Duane Morris Settles, Letting Legal Malpractice Ruling Stand
In Bailey, the court dealt with malpractice claims related to an attorney's representation in an underlying criminal case. In Coleman, the underlying representation was a civil matter.
The Bailey court addressed, in part, what happens when a malpractice claim is brought under a breach of contract theory, as was done in Coleman. The court said traditional contract principles apply, but out of public policy concerns regarding criminal representation, only actual damages, not consequential damages, can apply.
The Bailey decision has often been cited by lawyers defending malpractice claims. They argue that if their bills weren't paid, there would be no damages available for a malpractice plaintiff to collect as consequential damages are not available.
The Superior Court panel in Coleman disagreed with that argument.
"We conclude that the limitation on damages imposed by the Bailey court applies to an action in assumpsit based on a claim of attorney malpractice in a criminal case, but that limitation does not extend to an action for legal malpractice in assumpsit where the underlying action was, as here, a civil action," Superior Court Senior Judge John L. Musmanno said for the panel in Coleman.
Philadelphia Court of Common Pleas Judge Allan L. Tereshko had said that because husband and wife Eric and Linda Coleman and business partner Timothy Carroll sued for legal malpractice under a breach of contract theory, Bailey applied, limiting any potential recovery to fees they paid the law firm.
But because the business sale Duane Morris assisted the Colemans and Carroll in crafting included the acquiring company assuming the legal bills, the plaintiffs never paid any fees to the firm and couldn't recover, Tereshko had said.
Eric Coleman and Carroll owned BCA Management Inc., and their respective spouses, Linda Coleman and Louise Carroll, owned BCA Professional Services Inc. The companies incurred a combined $2.16 million in unpaid employee withholding, wage and sales taxes to state and local authorities and the Internal Revenue Service, for which they were personally liable, according to court documents.
They began to consider a sale of the companies to alleviate the tax burdens. To that end, Eric Coleman and Timothy Carroll entered preliminary negotiations with Mirabilis Ventures Inc. On May 19, 2006, Coleman asked Duane Morris partner Kathleen Shay for legal advice related to a nonbinding letter of intent. The letter provided Mirabilis would purchase 100 percent of the companies' stock for a minimum of $2.5 million, according to the opinion.
The plaintiffs alleged in the malpractice suit that it was their understanding Shay would bill BCA for her services and that Mirabilis would pay the legal fees after acquiring BCA's stock, the court said.