusion that Bracewell’s pursuit of injunctive relief may have been futile was “reasonable.”
“A court could have declined to issue equitable relief because the Sanfords’ hands were unclean – they engaged Smith only to shield their assets from a separate legal judgment. Finally, the arbitration panel did not shoulder the Sanfords with the burden of proving anything beyond the elements of their legal malpractice claim,” Restrepo said.
“As claimants, the Sanfords bore the initial burden to prove duty, breach, cause, and harm. If they had, then Bracewell could have argued that a resulting judgment would be uncollectable, an argument for which they would bear the burden of proof. Because the Sanfords did not prove their case, Bracewell’s downstream obligation to show that proven damages could not have been collected never arose.”
U.S. Court of Appeals for the Third Circuit case 20-1090
U.S. District Court for the Eastern District of Pennsylvania case 2:13-cv-01205
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com