The Unwitting Attorney, the Desperate Client, and the Perpetuation of the New York Power Play: A Proposal to Ban Voluntary Assignments of Legal Malpractice Claims Via New York General Obligations Law Section 13-101

• Author: Rosalie S. Walters
• Pages: 543-590

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J.D. Candidate, Benjamin N. Cardozo School of Law (June 2005). Notes Editor, Cardozo Public Law, Policy & Ethics Journal 2004-2005. Emory University, 2002: B.A. in French Studies and International Studies. The author would like to thank Professor Daniel Crane for his insightful suggestions pertaining to a draft of this note which he kindly reviewed. The author would also like to thank the many Journal editors and staffers -past and present- who helped bring this work to publication.

To allow assignment of legal malpractice claims . . . would cause immeasurable damage to attorney-client relationships, to the tort system, to the court system, and to the public's sense of justice; it would give too much substance to the cynical belief of some that "lawyers will take any position, depending upon where the money lies, and that litigation is a mere game and not a search for the truth."

- Honorable E.G. Noyes, Jr.¹

Introduction

This note discusses a disturbing national trend in which clients choose to assign their legal malpractice claims against their attorneys to third parties and maintains that due to the respective financial incentives of the client, as an assignor who capitalizes upon selling the claim, a potentially valuable commodity, and the assignee, who gains the chance to have access to what is believed to be "deep pockets," these claims may not only be exaggerated, but completely fabricated. In light of this national development and New York courts' historical practice of permitting such assignments, despite numerous policy concerns embraced by the majority of courts, the New York legislature must now amend NewPage 544 York General Obligations Law section 13-101,² by incorporating a ban on voluntary assignments of legal malpractice claims. If this preemptive measure to prevent collusion is not taken, attorneys, fearing baseless malpractice suits from their desperate clients, will not only become more discriminating in their clientele but overly cautious in their representation. Ultimately, permitting voluntary assignments of legal malpractice claims will serve to perpetuate the mockery of our legal system, not only by further restricting the availability of legal services to those who cannot afford it but also by diminishing the quality of those legal services available to those who can, as the attorney-client relationship becomes both an outdated concept and a potentially harmful liability.³ New York is one of a handful of states that allow voluntary assignments of legal malpractice claims to occur.⁴ New York's permissive stance regarding such assignments exposes the New York attorney to significant liability by allowing her interests to be placed in conflict with those of her client.⁵ A seemingly symbiotic relationship between an attorney and client may become parasitic,⁶ with the attorney discovering that she has become a commodity or "bargaining chip" in a settlement negotiation to which she was not privy.⁷ The suggestion by those courts that prohibit the assignment of legal malpractice claims -that such an assignment may be the by-product of collusion between the client and another individual- is increasingly plausible.⁸

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Thus far, New York courts have refused to adequately address numerous public policy concerns articulated by other courts which reveal that there are significant flaws in the practice of permitting voluntary assignments of legal malpractice claims.⁹ In order to permit these assignments, many New York courts have not only ignored public policy concerns but have bypassed an additional statutory restriction under New York General Obligations Law section 13-101, by characterizing those legal malpractice claims that become subject to assignment as pecuniary in nature and not on par with personal injury claims.¹⁰ In doing so, these courts implicitly suggest that the attorney-client relationships from which these claims arise are merely pecuniary and not "personal" and "highly confidential."¹¹ Allowing claims that stem from attorney-client relationships to be transferred to a stranger by someone who was, or continues to be, a participant in that relationship, will only promote collusive legal malpractice suits and contribute to the destruction of the "sanctity of the highly confidential and fiduciary relationship existing between attorney and client."¹² Such a phenomenon would serve only to validate the mistaken premise upon which New York courts have erroneously relied.¹³ New York's refusal to prohibit voluntary assignments of legal malpractice claims will ultimately result in the degradation of the legal system by incentivizing the development of attorney-client relationships that are, in fact, characterized by money alone.¹⁴

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This note discusses the developing national trend of assigning legal malpractice claims and argues that in order to maintain the availability and quality of available legal services, it is imperative that the New York Legislature preemptively modify New York General Obligations Law section 13-101¹⁵ to ban voluntary assignments of legal malpractice claims.¹⁶ If this statute is not amended, collusive legal malpractice suits initiated by clients and their creditors and/or adversaries, solely to take advantage of the so called "deep pockets" of New York attorneys will contribute to the degradation of the attorney-client relationship. This inevitable phenomenon would cause irreparable damage to what is already perceived by many as a compromised legal system. The resulting lack of fiduciary relationships amongst attorneys and their clients would undoubtedly impact the quality of legal services available, and potentially subject attorneys to valid legal malpractice claims.¹⁷

Part I introduces the prevalent test that the nation's courts utilize to determine whether a claim for legal malpractice is assignable. Part II explores the majority position, enumerating the traditional public policyPage 547 concerns thus far rejected by New York. Part III provides an analysis of New York jurisprudence in this area of the law. Part IV examines the minority position regarding the assignment of legal malpractice claims and suggests that New York's position, contrary to belief, is not entirely consistent with that of the minority states. Part V provides an analysis of recent national cases that show that collusion is now a legitimate policy concern. In light of these cases, Part VI argues that the New York legislature should amend New York General Obligations Law section 13-101 in order to insulate the New York attorney from collusive legal malpractice suits and, thereby sustain the availability and quality of legal services offered in New York.¹⁸

I Overview of the Common Law Test for the Assignment of Legal Malpractice Claims

States differ in their respective classifications of legal malpractice claims; these claims are classified as being either tortious, contractual, or a hybrid of both.¹⁹ Theoretically, a court's initial determination as to the validity of a voluntary assignment of a legal malpractice claim is derivative of the classification which it assigns to the claim.²⁰ Contract claims, except those of "a purely personal nature" are assignable; however, most states, including New York, do not allow the assignment of personal injury claims.²¹ Thus, for many courts the primary issue is whether a legal malpractice claim should be afforded the same weight asPage 548 a personal injury claim.²² Discussing the second prong of what may be deemed a three-prong test, the Supreme Court of Tennessee stated, "In the absence of a statute, courts determining whether a chose in action is assignable generally apply the traditional common law test -whether the action would survive the death of the assignor and pass to the personal representative."²³ The court notes, however, that this prong is "outdated and misplaced" and that "[p]ublic policy is, in fact, the primary consideration upon which courts from other jurisdictions have focused in determining the assignability of a legal malpractice action."²⁴ Courts that find the public policy arguments compelling, often disregard the nature and survivability of the legal malpractice claims. Therefore, these courts bypass the first two prongs of the common law test.²⁵

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II The Development of the Majority Position: Public Policy Prohibits the Voluntary Assignment of Legal Malpractice Claims

A Goodley v. Wank and Wank, Inc.: General Policy Concerns Associated with the Voluntary Assignment of Legal...